NEW ISSUE Rating: S&P: AAA (See "Miscellaneous - Rating") Book-Entry Only Insurance: FGIC
In the opinion of Kronick, }vfoskovitz, Tiedemann & Girard, A Professional Corporation, Sacramento, California ("Bond Counsel''), based upon an ana(vsis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2005A Bonds is excludable from gross income for federal income tax purposes and is exemptfron1 all taxation in the State ofCalifornia other than estate and generation skipping transfer taxes. In the opinion ofBond Counsel, interest on the Series 2005A Bonds is not an ite1n oftax preference for purposes ofthe alternative minimum tax imposed on individuals and corporations; however, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minin1u1n tax imposed on certain corporations. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt ofinterest on, the Series 2005A Bonds. I,VTEREST 011/ THE SERIES 2005B B01VDS IS NOT EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES but is exempt from all taxation in the State of California other than estate and generation skipping transfer taxes. Bond Counsel expresses no opinion regarding a~y other lax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Series 20058 Bonds, See "Legal Alatters Tax A4atters."
$48,550,000 UNIVERSITY ENTERPRISES, INC. (an Auxiliary Organization serving the California State University, Sacramento) AUXILIARY ORGANIZATION BONDS $20,205,000 Series 2005A Refunding $28,345,000 Series 2005B Refunding (federally taxable)
Dated: Delivery Date Due: October 1, as shown on the inside cover University Enterprises, Inc., formerly the California State University Sacramento Foundation (the "Foundation"), is an auxiliary organization serving the California State University, Sacramento (the "University"). The Foundation is issuing its Auxiliary Organization Bonds, Series 2005A Refunding and Series 20058 Refunding (federally taxable) (collectively the "Series 2005 Bonds''), for the purpose of refunding certain prior bonds as described herein. The Series 2005 Bonds will be issued pursuant to the Indenture dated July I, 2005 (the "Indenture"), between the Foundation and 'Ibe Bank of New York Trust Company, N.A. as trustee (the "Trustee"). The Series 2005 Bonds are general corporate obligations of the Foundation payable from and secured by Revenues (as defined in the Indenture) and certain funds held by the Trustee, as more fully described herein. The Series 2005 Bonds will be registered in the nmne of Cede & Co. as nominee of The Depository Trust Con1pany, New York, New York ("DTC"). DTC will act as securities depository for the Series 2005 Bonds. Ownership interests in the Series 2005 Bonds may be purchased in book-entry form only, in principal an1ounts of $5,000 or any integral multiple thereof. Purchasers \viii not receive physical certificates representing their ownership interest in the Series 2005 Bonds, but will receive a credit balance on the books of the nominees of such purchasers. See Appendix F - "Book-Entry System." The Series 2005 Bonds are dated their date of deliYery and mature in the amount'\ and in the years and bear interest at the rates set forth on the inside cover. Interest on the Series 2005 Bonds will be payable on October I, 2005, and semiannually thereafier on each April I and October I. A DETAILED MA TlJRITY SCIIEDllLE IS SET FORTH ON THE INSIDE ~'RONT COVER Payment of the principal of and interest on the Series 2005 Bonds when due will be insured by a n1unicipal bond nev,.. issue insurance policy to be issued by Financial Guaranty Insurance Company simultaneously with the delivery of the Series 2005 Bonds.
Financial Guaranty F6Ic lns.urance Company The Series 2005 Bonds do not create a lien, charge, or liability against the State of California or against the Trustees of The California State l:niversity or against the property or funds of either. No registered owner of any Bond shall ever have the right to compel any exercise of the taxing power of the State of California to pay any Bond. Payment of the principal of and redemption premium (if any) or interest on the Series 2005 Bonds does not constitute a debt, liability, or obligation of the State of c:alifornia or the Trustees of The California State l:niversity or the individual California State l}niversity campuses. This cover page contains certain information for general reference only. Jt is not intended as a summary of the issue. An investment in the Series 2005 Bonds involves certain risks. See l This Official Statement is dated July 27, 2005. MATURITY SCHEDULES, INTEREST RA TES, PRICES, YIELDS, AND CUSIPS SERIES 2005 A $9,060,000 Serial Bonds Due Principal Interest Cl:SIP October 1 Amount Rate Price Yield 914258 2006 $370,000 3.500 o/o 100.909% 2.670% All 4 2007 390,000 3.500 101.389 2.820 AC2 2008 425,000 3.500 101.596 2.960 ADO 2009 450,000 3.750 102.416 3.120 AE 8 2010 475,000 4.000 103.462 3.260 AF 5 2011 510,000 4.000 103.120 3.430 AG3 2012 540,000 4.000 102.679 3.570 AH 1 2013 575,000 4.000 102.155 3.690 AJ7 2014 600,000 4.000 101.603 3.790 AK4 2015 615,000 4.000 100.826 3.900 AL2 2016 640,000 4.000 100.000 4.000 AMO 2017 665,000 4.000 99.048 4.100 AN 8 2018 690,000 4.000 98.291 4.170 AP 3 2019 720,000 4.125 98.888 4.230 AQ I 2020 760,000 4.125 98.283 4.280 AR9 2021 635,000 4.125 97.634 4.330 AS 7 $2,000,000, 5.000% Tenn Ilonds Due October I, 2025, priced at 105.859%to yield 4.280%, CUSIP 914258 AU 2 $850,000, 4.250% Term Bonds Due October I, 2025, priced at 96.709%to yield 4.500%, CUSIP 914258 AV O $250,000, 5.000% Term Bonds Due October I, 2030, priced at 105.271%to yield 4.350%, CUSIP 914258 AW 8 $3,630,000, 4.375% Tenn Bonds Due October I, 2030, priced at 97.099% to yield 4.570 %, CUSIP 914258 AX 6 $3,215,000, 5.000o/o Term Bonds Due October 1, 2035, priced at 104.853o/oto yield 4.400o/o, CUSIP 914258 AT 5 $1,200,000, 4.500% Tenn Bonds Due October I, 2037, priced at 97.996% to yield 4.620%, CUSIP 914258 AY 4 SERIES 2005 B (federally taxable) $2,375,000 Serial Bonds Due Principal Interest Cl;S[P October 1 Amount Rate Price Yield 914258 2006 $390,000 4.280 o/o 100.000% 4.280% BA 5 2007 425,000 4.420 100.000 4.420 Illl 3 2008 475,000 4.550 100.000 4.550 BC l 2009 525,000 4.650 100.000 4.650 BD 9 2010 560,000 4.670 100.000 4.670 BE 7 $1,990,000, 4.850% Term Bonds Due October I, 2013, priced at 100.000% to yield 4.850%, CUSIP 914258 BH O $1,560,000, 4.875% Term Bonds Due October 1, 2015, priced al 99.402% lo yield 4.950%, CUSIP 914258 BK 3 $4,630,000, 5.250% Term Bonds Due October I, 2020, priced at 100.000% to yield 5.250%, CUSIP 914258 BL I $6.000,000, 5.370% Tenn Bonds Due October I, 2025, priced at 100.000% to yield 5.370%, CUSlP 914258 BM 9 $11,790,000, 5.420% Term Bonds Due October I, 2037, priced at 100.000% to yield 5.420%, CUSIP 914258 IlN 7 No dealer, broker, salesperson or other person has been authorized by the Foundation or the Underwriter to give any information or to make any representations other than those contained in this Official Statement in connection with the offering of the Series 2005 Bonds, and if given or made, such infonnation or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2005 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. The information set forth herein has been obtained from the Foundation and other sources that are believed to be reliable, but it is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there have been no changes in the information presented herein since the date hereof. Any statement made in this Official Statement involving matters of opinions or of estimates, whether or not expressly so stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. This Official Statement is not to be construed as a contract or agreement between the Foundation and the purchasers or owners of the Series 2005 Bonds. The Series 2005 Bonds have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon exemptions contained in that act. In connection with this offering, the Underwriter may overallot or effect transactions that stabilize or maintain the market prices of the Series 2005 Bonds at levels above those that might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Series 2005 Bonds to certain dealers, institutional investors, and others at prices lower than the public offering prices stated on the cover page hereof, and the Underwriter may change the public offering prices from time to time. The Foundation has entered into an undertaking for the benefit of the owners of the Series 2005 Bonds to send certain financial information and operating data to certain information repositories annually and to provide notice to the Municipal Securities Rulemaking Board or to certain information repositories of certain events, pursuant to the requirement of section (b )( 5)( i) of Rule 15(c)2-12, of the Securities and Exchange Commission. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information, and this Official Statement is not to be construed as the promise or guarantee of the Underwriter. UNIVERSITY ENTERPRISES, INC. An Auxiliary Organization serving the California State University, Sacramento MEMBERS OF THE BOARD OF DIRECTORS Alexander Gonzalez, Chair Stephen Garcia Scott Maxwell Ric Brown Jose L. Perez LaFenus Stancell Doraiswamy Ramachandran Ruthe Ashley Rhonda Rios Kravitz Reid Olsen Greg Wheeler Steve Gold EXECUTIVE MANAGEMENT Matt Altier David Levy Executive Director Interim Director, Marketing Services Donna Parenti Julie Milardovich Director, Business Services Director, Bookstore Paula Mika! Ruedi Egger Director, Grants and Contracts Administration Director, Dining Services Trina Knight Lisa Hall Director, Human Services Director Project and Resource Development PROFESSIONAL SERVICES Bond Counsel & Disclosure Counsel Underwriter Kronick, Moskovitz, Tiedemann & Girard, George K. Baum & Company a Professional Corporation Sacramento, California Sacramento, California Trustee The Bank ofNew York Trust Company, N.A. Los Angeles, California ii TABLE OF CONTENTS INTRODUCTORY STATEMENT ...... General------Use of Funds ...... ____ _ The Series 2005 Bonds ------...... 2 Security for the Series 2005 Bonds Bond Insurance University Enterprises, Inc------______3 The California State University California State University, Sacramento ------______4 Tax Matters Continuing Disclosure Availability of Documents Forward Looking Statements______5. PLAN OF FINANCE ...... 5. Use of Proceeds...... ------_____ 5 ESTIMATED SOURCES AND USES OF FUNDS .... ------. ------_~ THE SERIES 2005 BONDS ------·················· ______6 Description of the Series 2005 Bonds ______------_ ---~ Redemption of the Series 2005A Bonds Redemption of the Series 2005 B Bonds _ ...... ------_9_ Notice of Redemption - Series 2005 Bonds______l_I_ Effect of Redemption - Series 2005 Bonds ______!_!_ DEBT SERVICE SCHEDULE SECURITY FOR THE SERIES 2005 BONDS_ ...... ______------_...... ___ _13 Indenture; Pledge of Revenues ------).3. Bond Reserve Fund ...... ------. ______13_ Additional Bonds and Parity Obligations ______------______14 Debt Service Coverage (Pro Forma) ...... 16 Subordinate Debt______...... ]6 Events of Default and Remedies______------______16 No State or CSU Board Liability ------...... __\_(\ BOND INSURANCE ...... ------______17 Payments Under the Policy ------..!.7. Financial Guaranty Insurance Company..... 18 Financial Guaranty's Credit Ratings .... ------..!.~ UNIVERSITY ENTERPRISES, INC ...... General Summary of Foundation's Business------ Governance ------22 Management Operating Agreement ______------··-·-············ ______24 Transfers to the University ...... Outstanding Debt ...... ______Investment of Excess Funds_ Jnsurance Financial Information Concerning the Foundation______...... 27 CALIFORNIA STATE UNIVERSITY, SACRAMENTO...... 28 General Description ______...... 28 Student Enrollment------·--·· ·------······························------29 University Programs, Services and Facilities...... 2.9. University's Budget_ ...... JI. Financial Statements for the University____ ...... J.1. iii THE CALIFORNIA ST A TE UNIVERSITY...... _)} General )} Education Program.. ..)} Administration and Auxiliary Organizations ...... 33 State Budget for CSU ...... 34 INVESTMENT CONSIDERATIONS AND RISK FACTORS ...... 34 General...... 34 Budget Risk ...... 35 Investments of the Foundation ...... 35 Enforcement of Remedies ...... 35 Continuing Compliance with Certain Covenants...... 3.6. Damage or Destruction of Facilities...... }6. Environmental Regulation ...... 36 Factors Associated with Higher Education...... ).6. Bond Insurer to Control Remedies in Event of Default...... 3.7. Financial Condition of the Bond Insurer ...... 3.7. Secondary Market...... 3.7. Failure to Provide Ongoing Disclosure...... 3.7 Book Entry...... J.7 Risk of Loss from Nonpresentment upon Redemption...... 38 LEGAL MATTERS ...... 38 Litigation··------····------______38 Approval ofLegalitY ...... 38 Tax Matters ...... 38 MISCELLANEOUS...... 40. Underwriting_ ...... 40. Rating ...... 40 Financial Statements ... .AO. Additional Matters 41 Continuing Disclosure...... 4.1. Authorization...... 41_ APPENDIX A: Audited Financial Statements of University Enterprises, Inc. (formerly California State University Sacramento Foundation) for the Fiscal Year ended June 30, 2004 APPENDIX B: Summaries of Certain Provisions of the Indenture APPENDIX C: Form of Continuing Disclosure Agreement APPENDIX D: Form of Opinion of Bond Counsel APPENDIX E: Form of Municipal Bond New Issue Insurance Policy APPENDIX F: Book-Entry System iv OFFICIAL STATEMENT $48,550,000 UNIVERSITY ENTERPRISES, INC (an Auxiliary Organization serving the California State University, Sacramento) AUXILIARY ORGANIZATION BONDS $20,205,000 Series 2005A Refunding $28,345,000 Series 2005B Refunding (federally taxable) INTRODUCTORY STATEMENT The following introductory statement is subject in all respects to the more complete information set forth in this Official Statement. The descriptions and summaries of various documents herein set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terms and conditions. All statements herein regarding any such document are qualified in their entirety by reference to such document. All capitalized terms used in this Official Statement and not otherwise defined herein have the same meanings as in the Indenture dated July I, 2005, between University Enterprises, Inc., formerly the California State University Sacramento Foundation, (the "Foundation") and The Bank ofNew York Trust Company, N.A. as trustee (the "Trustee") (the "Indenture"). See Appendix B "Summaries of Certain Provisions of the Indenture- Definitions." This Official Statement speaks only as of its date, and the information herein is subject to change. GENERAL The purpose of this Official Statement is to provide certain information in connection with the sale and delivery of $48,550,000 aggregate principal amount of University Enterprises, Inc., an Auxiliary Organization of the California State University, Auxiliary Organization Bonds, Series 2005A Refunding and Series 2005B Refunding (federally taxable) (collectively the "Series 2005 Bonds"). The Foundation is issuing the Series 2005 Bonds pursuant to California Education Code sections 89900 et seq., Resolution No. 05-06-47 adopted by the Foundation's Board of Directors on June 8, 2005, and the Indenture to refund certain outstanding bonds issued in 1995, 200 I and 2002 (the "Refunded Bonds") as more specifically set forth herein and to defease the 1995 and 200 I Indentures, as defined herein, entered into by and between the Foundation and the Trustee on October 1, 1995, and October l, 200 I, respectively. The Series 2005 Bonds and any additional bonds issued under the Indenture are referred to collectively as the "Bonds." USE OF FUNDS The proceeds of the Series 2005 Bonds are to be used (i) to refund the Foundation's outstanding California State University, Sacramento Foundation Auxiliary Organization Bonds, Series 1995A and Series 1995B (federally taxable) (the "Series 1995 Bonds"); (ii) to refund the Foundation's California State University, Sacramento Foundation Auxiliary Organization Bonds, Series 200 l (Regional and Continuing Education Program) (the "Series 2001 Bonds"); (iii) to refund the Foundation's California State University, Sacramento Foundation Auxiliary Organization Bonds, Series 2002A (Modoc Hall) and Series 20028 (Modoc Hall) (federally taxable) (the "Series 2002 Bonds") (collectively with the Series 1995 Bonds and Series 2001 Bonds, the "Refunded Bonds"); (iv) to pay the premiums for policy of bond insurance (the "Policy") to be issued by Financial Guaranty Insurance Company (the "Bond Insurer"); (v) to fund a debt service reserve fund for the Series 2005 Bonds; and (vi) to pay costs of issuance of the Series 2005 Bonds. See "Plan of Finance" and "Estimated Sources and Uses of Funds." THE SERIES 2005 BONDS The Series 2005 Bonds will be issued pursuant to the terms of the Indenture. The Series 2005 Bonds will be issued in fully registered form only and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository of the Series 2005 Bonds. Ownership interests in the Series 2005 Bonds may be purchased in book-entry form only in the principal amount of $5,000 or any integral multiple thereof. See Appendix F - "Book-Entry System." The Series 2005 Bonds are dated, mature in the amounts and in the years, and bear interest at the rates set forth on the cover page hereof. Interest on the Series 2005 Bonds will be payable on October 1, 2005, and semiannually thereafter on each April I and October I. The Series 2005A Bonds and Series 20058 Bonds are subject to optional, mandatory, and extraordinary redemption prior to their respective maturities. See "The Series 2005 Bonds - Redemption of the Series 2005A Bonds and Redemption of the Series 20058 Bonds." Ownership interests in the Series 2005 Bonds may be purchased in book-entry form only in the principal amount of $5,000 or any integral multiple thereof. See Appendix F - "Book-Entry System." SECURITY FOR THE SERIES 2005 BONDS The Series 2005 Bonds are general corporate obligations of the Foundation. Under the Indenture, the Foundation will pledge its Revenues, as defined in the Indenture, and certain other amounts held by the Trustee under the Indenture to secure payment of the principal of, premium, if any, and interest on the Series 2005 Bonds. See Appendix B - "Summaries of Certain Provisions of the Indenture - Pledge of Revenues." The Indenture establishes a Bond Reserve Fund, which is required to be funded in an amount equal to the Bond Reserve Requirement, which is equal to the sum of the reserve requirement for each series of Bonds outstanding, which is equal to the least of (i) 10% of the proceeds of the Bonds of that series, (ii) maximum annual debt service with respect to the Bonds outstanding of that series, and (iii) 125% of average annual debt service with respect to the Bonds of that series. The Indenture permits the Foundation to satisfy the Bond Reserve Fund funding requirement by delivering a surety bond securing the amount of the Bond Reserve Requirement to the Trustee. Sec "Security for the Series 2005 Bonds." The Indenture imposes certain restrictions on the actions of the Foundation for the benefit of all holders of the Bonds issued thereunder including, among other things, restrictions on the incurrence of additional indebtedness and provisions governing the establishment of rates, fees 2 and charges. See Appendix B - "Summary of Certain Provisions of the Indenture Certain Covenants of the Foundation." In certain circumstances the Foundation may issue Additional Bonds under the Indenture and Parity Debt, as permitted by the terms of the Indenture in each case payable from the Revenues and secured by a lien thereon that ranks on a parity with the lien that secures the Bonds issued and outstanding under the Indenture. See Appendix B - "Summary of Certain Provisions of the Indenture Issuance of Additional Series of Bonds." BOND INSURANCE Payment of the principal of and interest on the Series 2005A Bonds and Series 2005B Bonds when due will be insured by the Municipal Bond New Issue Insurance Policy to be issued by the Bond Insurer simultaneously with the issuance of the Series 2005 Bonds. See "Bond Insurance," and Appendix E- "Form of Municipal Bond New Issue Insurance Policy." UNIVERSITY ENTERPRISES, INC. University Enterprises, Inc., formerly the California State University Sacramento Foundation, was organized in 1951 as a California nonprofit corporation and is currently operating under the Nonprofit Public Benefit Corporation Law of the State of California. The Foundation is an auxiliary organization of The California State University ("CSU") and is authorized to perform certain services pursuant to the California Education Code and regulations promulgated thereunder. The Internal Revenue Service has determined that the Foundation is exempt from federal income taxation as an organization described in Section 50 I (c )(3) of the Internal Revenue Code of 1986, as amended (the "Code") and has classified the Foundation as an organization that is not a private foundation as defined in Section 509(a) of the Code. The Foundation's corporate purposes include, among other things, promoting and assisting in the development, maintenance and operation of the California State University, Sacramento, furthering the education objectives of the University, providing equipment and facilities for the students and faculty of the University and establishing and operating cafeterias, bookstores and other facilities on the campus of the University. The Foundation also provides contract services including administrative, personnel and payroll functions for University research and sponsored programs, projects and accounts. Pursuant to an operating and lease agreement dated as of October I, 1995 and amended most recently as of July 1, 2005 (the "Operating Agreement") by and between the Foundation and the CSU Board, the Foundation currently operates a bookstore, various food service facilities, a copy center, and convenience stores on the University campus. The Foundation also has financed the construction and acquisition of classroom and office space in four buildings, Placer Hall, the Adams Building, the Regional and Continuing Education Facility, and Modoc Hall (collectively, the "Facilities," which the Foundation leases to the University and other tenants. See "The Foundation - General." THE CALIFORNIA STATE UNIVERSITY The 23-campus California State University (CSU) system is an agency of the State of California governed by the CSU Board. CSU provides instruction to approximately 400,000 3 undergraduate and graduate students and employs approximately 42,000 faculty and staff. The State's 2004-2005 Budget Act provided a General Fund allocation to the California State University system of $2.49 billion. See "The California State University." CALIFORNIA STATE UNIVERSITY, SACRAMENTO California State University, Sacramento, is a member of the CSU system. The University campus is situated on approximately 300 acres along the American River in Sacramento, California, about five miles from the State Capitol building. The University was founded in 1947 and presently offers 60 undergraduate programs and 40 graduate programs. Approximately 22,000 full-time equivalent students were enrolled at the University in the Fall 2004 semester. See "The California State University, Sacramento." TAX MATTERS In the opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Bond Counsel, based on an analysis of existing laws, regulations, rulings and court decisions and assuming, among other matters, compliance with certain covenants, interest on the Series 2005A Bonds is excluded from gross income for federal income tax purposes and is exempt from all taxation in the State of California other than estate and generation skipping transfer taxes. In the opinion of Bond Counsel, interest on the Series 2005A 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 in calculating federal corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences caused by the ownership or disposition of, or the accrual or receipt of interest on, the Series 2005A Bonds. Interest on the Series 20058 Bonds is not excluded from gross income for federal income tax purposes, but is exempt from all taxation in the State of California other than estate and generation skipping transfer taxes. See "Legal Matters - Tax Matters." CONTINUING DISCLOSURE The Foundation has covenanted for the benefit of the Holders and beneficial owners of the Series 2005 Bonds to provide, or cause to be provided, certain financial information and operating data relating to the Foundation by not later than six months after the end of each of the Foundation's fiscal years (which presently end on June 30), commencing with the report for the 2004-2005 fiscal year (the "Annual Report"). The Foundation has also covenanted to give, or cause to be given, notices of the occurrence of certain enumerated events, if material. The Annual Report is to be filed with each Repository. The notices of material events are to be filed with the Municipal Securities Rulemaking Board and with the State Repository, if any. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in Appendix C - "Proposed Form of Continuing Disclosure Agreement." These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). The Foundation has never failed to comply in all material respects with any previous undertaking with regard to Rule 15c2-12 to provide financial reports or notice of material events. 4 AVAILABILITY OF DOCUMENTS This Official Statement contains brief descriptions of the Series 2005 Bonds and the Indenture. Such descriptions do not purport to be comprehensive or definitive and are qualified in their entirety by reference to such documents. Until the issuance of the Series 2005 Bonds, copies of the documents described herein may be obtained from the Underwriter of the Series 2005 Bonds, George K. Baum & Company, 660 J Street, Suite 460, Sacramento, California 95814 Telephone: (916) 443-5525. After the delivery of the Series 2005 Bonds, copies of such documents will be available at the office of the Foundation, 6000 J Street, Sacramento, California 95819, Telephone: (916) 278-7326. FORWARD - LOOKING STATEMENTS This Official Statement contains statements relating to future results that are "forward looking statements" as defined in the Private Securities Litigation Reform Act of 1995. When used in this Official Statement, the verbs "estimate," "intend," "expect," "project," and similar expressions identify forward-looking statements. Any forward-looking statement is subject to uncertainty and risks that could cause actual results to differ, possibly materially, from those contemplated in such forward-looking statements. Inevitably, some assumptions used to develop forward-looking statements will not be realized or unanticipated events and circumstances may occur. Therefore, investors should be aware that there are likely to be differences between forward-looking statements and actual results; those differences could be material. PLAN OF FINANCE USE OF PROCEEDS The proceeds of the Series 2005 Bonds are to be used (i) to refund the Foundation's outstanding California State University, Sacramento Foundation Auxiliary Organization Bonds, Series 1995A and Series 19958 (federally taxable) (the "Series 1995 Bonds"); (ii) to refund the Foundation's California State University, Sacramento Foundation Auxiliary Organization Bonds, Series 200 I (Regional and Continuing Education Program) (the "Series 200 I Bonds"); (iii) to refund the Foundation's California State University, Sacramento Foundation Auxiliary Organization Bonds, Series 2002A (Modoc Hall) and Series 20028 (Modoc Hall) (federally taxable) (the "Series 2002 Bonds") (collectively with the Series 1995 Bonds and Series 200 I Bonds, the "Refunded Bonds"); (iv) to pay the premiums for the policy of bond insurance (the "Policy") to be issued by Financial Guaranty Insurance Company (the "Bond Insurer"); (v) to fund a debt service reserve fund for the Series 2005 Bonds; and (vi) to pay costs of issuance of the Series 2005 Bonds. See "Estimated Sources and Uses of Funds." 5 SOURCES AND USES OF FUNDS The following table shows the sources and uses of funds in connection with the issuance of the Series 2005 Bonds. Sources of Funds: Par Amount of Series 2005A Bonds $20,205,000.00 Prior Debt Service Reserve Fund 2,502,934.16 Prior Debt Service Funds 1,488,497 .84 Par Amount of Series 20058 Bonds 28,345,000.00 Plus Net Original Issue Premium 165,869.90 TOTAL $52,707,30 L90 Uses of Funds: Escrow Fund $47,900,354.59 Bond Reserve Fund 3,385,024.26 Underwriter's Discount 436,950.00 Costs of Issuance Fund* 984,973.05 TOTAL 15.2,707 30L2!} * Includes the premium paid to obtain the Municipal Bond Ne\v Issue Insurance Policy, trustee and legal fees, and certain other fees, costs and expenses related to the issuance of the Series 2005 Bonds. Payment of certain fees and expenses is contingent upon the issuance of the Series 2005 Bonds. THE SERIES 2005 BONDS DESCRIPTION OF THE SERIES 2005 BONDS Payment Terms. The Series 2005 Bonds mature on October I in the years and in the amounts set forth on the cover page of this Official Statement. Interest on the Series 2005 Bonds accrues from their dated date and is payable to Bondholders on October 1, 2005, and semiannually thereafter on each April I and October I at the respective rates per annum set forth on the cover page. Book-Entry Form. The Series 2005 Bonds will be issued in fully registered form and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"). Individual purchases may be made in book-entry form only in denominations of $5,000 or any integral multiple thereof. Purchasers will not receive physical certificates representing their interest in the Series 2005 Bonds purchased. So long as the Series 2005 Bonds are registered in the name of the nominee of DTC, principal and interest payments on the Series 2005 Bonds are payable to DTC for subsequent disbursement to beneficial owners of the Series 2005 Bonds as described in Appendix F - "Book-Entry System." Transfer and Exchange of Physical Certificates. If the book-entry-only system is discontinued, the Series 2005 Bonds will be issued in certificated form to the Holders and thereafter a person in whose name a Bond is registered may, in accordance with the terms of the Bond, transfer the Bond, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation at the corporate trust office of the Trustee in Los Angeles, California, accompanied by delivery of a duly executed written instrument of transfer in a form approved by the Trustee. Series 2005 Bonds may be exchanged at the corporate trust office of the Trustee in Los Angeles, California, for a like aggregate principal amount of Series 2005 Bonds of the same series of other authorized denominations of the same maturity and interest rate. The Trustee is not required to 6 exchange or transfer any Series 2005 Bonds during the period of time established by the Trustee for the selection of Series 2005 Bonds to be redeemed, and the Trustee is not required to transfer or exchange any Bond selected for redemption in whole or in part. The Trustee may require the payment by the Holder requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. REDEMPTION OF THE SERIES 2005A BONDS The Series 2005A Bonds are subject to optional, mandatory, and extraordinary redemption as described below. Optional Redemption. The Series 2005A Bonds maturing on or before October l, 2015, shall not be subject to optional redemption prior to their respective stated maturities. Series 2005A Bonds maturing on or after October J, 2016, are subject to redemption prior to their respective stated maturities, at the option of the Foundation, from any source of available funds, as a whole or in part (by such maturities as may be specified by the Foundation and by lot within a maturity) on any date on or after October I, 2015, at the principal amount of Series 2005A Bonds called for redemption, plus accrued interest to the date fixed for redemption, without premium. 7 Mandatory Sinking Fund Redemption. The Series 2005A Bonds maturing on October I, 2025, October I, 2030, October 1, 2035, and October I, 2037, shall be subject to redemption prior to their stated maturity, in part, by lot from Mandatory Sinking Account Payments in the following amounts and on the following dates, at the principal amount thereof on the date fixed for redemption, without premium: 2025 Term Bonds 2025 Term Bonds (CUSIP 914258 AU 2) (CUSIP 914258 AV 0) Mandatory Sinking Mandatory Sinking Principal Account Payment Dates Principal Account Payment Dates Amount (October l) Amount (October I) 2022 $470,000 2022 $190,000 2023 495,000 2023 200,000 2024 515,000 2024 215,000 2025* 520,000 2025* 245,000 2030 Term Bonds 2030 Term Bonds (CUSIP 914258 AW 8) (CUSIP 914258 AX 6) Mandatory Sinking Mandatory Sinking Principal Account Payment Dates Principal Account Payment Dates Amount (October l) Amount (October I) 2026 $50,000 2026 $750,000 2027 50,000 2027 800,000 2028 50,000 2028 660,000 2029 50,000 2029 695,000 2030* 50,000 2030* 725,000 2035 Term Bonds 2037 Term Bonds Mandatory Sinking Mandatory Sinking Principal Account Payment Dates Principal Account Payment Dates Amount (October ]) Amount (October I) 2031 $800,000 2036 $585,000 2032 845,000 2037* 615,000 2033 500,000 2034 520,000 2035* 550,000 *Maturity The amount of each such redemption shall be reduced proportionately in the event and to the extent of any and all optional redemptions of Series 2005A Bonds Extraordinary Redemption. The Foundation shall have the right to redeem the Series 2005A Bonds, as a whole, or in part in such maturities as may be specified by the Foundation (and by lot within each maturity) from proceeds of insurance or proceeds of eminent domain proceedings, upon the terms and conditions of, and as provided for in the Indenture at the 8 principal amount thereof and accrued interest thereon to the date fixed for redemption, without premium .. See "Certain Covenants of the Foundation - Insurance" and" -Eminent Domain" under Appendix B - "Summaries of Certain Provisions of the Indenture." REDEMPTION OF THE SERIES 20058 BONDS The Series 20058 Bonds are subject to optional, mandatory, and extraordinary redemption as described below. Optional Redemption. The Series 20058 Bonds maturing on or after October 1, 2016, are subject to redemption prior to their respective stated maturities, at the option of the Foundation, from any source of available funds, as a whole or in part (by such maturities as may be specified by the Foundation and by lot within a maturity) on any date on or after October 1, 2015, at a redemption price (computed upon the principal amount of Series 20058 Bonds called for redemption), equal to the greater of: (I) 100% of the principal amount of the Series 20058 Bonds to be redeemed; and (2) the sum of the present values of the remaining scheduled payments of the principal and interest on the Series 20058 Bonds to be redeemed ( exclusive of interest accrued to the date fixed for redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, as defined in the Indenture, plus 12.5 basis points, plus, in each case, accrued interest to the date fixed for redemption. 9 Mandatory Sinking Fund Redemption. The Series 2005B Bonds maturing on October!, 2020, 2025, and 2037, are subject to mandatory sinking fund redemption in part, by lot, prior to their respective stated maturities, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to the date fixed for redemption, without premium, on October 1 in the years and in the amounts specified below. 2013 Term Bonds 2015 Term Bonds Mandatory Sinking Mandatory Sinking Account Payment Dates Principal Account Payment Dates Principal (October 1) Amount (October I) Amount 2011 $600,000 2014 $760,000 2012 665,000 2015* 800,000 2013* 725,000 2020 Term Bonds 2025 Term Bonds Mandatory Sinking Mandatory Sinking Account Payment Dates Principal Account Payment Dates Principal (October 1) Amount (October I) Amount 2016 $835,000 2021 $1,075,000 2017 875,000 2022 1, 140,000 2018 920,000 2023 l ,200,000 2019 970,000 2024 1,260,000 2020* l,030,000 2025* 1,325,000 2037 Term Bonds Mandatory Sinking Account Payment Dates Principal (October 1) Amount 2026 $1,400,000 2027 1,475,000 2028 690,000 2029 730,000 2030 765,000 2031 810,000 2032 855,000 2033 905,000 2034 955,000 2035 1,010,000 2036 1,070,000 2037* 1, 125,000 *Maturity The amount of each such redemption shall be reduced proportionately in the event and to the extent of any and all optional redemptions of Series 2005B Bonds. 10 Extraordinary Redemption. The Foundation shall have the right to redeem the Series 20058 Bonds, as a whole, or in part in such maturities as may be specified by the Foundation (and by lot within each maturity) from proceeds of insurance or proceeds of eminent domain proceedings, upon the terms and conditions of, and as provided for in the Indenture at the principal amount thereof and accrued interest thereon to the date fixed for redemption, without premium .. See "Certain Covenants of the Foundation - Insurance" and" - Eminent Domain" under Append ix B- "Summaries of Certain Provisions of the Indenture." NOTICE OF REDEMPTION - SERIES 2005 BONDS Notice of redemption is to be mailed to the respective registered owners of any Series 2005 Bonds designated for redemption at their addresses appearing on the registration books, at least thirty (30) days, but not more than sixty (60) days, prior to the redemption date, which notice shall in addition to setting forth the above information, set forth, in the case of each registered Bond called only in part, the portion of the principal thereof which is to be redeemed; provided however, that neither failure of a holder to receive notice nor any defect in any notice so mailed will affect the sufficiency of the proceedings for the redemption of such Series 2005 Bonds. If OTC or its nominee is the registered owner of any Bond to be redeemed, notice of redemption will be given to OTC or its nominee as the registered owner of such Bond. Any failure on the part of OTC or failure on the part of a nominee of a Beneficial Owner (having received notice from a DTC Participant or otherwise) to notify the Beneficial Owner of any Bond to be redeemed shall not affect the validity of the redemption of such Bond. See Appendix F - "Book-Entry System." EFFECT OF REDEMPTION - SERIES 2005 BONDS From and after the date designated for redemption, if funds sufficient to pay the redemption price of the Series 2005 Bonds are held by the Trustee, interest on the Series 2005 Bonds called for redemption will cease to accrue. Such Series 2005 Bonds will cease to be entitled to any benefit or security under the Indenture, and the Holders of such Series 2005 Bonds will have no rights in respect thereof except to receive payment of the redemption price. 11 DEBT SERVICE SCHEDULE The following table sets forth the debt service for the Series 2005 Bonds for each year ending June 30. Year Ending 2005A 2005A 20058 20058 Total Debt June 30 Principal Interest Principal Interest Service 2005 $ 0 $107,578 $ 0 $ 181,440 $ 289,018 2006 370,000 880, 181 390,000 1,484,512 3,124,694 2007 390,000 867,231 425,000 1,467,820 3, 150,051 2008 425,000 853,581 475,000 1,449,035 3,202,616 2009 450,000 838,706 525,000 1,427,423 3,241,129 2010 475,000 821,831 560,000 1,403,0 IO 3,259,841 2011 510,000 802,83 l 600,000 1,376,858 3,289,689 2012 540,000 782,431 665,000 1,347,758 3,335, 189 2013 575,000 760,831 725,000 1,315,506 3,376,337 2014 600,000 737,831 760,000 1,280,343 3,378,174 2015 615,000 713,831 800,000 1,243,293 3,372,124 2016 640,000 689,231 835,000 1,204,293 3,368,524 2017 665,000 663,631 875,000 1, 160,456 3,364,087 2018 690,000 637,031 920,000 1,114,518 3,361,549 2019 720,000 609,431 970,000 1,066,218 3,365,649 2020 760,000 579,731 1,030,000 1,015,293 3,385,024 2021 635,000 548,381 1,075,000 961,218 3,219,599 2022 660,000 522, 188 1,140,000 903,490 3,225,678 2023 695,000 490,613 1,200,000 842,273 3,227,886 2024 730,000 457,363 1,260,000 777,833 3,225,196 2025 765,000 422,475 1,325,000 710,171 3,222,646 2026 800,000 386,063 1,400,000 639,018 3,225,081 2027 850,000 350,750 1,475,000 563,138 3,238,888 2028 710,000 313,250 690,000 483, 193 2, 196,443 2029 745,000 281,875 730,000 445,795 2,202,670 2030 775,000 248,969 765,000 406,229 2,195,198 2031 800,000 214,750 810,000 364,766 2,189,516 2032 845,000 174,750 855,000 320,864 2,195,614 2033 500,000 132,500 905,000 274,523 1,812,023 2034 520,000 107,500 955,000 225,472 1,807,972 2035 550,000 81,500 1,010,000 173,711 1,815,211 2036 585,000 54,000 1,070,000 118,969 1,827,969 2037 615,000 27,675 1, 125,000 60,975 1,828,650 12 SECURITY FOR THE SERIES 2005 BONDS INDENTURE; PLEDGE OF REVENUES The Series 2005 Bonds are to be issued pursuant to and secured by the Indenture. The Series 2005 Bonds are general corporate obligations of the Foundation. Under the Indenture, the Foundation is to grant, assign and transfer a security interest in, and pledge, in trust for the benefit of the Holders of the Series 2005 Bonds, (i) the Revenues, and (ii) any amounts (including proceeds of the sale of the Series 2005 Bonds) held in any fund or account established under the Indenture, except for moneys on deposit in the Rebate Fund. The Trustee, on behalf of the Holders of the Series 2005 Bonds, is to have a senior lien on and security interest in the Revenues. Revenues. "Revenues" means all proceeds, charges, income, rents, receipts, profits, benefits of the Foundation, exclusive of any gifts, grants, bequests, donations, and contributions to the extent specifically restricted by the donor to a particular purpose inconsistent with their use for the payment of debt service and exclusive of funds received for deposit into the Campus Programs Fund (as that term is used in the audited financial statements of the Foundation). Gross Revenue Fund. Under the Indenture, the Foundation agrees that all of the Revenues will be deposited in the "Gross Revenue Fund" established under the Indenture. The Foundation has pledged and granted a security interest to the Trustee in the Gross Revenue Fund to secure the payment of the Series 2005 Bonds. In any fiscal year of the Foundation, the Foundation (i) may not transfer without consideration any moneys held in the Gross Revenue Fund to the Board, the University or any other auxiliary organization of the Board. Otherwise, so long as the Foundation is not delinquent in its payment of the Series 2005 Bonds, it may withdraw and use funds held in the Gross Revenue Fund for any lawful purpose. If the Gross Revenue Fund is transferred to the control of the Trustee on account of a payment default, the Foundation may withdraw funds only to pay current or past due operating expenses. See the description of the Gross Revenue Fund in Appendix B "Summaries of Certain Provisions of the Indenture Pledge of Revenues." BOND RESERVE FUND The Indenture establishes a Bond Reserve Fund, which is required to be funded in an amount equal to the Bond Reserve Requirement. See Appendix B - "Summaries of Certain Provisions of the Indenture - Definitions." Upon issuance of the Series 2005 Bonds, Bond proceeds in an amount sufficient to increase the amount on deposit therein to the Bond Reserve Requirement will be deposited to the Bond Reserve Fund. Amounts on deposit in the Bond Reserve Fund (including all amounts that may be obtained from letters of credit, insurance policies and surety bonds on deposit therein) are to be used for the purpose of making up any deficiency in the Interest Fund or the Principal Fund or (together with any other moneys available therefor) for the payment or redemption of all Bonds then Outstanding. Amounts on deposit in the Bond Reserve Fund are not available to pay debt service on the Series 2005 Bonds or other parity debt as defined in the Indenture. If any moneys in the Bond Reserve Fund are transferred to make up a deficiency in the Interest Fund or Principal Fund, the Foundation is required, starting in the first month after the 13 date of such transfer, to deposit Revenues in an amount equal to (i) one-twelfth of the aggregate amount necessary to repay any and all obligations due and payable under the tcnns and conditions of any letter of credit, insurance policy or surety bond used to satisfy the Bond Reserve Requirement by the end of the twelfth month after the date of such transfer; and (ii) one twelfth of the aggregate amount of each unreplenished prior withdrawal of cash from the Bond Reserve Fund and the full amount of any deficiency due to any required valuations of the investments in the Bond Reserve Fund until the balance in the Bond Reserve Fund is at least equal to the Bond Reserve Requirement. See Appendix B - "Summaries of Certain Provisions of the Indenture - Application of Funds - Bond Reserve Fund." ADDITIONAL BONDS AND PARITY OBLIGATIONS The Indenture provides that the Foundation may, by Supplemental Indenture, establish one or more additional series of Bonds secured under the Indenture equally and ratably with the Bonds previously issued thereunder. The issuance of such Additional Bonds is subject to, among other things, the following conditions: (a) no Event of Default shall have occurred and be continuing under the Indenture; (b) the balance in the Bond Reserve Fund shall be increased, if necessary, to an amount at least equal to the Bond Reserve Account Requirement with respect to all Bonds Outstanding under the Indenture upon the issuance of the additional series of Bonds; and (c) the Foundation shall have certified to the Trustee that (1) the Net Income Available for Debt Service for a period of twelve (12) consecutive months during the eighteen (18) months immediately preceding the date on which such additional Series of Bonds will become Outstanding shall have been at least equal to 1.0 times the amount of Maximum Annual Debt Service on all Series of Bonds and Parity Debt then Outstanding and the additional Series of Bonds then proposed to be issued, and (2) the Net Income Available for Debt Service for the same twelve-month period, calculated including projected revenues and expenses associated with any facility to be financed by such additional Series of Bonds (based on the assumption that the facility was placed in service and operating at the beginning of such twelve-month period) shall have been at least equal to 1.2 times the amount of Maximum Annual Debt Service on all Series of Bonds and Parity Debt then Outstanding and the additional Series of Bonds then proposed to be issued. If the Additional Bonds refund any Outstanding Bonds, the foregoing requirement in clause (c) shall not apply if Annual Debt Service for all the Bonds is not increased in any year following the issuance of such refunding Additional Bonds. The Indenture also permits the Foundation to issue any indebtedness, installment sale obligation, lease obligation or other obligation of the Foundation for borrowed money having an equal lien and charge upon the Revenues and payable on a parity with the Bonds ("Parity Debt") 14 upon compliance with, among other things, the conditions set forth in clauses (a) and (c) above (applying such provisions as if the obligations were Bonds). "Net Income Available for Debt Service" is defined to mean, with respect to any period, the excess of income over expenses (before extraordinary items) of the Foundation for such period, determined in accordance with generally accepted accounting principles, to which shall be added interest, amortization, and depreciation expense and other non-cash charges, each item determined in accordance with generally accepted accounting principles, and to which shall also be added transfers (that are treated as expenses) to funds designated for expenditure at the discretion of the President of the California State University, Sacramento, or University faculty, centers, institutes, schools, or departments to be used for research and internal/external relations, and excluding (a) any profits or losses on the sale or disposition, not in the ordinary course of business, of investments or fixed or capital assets or resulting from the early extinguishment of debt, (b) gifts, grants, bequests, donations, and contributions to the extent specifically restricted by the donor to a particular purpose inconsistent with their use for the payment of debt service, (c) the net proceeds of insurance (other than business interruption insurance) and condemnation awards, and (d) amounts deposited into Restricted Funds (as that term is used in the audited financial statements of the Foundation). 15 DEBT SERVICE COVERAGE (PROFORMA) The following table sets forth the estimated coverage of maximum annual debt service on the Series 2005 Bonds that would have been provided by the Foundation's Net Income Available for Debt Service during the last four fiscal years. The following data, insofar as it relates to each of the years ended June 30, 2002-2004, has been derived from annual financial statements. The data for the year ended June 30, 2005, has been derived from unaudited, historical financial statements as of and for the eight months ended February 28, 2005, that, in the opinion of management, include all adjustments, consisting only of nonnal recurring adjustments, necessary for a fair statement of the unaudited results as of and for the eight months ended February 28, 2005, together with management's estimate of results for the period March 1, 2005, through June 30, 2005. Historical Debt Service Coverage of Series 2005 Bonds (Pro Forma) Fiscal Years Ending June 30, 2002 2003 2004 2005 Increase in Net Assets $2,800,487 $3,208,445 $2,971,171 $1,851,070 Add Back: Voluntary University Allocations 644,303 550,000 650,000 534,680 Interest on Bonds 1,015,686 1,069,330 1,636,726 2,703,405 Depreciation and Amortization 999,262 948,795 1,092,687 1,359,890 Net Income Available for Debt Service $5,459,738 $5,776,570 $6,350,584 $6,449,045 Maximum Annual Debt Service - Series 2005 Bonds' 3,385,024 3,385,024 3,385.024 3,385,024 Coverage of .Maximum Annual Debt Service - Series 2005 Bonds 1.61 I. 71 1.88 1.91 Source: Foundation. SUBORDINATE DEBT The Indenture permits the Foundation to issue obligations that are junior and subordinate to the payment of the principal of, premium, interest and reserve fund requirements for the Bonds and all Parity Debt, without compliance with any of the limitations set forth above under "Additional Bonds and Parity Obligations." EVENTS OF DEFAULT AND REMEDIES Upon the occurrence of certain events, payment of the principal of the Series 2005 Bonds may be accelerated under the Indenture. See Appendix B - "Summaries of Certain Provisions of the Indenture - Events of Default and Remedies of Bondholders." No STATE OR CSU BOARD LIABILITY The Series 2005 Bonds do not create a lien, charge or liability against the State of California or against the Trustees of The California State University or against the property or funds of either, and no registered owner of any Bond shall ever have the right to compel any exercise of the taxing power of the State of California to pay any Bond and neither the payment of the principal thereof nor any redemption premium or interest thereon constitutes a debt, 16 liability or obligation of the State of California, the Trustees of The California State University or the individual California State University campuses. BOND INSURANCE Financial Guaranty Insurance Company has supplied the following information for inclusion in this Official Statement. No representation is made by the issuer or the underwriter as to the accuracy or completeness ofthis information. PAYMENTS UNDER THE POLICY Concurrently with the issuance of the Series 2005 Bonds, Financial Guaranty Insurance Company, doing business in California as FGIC Insurance Company, ("Financial Guaranty") will issue its Municipal Bond New Issue Insurance Policy for the Series 2005 Bonds (the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal of and interest on the Series 2005 Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the issuer of the Series 2005 Bonds (the "Issuer"). Financial Guaranty will make such payments to U.S. Bank Trust National Association, or its successor as its agent (the "Fiscal Agent"), on the later of the dale on which such principal or interest (as applicable) is due or on the business day next following the day on which Financial Guaranty shall have received notice (in accordance with the terms of the Policy) from an owner of Series 2005 Bonds or the trustee or paying agent (if any) of the nonpayment of such amount by the Issuer. The Fiscal Agent will disburse such amount due on any Series 2005 Bond to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owner's right to receive payment of the principal, or interest (as applicable) due for payment and evidence, including any appropriate instruments of assignment, that all of such owner's rights to payment of such principal, or interest (as applicable) shall be vested in Financial Guaranty. The term "nonpayment" in respect of a Series 2005 Bond includes any payment of principal, or interest (as applicable) made to an owner of a Bond which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. Once issued, the Policy is non-cancellable by Financial Guaranty. The Policy covers failure to pay principal ( or accreted value, if applicable) of the Series 2005 Bonds on their stated maturity dates and their mandatory sinking fund redemption dates, and not on any other date on which the Series 2005 Bonds may have been otherwise called for redemption, accelerated or advanced in maturity. The Policy also covers the failure to pay interest on the stated date for its payment. In the event that payment of the Series 2005 Bonds is accelerated, Financial Guaranty will only be obligated lo pay principal ( or accreted value, if applicable) and interest in the originally scheduled amounts on the originally scheduled payment dates. Upon such payment, Financial Guaranty will become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and will be fully subrogated to all of the Bondholder's rights thereunder. The Policy does not insure any risk other than Nonpayment by the Issuer, as defined in the Policy, Specifically, the Policy does not cover: (i) payment on acceleration, as a result of a call for redemption ( other than mandatory sinking fund redemption) or as a result of any other 17 advancement of maturity; (ii) payment of any redemption, prepayment or acceleration premium; or (iii) nonpayment of principal (or accreted value, if applicable) or interest caused by the insolvency or negligence or any other act or omission of the trustee or paying agent, if any. As a condition of its commitment to insure Series 2005 Bonds, Financial Guaranty may be granted certain rights under the Bond documentation. The specific rights, if any, granted to Financial Guaranty in connection with its insurance of the Series 2005 Bonds may be set forth in the description of the principal legal documents appearing elsewhere in this Official Statement, and reference should be made thereto. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. The Policy is not covered by the California Insurance Guaranty Association (California Insurance Code, Article 14.2). FINANCIAL GUARANTY INSURANCE COMPANY Financial Guaranty, a New York stock insurance corporation, is a direct, wholly-owned subsidiary of FGIC Corporation, a Delaware corporation, and provides financial guaranty insurance for public finance and structured finance obligations. Financial Guaranty is licensed to engage in financial guaranty insurance in all 50 states, the District of Columbia and the Commonwealth of Puerto Rico and, through a branch, in the United Kingdom. On December 18, 2003, an investor group consisting of The PM! Group, Inc. ("PM!"), affiliates of The Blackstone Group L.P. ("Blackstone"), affiliates of The Cypress Group L.L.C. ("Cypress") and affiliates of CIVC Partners L.P. ("CIVC") acquired FGIC Corporation (the "FGIC Acquisition") from a subsidiary of General Electric Capital Corporation ("GE Capital"). PM!, Blackstone, Cypress and CIVC acquired approximately 42%, 23%, 23% and 7%, respectively, of FGIC Corporation's common stock. FGIC Corporation paid GE Capital approximately $284.3 million in pre-closing dividends from the proceeds of dividends it, in turn, had received from Financial Guaranty, and GE Capital retained approximately $234.6 million in liquidation preference of FGIC Corporation's convertible participating preferred stock and approximately 5% of FGIC Corporation's common stock. Neither FGIC Corporation nor any of its shareholders is obligated to pay any debts of Financial Guaranty or any claims under any insurance policy, including the Policy, issued by Financial Guaranty. Financial Guaranty is subject to the insurance laws and regulations of the State of New York, where it is domiciled, including Article 69 of the New York Insurance Law ("Article 69"), a comprehensive financial guaranty insurance statute. Financial Guaranty is also subject to the insurance laws and regulations of all other jurisdictions in which it is licensed to transact insurance business. The insurance laws and regulations, as well as the level of supervisory authority that may be exercised by the various insurance regulators, vary by jurisdiction, but generally require insurance companies to maintain minimum standards of business conduct and solvency, to meet certain financial tests, to comply with requirements concerning permitted investments and the use of policy forms and premium rates and to file quarterly and annual financial statements on the basis of statutory accounting principles ("SAP") and other reports. In addition, Article 69, among other things, limits the business of each financial guaranty insurer, including Financial Guaranty, to financial guaranty insurance and certain related lines. 18 For the three months ended March 31, 2005, and the years ended December 31, 2004, and December 31, 2003, Financial Guaranty had written directly or assumed through reinsurance, guaranties of approximately $14.8 billion, $59.5 billion and $42.4 billion par value of securities, respectively (of which approximately 71 %, 56% and 79%, respectively, constituted guaranties of municipal Series 2005 Bonds), for which it had collected gross premiums of approximately $84.4 million, $323.6 million and $260.3 million, respectively. For the three months ended March 31, 2005, Financial Guaranty had reinsured, through facultative and excess of loss arrangements, approximately 0.5% of the risks it had written. As of March 31, 2005, Financial Guaranty had net admitted assets of approximately $3.215 billion, total liabilities of approximately $2.040 billion, and total capital and policyholders' surplus of approximately $1.175 billion, determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. The unaudited financial statements of Financial Guaranty as of March 31, 2005, the audited financial statements of Financial Guaranty as of December 31, 2004, and the audited financial statements of Financial Guaranty as of December 31, 2003, which have been filed with the Nationally Recognized Municipal Securities Information Repositories ("NRMS!Rs"), are hereby included by specific reference in this Official Statement. Any statement contained herein under the heading "BOND INSURANCE," or in any documents included by specific reference herein, shall be modified or superseded to the extent required by any statement in any document subsequently filed by Financial Guaranty with such NRMSIRs, and shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. All financial statements of Financial Guaranty (if any) included in documents filed by Financial Guaranty with the NRMSIRs subsequent to the date of this Official Statement and prior to the termination of the offering of the Series 2005 Bonds shall be deemed to be included by specific reference into this Official Statement and to be a part hereof from the respective dates of filing of such documents. Financial Guaranty also prepares quarterly and annual financial statements on the basis of generally accepted accounting principles. Copies of Financial Guaranty's most recent GAAP and SAP financial statements are available upon request to: Financial Guaranty Insurance Company, 125 Park Avenue, New York, NY 10017, Attention: Corporate Communications Department. Financial Guaranty's telephone number is (212) 312-3000. FINANCIAL GUARANTY'S CREDIT RA TINGS The financial strength of Financial Guaranty is rated "AAA" by Standard & Poor's, a Division of The McGraw-Hill Companies, Inc., "Aaa" by Moody's Investors Service, and "AAA" by Fitch Ratings. Each rating of Financial Guaranty should be evaluated independently. The ratings reflect the respective ratings agencies' current assessments of the insurance financial strength of Financial Guaranty. Any further explanation of any rating may be obtained only from the applicable rating agency. These ratings are not recommendations to buy, sell or hold the Series 2005 Bonds, and arc subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Series 2005 Bonds. Financial Guaranty does not 19 guarantee the market price or investment value of the Series 2005 Bonds nor does it guarantee that the ratings on the Series 2005 Bonds will not be revised or withdrawn. Neither Financial Guaranty nor any of its affiliates accepts any responsibility for the accuracy or completeness of the Official Statement or any information or disclosure that is provided to potential purchasers of the Series 2005 Bonds, or omitted from such disclosure, other than with respect to the accuracy of information with respect to Financial Guaranty or the Policy under the heading "BOND INSURANCE." In addition, Financial Guaranty makes no representation regarding the Series 2005 Bonds or the advisability of investing in the Series 2005 Bonds. UNIVERSITY ENTERPRISES, INC. GENERAL University Enterprises, Inc., formerly the California State University Sacramento Foundation, was originally organized in 1951 as a California nonprofit corporation under the name Hornet Foundation, Inc. In 1993, the Foundation changed its name to the California State University, Sacramento Foundation and as of March 2005 changed its name to University Enterprises Inc. The Foundation is an auxiliary organization of The California State University and is authorized to perform certain services pursuant to the California Education Code, Sections 89900 et seq. (the "Education Code"), and the California Code of Regulations, Title 5, Sections 42500 et seq. (the "Regulations"). The Internal Revenue Service has determined that the Foundation is exempt from federal income taxation by virtue of being an organization described in Sections 50l(a) and 50l(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). The Foundation is not a private foundation under Section 509 of the Code. Pursuant to its articles of incorporation (the "Articles of Incorporation"), the Foundation is organized to promote and assist in the development, maintenance and operation of the University; to further the educational objectives of the University; to provide necessary and desirable equipment and facilities for the students and faculty of the University; to establish and operate on or near the campus of the University cafeterias, bookstores and such other facilities as would aid, assist or supplement the educational or extracurricular activities of the personnel of the University; to acquire and dispose of such properties; to borrow and lend money when, through doing so, the requirements of the purposes of the Foundation can be promoted or enhanced; and to do such other acts as may be permissible of corporations under the laws of the State of California which shall foster, facilitate or assist in the performance of these purposes. The Foundation has adopted the following mission statement. University Enterprises, Inc., is a dynamic and innovative non-profit corporation. It creates and manages an array of programs and services, which support and stren1,,rthen the University's mission of teaching, scholarship and public service. The University Enterprises, Inc., serves the campus by shaping its 20 growth and activities to meet the evolving needs of the University and the community. SUMMARY Of FOUNDATION'S BUSINESS Generally, the Foundation's purpose is to further the educational m1ss1on of the University by providing needed services to the campus community. It currently operates the Hornet Bookstore and campus food services, provides administrative support and contract services for the University's research and sponsored programs, provides marketing and graphics support to various University functions, and manages a number of facilities (including classroom, office, and warehouse facilities) for University-related functions. The Foundation operates and manages the Hornet Bookstore which generates approximately $ I million annually in net revenue. The Foundation is currently developing plans to construct a new bookstore for the campus. On June 8, 2005, the Foundation's Board of Directors directed staff to negotiate an operating agreement with the Follett Higher Education Group, ("Follett") for the operation of the Hornet Bookstore as well as any expanded or new bookstore facility. Based on the preliminary terms of the agreement under negotiation, the Foundation does not expect its net revenues from the Hornet Bookstore to decrease. The Foundation expects the agreement to be finalized in time to allow Follett to take over the management and operation of the Hornet Bookstore prior to the commencement of the Fall semester. However, no assurance can be given that the parties will finalize the agreement or, if finalized, concerning its effects on net revenues. The following is a brief description of the services provided by the Foundation. • Hornet Bookstore carries all required textbooks, a variety of general interest books, and general merchandise, including convenience items. The computer department offers personal computers, printers and software (available through special contract with selected vendors) for students, staff and faculty. • Copy Graphics Center - provides photocopying and other production services (binding, folding, and laminating). The Copy Graphics Center also offers graphic services such as creation ofresumes, newsletters, banners, and certificates. • The Store in the University Union - carries basic school supplies, snacks, newspapers, magazines, health and beauty aids, and greeting cards. • Dining Commons - provides full-meal service for students living in the residence halls (also available to off-campus residents). • Other Campus Eateries provide a wide variety of choices at a food court and a full-service restaurant in the University Union, a food court at the Riverfront Center, and smaller eateries and through vending services at other locations on campus. • Catering provides planning, preparing and serving event needs of the campus community. 21 • Contract Services - provides administrative support for more than 750 university research and sponsored programs and accounts. • Personnel and Payroll Services - acts as employer-of-record for University sponsored projects and auxiliary departments. • Marketing Services - in addition to supporting the Foundation's other business operations, provides graphics production and event planning services to the University. • Property Management develops, operates, and maintains classroom, office, and other facilities for University departments and programs and related users such as the U.S. Geological Survey, the State Department of Water Resources, and the Regional and Continuing Education Program. The Foundation has recently completed construction of two additional buildings, Benicia Hall and Napa Hall, both of which are being leased to the University. The Foundation also recently completed the construction of Modoc Hall, which is currently leased in part to the University and in part to the United States Geological Survey. • Julia Morgan House - The Foundation sponsored the restoration of this historic Sacramento mansion and manages it as a facility for a variety of special events and community relations activities. The Foundation is self-financed, and surplus funds from the Foundation's operations are allocated to the University in the form of grants, in-kind services, equipment and donations. GOVERNANCE The Foundation is governed by a fifteen voting member Board of Directors (the "Board"). Pursuant to its Bylaws, three members of the Board are required to be members of the faculty of the University; three members are required to be members of the administration of the University (including the president of the California State University, Sacramento, or his/her designee and the Vice President for Administration for California State University, Sacramento or his/her designee ); two Board members are required to be members of the student body; and seven Board members are required to be local community members. The faculty members are required to be filled by direct appointment of the President of California State University, Sacramento. The President of California State University, or his/her dcsignec, and the Vice President for Administration for California State University, Sacramento, or his/her designee, shall have continuous appointment on the Board. The remaining administrative position on the Board is required to be filled by the direct appointment of the President of California State University, Sacramento. The two student members of the Board of Directors must meet the requirements for California State University, Sacramento Associated Students Board Membership to be eligible for appointment as a member of the Board of Directors. Each student member position is required to be filled by direct appointment of the President of California State University, Sacramento. 22 No member of the Board is to receive compensation for serving on the Board, except that actual and necessary expenses that are incurred in the discharge of a member's duties as such and as approved by the Board of Directors may be paid. Each Board member shall be twenty-one years of age. The current Directors, their position with the University or other employment, and the expiration of their tenure on the Board are set forth below. Names & Titles Term Expires I. Alexander Gonzalez, CSUS President Continuous 2. Stephen Garcia, Vice President for Administration Continuous 3. Ric Brown, Vice President for Academic Affairs 06/30/06 4. LaFenus Stancell, Community Member 06130107 5. Ruthe Ashley, Community Member 06/30/08 6. Reid Olsen, Community Member 06/30/07 7. Steve Gold, Community Member 06130106 8. Scott Maxwell, Community Member 06/30/06 9. Jose L. Perez, Community Member 06/30/07 I 0. Vacant - Community Member Position 06130105 11. Doraiswamy Ramachandran, Professor 06/30/08 12. Rhonda Rios Kravitz, Access Service Librarian 06/30/06 13. Greg Wheeler, Professor 06/30/07 14. Vacant -AS! President, CSUS 06/30/05 15. Vacant - Student Member 06/30/05 MANAGEMENT The following individuals provide the day-to-day management of the Foundation. Matt Altier, Executive Director. Mr. Altier has over 16 years of unique and extremely variegated experience in managing business and finance operations in the United States and Europe in both public education and the private sector. He has developed and overseen the management of institutional budgets ranging from $33 million dollars to over $300 million dollars, including construction and capital development projects ranging from $500,000 to $120 million dollars. Mr. Altier was an air traffic controller in the United States Air Force and graduated Cum Laude from California State University, Chico with a Bachelor of Science Degree in Industrial Technology. Donna Parenti, Director, Business. Ms. Parenti, has over 17 years experience in the fields of nonprofit and for-profit accounting and advanced knowledge of state and federal government regulations and principles applicable to grant and contract activities, and accounting systems. Ms. Parenti is a Certified Public Accountant in good standing. She is a member of various business organizations. Ms. Parenti has a Bachelor of Science degree in Business Administration with a concentration in accounting and a minor in Communication Studies. Paula Mika!, Director, Grants and Contracts Administration. Ms. Mika! has worked for University Enterprises, previously the CSUS Foundation, for twenty years holding 23 progressively increasing pos1t1ons of responsibility. She has a Liberal Studies degree from Sonoma State University and has continued her education by taking college courses in business, accounting and through professional development training. She is a member of the Society for Research Administrators, the National Council of Research Administration and serves on the California State University, Auxiliary Organization Association Research Committee. Julie Milardovich, Director, Bookstore. Ms Milardovich is the Foundation's Director of Bookstore Services and oversees the Hornet Bookstore, the Store in the University Union, and the Copy Graphics Center at CSUS. She has served the Foundation for over 23 years. She attended CSU Sacramento with a major in Criminal Justice and is active in regional and national College Store Trade Associations. Trina Knight, Director, Human Services. Ms. Knight is the Foundation's Director of Human Resources. With more than 14 years experience in the personnel and human resources field, Ms. Knight is responsible for more than 1,800 Foundation staff members. Ms. Knight has a Bachelor of Arts (Business Administration) from California State University, Chico, and is pursuing a Master's degree (Business Administration) at CSUS. She is a member of several human resources and compensation organizations and has served the Foundation since 1989. Ruedi Egger, Director, Dining Services. Mr. Egger is the Foundation's Director of Dining Services. Mr. Egger oversees the 23 self-operated and contracted campus eateries at CSUS. Originally from Switzerland, Mr. Egger is a Certified Executive Chef (Schweizerische Eidengossenshaft Fiihigkeitszeugnis N° 254) and has more than 32 years of experience in the hospitality industry around the world. With a Master of Arts (Marketing) and Master of Business Administration from Schweizerische Hotelfachschule Luzern, Mr. Egger has served the Foundation since 1996. David Levy, Interim Director, Marketing Services. Mr. Levy has 29 years service to California State University, Sacramento including 13 years as Dining Services Supervisor and Purchasing Agent and 16 years as Marketing Coordinator and Assistant Director of Marketing Services. Levy is affiliated with the National Association of College and University Food Services and the Sacramento Art Directors and Artists Club. Education: Sacramento City College-Commercial Printing Technology-Certification 1989. Lisa Hall, Director, Project and Resources Development. Ms. Hall is the Foundation's Director of Project and Resource Development and has additional responsibility for the areas of Risk Management, Property Development, Building Services, and the Julia Morgan House. In addition to a background in insurance underwriting and property management, she has served the Sacramento State campus for the last 15 years, most recently as the Director of Administrative and Customer Services in the Facilities Management division. She has a Bachelor of Science degree in Business Administration and has participated in numerous leadership development opportunities, including the Executive Leadership Management Institute at Stanford University. OPERATING AGREEMENT The Foundation operates as an auxiliary organization on the University campus pursuant to the Operating and Lease Agreement dated as of October I, 1995, amended as of October I, 2001, as of May I, 2002, and as of July I, 2005. 24 The Operating and Lease Agreement sets forth the terms and conditions under which the Foundation operates as an auxiliary organization of CSU. Pursuant to the Operating and Lease Agreement, the Foundation (i) leases certain real property on the University campus, (ii) operates the Hornet Bookstore and certain food service facilities, (iii) provides contract services to the University for research and sponsored projects, (iv) provides loans, scholarships, stipends and related financial assistance, and (v) administers externally funded projects, gifts, bequests, endowments, trusts and similarly funds. The Operating and Lease Agreement term will end on October 1, 2037, unless sooner terminated or extended. The Operating and Lease Agreement may be terminated sooner if (i) the CSU Board notifies the Foundation that an administrative necessity or emergency exists requiring termination; (ii) the Foundation ceases its operations; or (iii) a violation of any substantial provision of the Operating and Lease Agreement occurs. Upon the termination of the Operating and Lease Agreement, the CSU Board, at its sole discretion, may require the Foundation to transfer all assets in its possession to a successor nonprofit corporation qualifying as an auxiliary organization. TRANSFERS TO THE UNIVERSITY The Foundation transfers donations to University groups and to student groups on an annual basis. Transfers are reviewed initially by separate committees and ultimately approved by the Board of Directors. All transfers are budgeted by the Director, Contracts & Grants, submitted to the Budget & Finance Committee, and then forwarded to the Board of Directors with a recommendation of approval/disapproval from the Budget & Finance Committee. Any transfer of funds, however, is subject to the provisions of the Indenture that states that in any fiscal year of the Foundation, the Foundation may not transfer without consideration any moneys held in the Gross Revenue Fund or the Facilities Revenue Fund to the CSU Board, the University, or any other auxiliary organization of the CSU Board unless all payments due with respect to the Bonds and all Parity Debt (including the Series 2005 Bonds), for such fiscal year of the Foundation have been made and the Foundation is not otherwise in default under the Indenture. OUTSTANDING DEBT Other than the Series 2005 Bonds, the Foundation's long-term indebtedness as of the date of issuance of the Series 2005 Bonds consists of an interfund note payable to sponsored programs (with a final payment due June 2030). The total balance of the Foundation's long-term outstanding indebtedness was $44, 143,287 as of June 30, 2004. INVESTMENT OF EXCESS FUNDS The Foundation invests excess funds not needed for operation and other funds earmarked for capital improvements and equipment purchases. The Foundation has established specific goals and guidelines for investment and the Foundation's Investment Committee has the responsibility to implement and conduct periodic reviews of the investment guidelines. The investment guidelines permit the use of a wide variety of investment options, including both equity and debt securities. However, the investment guidelines prohibit certain transactions without prior approval from the Board of Directors, such as short sales, purchase of derivatives, margin purchases, acting as an underwriter, purchase of real estate (with the exception of real estate securities), options trading, purchase of restricted or private placement investments, purchase of foreign securities (except those traded on an organized exchange), purchases of securities of the investment manager's firm or 25 affiliated firms, and investment in futures, commodities, and currency hedges. The Foundation's general investment objective is to optimize return while utilizing asset diversification to control risk. INSURANCE The Foundation carries property, general liability, crime, inland marine and automobile insurance policies through Fireman's Fund and a boiler and machinery insurance policy with Travelers Property Casualty. The Foundation's liability coverage limit is $1,000,000 with an umbrella policy in the amount of $5,000,000. 26 FINANCIAL INFORMATION CONCERNING THE FOUNDATION Historical Financial Information. The following table presents a historical, comparative summary of the revenues, expenses and changes in fund balances for the Foundation's unrestricted funds for its Fiscal Years 2002 through 2004 and for the nine-month periods ended March 31, 2004 and March 31, 2005. The following data, insofar as it relates to each of the years ended June 30, 2002-2004, has been derived from annual financial statements. The data for the nine months ended March 31, 2005 and 2004 has been derived from unaudited financial statements that, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim periods. COMPARATIVE SUMMARY OF STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE UNRESTRICTED FUNDS FOR FISCAL YEARS ENDED JUNE 30, 2002, THROUGH JUNE 30, 2004, AND NINE-MONTH PERIODS ENDED MARCH 31, 2004, AND 2005 June 30, March 31, 2002 2003 2004 2004 2005 Operating revenues: Sales and vending commissions $21,086,433 $22,330,241 $22,640,853 19,650,920 19,640,112 Administration fees 5,293,995 5,257, 175 4,979,524 3,548,579 3,351,047 Rental income 2,664,236 2,803,798 3,591,793 2,403,190 3,484,112 Total operating revenues 29,044,664 30,391,214 31,212,170 25,602,689 26,475,271 Operating expenses: Cost of sales 11,861,096 12,749,485 12,797,545 11,498,075 11,588,218 Operating expenses 8,375,864 8,774,600 9,600,386 7,373,169 7,249,561 General and administrative 3,487,567 3,648,477 3,732,031 2,779,355 3,214,592 Sponsored research 444,303 350,000 350,000 273,000 273,000 University programs 125,000 125,000 225,000 125.000 125,000 Other programs 75,000 75,000 75,000 75,000 59,682 [)epreciation and amortization 999,262 948,795 1,092,687 757,567 1,021,052 Total operating expenses 25,368,092 26,671,357 27,872,649 22,881,166 23,531,105 Operating income (loss) 3,676,572 3,719,857 3,339,521 2,721,523 2,944,166 Nonoperating revenues and (expenses): Investment (loss) income (141,474) 376,742 1,132,284 1,072,460 920,755 Contributions and other income 281,075 181,176 136,092 I 13,679 60,362 Interest expense (1,015,686) (1,069,330) (1,636,726) (964,24 I) (2,065,416) Net nonoperating revenues (expenses) (876.085) (511,412) (368,350) 221 ,898 (1,084,299) increase in net assets 2,800,487 3,208,445 2,971,171 2,943,421 1,859,867 Net assets, beginning of year 21,658,003 24,458,490 27,666,935 27,666,935 30,638,106 Net assets, end of year $24,458,490 $27,666,935 $30,638, I 06 30,610,356 32,497,973 Source: Foundation. 27 Management's Discussion. The following summary of material trends in the Foundation's finances has been provided by the Foundation. For the past three fiscal years, the Foundation has consistently maintained adequate financial reserves. In the fiscal year ended June 30, 2004, total unrestricted assets reached $84,827,475, and unrestricted net assets increased to $26,120,052. The Bookstore and Dining Services experienced positive returns, even though enrollment remained flat, by continuing to successfully monitor labor and sales costs. Administrative fee revenue recovered by the Office of Grants and Contracts Administration was down 5% due to a decrease in State contracting activity, The decline in State faculty contracting is the result of a reduction in available funding of State agencies caused by the State of California budget crisis. During fiscal year 2003-04, the Foundation completed the construction of Modoc Hall. Modoc Hall is now fully occupied. The United States Geological Survey ("USGS") Western Region Service Center occupies 70% of the space and the University's Office of Water Programs and Office of Research, Graduate and Extended Programs, and the Foundation's Office of Grants and Contracts Administration occupies the remaining space. The Foundation has a lease agreement with USGS for 10 years ending January 16, 2014, with options to renew through 2024. The Foundation's lease agreement with the University for its programs is for a period of 30 years. Financial Statements. The audited financial statements of the Foundation for its Fiscal Year ended June 30, 2004, are included in Appendix A to this Official Statement, attached hereto and made a part hereof. See "Miscellaneous: Financial Statements." THE CALIFORNIA STATE UNIVERSITY, SACRAMENTO GENERAL DESCRIPTION The University, located five miles from the State Capitol in Sacramento along the American River, was founded in 1947. The campus is approximately 300 acres in size with facilities that include a one-million volume library, numerous labs equipped with the latest computers, a 21, 195-seat stadium, two gymnasiums, playing fields for baseball and softball, an arboretum, and three theaters. The University's most recent additions include four new classroom buildings, a major expansion of the University Union, the Alumni Center, and Placer Hall, a high-tech scientific facility built in partnership with the United States Geological Survey. Additionally, a world-class, $1.5 million track and field facility was installed at Hornet Stadium for the 2000 and 2004 United States Olympic Track and Field Trials. The University is a regional comprehensive public institution that is authorized to offer educational programs at the baccalaureate and master's levels, and jointly with the University of California or approved private institutions, at the doctorate level. It fulfills related research and public service roles and maintains support services for students. The University presently offers 60 undergraduate degrees and 40 graduate degrees in seven Colleges: Arts & Letters, Business Administration, Education, Engineering & Computer Science, Health & Human Services, Natural Sciences and Mathematics, and Social Sciences and Interdisciplinary Studies. 28 STUDENT ENROLLMENT Enrollment at the University has remained steady over the past six years in terms of total headcount and full-time equivalent students ("FTES"), as shown in the table below. California State University, Sacramento: Historical Fall Term Enrollment by Class Level 1999 2000 200 I 2002 2003 2004 Freshman 3,615 4,127 4,648 4,928 4,680 4, 782 Sopho1nore 1,676 1,826 1,905 2,035 2,029 1,748 Junior 6,104 6,360 6,608 7,234 7,022 7,168 Senior 7,948 8,029 8,342 8,357 8,831 8,857 Total Undergraduate 19,343 20,342 21,503 22,554 22,562 22,555 Graduate 5, 187 5,372 5,420 3,549 3,917 3,850 Total Headcount 24,530 25,714 26,923 28,558 28,375 27,972 Total FTES 19,158.6 19,970.8 20,984.8 22,188.8 22,294.1 22,090.9 Source: CSU Analytical Studies Division. Totals may not add due to rounding. Total fleadcount includes certain students in programs other than in Undergraduate and Graduate programs. UNIVERSITY PROGRAMS, SERVICES AND FACILITIES Academic Programs and Facilities. The University's programs incorporate three curricular objectives reflecting the values that underlie its emphasis on a liberal education. These objectives are the acquisition of knowledge, the development of critical thought processes, and the synthesis of knowledge. The University offers undergraduate programs in the traditional liberal arts disciplines and selected professional studies programs in business, education, engineering and health and human services. Emphasis is placed on general education, which provides fundamental knowledge in areas of universal interest and applicability -- natural sciences, social sciences, humanities and fine arts -- as well as a foundation for a broad range of studies including pre professional and professional programs. At the graduate level, the University offers master's degrees, numerous post-baccalaureate certificate programs, and a doctoral degree program in cooperation with the University of California, Santa Barbara. Major research centers based at the University assist its graduate programs and serve the region and the state. The six-story University Library, with floor space of approximately 300,000 square feet and seating for almost 4,000 students, has holdings of about a million volumes and many thousands of maps, slides and pamphlets. The University Library also maintains a collection of over 5,000 magazines, technical and scholarly journals, and newspapers. Additional University Library collections include millions of pieces of microforrns and non-print media. The University Library is a depository for California State Publications and for selected United States government materials. The library also provides free online access to the archives of thousands of periodicals. The University Computing and Communications Services ("UCCS") is responsible for all University-wide computing and data communications equipment, software and networking. UCCS operates major computer systems accessible to University students, faculty and administrative staff. Virtually all campus computers are tied together into local area and wide area networks by a campus-wide, fiber-optic-based backbone. These networks support 29 instruction, research and administrative functionality and provide connectivity to workstations located in campus instructional laboratories and faculty administrative offices. In addition, a dedicated data communications dial-up network is maintained by the University for students and faculty for off-campus access to University computing facilities and information resources. The UCCS backbone network is linked to the internet, connecting the University to all major education and research sites in the world. The Office of Global Education at the University develops and administers the University study abroad programs, manages international faculty exchanges, and assists faculty in obtaining grants for curriculum development projects. International students from more than 70 nations come to the University to pursue academic programs; the Office of Global Education administers a variety of programs aimed at integrating them into campus and community life. Since its origin, the University has developed numerous educational equity programs, including the Educational Opportunity Program, the College Assistance Migrant Program, the MESA Engineering and Computer Science Program, the Business Education Equity Program, and the Faculty/Student Mentor Program. These programs, and the University's reputation, have helped attract a diverse student body not only from Northern California but from all across the United States and around the world. Student Services and Activities. The University Residence Halls provide housing accommodations, services and programs, including special events, hall self-governance, discussion groups, campus and community service, intramural sports, faculty and guest speakers, movies, arts and crafts, dances and trips to sporting events. There are currently five residence halls - Sutter, Sierra, Draper, Desmond, and Jenkins. Each of the residence halls is coeducational and provides living accommodations for 200-250 students. Facilities include study rooms, a recreation room, a lounge, and a kitchen. The Residence Hall complex includes a Dining Commons, which offers a wide variety of foods and flexible meal times, and is operated by the Foundation. Lassen Hall houses most of the services, resources and information to help University students achieve their academic goals and to resolve their nonacademic problems. The University also offers numerous other student services including a health center, psychological counseling services, a learning skills center, a rape prevention education program, and a women's resource center. The University Union provides activity programs and other support to the campus. The facility contains lounge, meeting, recreational, and special event spaces and food services for the entire campus community, as well as offices for the Associated Students Incorporated ("AS!"). The University Union, in cooperation with AS! and the State Departments of Boating and Waterways and Parks and Recreation, operates the Aquatic Center at Lake Natoma. The Aquatic Center, established in 1981, has provided a venue for physical education classes, leisure classes, competitive teams, and a series of summer youth camps. The Aquatic Center provides boating and water safety instruction for students, faculty, staff and alumni of the University and other educational institutions. 30 ASI is a non-profit corporation and an auxiliary of the University. ASI's function is to promote and advance the common interest of the student body and the welfare of the University. Services provided by ASI include child care at the Children's Center, free legal aid, outdoor education and recreation programs, and a free transit program. ASI also operates the Student Access Center, which provides information on housing, employment, and University services. Through grants and contracts, ASI provides financial support for athletics and other University programs. The University offers comprehensive and competitive intercollegiate athletics programs. Approximately 500 student-athletes participate in one or more of the University's 20 men's and women's intercollegiate sports. The University offers scholarships for students in many of the sports. The University's athletics facilities include the recently renovated Hornet Field, a field house, and track and field facilities. Two gyms, two pools and 16 tennis courts are located throughout the University. The University competes in the National Collegiate Athletic Association (NCAA) Division I for all sports, except football, which is at Division IAA. The University Intercollegiate Athletics Program includes the following sports: Men's baseball, basketball, football, golf, soccer, tennis, indoor and outdoor track and field, and cross country; and Women's basketball, golf, soccer, cross country, gymnastics, indoor and outdoor track and field, softball, tennis, rowing, and volleyball. The CSUS Recreational Sports Program, funded by grants from AS!, provides fitness, aquatic, and sports activities for students. Recreational facilities such as swimming pools, weight room, racquetball courts, tennis courts, and gyms are also available for student use. Capital Public Radio, another auxiliary organization, operates KXPR, KXJZ, KSCR, and KKTO (which are licensed to the University) and KUOP (which is licensed to the University of the Pacific) as a public service for the Sacramento and Stockton regions. KXPR features classical music and news, while KXJZ provides a jazz and news/public affairs format. Capital Public Radio also provides internship programs for qualified University students who wish to gain experience by working in a professional broadcasting environment. UNIVERSITY'S BUDGET The University is planning a 2005-2006 Fiscal Year budget that includes approximately $226 million in General Fund expenditures, an assumed enrollment of 22,617 full-time equivalent students and a total student population of28,000. It is expected by the University that student fee revenues for the 2005-06 Fiscal Year will total approximately $69 million. According to the University, despite the fiscal uncertainties surrounding the State Budget and the attendant increases in the student fees over the last several years, student demand for classes at the University remains strong and is projected to grow into the next several years. The commitment of both CSU and the State that financial aid funding will be sufficient to meet student needs, help to assure the continuation of this demand. FINANCIAL STATEMENTS FOR THE UNIVERSITY No revenues of the University are pledged for the security of the Series 2005 Bonds. See "Security for the Series 2005 Bonds." The audited combined financial statements of California 31 State University, Sacramento for the year ended June 30, 2004, which were audited by KPMG LLP, arc available from the Foundation or from the University. The following table shows statement of revenues, expenses, and changes in net assets for Fiscal Years ended June 30, 2002 through June 30, 2004. California State University, Sacramento Statement of Revenues, Expenses and Changes in Net Assets For Fiscal Year Ended June 30, 2002 2003 2004 Revenues Operating revenues: Student tuition and fees I $48,837,105 $57,970,357 $64,707,526 Grants and Contracts, noncapital: Federal 23,013,419 23,422,932 23, 118,597 State and local 8,101,111 9,239,694 12,030,987 Nongovernmental 967,030 160,539 79, 158 Sales and services of educational activities 7,006,805 7,395,821 7,845,512 Sales and services of auxiliary enterprises 8,841,625 10,336,981 11,521,030 Total operating revenues -~9'-'6"-,7'-'6'-'7-",0'-'9:.::5c_ __.,_I 0"'8"''"'52,.:6c,c,3c:2:_4:_ _ _'.l..,_l.:.9,c;3.;:0cc2,cc8.:.I0,:__ Expenses Operating expenses: Instruction I I 0,380, 161 I 20,498,357 120,072,223 Research 732,613 991,511 914,136 Public services 6,121,169 5,675,221 6,978,973 Academic support 26,331,956 23,415,397 23, 160,351 Student services 21,109,972 21,449,765 22,030,631 Institutional support 31,107,877 36,707,999 38,108,176 Operation and maintenance of plant 16,353,4 77 19,299, 964 16,224,3 88 Student grants and scholarship 27,612,857 28,437,241 31,620,866 Auxiliary enterprise expenses 10,555,637 11,236,183 11,903,580 Depreciation 19,821,470 19,865.518 22,079,417 Total Operating expenses _ _::.27c:02,-'-12::,7CJ.,.:.:18e.;9c._ __::.2,c87.:.:,.ce5.c_77:..,,.:_15::.:6:'c---'2"'9-"3",0~9::.2!..'., 7.c,4_,_l ~ Operating loss income _ _,.(:..;17:.;:3o:,3:.c6c:0'-",0"-94.:..,)c__ _ _;(.:.I :._79:c,Oe;5:.::020,8ec3::.2)z___.'c(1:..:7.=.3!..'., 7c:8c:.:9·cc9::..3 '"I)_ Nonoperating revenues (expenses): State appropriations, noncapital 153,054,971 157,602,664 149,790,967 Gifts, noncapital 3,180,930 4,366,096 4,098,030 Investments income, net 3,636,090 3,009,407 271,344 Endowment income 320,270 286,266 239,353 Interest on capital-related debt (1,896, 155) (2, 131,443) (2,039,698) Other nonoperating revenues, net 6,313,535 6,090,934 7,578,760 Net nonoperating revenues ( expenses) --'-16c,4ec,6~0~9~,6~4~1-__.c.1 ~69'-''"22"'3'-'''-'92~4~--'1~5.c.9~,9.c.3.c.8,~7.c.5.c.6_ (Loss) income before other additions (8,750,453) (9,826,908) (13,851,175) State appropriations, capital 26,687,943 16,074,000 19,056,000 Grants and gifts, capital 214,537 3,053,572 2,574,588 Increa<;e in net assets 18,152,027 9,300,664 7,779,413 Net assets: Net assets at beg. of year as restated 192,796,387 210,948,414 220,249,078 Net assets at end of year 210,948,414 220,249,078 228,028,491 1 Net of scholarship allowances of $9,736, 766, $ I 0,252,477, and $14,424,007 for fiscal years ended June 30, 2002, 2003, and 2004, respectively. Source: CSU Sacramento. 32 THE CALIFORNIA STA TE UNIVERSITY GENERAL The CSU system is an agency of the State of California created by statute in 1960. At that time twelve existing schools, previously under the jurisdiction of the State Board of Education, were brought under the stewardship of the CSU Board. This legislation reorganized higher education in California and established the formal name "California State Colleges" in 1960. During 1971, such legislation was amended and beginning March 4, 1972, the California State Colleges became known as The California State University and Colleges. On September 23, 1981, legislation was enacted changing the name to The California State University. Presently, there are twenty-three campuses of CSU. EDUCATION PROGRAM Generally, the educational responsibilities of CSU are to provide undergraduate and graduate instruction through bachelor's and master's degrees in the liberal arts and sciences, in applied fields and the professions. The two polytechnic schools emphasize applied fields of agriculture, engineering, business, home economics and other occupational and professional programs. A limited number of doctoral degrees are offered jointly with the University of California and with private institutions in California. During the fall term of the 2004-2005 academic year, CSU provided instruction to approximately 400,000 graduate and undergraduate students (more than 330,000 students on a full-time equivalent basis). ADMINISTRATION AND AUXILIARY ORGANIZATIONS Responsibility for CSU is vested in the CSU Board of Trustees. The Governor, Lieutenant Governor, Speaker of the State Assembly, State Superintendent of Public Instruction and Chancellor of CSU are ex-officio members of the CSU Board. There are sixteen additional CSU Trustees appointed by the Governor for eight-year terms, two additional CSU Trustees appointed by the Governor for two-year terms, and one additional Trustee appointed by the Alumni Council of CSU for a two-year term. The CSU Board appoints the Chancellor, who is the chief executive officer of CSU, and the presidents who are the chief executive officers of the respective campuses. The CSU Board, the Chancellor and the presidents develop system-wide policy, with actual implementation at the campus level taken place through broadly based consultative procedures. CSU campus presidents are responsible for oversight of all activity on their respective campuses, including the operations of campus auxiliary organizations. Statutes within the Education Code, policies of the CSU Board, and campus regulations form a structural framework within which each auxiliary organization performs the functions it has been authorized to carry out. The Operating Agreements have been approved by the Foundation and the University campus president. 33 STATE BUDGET FOR CSU On July 11, 2005, the Governor signed the State Budget Act for 2005-06. In the budget, the CSU received a 2005-06 target of 332,223 FTES. The $2.6 billion General Fund budget proposed by the Governor in January included a $36.7 million adjustment in base budget appropriations the CSU received in 2004-05, a $122.5 million increase in CSU General Fund support from the State, and a $101.3 million increase in student fee revenue from enrollment growth, as well as State University Fee rate increases for undergraduate and teacher credential students (8%) and graduate students (] 0%). The budget signed by the Governor on July 11, 2005 increases the January budget proposal by $7 million to restore base funding previously cut from CSU Outreach and Academic Preparation programs, and it increases CSU funding support by $810 thousand to expand CSU math/science teacher preparation and nursing programs to address the shortfall of math/science teachers and skilled nurses in California. The budget plan adopted by the Board of Trustees funds $41.8 million in Mandatory Cost increases, $63.7 million for 2.5% enrollment growth (8,103 FTES), $23.3 million for financial aid grants, $88.1 million for employee compensation increases, and $7.9 million for structural budget deficiencies in libraries, technology and deferred maintenance. The CSU Board's budget plan also recognized a $44 .4 million increase for 2004-05 retirement cost increases and reduced funding for dental annuitants benefits (over $600,000) to reflect lower cost projections for 2005-06. This budget falls in line with the six-year agreement the CSU entered with the Governor beginning in 2004-05 through 20 I 0-11. This agreement, known as the "Compact for Higher Education" provides fiscal stability to the CSU but also allows for future planning for enrollment, student fees, financial aid, compensation, and restoration of the academic infrastructure (libraries, technology equipment, and deferred maintenance). The Foundation cannot predict what actions will be taken in the future by the State Legislature and the Governor to address changing State revenues and expenditures. The State budget will be affected by national and state economic conditions and other factors over which the Foundation has no control. Reduced State revenues and potential deficits could have an adverse financial impact on the CSU system in future fiscal years. INVESTMENT CONSIDERATIONS AND RISK FACTORS GENERAL In considering the matters set forth in this Official Statement, prospective investors should carefully consider certain risks associated with the Series 2005 Bonds. The ability of the Foundation to realize revenues in amounts sufficient to pay debt service on the Series 2005 Bonds when due is affected by and subject to conditions that may change in the future to an extent and with effects that cannot be determined at this time. No representation or assurance is given or can be made that revenues will be realized by the Foundation in amounts 34 sufficient to pay debt service when due on the Series 2005 Bonds and the other obligations of the Foundation. The receipt of future revenues by the Foundation is subject to, among other factors, student enrollment at the University, the capability of the management of the Foundation, and future economic conditions. Disruptions in the economy (such as those precipitated by the recent terrorist attacks in New York or other national emergencies) or a downturn in general economic activity may adversely affect discretionary spending by the Foundation's customers and, to that extent, demand for its services. Other general economic conditions may include an inability to control expenses in a period of inflation, an inability to predict or control energy expenses, and other conditions that are impossible to predict. The Foundation's ability to generate future revenues will have a direct impact upon the payment of principal of and interest on the Series 2005 Bonds. BUDGET RISK Rental payments from the University are subject to annual appropnat10n. Rental payments pursuant to a lease with USGS may be subject to annual appropriation following the initial I 0-year term. INVESTMENTS OF THE FOUNDATION Amounts on deposit in the funds and accounts held by the Trustee under the Indenture are required to be invested in Investment Securities (as defined in the Indenture). With respect to other investments of the Foundation, the Foundation's current investment policy provides, among other things, that the Foundation may invest in every type of property or investment. In the event that the Foundation were to liquidate investments at a time when such investments had declined significantly in market value or the Foundation were otherwise to incur a significant investment loss, the ability of the Foundation to pay debt service on the Series 2005 Bonds may be adversely affected. For further information regarding investments of the Foundation, see the financial statements of the Foundation contained in Appendix A hereto. ENFORCEMENT OF REMEDIES The effectiveness of the security interest in the Revenues granted pursuant to the Indenture and of the covenant of the Foundation to deliver its Gross Revenue Fund to the Trustee in certain circumstances contained in the Indenture may be limited by a number of factors, including: (i) statutory liens; (ii) rights arising in favor of the United States of America or any agency thereof; (iii) constructive trusts, equitable or other rights impressed or conferred by a federal or state court in the exercise of its equitable jurisdiction; (iv) federal bankruptcy laws which may affect the enforceability of the security interest in the Revenues which are earned by the Foundation within 90 days preceding and after any effectual institution of bankruptcy proceedings by or against the Foundation; (v) rights of third parties in the Revenues converted to cash and not in the possession of the Trustee; and (vi) claims that might arise if appropriate financing or continuation statements are not filed in accordance with the California Uniform Commercial Code as from time to time in effect. 35 CONTINUING COMPLIANCE WITH CERTAIN COVENANTS Failure by the Foundation to comply with certain covenants in the Indenture on a continuous basis prior to the maturity of the Series 2005 Bonds could result in an Event of Default and require the Trustee to take certain remedial action that could impact a Bondholder. See Appendix B - "Summary of Certain Provisions of the Indenture - Events of Default and Remedies of Bondholders." DAMAGE OR DESTRUCTION OF FACILITIES Agreements to use the Facilities require that the Facilities be insured against certain risks. There can be no assurance that the amount of insurance required to be obtained with respect to the Facilities will be adequate or that the cause of any damage or destruction to the Facilities will be as a result of a risk which was insured. Further, there can be no assurance of the ongoing creditworthiness of the insurance companies with which the Foundation obtains insurance policies. Use of the Facilities may be terminated if a casualty renders the Facilities totally or partially unfit for its purposes, and if insurance proceeds are insufficient to restore the Facilities to a tenantable condition. The Facilities will be insured by the Foundation until title to the Facilities transfers to the University. ENVIRONMENTAL REGULATION The Facilities are subject to various federal, State and local laws and regulations governing health and the environment. In general, these laws and regulations could result in liability to the owner for remediating adverse environmental conditions on or relating lo the Facilities, whether arising from preexisting conditions or conditions arising as a result of the activities conducted in connection with the ownership and operation of the Facilities. Costs incurred by the Foundation with respect to environmental remediation or liability could adversely impact its financial condition and its ability to operate the Facilities. FACTORS ASSOCIATED WITH HIGHER EDUCATION There are a number of factors affecting institutions of higher education in general that could have an adverse effect on the Foundation's and the University's financial position and their ability to make the payments. These factors include, but are not limited to, the continuing rising costs of providing higher education services; competition for students from other institutions of higher education; the failure to maintain or increase in the future the funds obtained from the State Legislature or from other sources, including gifts and contributions from donors, grants or appropriations from governmental bodies and income from investment of endowment funds; adverse results from the investment of endowment funds and the University's treasury; imposition of federal or State unrelated business income or local property taxes; increasing costs of compliance with federal or State regulatory laws or regulations, including, without limitation, laws or regulations concerning environmental quality, work safety and accommodating persons with disabilities; changes in federal governmental policy relating to the reimbursement of overhead costs of government contracts; any unionization of the work force with consequent impact on wage scales and operating costs of the University; changes in existing statutes pertaining to the powers of the University and legislation or regulations affecting student aid and 36 other program funding. Neither the Foundation nor the University can assess or predict the ultimate effect of these factors on their operations or financial results of operations. BOND INSURER TO CONTROL REMEDIES IN EVENT OF DEFAULT Pursuant to the Indenture, after an Event of Default, the Bond Insurer has the complete and exclusive right to direct the Trustee to pursue and enforce any and all remedies established by the Indenture. The Bond Insurer, if it is not in default with respect to the Financial Guaranty Insurance Policy, also has the exclusive right to waive any Event of Default pursuant to the Loan Agreement. FINANCIAL CONDITION OF THE BOND INSURER The Bond Insurer will issue the Municipal Bond New Issue Insurance Policy pursuant to which it will unconditionally guarantee the payment of principal of and interest on the Series 2005 Bonds when due. The ongoing stability and financial condition of the Bond Insurer and the Bond Insurer's ability to pay the principal of and interest on the Series 2005 Bonds and otherwise perform its obligations under the Policy are the basis for the rating assigned to the Series 2005 Bonds as set forth on the cover page hereof. Upon the occurrence and continuation of an Event of Default under the Indenture, proceeds of claims under the Policy are the registered owners' primary expected source of payment of principal of and interest on the Series 2005 Bonds. SECONDARY MARKET There is no guarantee that a secondary trading market will develop for the Bonds. Consequently, prospective Bond purchasers should be prepared to hold their Bonds to maturity or prior redemption. Subject to applicable securities laws and prevailing market conditions, the Underwriter intends but is not obligated to make a market in the Series 2005 Bonds. FAILURE TO PROVIDE ONGOING DISCLOSURE The Foundation and the University have both entered into the undertaking pursuant to the Rule (as such terms are defined herein). Failure to comply with the undertaking and the Rule may adversely affect the transferability and liquidity of the Bonds and their market price. BOOK ENTRY Persons who purchase bonds through broker-dealers become creditors of the broker dealer with respect to the Series 2005 Bonds. Records of the investor's holdings are maintained only by the broker-dealer and the investor. In the event of the insolvency of the broker-dealer, the investor would be required to look to the broker-dealer's estate, and to any insurance maintained by the broker-dealer, to make good the investor's loss. 37 RISK OF Loss FROM NONPRESENTMENT UPON REDEMPTION The rights of the registered owners of the Bonds to receive interest will terminate on the date, if any, on which the Bonds are to be redeemed pursuant to a call for redemption, notice of which has been given under the terms of the Indenture. LEGAL MATTERS LITIGATION There is not now pending or, to the knowledge of the Foundation, threatened, any litigation seeking to restrain or enjoin the issuance or delivery of the Series 2005 Bonds or questioning or affecting the validity of the Series 2005 Bonds or the proceedings or authority under which they are to be issued. There is no litigation pending or, to the Foundation's knowledge, threatened which in any manner questions the right of the Foundation to enter into the Indenture, to secure the Series 2005 Bonds in the manner provided in the Indenture. In addition, the Foundation is not a party to any pending litigation or proceedings and, to its knowledge, there are no litigation proceedings threatened against it, which would have a material impact on the financial position, results of operations, or cash flows of the Foundation. APPROVAL OF LEGALITY Legal matters incident to the authorization and issuance of the Series 2005 Bonds are subject to the delivery of the opinion of, Kronick, Moskovitz, Tiedemann and Girard, Sacramento, California, Bond Counsel. See Appendix D - "Proposed Form of Opinion of Bond Counsel." TAX MATTERS In the opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2005A Bonds is excludable from gross income for federal income tax purposes and is exempt from all taxation in the State of California other than estate and generation skipping taxes. Bond Counsel is also of the opinion that interest on the Series 2005A Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. Interest on the Series 20058 Bonds is not excludable from gross income for federal income tax purposes but is exempt from all taxation in the State of California other than estate and generation skipping transfer taxes. The amount (if any) by which the issue price of the Series 2005A Bonds of any given maturity date is less than the amount to be paid on that date (excluding amounts stated to be interest and payable at least annually over the term of such Bonds) constitutes "original issue discount." The accrual of original issue discount, to the extent properly allocable to a Beneficial Owner, is 38 treated as interest on the Series 2005A Bonds that is excludable from gross income for federal income tax purposes and exempt from all taxation in State of California (other than estate and generation skipping transfer taxes). For this purpose, the issue price of a particular maturity of the Series 2005A Bonds is the first price at which a substantial amount of that maturity 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 Series 2005A Bonds of any maturity date accrues daily over the term to that maturity date 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 the Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment at maturity) of the Bonds. Beneficial Owners of Series 2005A Bonds sold with original issue discount should consult their own tax advisors with respect to the tax consequences of ownership of their Bonds, including the treatment of purchasers 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. Series 2005A Bonds purchased, whether at original issuance or otherwise, for an amount greater 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 for bonds, like the Premium Bonds, the interest on which is excludable from gross income for federal income tax purposes. However, a purchaser's basis in a Premium Bond and, under Treasury Regulations, the amount of tax-exempt interest received will be reduced by the amount of amortizable bond premium properly allocable to such purchaser. 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 Internal Revenue Code of 1986, as amended, 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 Series 2005A Bonds. The Foundation has covenanted to comply with certain restrictions designed to assure that interest on the Series 2005A Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Series 2005A Bonds being included in federal gross income, possibly from the date of issuance of such Series 2005A Bonds. The opinion of Bond Counsel assumes 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) after that date of issuance of the Series 2005A Bonds may adversely affect the tax status of the interest on the Series 2005A Bonds. Although Bond Counsel expects to render an opinion that interest on the Series 2005A Bonds is excludable from gross income for federal income tax purposes and interest on the Bonds is exempt from all taxation in the State of California other than estate and generation skipping transfer taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a Beneficial Owner's federal or state tax liability. The nature and extent of these other tax consequences will depend 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. 39 In addition, no assurance can be given that any future legislation, including amendments to the Code, if enacted into law, or changes in interpretation of the Code, will not cause interest on the Series 2005A Bonds to be subject, directly or indirectly, to federal income taxation or otherwise prevent Beneficial Owners of the Series 2005A Bonds from realizing the full current benefit of the tax status of such interest. Prospective purchasers of the Series 2005A Bonds should consult their own tax advisers regarding any pending or proposed federal tax legislation. Further, no assurance can be given that the introduction or enactment of any such future legislation, or any action of the Internal Revenue Service ("IRS"}, including but not limited to regulation, ruling, or selection of the Series 2005A Bonds for audit examination, or the course or result of any IRS examination of the Series 2005A Bonds, or obligations that present similar tax issues, will not affect the market price or liquidity of the Series 2005A Bonds. MISCELLANEOUS UNDERWRITING The Underwriter has agreed to purchase the Series 2005 Bonds from the Foundation at a purchase price of $48,278,919.90, which represents the aggregate principal amount of the Series 2005 Bonds, less an Underwriter's discount of $436,950.00, plus net original issue premium of $165,869.90. The Underwriter reserves the right to join with dealers and other underwriters in offering the Series 2005 Bonds to the public. The obligation of the Underwriter to accept delivery of the Series 2005 Bonds is subject to the various conditions of the bond purchase agreement. RATING Standard & Poor' s Credit Market Services has assigned the rating of "AAA" to the Series 2005 Bonds, with the understanding that, upon delivery of the Series 2005 Bonds, the Series 2005 Insurance Policy will be issued by the Bond Insurer with respect to the Series 2005 Bonds. Such rating reflects only the views of such organization and any desired explanation of the significance of such rating should be obtained from the rating agency, at the following address: 55 Water Street, New York, NY. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such rating will continue for any given period oftime or that such rating will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. FINANCIAL STATEMENTS The audited financial statements of the Foundation for its fiscal year ended June 30, 2004, are attached as Appendix A. Prior years' financial statements are available upon request. The Foundation's financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report included with the financial statements. PricewaterhouseCoopers LLP has agreed to the inclusion of the Foundation's audited financial statements in this Official Statement. 40 The audited combined financial statements of California State University, Sacramento, for its fiscal year ended June 30, 2004, are available upon request. The University's financial statements have been audited by KPMG LLP, independent auditors, as stated in their report included with the financial statements. Financial information of the University is included for general information purposes. No revenues of the University are pledged for the security of the Series 2005 Bonds. See "Security for the Series 2005 Bonds." ADDITIONAL MATTERS Neither any advertisement of the Series 2005 Bonds nor this Official Statement is to be construed as constituting an agreement with the purchasers of the Series 2005 Bonds. So far as any statements are made in the Official Statement involving estimates, projections or matters of opinion, whether or not expressly so stated, they are intended merely as such and not as representations of fact. CUSIP identification numbers will be printed on the Series 2005 Bonds, but no error in the printing of such numbers shall constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay for any Series 2005 Bonds. The attached Appendices are integral parts of this Official Statement and should be read together with all of the foregoing statements. CONTINUING DISCLOSURE The Foundation has covenanted for the benefit of the Holders and beneficial owners of the Series 2005 Bonds to provide certain financial information and operating data relating to the Foundation by not later than six months following the end of the Foundation's Fiscal Year (presently June 30), commencing with the report for the 2005-2006 Fiscal Year (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Trustee on behalf of the Foundation with each Nationally Recognized Municipal Securities Information Repository and the State Repository, if any. The notices of material events will be filed by the Trustee on behalf of the Foundation with the Municipal Securities Rulemaking Board and the State Repository, if any. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in Appendix C "Proposed Form of Continuing Disclosure Agreement." These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5), as amended. AUTHORIZATION The execution and delivery of this Official Statement dated as of the date set forth on the cover page has been duly authorized by the Foundation. UNIVERSITY ENTERPRISES, INC. By: Matt Altier, Executive Director 41 (This Page Intentionally Left Blank) APPENDIX A AUDITED FINANCIAL STATEMENTS OF UNIVERSITY ENTERPRISES, INC. (FORMERLY CALIFORNIA STATE UNIVERSITY SACRAMENTO FOUNDATION) FOR THE FISCAL YEAR ENDED JU~!E 30, 2004 (This Page Intentionally Left Blank) California State University Sacramento Foundation /JRJCEWA1ERJ-IOUsf(aJPERS Ii Table of Contents -~une 3~. 2004 ____ ~ Report of Independent Auditors .. Management's Discussion and Analysis. Sta1ement ofNe! Assets ... 6 California State University Statement of Activities 7 Sacramento Foundation Statcmen! ofCash Flows ... 8 Notes 10 Financial Statements .. Report on Audit of Financial Statements .9 For the year ended June 30, 2004 California State University Sacramento Foundation Management's Discussion and Analysis {JRtclWA"lfRHOUs~aJPERS Ii June 30, 2004 - - PrlcewaterhouseCool)or!I U.P This section of the California State University &l.crnmento l'oundation's (the "Foundationj annual 400 Capild Mall, Swl& 600 Sacramell1o CA 95814 financial report presents our discussion and analysis of the financial perfonnance of the Foundation felephon& \916) 930 81 oo during the fiscal year ended June 30, 2004. This discussion has been prepared by management along with M;J,n Fa<:slml~ {916) 930 9450 the financial statements and related footnote disclosures and should be read in conjunction with, and k Ta• Facsimile \916) S30 8150 \ qualified in its entirety by the fin!IJlcial statements and footnotes. The financial statemc11ts, footnoles and this discu"ion are the responsibility of management Report of Independent Audi!ors Reporting Entity Board of Directors The Foundation is a nonprofit corporation and an aux:iliary organization o£Califomia State University, California Stale Univcrnity Sacramento Foundation Sacn,mento (the "University"). The Foundation's corporate purposes include, among other things, p1oviding facilities for the students,. faculty and staff of the University and establishing and operating In our opinion., the accompanying statement of net assets and !he related statements of activities and cafoterias, bookstore and other facilities on the campus of the University. The Foundation also provides cash flows present fairly, in all material respects, the financial position of the California State contract services including admini. 1?.·ce<,1,Julu,,.1,t ~1 LA,,f' A fund is a grouping of related accounls lhal is used to maintain control over resources that have been segregated for specific activities or objectives. The Foundation uses fund accounting to ensure and September 16, 2004 d~monstrate compliance wilh llmmce-relnted legal requirements. All oft he Foundation's funds can be divided into three categories: Umestricted Operating Funds, Restricted Sponsored Programs Fund.~ and Restricted Campus Programs Funds. Operating Funds- The Operating Funds are used to i«;:cnunt for the business activities of the Foundation including the bookstore and dining service operation~. grants and cont1acts administration, property development and other activities. Spo"sored Programs Funds - The Sponsored Programs Funds account for funds and conlributiou~, the use of which is restric1ed by per.wns or organizations not under Foundation control, to support instructiornil, research, or public service functions of the University. -2- ·I· California State University Sacramento Foundation California State University Sacramento Foundation Management's Discussion and Analysis Management's Discussion and Analysis _Ju~~~_._ ~~~4______June 30, 2004 -·· _ _ ___ Campu.r Programs Funds- The Campus Programs Funds represent funds held and administered by the CONDENSED STATEMENT OF NET ASSETS Fo11ndation on bcli'alf of the Oniver11ity, which are restric!ed for programs benefiting specific University academic and administrative units and other campus organizations. The Foundation's assets and liabilities as of June 30 are summarized as follows (in thousands): Financial Highlights 2004 2003 Assets The Foundation had another soccessfu! year of operations in 2004 with positive operating income Cnrrent assets 37,2&6 ~563 totaling SJ million. The Bookstore aod Dining Services experienced positive returns, even though ' enrollment remained flat, by continuing to suceessfuUy monitor labor and sales costs. Administrative l' Current assets declined $5.J million from 200) due to moving appro.~imately S.7 million in short tenn investments lo long-term fixed income and equity securities; a S2.5 million dec1ease in a<:counts receivable and a S2.2 million decrease in inlercompany receivables, resulting from declining contracting activity. Long.term investments increased by $3.7 million as a result of the $3 million increase in net assets and the transfer of short ·term inve.~tments to long-term investments noted above. Restricted cash and investments, related lo debt service reserve funds and unspent bond proceeds, declined $8.4 million as Modoc Ball construction wa$ completed. The Fmmdation has financed the consttuction of campus buildings, the most recent building completed being Modoc Hall. The Modoc Hall facility is leased in part by the United States Department of the foterior Geological Survey (USGS), leased in part by the University for its Office of Water Programs a:nd Office of Research, Graduate and Extended Programs, and used in part by the Foundation for its contracts -3- + California State University Sacramento Foundation California State University Sacramento Foundation Management's Discussion and Analysts Statement of Net Assets June 30, 2004 June 30, 2004 offices and dining services. The Foundation also completed Napa Ha!! in March 2003. This facility Tola! All Fund, provides administrative, lecture and conference room space for University continuing education (Memo Only) programs, Depending upon the nature of the \r,ase agreements, these facilities are acwunted for as either Unr.. trieted buildings leased to others under operating leases or direct financing leases. Op.,atl11t rrogum, r,ogr1m1 Asitts Fund• Fnn lo!nl AU hmd, Total AH Fund! Ro,lrlolcd ___!J\J!:_mO ~'!._'D_ Unr.,friotod Spoo,arrd Cami'"' Rntricttd !MemoOn.l_r~ OpenoHng Prngnm, Pr~gum• Unrestricted Sfl'lnrond F..,,d, F11nd< l'11nll, 2no, Oper,,tin.g Programs Cost, flo"'" fmm npc,oling nc!ivi1i,,~ =· Funds Funds 2004 lOOJ Cash received frnm cu,1omer!,11mdcms 12').f,24,893 S 45,412,Wl S 7,901,646 SH,'J4l',1~6 S 82,MfU?R Operatini: ~em1c:.,· Onh paid to suppli Ne! cash provided by operating acti,·~ie:s S _l,5.'59,025 S l,'188,IJ7 S 204,854 S 3,752,0!6 S 3.'54,_018 The acco,npanyiug notes are an integral pan of thest: fmancial statements.. The accompanying notes an: an integr11! part of these fiuanci•I stalerncnt.. .7. _,_ California State University Sacramento Foundation California State University Sacramento Foundation Note to Supplemental Information Note to Supplemental Information f~!'_~!_l!~r ended June 30, 2004 -~~~~~~ year ended J~n'! _~01_2_~~-~- l, Organization and Significant Atcounting Policiea Restricted Cash and luvestmeutll Restricted cash and investment~ include restricted c.ash held in trn~t and investments restricted as to Reporting Entity use. Restricted cash held in trust consists of debt S\:rvice reserve funds held with a ml\jor national California State University Sacramento Foundation (Foundation) is a governmental not-for-profit, bank for the Series 1995, 2001 and 2002 bonds. Investments restricter:I as to use consist of un~-pent tax-exempt California Slate Univer.iity auxiliary organization located on the campus of California bond proceeds from the Series 2002 bonds deposited in LAJF. State Univer.iity, Sacramento (University or CSUS). TI,e Foundation is a component unit of the U11iversity. Investments apd M•rketable Seeurities Eitcess cash of the various funds is pooled for investing purposes. Interest, dividend income and net The Foundation administern various campus program funds and grants, operates campus bookstore realized gains and losses from the sale of such marketable securities are allocated lo the Operating and dining service facilities, and performs other activities supporting the University community, and Sponsored Programs Funds ba.~ed on the fonds' average invested balance during the year. The including students, faculty and staff. Foundation's policies authorize investment of excess funds in a range of investments or property, specifically including but not limited to corporate and government obligations, common stock and Uuis ofPFCSenbtiou preferred stock. The Foundation operates as a business enterprise and the accompanyi11g financial st.atements reflect the flow of economic resources measurement focus and the full accrual basis of accounting Under These investment set:urities are exposed to varions risks, sach as interest rate, market, and credit risks. this method, revenues are recorded when earned and expenses are recorded at the time liabilities are Due to the level of risk associated with certain investment securities, it is at least reasonably possible incurred, regardless of the timing of related cash flows. that changes in the values of investment securities may occur in the near term and that such changes could materially affect the financial statements. As allowed by governmental accounting standards, the Foundation has elected not to apply statements and related interpretations issued by the Financial Accounting Standruds Boord after November JO, Marketable equity and debt securities and other short-temi and long-term investments arc carried at 1989. fair value. 1:air value is the amount at which a finam:ial instrument could be exchanged in a current transaction between willing parties, and is determined from published data provided by the The accompanying fund financial statements combine the acoouots and the results of operations and exchanges, computerized pricing sources, th,:: National Association of Securities Dealers' Nalioml activities in the following funds: Market System, securities custodians and other authoritative sources. Operating Funds· The Operating Fund~ are used to account for the business activities of the The Foundation invests its available cash in LAIF and in msrketable equity and debt securities. The Foundation including the hookstore and dining service operations, granlll and contracts investments in LAIF are carried at fair value, which approximates amor!ized cost. Generally, the administration. property development and other activities. investments in LAIF are available fof withdrawal on demand. Sponsored Programs - The Sponsored Programs Funds account for funds and contributions. the LAIF has an equity interest in the State ofCo.!ifornia Pooled Money Investment Account (PMIA). use of wbfoh is restricted by persons or organizations not under Foundation control, to support PMIA funds are on deposit with the State's Centralized Treasury System and are managed in ins:truct.ional, te!learch, or public service functions of the University. This fund comprises all compliance with the California Government Code, according to a statement ofinvestmeJ1t policy grants and contracts, as well as eitpendl!ble gifts and contributions that are restricted as to use. which sets forth permitted investment vehkle~ liquidity parameters and max.imom maturity of investments. These investments consist of U.S. government securities, ~eeurilies offederal\y Campus Programs* The Campus Programs Funds represent funds held and administered by the sponsored agencies, U.S. corporate bonds, interest bearing time deposits in California banks, prime Foundation on behalf of University programs. The 'residual balance of such funds is restricted for rated commercial paper, bankers' acceptances, negotiab1e certificates of deposit, repurchase and programs benefiting specific University academic and administra.tive units and other campus reverse repu·rchasc agreements, The PMIA policy limits the use of reverse repurchase agreements organizations and is held or disbursed at the direction of the ucademic or administrative units or subject lo limits of no more than !0% of PMIA. "Ibc PMIA does not invest in leveraged products or campus organizt1lions. inverse floating rate securities. The PMIA cash a!KI investments are recorded at amortized cost, which approximates market. Cash and Cash Equivalents Graul~ and Contracts Cash and cash equivalents, for purposes of the statement of cash flows, includes cash on hand, cash in Grants and contracts are obtained from federal and state govemmt-11!s and various private commercial bank accounts, restricted cash held in trust and amounts in short-term investments. orgaoizations. Revenue is recognized al the time the grant and contract funds are expended for the Amounts in short-term investments include deposits in the S1ate ofCahfomia Investment Pooled purposes specified by the terms of the grnut or contract. Expenditures in excess of cash received on Money Investment Account-Local Agency Investment Fund (LAIF) and instruments with original specific grants and contracts are included in receivabl~. Receipts in excess of expenditures on maturities of three months or less. specific grants and contracts are recorded as deferred revenue. Of tntal grants and contracts awarded, .9. -10· California State University Sacramento Foundation California State University Sacramento Foundation Note to Supplemental lnfonnation Note to Supplemental Information ~~r_t~__y~~r ended June 30, 2004 l::~i:_the year ended Jun~ ~-~.,_2~_!1~-- the unexpended baltince is $22, 185,512 at June JO, 2004, of which $2,069,479 hld been uceived and Restricted contributions are recorded in !he Sponsored Progrmns Funds and me rcrogni,,ed as revenue is recorded as deferred revenue and of which !he balance ofS20,l 16,033 has not yet been received. to the extent expenses have been incurred for the purpose specified by the dono, lJnexpended res1ricted contributions and unexpended investment income earned on investments relattd lo The majority of accounts receivable relates to amounts due from grants 11od contracts under- which restricted contributions are clMsified as deferred revenue un!il expended. awards were granted to the Foundation from II variety of government and private sources throughout the United Slates. Co!!ection of grant 11.nd contract receivables generally follows expenditures. The Donalion! and Contributions Foundation evaluates the grantor's financial condition before accepting each grant. Properties contributed to the Foundation are valued al their estimated market valne at 1he date of donation. Unrestricted conll ibutions are recorded as revenue of the Operating Funds when receiv,;d The Foundation receives a fee to cover- indirect overhead eosts incurred in the administration of the grants and contracts and recognizes this as income over the term of the grant or contract. Nel As,ets Administration fees are calculated as a percentage of grant expendit:ure.l or salaries and way;es, as Cet1:iin net assets of !he Foundation lmve been designated by the Board of Directors \\ith the specified in each grant or oonbaci. intention of providing fonds to meel current obligations, establishing operating reserve fu11do and providing for future plant improvements and replacements. Inventories Bookstore inventories are valued at the lower of average cost (retail method) or market. Dining JneomcTu.e:, Service inventories are valued at the lower of cost (first-in, first-out) or market. The Foundation is exempl from federal and slate income tax under Section 501(c)(1) of the ln!ernal Revenue Code and similar California statutes and is not classified as a private fou11dation under Capital Al;:'leb, Depredation and Amortization (509Xa) of the Internal Revenue Code. Contributions to the Foundation are eligible for the charitable Property, buildings, leasehold improvements and equipment are slated at cost, if purchased, or at conbibutions deduction. estimated market value as of the date of receipt if acquired by gift or grant. Interest cosls on fixed assets are eapitalizod during the period of.construction Memu Only- Total Columns Tncluded in the financial slatements are total columns captioned "Memo Only" tn indicate they are Buildings and equipment are deptt:ciated using the straight-line method nver their estimated useful presented for informational purpo~es only and do not indude all information reqt1ired to fully lives, ranging from three to forty years. Least:hold improvements are amortized using the straight* conform with accounting principles generally accepted in the United States of Amt'Tiea. line method over their estimated useful lives or the term of the lease,. whichever is shorter. Gains and losses on assets sold or retired an: reported iu the Operating Funds. Futu~ Pronouncements Effective not later than the year ending June JO, 2009, the Foundalion will be r«Juired to implement Fixed asset purch11Ses under the Campus Programs Funds an: charged against the depository liability Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting ofthe related program. Fixed assets purchased with gnmt funds are expensed to the grant. All such by Employtrsfor Posfempfoymf!fff Benefits Oth~r Than P,msWns (known as OPEBs). lhe fixed assets have been oc will be donated to the University. Foundation offers postretirement medical and dental benefits. UASB 45 establishes standards for the measurement, recognition, and display ofOPEB expense/expenditures and related liabilities (asset~). Direct Financing Leases note disclosures, and, if applicable, required supplementary information in the financial reports of Tbe Foundation evaluates leasing transactions to determine if tlw lease meets the parnrneters of JI stale and local governmental employers. The cost ofOPEB, like the co:ert of pension benefits, capital lease. If a capital lease treatment is appropriate, the Foundation records ft direct fmancing generally should be associated wilh the periods in which the exchange occurs, rather than with !he lease receivable and removes the cosl of the related fixed asset from the balance sheet. periods (often many years later} when benefits am paid or provided. In current practice, most OPEH pl!!ns are financed on a pay-as-you-go basis, and financial statements generally do not report the Depository Accounts financial effects ofOPEA until the promised benefits are paid. As a service to organizations and projt:cts affiliated with the University, the Foundation acts as a collttting and disbursing agent for certain special activities of campns organintions and receives a Upon implementation of GASB <15, the Foundation will be required to record an annual OPEB cost fee based on the level of monthly expenditures. Funds held on behalf of other organi7..ations are based on the anmrnl required contribution of the employer (ARC), an amount acttmrially determined classified as depository liabilitie~ of the C-ampus Programs Funds. iu accordance with the para1JJeters ofGASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover nonnal cost each yenr and amortize unfunded Defer-red Revenue actuarial liabilities over a period not lo exceed thirty years. The Foundation is currently evaluating Student residence hall board charges applicable lo r,riods subsequent to year-end are deferred and the impact GASB 45 will ha~ on its financfal statements. recognized as income in the Operating Funds in the year earned. -!I- -12· California State University Sacramento Foundation California State University Sacramento Foundation Note to Supplemental Information Note to Supplemental Information .For the year ended June 30, 2004 For the year ended June 30, 2004 2. Ca.,h and Investments Change in fair value or investments reported as: At June 30, 2004, the Foundation's cash deposits, including interest-bearing deposits, were as follows: Corrpment of interest and investment income $ 783,343 Conp:,nent ofdeferred revenue ___25,100 Carrying Bank $ 808,443 Val11~ Balaoc~ 3. Capilal Assets Cash in banks and on bond $ 304,442 695,298 Restricted cash held in trust 4,597,829 ' 4,597,829 At June 30, 2004, capital assets consist or: $ 4,902,271 $ 5,293,127 Accumulated The bank balance and corrying amounts differ due to deposits-in-transit, outstanding checks and cash Depredation on hDild. Of the hank balance, SJ 00,000 is federally insured and approximately $5,200,000 is ••• uninsured and uncollatcralized. CMI Amnrti?.ation Total Certain of the Foundation's investments ere categoru.ed to give an indication of the level or credit Land $ 581,000 581.000 risk at June 30, 2004. CategOI)' I indudes investments that are insured or registered or for which the Buildings 6,643,977 ' 2,993,4!!5 ' 3,650,492 securities are held by the Foundation or its agent in the Foundation's name. Category 2 includes Buildings leased io others !5,353,732 1,407,141 13,946,591 uninsured and unregistered investments for which the securities are held by the counterparty's trust Equipment 4,768,329 3,159,902 1,608,427 department or agent in the Foundation's name. Category 3 indudcs uncolhltc111lized deposits Leasehold improvements 3,056,976 1,898,155 1,158,821 (including deposits !hot are collateraliwi wilh securities held by the pledging institution, or by its 30,404,014 9,458,683 20,945,331 trust department or agent but not in the entity's name) and uninsured and unregistered investments for Construction in progress 304,138 304,138 which the securities are held by the counterparty or by its trus1 depiutment or agent but not in the Fol.llldation's name. Only the Foundation's common stock investments, amounting to $4,911,772 at $30,708,152 $ 9,458,683 $ 21,249,469 June 30, 2004, meet the requirements for risk categorization and are consideud Category 1 investments. All other investments. including equity mutual funds of$2,949.309, debt~based mutual The following activity in capital assets occurred during the yeBT ending June 30, 2004: funds ofSl,735,431, and other of$213,237, are not required lo be categorized. The investments in LAIF, amounting to $16,383,322 of which $12,487,005 is classified as !!hort~term investments and $3,896,317 as «:Stricted cash and investments, also does not meet the criteria for risk eotegorization. Total Capitul Construetion Accumulated Capilal Interest on deposits in LAlF varies wilh the rale ohetum of !he underlying portfolio and Assets inPrngra, Depreciation Assets approximated 1.47% al June 30, 2004. For the year ended June 30, 2004, interest earned on the deposit with LAIF approximated $291,725. Balance, beginning of year S 17,976,223 $ 8,259,549 $ 8JID5,729 $17,430,043 Additions Total operating funds investment income ofSJ,132,284' for the year ended June 30, 2004, includes 591,501 9,167,144 l,042,727 8,715,918 $21,335 as increases in deferred revenue and is comprised of interest, dividends, realized gains and Retirements and disposals (408,039) (389,773) (18,266) losses, and unrealized gains and losses due to changes in the fair value of inves1ments held at year~ Tronsfen 12,244,329 (12,244,329) end. The change in fair value of investments is calculated as fuJlows: Tronsfrr of assets to direct fin:mcing !eases (4,878,226) _ (4,878,226) Fair value or investment5 at June 30, 2004 $ 26,193,072 Balance, end of year $ 30,404,014 I 304,138 9,458,~~- $21,249,469 Add: Proceeds or investments oold in fiscal 2004 2,415,570 ' Less: Transfers from LAIF to cash 6,024,492 I.ess: Cost of inveshnents purchased in fiscal 2004 (6,412,570) Less: Fair value of investments at June 30, 200] (27.412,121) Change in fair value of investments during fiscal 2004 808,443 ·13· ·14- California State University Sacramento Foundation California State University Sacramento Foundation Note to Supplemental Information Note to Supplemental Information f?.i: ~he year ende~ June 30, 2004 f.?r the year ended Jun~ _3_!1.! 2004 ------ 4. Net Jnvl':Stment in Direct Financing Lease., The components of the net investmenl in direct financing leases as of June 30, 2004, are as follows: Pla.~r !iitl! Tot!I.I minimum lease payments lo be received $ 71,805,026 The Foundation has leased approximately 80"/i, of Placer Hal! to the U.S. Department of the Interior Less amount~ representing e\1im11!ed executory costs Geological Survey (USGS) for a period of27 years begim1i11g in 2000, at an initial l~ase payment of (such as taxes, maintenaoce, and insurnncc), included $1,050,000 per year. 11,e lease payment increllscs $50,000 per year until fiscal year 2007, when it in total minimum lease payments (22,993,731) rcache~ $1.400,000. Thereafter, ~nd through 2026, the amount of the annual increase will be determined through negotiation between USGS and tile FOtlndation. A portion of the lea~e payment Minimum !ease payments receivable 48,811,295 recovers operations and rnainteruince costs, initially estimated at $280,000 per year for operating Less unearrn:d income (27,096,621) expenses and $50,000 every other year for major repair expenses. Fonding for each year is subject to Net investment in direct financing leases $ 21,714,674 the federal government's availability of funds. The Foundation ha., leased the remaining 20o/• of Placer Hall to the University Geology Department fo, a period of 17 years, wiUl a monthly lease payment of$20, 760. Future minimum lease payments as of June 30, 2004 scheduled to be received for each of the next five years are as follows: Napa Ha!!: The Foundation completed construction ofNapa Hall during the fiscal year ended June 30, 2003. TI1e Minimum Fo1111dation has leased JOO"A, of Napa Hall to the College of Continuing &l.ucation (CCE) for a period L.~, of 31 years beginning in 2003, at a lease payment of$J2,l SO per month. CCE is also responsible for F1sc2l year ended .June 30, Payments monthly operations .and maintenance payments of$12,728, which will be increased annually by the percentage change in the "Consumer Price Index" but not less th.an 2.5%. 2005 $ 3,024.474 2006 2,886,836 Modoc_ll;1.ll; 2007 The Foundation rompleted coostruetion of Modoc Hall during the fiscal year ended June 30, 2004 2,913,878 TI1e Foundation has leased approximately 32% of Modoc Hall to the University's Office of Water 200, 2,933,852 Programs and Office of Research, Graduate and Extended Programs for a period of30 years 2009 2,941,S!l beginning in 2004 at a lease payment of $38,055 per month. The University is .also responsible for Thereafter 57,104,475 monthly operations and maintenance payments of$l !l,983 per month, which will be increased Total $ 71,805,026 annually by thr: percentage change in the "Consumer Price index" but not less than 2.5%. Benicia Hal!: The Foundation has constructed and leased Benicia Hall to the University for .a period oftr:n years beginning in 2003, wilh an annual lease payment of$1J5,868. Athletics Fidd: ,i;;-fo~~da~n has constructed and leased the Ath!eticS Field to the University for a period of four years beginriing in 2003, with three annual lease payments of $225,000 and a fin>1l payment of $30,.249 -15· "16- California State University Sacramento Foundation California State University Sacramento Foundation Note to Supplemental Information Note to Supplemental Information For~~eyearendedJune,_:::30~,~2~0~0~4~~~~~~~~~~~~~~~~~- For the year ended June 30, 2004 S. Depository Accounts 8, Long-term Debt and Financing Arrangements Transactions in the depository accounts during the year ended JU11e 30, 2004, were: Long-term debt consists of the following at June 30: Depository accounts, beginning of year $ 4,575,791 Series 2002A bonds (tax-exempt), interest at various Receipts and receivables from depository agencies; rates per annum raoging from 4.00% to 5.50%, Private gifts, grants and contracts 54,700 scheduled principal payment'!: due annually on October 1, Sales and services of educational activities 7,845,512 beginning 2005, with final payment due October I, 2037, Disbursements for depository agencies: collnternlized by certain revenues as defined S 9,070,000 Public service (2,218,306) Series 20028 bonds {federally taxable), interegt at various Instructional programs (2,799,904) rates per annum ranging from 6.06% lo 7.02%, Research (907.310) scheduled principal payments due every five years on Academic support (87,032) October I, beginning 20] 2, with final payrrnmt due Student services (9,088) October I, 2037, collatcrnlized by certnin revenues as defined 15,075,000 Institutional support (1,974,584) Series 200! bonds (tax-exempt), interest at various rates Depository accounts, end of year 4,479,779 per annum ranging from 2.5% to 4.75%, scheduled principal ' payments due annually on October 1, beg.inning 2004, with final payment due October I, 2032, collateralized by certain 6. Deferred Revenue revenues as defined 6,135,000 Tra11sactions in deferred revenue consist of the following duri11g !hi:: year euded June 30, 2004: Series 1995A bonds (true-exempt}, interest at Vllrions rates per annum ranging from 4.85% to 5.375%, Sponsored scheduled principal payments due annually on Octobor I, Operating Programs with final payment due October I, 2027, collateralize Deferred revenue, beginning of year $ 912,941 $ 2,919,115 $ 3,832,056 Series 199.SB bonds (federally taxable), inlere<;t at varions fixed rates per annum rnnging from 6.75% to 7.75%, Receipts 904,554 222,398 1,126,952 scheduletl principal payments due annually on October l. Revenue ea.med (912,94Q pl4,038) (1,226,979) with final payment due October I, 2027, collateralized hy Deferred revenue, end of year 904,554 S 2,827,475 $ J,732,029 ' certain revenues as defined 9,450,000 lnterfund note payable to sponsored programs fund, interest 7. Reeeiptll in Excess ofE1pendltnres on Specified Sponsored Programs at 5%, schednled principal and interest payments due quarterly with final payment due June 2030 916!.299 Transaction;· in the receipts in excess of expenditures account on specified sponsored programs 44,541,299 represent activity related to gnmt and contract funds received in advance of related expenditures and Less current portion (398,012) consisted of the following during the year ended June JO, 2004: Total long-term debt S 44,143,287 Receipts in excess of mqxmditures, beginning of year 2,577,632 Bonds Receipts 3,585,046 All bonds are general corporate obligations of the Foundation, is.sued on a parity ba~is. and payable Expenditures on specified sponsored programs (4,093,199) from revenues. Revenues are defined by the bond indentures to include all proceeds, charges, fund Re<:eipts in exces.<; of expenditures, end of year $ 2,069,479 ba1a11ces, re11ts, receipts, profits and benefi~, exclusive of restricted gifts, grants, bequests and donations, and funds received for deposit into the Campus Programs Funds, after payment of its operation and maintenance costs. The bond indentur,;s include limits on the Foundation's ability to borrow additional funds. -17- -18- California State University Sacramento Foundation California State University Sacramento Foundation Note to Supplemental Information Note to Supplemental Information For the year. ended June 30, 2004,______For the year ended.June 30, 2004 __ 9, Unrestricted Net Arsets Dellignaied by Rm1:rd ofDirtttor.i future deb\ service requirement.,; on !oitg-tcnn debt nre as follows: Tiie Foundation·~ Board of Di recto,~ has establiHhed designations or i1s unrestricle Interest Cx.pense for the year ended June 30, 2004, approximated SJ,637,000, net of amounts Leases capitalized of approximately $1,162,000. lntere$t earned on debt service reserve funds of The Central Food Service building, .:ertain equipment used in ibe Foundalion's operations and certain approximately $216,000 was netted against interest eXpenSe capitalized. land (including the land on whkb the Foundation's bookstore buHding is constructed) Me lensed for a nominal amount from the Stale of Ca!ifomi3 (State) for periods generally ranging from three to thi1ty The following activity oc.curred in the long.term debt accounts during the year ended June 30, 2004: years. The Foundation expects to renew these lease-s upon their expiration. Among other provisions, the leases require that the Foundation: hoto,T~•d To!•I s.. 1 .. Nolt Long- _,, ,m, P•y,,bk Tmo, Ddrt (I) Operate under the general supervision of the C~Hfornia State Univen;ity system. """"""' """... -·'"" -· Bal""°"· l> Additionally, the residence hall dining commons are operated under a service agreement witt1 the lJniversity, and portions of the University Uuion building are leased from another auxiliary organization of the University. These agreements are generally renewable on nn annual basis nnd are cancelab!e upon a 60 to 90 day notice. The Foundation haf. no obligation to replace or provide n replacement fund for State-owned equipment utilized in the dining commons 01 University Union. Certain other operating assets, which have previously been donated by the Foundation to the lJnivcrsity, are used by the Foundation rent-flee. Operating expenses include rent expense of $480,256. -19· -20- California State University Sacramento Foundation California State University Sacramento Foundation Note to Supplemental Information Note to Supplemental Information For t~e year endedJ_u_n_e_3_0~,_2_00_4 ______For the year ended June 30, 2004 In 1996, the Foundation entered into a cooperative agreement with the USGS, whereby the Certain salaried Foundation employees are eligible to parlicipate in PERS. Benefits vest after live Foundation provides facilities 11ecrrnsary fur USGS and the University to operate a joint research years of service. Foundation employees who retire at age 55 re<:eive 2% of their highest average pny program on !he University campus. The joint research program focuses on surface.water, ground (calculated based on the employee's highest 12-consecutive,month period) for eaeh year of credited waler and water-quality issues. Currently, USGS occupies a significant portion of the Foundation's service. The percentage is decreased for employees retiring before age 55 and Is increased for Placer Hall building and a warehouse. The tenn of the current cooperative agreement expires on employees retiring after age 55 with the ma;,i;imum being 2.418% for employee~ retiring at age 63 and lune JO, 2006. over. Benefits are coordinated with Social Security so no member contributions arc made on the first SIJJ.J3 of monthly earnings and final compimsation is reduced by $133.33. In 2004, the Foundation entered into an operating lease agreement with the USGS to lease portions of Modoc Hall for a periOd often years through 2014, at nn annual rent ofSl,223,230. rm: operating Funding Policy lease is reuewable for anotlier ten year period, at an annual rate of$1,345,55J. Funding for each year Active members in the Foundation's plan are re4uired to contribute 5.0"/o of their annual covered is subject to the federal government's availability of funds. salary aft« excluding the first SS 13 of gross monthly pay. The Foundation is required to contribute the actuarially determined remaining amounts necessary lo fund the benefits for its members. The The Foundation also leases building space to University related entities and non-related entities, actuarial methods and llSSUmptions used are those adopted hy the PERS Board of Administration under cancelable leases. Lease agreements are renewable annually. The required employer contribution rate for the fiscal year ended June 30, 2004, was 1.567%. The contribution requirements of the plan members are established by State statute and the employer Lease income from all related parties for the year ended June JO, 2004, was $2,018, 120. contribution rate is established and may be amended by PERS. The Foundation's payroll for employees covered hy PERS for the year ended June JO, 2004, was $6,940,028. Total payroll was Other $41,879,169. Sponsored prowams expense.~ include facn!ty release time of$425,930. Amounts payable at June 30, 2004, to the University (i11cluding faculty release time) WllS $963,363. Annual Peuion Cost PERS uses the Entry Age Normal Actuarial Cost Method, which i$ a projected benefit cost method. Sales include residence halls board revenue from the University of$2,295,786. Amounts receivable It takes into account those benefits that are e,i:pected to be earned in the future as well as those already at June 30, 2004, from the Univecsity u11der the.'!e !llld oth« agreemenU was $2,384, 133. accrued. According to thi~ cost method, the normal cost fur an employee is the level 11mount which would fund the projected benefit ifit were paid annually from date of employment until retirement. Amounts receivable at June 30, 2004, from the University Union was $290,160. The receivable PERS uses a modification of the Entry Age Cost Method in which the employer's total normal eoo! is balance is primarily related t-0 building operations. expressed as a level percentage of payroll During 2003, the Foundatirrn \oaned approximafoly $164,000 to the president of the University, in Actuarially Determined Contribution Requirement$ 11.nd Contributions Made connection with the president's home purchase upoo relocation to Sacramento. Additionally, the For the year ended June 30. 2004, !he required annual 0011tributions made by the Foundation Foundation has committed to advancing the president $2,371 per month, towards the President's amounted to $108,750. The required contribution fur the 2004 fiscal year was delennined as part of monthly house payment, for a period of three year. .., beginning In July 2003. The initial loan and the June 30, 2001 actuarial valuation using lhe entry age nonnal actuarial cost method with the subsequent advances (collectively, "Loan"), $19-0, 137 at Jane 30, 2004, ue collaternlized by a second contributions determined as a percentage of pay. The actuarial assumptions included (a) &.25% deed oftmst on the President's home. The Loan bears interest at 1.697'% and is due and payable in investment rate of return (net of administrative expenses), (b) projected salary increases that vary by 2006. Repayment of the Loan is accelerated under eertain conditions. duration of service ranging from 3.75% to 14.20% for miscellaneous members, and (e) 3.So/., cost-of living adjnstment. The actuarial value of the Foundation's assets was determined using a technique that smoothes the effect of short-term volatility in the m"arket value of investment over a two to five 11. Defined Benefit Pension Plan year period &:pending on the size of inve3tment gains and/or losses. Plan Description The significant actuarial assumptions used to com pule the actuarially delennined contribution The Fuundation contributes to the California Public Employees' Retirement System (PERS), an agent requirement are the same as those used to compute the pension benefit obligatio11, as previously multiple-employer public employee defmed benefit pension plan (the Plan) that acts as a common described investment and adminis1tative agent for participating public agencies withm the State of California. PERS provides retirement and disability benefits, annual cost-of-living adjustments and death For the year ended June 30, 2004, employee contribution~ amounted tu $297,} 14. benefits to plan members and beneficiaries. The Foundation's share of assets and pension obligations is separately accounted fur by PERS. Benefit provisions and all other requirements are established by slate statute. Copies of PERS annual financial report may be obtained from their Executive Office at 400 I' Street, Sacramento, California 95814. -21- -22- California State University Sacramento Foundation California State University Sacramento Foundation Note to Supplemental Information Note to Supplemental Information For the _y~ar !!_nded June 30, 2004 -~------For the year ende~-~'::!ne 30, 2004 -·------ Trend Information 13. Postrelin:ment Health Care Benefits Trend i11fonnation gives an indication of the progress made in accumulating sufficient assets to pay benefit~ when due. JnfonnatKm as to the Foundation's Net Pensioo Obligation determined in ' In addition to providing pension benefits, the Foundation provides certain medical and dental care a<.'con:la11cc with Governmental Accounting Standards Hoard Stalemenf No. 27, Accounting For insurance benefits for eligible retirees and their spouses. The postretirement heahh e11re benefils ate Pensions by State amt LOiXlT Governmental Employers, for three year.; ended June 30, 2001 (the date funded on a pay-as-you-go basi5. The cost recognized for pwviding medical and dent~! benefits lo most recent actua(ial valuation information is available), is as follows· retirees during !be year ended June 30, 2004, was $J 18,347. At June 30, 200·1, 26 retirees were receiving postretiremcnt health care hencfiIB and IS employee5 were eli~ible lo receive sucl1 bcndils upon their retirement Analysis ofFu11ding Progress {A) (B) (C) (0) (E) (F) 14. Conlingen1 Liabilities Unfunded Actuarill Unfunded Li11bi1i1y Tlle Foundation administers several campos programs and participates in a number of federal and Actuarial (Excess Asset) state assisted grant and contn1d programs. The federnl and stRle assisted programs are subject lo Entry Age Acerued as Percentage program compliance audits by the grnnlorslcontractors or tlieir representatives. ·n1e foundation has Act1111ri11I Actuarial Actuuial Liability Fundrd ofC11,.en,d accrued a reserve for disallowances and overruns which mmrngement believes is sufficient to provide Valuation Aud Actrtied (Excess Anet) R:1tio Covertd Payroll for the potential losses in connection wilh {1) grants and contracts such as those described above as Value Liability f(BHA)J ((A)/(B)J Payroll °"" {l(B)·(A)J/(E)} well as for (2) the possibility that eJ<;penditures on behalf of campus programs administe,-ed by the June 30, Foundation may not be funded by the sponsoring program. 1999 S IS,406,goi $13,810,.233 $ (4,596,569) 13J.J% $5,614,608 (t!.868%) 2000 $20,391,928 $13,580,789 $ (4,811,139) 130.9% $ 6,15~,522 (7&.147%) 200! J:21.204.767 $17,276,193 S (J,928,574} 122.7% $6,546,141 (60.007%) The foundation's contributions 1o PERS, made in accordance with actuarially determined requirements, as a percentage of armllll.] covered payroll, were O % for 200J and 1.567 % for 2004. Annual pension cost and the net pension obligation were$ 0 for each of the years ended June 30, 2002, 2003 and S!08,750 for 2004. Otha- trend in.formation for 2002., 2003 and 2004 is not yet available. 12, Defined Contribution PlaM The Foundation sponsors two Section 403(b) retirement plans. One plan is available to substantially all benefi!e The Foundation also sponsors a defined contribution 4-03(b) retirement plan for certain employees which are not eligible to participate in PERS. Employees who are subject to collective bargaining agreements, and work 1,00-0 hours or more during the year are eligible to participate in the plan. Pursuant to the plan, the Foundation contributes to employee accounts at a rate of 6% of gross wages suhject to certain limitations. Contributions for the year ended June 30, 2004, were $29,515. -23- -24- (This Page Intentionally Left Blank) APPENDIXB SUMMARIES OF CERTAIN PROVISIONS OF THE INDENTURE The following is a summary of selected provisions of the Indenture that are not described elsewhere in this Official Statement. These summaries do not purport to be comprehensive and reference should be made to the documents for a full and complete statement of their provisions. All capitalized tcnns not defined in this Official Statement have the meanings set forth in the Indenture. DEFINITIONS Additional Project means any additions, extensions, alterations, or improvements to the facilities of the Foundation that are financed \Vith the proceeds ofan additional Series of Bonds, Annual Debt Service means for each Fiscal Year (or other designated 12-month period of time) the aggregate amount (without duplication) of principal of and interest on all Bonds and Parity Debt to which reference is made becoming due and payable; provided, ho\vever, that for the purposes of computing Annual Debt Service: (a) Debt Secured by Letter of Credit: if the Bonds or Parity Debt is secured by an irrevocable letter of credit issued by a bank having a combined capital and surplus of at least one hundred million dollars ($100,000,000), principal payments or deposits with respect to such indebtedness nominally due in the last Fiscal Year in which such indebtedness matures may, at the option of the Foundation, be treated as if they were due as specified in any loan agreement or reimbursement agreement issued in connection with such letter of credit or pursuant to the repayment provisions of such letter of credit; and interest on such indebtedness after such Fiscal Year shall be assumed to be payable pursuant to the terms of such loan agreement or reimbursement agreement or repayment provisions; (b) Variable Rate Indebtedness: if the Bonds or Parity Debt is Variable Rate Indebtedness, the interest rate on such indebtedness for periods when the actual interest rate cannot yet be determined shall be assumed to be equal to the greater of (i) the current interest rate calculated pursuant to the provisions of the agreement by which the indebtedness v.1as created, and (ii) if available, the v,:eekly average interest rate on the indebtedness during the thirty-six (36) months preceding the date of calculation; or, if the indebtedness has not been outstanding for that 36~month period, the V.'eekly average interest rate on comparable deht (as determined by the Foundation), as set forth in a certificate filed with the Trustee and the Foundation; (c) (i) if the Bonds or Parity Debt bears interest at a variable rate and the payments received and made by the Foundation under a Financial Products Agreement with respect to such Bonds or Parity Debt is expected to produce a fixed rate to be paid by the Foundation, then such Bonds or Parity Debt together with the financial Products Agreement shall be treated as a single obligation of the Foundation that bears interest at such fixed rate; or (ii) if any such Bonds or Parity Debt bears interest at a fixed rate and the payments received and made by the Agency under a Financial Products Agreement \Vith respect to such Bonds or Parity Debt is expected to produce a variable rate to be paid by the Foundation, then such Bonds or Parity Debt together with the Financial Products Agreement shall be treated as a single obligation of the Foundation that bears interest at such variable rate. (d) funded Jntcrest: principal and interest payments on Bonds and Parity Debt shall be excluded to the extent such payments arc to be paid from amounts on deposit with the Trustee or other fiduciary in escro\v specifically therefor and to the extent that such interest payments are to be paid from the proceeds of Bonds or Parity Debt held by the Trustee or other fiduciary as funded (capitalized) interest specifically to pay such interest by the Trustee or other fiduciary; B-1 (e) Amortization Schedule: in determining the principal amount due in each Fiscal Year, payment shall (unless a diftCrent subsection of this definition applies for purposes of determining principal maturities or amortization) be assumed to be made in accordance with any amortization schedule established ror such debt, including any Mandatory Sinking Account Payments; (f) Reserve Pacility Reimbursement Obligations any amounts O\ved by the foundation to the issuer o[ a Reserve Facility as a result of a draw thereon or a claim thereunder; as appropriate, shall be included as debt service in accordance \Vith their repayment schedule. Bond Reserve Requirement means, as of any date of calculation, the sum of the reserve amounts detennined with respect to each Series of Bonds Outstanding, which shall be equal to: (A) \Vith respect to a Series of Bonds the interest on \vhich is excluded from gross income for federal income tax purposes, (I) the least of (a) Maximum Annual Debt Service, calculated on all Bonds of such Series Outstanding as of such date, (b) I 25o/o of average annual debt service on all Bonds of such Series Outstanding as of such date, and (c) 10% of the proceeds of the sale of such Series of Bonds, or (2) such larger amount as may be established as the Bond Reserve Requirement by any Supplemental Indenture and that, in the opinion of Bond Counsel, may be funded from Bond proceeds and be invested at an unrestricted yield in accordance \Vith the Code, or (B) with respect to a Series of Bonds the interest on \vhich is federally taxable, Maximum Annual Debt Service, calculated on all Bonds of such Series Outstanding as of such date. Bonds means the University Enterprises, Inc., Auxiliary Organization Bonds authorized by, and at any time Outstanding pursuant to, the Indenture. Serial Bonds means the Bonds, maturing in specified years, for \vhich no Mandatory Sinking Account Payments are provided. Term Bonds means the Bonds payable at or before their specified maturity date or dates from Mandatory Sinking Account Payments established for that purpose and calculated to retire such Bonds on or before their specified maturity date or dates. Business Day means any day other than (a) a Saturday or a Sunday, (b) a day on which banking institutions the city in which the Corporate Trust Office is located are authorized or required by law to be closed, and (c) a day on \Vhich the Ne\v York Stock Exchange is authorized or obligated by law or executive order to be closed. Comparable Treasury Issue means, with respect to any redemption date for a particular Series 20058 Bond, the U.S. Treasury security or securities selected by the Designated Investment Banker that has an actual or interpolated maturity comparable to the remaining average life of the Series 20058 Bond to be redeemed, and that would be utilized in accordance \Vith customary financial practice in pricing ne\V issues of debt securities of comparable maturity to the remaining average life of the Series 20058 Term Bond to be redeemed. Comparable T·reasury Price means, \vith respect to any redemption date for a particular Series 20058 Bond, ( 1) if the Designated Investment Banker receives at least four Reference Treasury Dealer Quotations, the average of such quotations for such redemption date, after excluding the highest and lowest Reference Treasury Dealer Quotations, or (2) if the Designated Investment Banker obtains fe\ver than four Reference Treasury Dealer Quotations, the average of all such quotations. CSU Board means the Board of Trustees of The California State University. Defeasance Securities means the follo\ving: (1) United States Treasury Certificates, Notesi and Bonds (including State and Local Government Series ~~ "SLOSH). (2) Direct obligations of the Treasury that have been stripped by the Treasury itself. (3) The interest component of Resolution Funding Corp. (REFCORP) strips that have been stripped by request to the Federal Reserve Bank of New York in book-entry [onn. B-2 (4) Pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by Standard & Poor's. If, however, the bonds are rated by Standard & Poor's but arc not rated by Moody's, then the pre-refunded bonds must have been pre-refunded with cash, direct United States or United Stales-guaranteed obligations, or AAA-rated pre rcfunded municipal bonds. (5) Obligations issued or guaranteed by the following agencies that are backed by the full faith and credit of the United States: (a) U.S. Export-Import Bank (Eximbank) l)irect obligations or fully guaranteed certificates ofbenelicial O\vnership (b) Fam1ers Home Administration (l'mHA) (c) Federal Financing Bank (d) General Services Administration Participation certificates (e) lJ.S. Maritime Administration Guaranteed Title XI financing (f) U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Con1munities Debentures - U.S. Government guaranteed debentures U.S. Public Housing Notes and Bonds ~ U.S. Government guaranteed public housing notes and bonds Designated Investment Banker n1eans George K. Baum & Company or as othcr\vise designated by the l;oundation. Foundation Board means the Board of Directors of the Foundation. Indebtedness means any indebtedness or obligation of the Foundation that, in accordance \Vith generally accepted accounting principles, is classified as a liability on a balance sheet. Indenture means the indenture, dated July 1, 2005, by and between the Trustee and the Foundation, as originally executed or as it may from time to time be supplemented or amended by any Supplen1ental indenture delivered pursuant to the provisions the Indenture. Investment Securities means the follo\ving: (I) 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, and CA TS and TIGRS) or obligations the principal of and interest on \vhich 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 are only penmitted if they have been stripped by the agency itself): (a) U.S. Export-Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial O\vnership (b) Farmers Home Administration (FmHA) Certificates of beneficial ownership (c) Federal Financing Bank (d) Federal Housing Administration (FHA) [)ebenturcs (c) General Services Administration Participation certificates B-3 (f) Government National Mortgage Association (GNMA or Ginnie Mae) Guaranteed mortgage-backed bonds Guaranteed pass-through obligalions (g) U.S. Maritime Administration Guaranteed ·ritle XI financing (h) U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority llonds Ne\v Communities Debentures - U.S. Government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. Government guaranteed public housing notes and bonds (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 are only petmittcd if they have been stripped by lhe agency itsell): (a) Federal Home I,oan Bank System Senior debt obligations (b) Federal Ilome Loan Mortgage Comoration (FHLMC or Freddie Mac) Participation certificates Senior debt obligations (c) Federal National Mortgage Association (FNMA or Fannie Mae) Mortgage-backed securities and senior debt obligations (d) Student Loan Marketing Association (SLMA or Sallie Mae) Senior debt obligations (e) Resolution Funding Corp. (REFCORP) obligations (0 Farm Credit Svstem Consolidated system-\vide bonds and notes (4) Money market funds registered under the Federal Investment Company Act of 1940 the shares of \Vhich are registered under the Federal Securities Act of 1933 and that have ratings by Standard & Poor's of "AAAm-G," "AAA-m," or uAA-m" and, if rated by Moody's, ratings of "Aaa," "Aal," or "Aa2," including any s\vcep account of the Trustee or its affiliates (or for \Vhich the Trustee or its affiliates provide investment advisory or other management services) that meets such requirements. (5) Certificates of deposit secured at all times by collateral described in clauses (I) and/or (2) above. Such certificates must be issued by commercial banks (including the Trustee and its affiliates), savings and loan associations, or mutual savings banks. The collateral must be held by a third party and the Holders must have a perfected first security interest therein. (6) Certificates of deposit, savings accounts, deposit accounts, or money market deposits (including those of the Trustee and its affiliates) that are fully insured by the Federal Deposit Insurance Corporation. including BIF and SAIF. (7) Investment agreements, including guaranteed investment contracts, fonvard purchase agreements and reserve fund put agreements approved by the Bond Insurer. (8) Commercial paper rated, at the time of purchase, "Prime-!" by Moody's and "A-I" or better by Standard & Pear's. (9) Bonds or notes issued by any state or municipality that are rated by Moody1s and Standard & Poor1s in one of the hvo highest Rating Categories. (l 0) Federal funds or bankers' acceptances with a maxin1um tenn of one year of any bank that has an unsecured, uninsured, and unguaranteed obligation rating of"Prime-lu or "A3 11 or better by Moody's and "A-1" or "A" or better by Standard & Poor's. B-4 ( 11) Repurchase agreements that provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Foundation (buyer/lender) and the transfer of cash from the Foundation to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Foundation in exchange for the securities at a specified date, R.epurchase agreements that exceed 30 days must be approved by the Bond Insurer. Repurchase agreements tor 30 days or less must satisfy the fOllowing criteria: (a) Repurchase agreements must be between the Foundation and a dealer bank or securities firm (i) Primary dealers on the Federal Reserve reporting dealer list that are rated "A" or 1 better by Standard & Poor's and "A2 ' or better by Moody's, or (ii) Banks rated "Au or better by Standard & Poor's and "A2" or better by Moody1s. (b) The written repurchase agreement contract must include the following: (i) Securities that are acceptable for transfer arc: I) Direct U.S. government obligations described in clause (!) above. 2) Federal agency obligations described in clause (2) above. 3) Fl lLMC and FNMA obligations. (ii) The term of the repurcha.se agreement may be up to 30 days. (iii) The collateral must be delivered to the Foundation, Trustee (if Trustee is not supplying the collateral), or third party acting as agent for the Trustee (if the Trustee is supplying the collateral) before/simultaneous \Vith payment (perfection by possession of certificated securities). (iv) The securities must be valued weekly, marked-to-market at current market price Ill!§. accrued interest. (iv) The value of collateral must be equal to I 04% of the amount of cash transferred by the Foundation to the dealer bank or security firm under the repurchase agreement plus accrued interest. If the value of securities held as collateral falls belo\v 104o/o of the value of the cash transferred by the Foundation, then additional cash and/or acceptable securities must be transferred. 11; however, the securities used as collateral arc FNMA or FHLMC obligations, then the value of collateral must equal I05o/o. (c) A legal opinion must be delivered to the Foundation to the effect that the repurchase agreement meets guidelines under state la\-v fOr legal investment of public funds. (12) Other fonns of investments (including repurchase agreements) approved in \-Vriting by the Bond Insurer. Mandatory Sinking Account Payment means, with respect to Bonds of any Series and maturity, the amount required by the Indenture or a Supplemental Indenture to be deposited by the Foundation in a Sinking Account for the payment of Term Bonds of such Series and maturity. Maximum Annual Debt Service means the greatest amount of principal and interest becoming due and payable {on Bonds or Parity Debt, as the case may be) in any Fiscal Year including the Fiscal Year in which the calculation is made or any subsequent Fiscal Year Net Income Available for Debt Service means, with respect to any period, the excess of income over expenses (before extraordinary items) of the Foundation, determined in accordance \Vith generally accepted accounting principles, to which shall be added interest, amortization, and depreciation expense and other non-cash charges, each item determined in accordance \-Vith generally accepted accounting principles, and to \vhich shall also be added transfers (that are treated as expenses) to funds designated for expenditure at the discretion of the President of California State University, Sacramento, or University faculty, centers, institutes, schools, or departments to be used for research and internal/external relations, and excluding (a) any profits or losses on the sale or disposition, B-5 not in lhe ordinary course of business, of investments or fixed or capital assets or resulting fl"om the early extinguishment of debt, (b) gifts, grants, bequests, donations, and contributions, to the extent specifically restricted by the donor to a particular purpose inconsistent \Vith their use for the payment of debt service, (c) the net proceeds of insurance (other than business interruption insurance) and condemnation awards, and (d) amounts deposited into Restricted Funds (as that term is used in the audited financial statements of the Foundation). Operating Agreement means that certain Operating and Lease Agreement dated as of October 1, 1995, and as amended as of August I, 2005, by and between the Foundation and the CSU Board. Opinion of Counsel means a written opinion of counsel selected by the Foundation and not objected to by the Trustee. Outstanding, vvhcn used as of any particular time \Vith reference to Bonds, means all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except (I) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds with respect to \Vhich all liability of the Foundation shall have been discharged; and (3) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture. Parity Debt means any indebtedness, installment sale obligation, lease obligation, or other obligation of the Foundation for borrowed money having an equal lien and charge upon the Revenues and therefore payable on a parity \vith the Bonds. Person means a Foundation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. Prior Bond Reserve Funds means, with respect to the 1995 Indenture and the 200 I Indenture, the Bond Reserve Funds established thereunder. Prior Debt Service Funds means, with respect to the 1995 Indenture and the 200 I Indenture, the Bond Funds, the Interest Funds, and the Principal Funds established thereunder. Rating Category means (i) \\'ith respect to any long-term rating category, all ratings designated by a particular letter or combination of letters, \Vilhout 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. Redemption Price means, \Vith respect to any Bond (or portion thereof) the principal amount or such Bond ( or portion) plus the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such Bond and the Indenture. Reference Treasury Dealers means the primary U.S. Government securities dealers in the City of Ne\v York as specified by the Foundation from time to time. Reference Treasury Dealer Quotation n1eans, \Vith respect to each Reference Treasury Dealer and any redemption date for a particular Series 20058 Bond, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in \vriting to the Designated Investment Banker by such Reference ·rreasury Dealer at 3:30 p.m., Ne\v York City time, on the third business day preceding such redemption date. Revenues means all proceeds, charges, income, rents, receipts, profits, and benefits of the Foundation, exclusive of any gifts, grants, bequests, donations, and contributions to the extent specifically restricted by the donor or grantor to a particular purpose inconsistent with their use for debt service on the Bonds and exclusive of fUnds B-6 received tOr deposit into the Campus Programs Fund (as that tenn is used in the audited financial statements of the Foundation). Series, whenever used herein ,vith respect to Bonds, means all of the Bonds designated as being of the same series, authenticated and delivered in a simultaneous transaction, regardless of variations in maturity, interest rate, redemption, and other provisions, and any Bonds thereafter authenticated and delivered upon transfer or exchange or in lieu of or in substitution for (but not to refund) such Bonds as herein provided. State means the State of California. Supplemental rndenture means any indenture duly executed and delivered, supplementing, modif)'ing, or amending the Indenture, but only if and to the extent that such Supplemental Indenture is specilically authorized under the Jndcnture. Treasury Rate means, ,vith respect to any redemption date for a particular Series 20058 Bond, the rate per annum, expressed as a percentage of the principal amount, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the redemption date for a price equal to the Comparable Treasury Price, as calculated by the Designated Investment Banker. Variable Rate Indebtedness means any indebtedness the interest rate on which is not fixed at the time of incurrence of such indebtedness, and has not at some subsequent date been fixed, at a single numerical rate for the entire tenn of the indebtedness. 1995 Indenture means the Indenture dated October 1, I995, between the Foundation and BNY Western Trust Company, as amended and supplemented, pursuant to which the Series I995 Bonds and the Series 2002 Bonds \vcrc issued. 2001 Indenture means the Indenture dated October 1, 2001, between the Foundation and BNY Western Trust Company, as amended and supplemented, pursuant to which the Series 2001 Bonds ,vcre issued. Pledge of Revenues; Gross Revenue Fund; Payments to l'rustee; Bond Fund A. Pledge of Revenues. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the tenns and conditions set forth therein, the Foundation pledges to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms and the provisions of the Indenture, all of the Revenues and any other amounts (including proceeds of the sale of Bonds) held in any fund or account established pursuant to the indenture ( other than the Rebate Fund). Said pledge constitutes a lien on and security interest in such assets for the payment of the Bonds in accordance with their terms. B. Gross Revenue Fund. The Foundation agrees that, so Jong as any of the Bonds remain Outstanding, all of the Revenues shall be deposited as soon as practicable upon receipt in a fund designated as the "Gross Revenue Fund." which the Foundation shall establish and maintain pursuant to the Indenture in an account or accounts at such banking or financial institution or institutions as the Foundation shall front time to time designate in ,vriting to the Trustee for such purpose. Subject only to the provisions of the [ndenture permitting the application thereof for the purposes and on the terms and conditions set forth in the lndenture, the Foundation pledges and, to the extent permitted by la\v, grants a security interest to the Trustee in the Gross Revenue Fund to secure the payment of the principal ot: premium, if any, and interest on the Bonds. C. Use of Gross Revenue Fund. Amounts in the Gross Revenue Fund may be used and ,vithdrawn by the Foundation at any time fOr any lawful purpose, except as provided in the Indenture. Except for payments made in the ordinary course of business for goods and services received by the Foundation or rent payable by the Foundation, the Foundation sha11 not transfer any Revenues held in the Gross Revenue Fund to the CSlJ Board, California State University, Sacramento, or any other auxiliary organization of the CSU Board or to an account from \Vhich such parties may dra\v funds unless all deposits described belo,v under the heading "Payments to Trustee" in B-7 the current [iscal year have been made. The usual, annual transfer or funds by the Foundation to California State University, Sacramento, on or about July I of each year \vith respect to the foundation's income in the preceding Fiscal Ycar shall for this purpose be deemed to be a transfer in that preceding Fiscal Year. The Foundation shall be entitled to use or \Vithdraw any amounts in the Gross Revenue Fund that do not constitute Revenues. D. Transfer on Default In the event that on the tenth day prior to any Interest Payment Date, the Trustee docs not have amounts sufficient to pay the principal, interest or required Redemption Price of any Bond on such Interest Payment Date, the Trustee shall notifY the Foundation and the Depository Bank(s) of such delinquency, and unless such payment is made on the same day the Foundation receives such notice, the Foundation shall cause the Depository !lank(s) to Depository Bank(s) transfer the Gross Revenue Fund to the name and credit of the Trustee. The Gross Revenue Fund shall remain in the name and to the credit of the 'rrustee fOr a period of at least six months and until: (I) the amounts on deposit in said fund are sufficient to pay in full (or have been used to pay in full) all transfers and deposits due as described below under the heading "Payments to Trustee" and any deficiencies in the Bond Reserve Fund, and (2) any events of default known to the Trustee shall have been made good or cured or provision shall have been made therefor, whereupon the Gross Revenue Fund (except for lhe Revenues required to make such payments or cure such defaults) shall be returned to the nan1c and credit of the Foundation. During any period that the Gross Revenue Fund is held in the name and to the credit of the Trustee, the Trustee shall use and \vithdraw from time to time amounts in said fund to make the transfers and deposits required by the Indenture and to such other payments in the order as directed by the l lolders of a majority in aggregate principal amount of Bonds then Outstanding. During any period that the Gross Revenue Fund is held in the name and lo the credit of the Trustee, all Revenues shall continue to be deposited in the Gross Revenue Fund but the Foundation shall not be entitled to use or \vithdraw any of the Revenues unless and to the extent that the Trustee, at the direction of the l [olders of a majority in aggregate principal amount of Bonds then Outstanding, so directs fOr the payment of current or past-due operating expenses of the Foundation. The Foundation agrees to execute and deliver all instruments as may be required to implement this Section. The Trustee is hereby authorized to execute the Deposit Account Control Agreement dated as of August 1, 2005, between the Foundation, Bank of America, N.A., and the Trustee, and any similar agreement required to perfect the security interest created hereby in the Gross Revenue Fund. The Foundation further agrees that a failure to comply with the terms of this Section shall cause irreparable harm to the Holders from time to time of the Bonds and shall entitle the Trustee, with or \Vithout notice, to take immediate action to compel the specific performance of the obligations of the Foundation as provided in this Section. E. Pavments to Trustee. On or before the fifteenth day of each month and so long as any of the Bonds remain Outstanding, the Foundation shall pay to the Trustee such amount as is required by the Trustee to make the debt service transfers and deposits required in such month by the Indenture described under the heading "Allocations of Moneys."). The Trustee shall forth\vith deposit in a trust fund, designated as the "Bond Pund," \vhich fund the Trustee shall designate and maintain, all such payments when and as received by the Trustee. All moneys at any time held in the Bond Fund shall be disbursed, allocated, and applied solely for the uses and purposes set forth in the Indenture. F. Notice of Deficiency in Monthly Transfer. If by the sixteenth day of each month the Trustee has not received moneys sufficient to make the debt service transfers and deposits required in such month by the Indenture, the Trustee shall in1mediately notify the Foundation of such insufficiency by telegram, telecopy or telephone ( confirmed in writing). G. Notice of Deficiency Before Interest Payment Date. If on the third business day of the month immediately preceding an Interest Payment Date or principal payment date there arc insufficient amounts in the Bond Fund to pay the interest or principal becoming due on such Interest Payment Date or principal payment date, the Trustee shall immediately notify the Foundation. Said notice shall request the Foundation to deposit an amount equal to the deficiency into the Principal Account and/or Interest Account at least eleven days prior to the date on which said payment is due. Allocation of i\-1oneys So long as any Bonds are Outstanding, the Trustee shall set aside the moneys in the Bond Fund in the follo\ving respective funds ( each of \vhich the Trustee shall establish, maintain, and hold in trust fOr the benefit of B-8 the flolders of the Bonds) in the follo\.ving amounts, in the fOllowing order of priority, the requirements of each such fund (including the making up of any deficiencies in any such fund resulting from lack of moneys sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any deposit is made to any fund subsequent in priority; provided thal on a parity with such deposits the Trustee may set aside or transfer amounts \Vith respect to outstanding Parity Debt as provided in the proceedings for such Parity Debt delivered to the ·rrustee (,vhich shall be proportionate in the event such amounts arc insuflicient to provide for all deposits required as of any date to be made \.Vith respect to the Bonds and such Parity Debt): l. Interest Fund. Commencing in August 2005, the Trustee shall set aside in the Interest Fund as soon as practicable in each month an amount equal to at least one-sixth of the aggregate half-yearly an1ount of interest becoming due and payable on the Outstanding Bonds during the next ensuing six months (less the amount of any interest for which there is moneys deposited in the Interest Fund from the proceeds of any Series of Bonds or other source and reserved as capitalized interest to pay such interest during said next ensuing six months), until the requisite hall'yearly amount of interest on all such Outstanding Bonds is on deposit in such fund; provided that from the date of delivery of a Series of Bonds until the first Interest Payment Date \Vith respect to such Series the amounts so paid ,.vith respect to such Series shall be sufficient on a monthly pro rata basis to pay the aggregate amount of interest becoming due and payable on said Interest Payment Date with respect to such Series. 2. Principal Fund; Sinking Accounts. Commencing in August 2005, the Trustee shall deposit in the Principal Fund as soon as practicable in each month an amount equal to at least (a) one-sixth of the aggregate semiannual amount of principal becoming due and payable on the Outstanding Serial Bonds of all Series having semiannual maturity dates within the next six months, plus (b) one-twelfth of the aggregate yearly amount of principal becoming due and payable on the Outstanding Serial Bonds of all Series having annual maturity dates within the next twelve months, plus (c) one-sixth of the aggregate of the Mandatory Sinking Account Payments to be paid during the next six-month period into the respective Sinking Accounts for the Term Bonds of all Series for \vhich Sinking Accounts have been created and for which semiannual mandatory redemption is required from said Sinking Accounts, plus (d) onc-twelf\h of the aggregate of the Mandatory Sinking Account Payments to be paid during the next twelve-month period into the respective Sinking Accounts for the Term Bonds of all Series for \vhich Sinking Accounts shall have been created and for which annual mandatory redemption is required from such Sinking Accounts; provided that from the date of delivery of a Series of Bonds until the first principal payment date \Vilh respect to such Series the an1ounts so paid \Vith respect to such Series shall be sufficient on a monthly pro rata basis to pay the aggregate amount of principal becoming payable on said principal payment date \Vith respect to such Series. 3. !lond Reserve Fund. The Trustee shall deposit as soon as possible in each month in the Bond Reserve Fund upon the occurrence of any deficiency therein (i) one-twelfth of the aggregate an1ount necessary to repay any and all obligations due and payable under the terms and conditions of any letter of credit or any insurance policy used to satisfy the Bond Reserve Requirement by the end of the twelfth month after a draw has hecn 1nadc thereunder and (ii) one-twelf\h of the aggregate amount of each unreplenished prior withdrawal of cash from the Bond Reserve Fund and the full amount of any deficiency due to any required valuations of the invest1nents in the Bond Reserve Fund until the balance in the Bond Reserve Fund is at least equal to the Rond Reserve Requirement Any moneys remaining in the Bond Fund after the foregoing transfers described in (I), (2), and (3) above, except as otherwise provided in a Supplemental Indenture) shall be transferred on the same Business Day to the Foundation. Application of Funds Interest Fund. All amounts in the Interest Fund shall be used and \Vithdra\vn by the Trustee solely fOr the purpose of paying interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to the Indenture). Principal Fund. All amounts in the Principal Fund shall be used and vrithdrawn by the Trustee solely for the purposes of paying the principal of the Bonds when due and payable, except that all amounts in the Sinking Accounts shall be used and \vithdra\vn hy the Trustee solely to purchase or redeem or pay at maturity Term Bonds, as provided in the Indenture. B-9 Sinking Accounts. The Trustee shall establish and maintain within the Principal Fund a separate account for the Term Bonds of each Series and maturity, designated as the"__ Sinking Account," inserling therein the Series and maturity designation of such Bonds. On the Business Day prior to any date upon \Vhich a Mandatory Sinking Account Payment is due, the Trustee shall transfer the amount of such Mandatory Sinking Account Payment from the Principal Fund to the applicable Sinking Account. \Vith respect to each Sinking Account, on each Mandatory Sinking Account Payment date established for such Sinking 1\ccount, the Trustee shall apply the Mandatory Sinking Account Payment required on that date to the redemption ( or payment at maturity, as the case may be) of Term Bonds of such Series and maturily for which such Sinking Account ,vas established, upon the notice and in the manner provided in the Supplemental Indenture pursuant to ,vhich such Series of Bonds \Vas created; provided that, at any time prior to giving such notice of such redemption, the Trustee shall, upon receipt of a Request of the Foundation, apply moneys in such Sinking Account to the purchase of Term Bonds of such Series and maturity at public or private sale, as and \vhen and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Fund) as is directed by the Foundation, except that the purchase price (excluding accrued interest) shall not exceed the principal amount thereof. If, during the twelve month period (or six-month period with respect to Bonds having semi-annual Mandatory Sinking Account Payments) immediately preceding said Mandatory Sinking Account Payment date, the Trustee has purchased Tenn Bonds of such Series and maturity \vith moneys in such Sinking Account, or, during said period and prior to giving said notice of redemption, the Foundation has deposited Term Bonds of such Series and maturity with the Trustee, or Term Bonds of such Series and maturity \Vere at any time purchased or redeemed by the Trustee from the Redemption Fund and allocable to said Mandatory Sinking Account Payment, such Term Bonds so purchased or deposited or redeemed shall be applied, to the extent of the full principal amount thereof, to reduce said Mandatory Sinking Account Payment Any amounts remaining in a Sinking Account when all of the Term Bonds for \vhich such account was established are no longer Outstanding shall be vvithdrawn by the Trustee and transferred to the Foundation to be used for any lawful purpose. All Term Bonds purchased from a Sinking Account or deposited by the Foundation with the Trustee in a t\vclve-month period ending September 30 (or in a six-month period ending September 30 or March 31 \vith respect to Bonds having semi-annual Mandatory Sinking Account Payments) shall be allocated first to the next succeeding Mandatory Sinking Account Payment for such Series and maturity of Tenn Bonds, then as a credit against such future Mandatory Sinking Account Payments for such Series and maturity of Term Bonds as may be specified in a Request of the Foundation. All Term Bonds redeemed by the Trustee from the Redemption Fund shall be credited to such future Mandatory Sinking Account Payments for such Series and maturity of Term Bonds as may be specified in a Request of the Foundation. Bond Reserve Fund. Letter of Credit In lieu of making the Bond Reserve Requirement deposit, or in replacement of moneys then on deposit in the Bond Reserve Fund (which shall be transferred by the Trustee to the Foundation), the Foundation may deliver to the Trustee an unconditional, irrevocable letter of credit issued by a financial institution having unsecured debt obligations rated in one of the two highest Rating Categories of Standard & Poor's, in an amount, together \vith moneys, Inveslmcnt Securities, or other Reserve Facilities (as described in subsection (B) of this Section) on deposit in the Bond Reserve Fund, equal to the Bond Reserve Requirement. The letter of credit shall be payable in one or more dravv"s upon presentation by the beneficiary of a sight draft accompanied by its certificate thal it then holds insufficient funds to make a required payment of principal or interest on the Bonds. The draws shall be payable within two days of presentation of the sight draft. The letter of credit shall be for a tenn of not less than three years. The issuer of the letter of credit shall be required to notify the Foundation and the Trustee, not later than 30 months prior to the stated expiration date of the letter of credit, as to whether such expiration date shall be extended, and if so, shall indicate the new expiration date. If such notice indicates that the expiration date shall not be extended, the Foundation shall deposit in the Bond Reserve Fund an amount sufficient to cause the cash or Investment Securities on deposit in the Bond Reserve Fund together with any other qualifying Reserve Facilities, to equal the Bond Reserve Requirement on all outstanding Bonds, such deposit to be paid in equal installments on at least a semiannual basis over the remaining B-10 term of the letter of credit, unless the Reserve Facility is replaced by a Reserve Facility meeting the requirements of this Section. The letter of credit shall permit a draw in full not less than two weeks prior to the expiration or termination of such letter of credit if the letter of credit has not been replaced or renewed. 'l'he 'l'rustee shall draw upon the letter of credit prior to its expiration or termination unless an acceptable replacement is in place or the Bond Reserve Fund is fu1ly funded in its required amount. (B) [nsurance Policy. In lieu of making the Bond Reserve Requirement deposit in compliance with Sections 5. l(B) (Issuance of Additional Series of Bonds -- Bond Reserve Fund) and 8.3 (Allocation of Moneys) of the Indenture, or in replacement of moneys then on deposit in the Bond Reserve Fund (\vhich shall be transferred by the ·rrustee to the Foundation), the Foundation may also deliver to the Trustee an insurance policy or surety bond securing an amount, together with n1oneys, Investment Securities, or other Reserve Facilities on deposit in the Bond Reserve Fund, no less than the Bond Reserve Requirement. If the insurance policy or surety bond is issued by a company licensed to issue an insurance policy guaranteeing the timely payment of debt service on the Bonds (a "municipal bond insurer"), the claims paying ability of the issuer thereof shall be rated "AAA" or "Aaa" by Standard & Poor's or Moody's, respectively. If the insurance policy or surety bond is issued by an entity other than a municipal bond insurer, the form and substance of such instrument and the issuer thereof shall be approved by the Bond Insurer. Such insurance policy or surety bond shall have a term of no less than the maturity of the Series of Bonds in connection with which such insurance policy or surety bond \Vas obtained. In the event that such insurance policy or surety bond for any reason lapses or expires, the Foundation shall immediately replace it \Vith another Reserve Facility or make the required deposits to the Bond Reserve Fund. (C) Opinion Prerequisite, The use of any Reserve Facility pursuant to this Section shall be subject to receipt of an opinion of Bond Counsel acceptable to the Bond Insurer and in form and substance satisfactory to the Bond Insurer as to the due authorization, execution, delivery and enforceability of such instrument in accordance \Vith its terms, subject to applicable la\VS affecting creditors' rights generally, and, in the event the issuer of such Reserve Facility is not a domestic entity, an opinion of foreign counsel in form and substance satisfactory to the Bond Insurer. In addition, the use of an irrevocable letter of credit shall be subject to receipt of an opinion of counsel acceptable to the Bond Insurer and in form and substance satisfactory to the Bond Insurer to the effect that payments under such letter of credit \.Vould not constitute avoidable preferences under Section 547 of the U.S. Bankruptcy Code or similar state laws with avoidable preference provisions in the event of the filing of a petition for relief under the U.S. Bankruptcy Code or similar state laws by or against the Foundation (or any other account party under the letter of credit). (D) Replacement of Reserve Facility. If (a) the revolving reinstatement feature of the Reserve Facility is suspended or terminated, or (b) the rating of the claims paying ability of the issuer of the surety bond or insurance policy falls below a Standard & Poor's "AAA" or a Moody's "Aaa," or (c) the rating of the issuer of the letter of credit falls below a Standard & Poor's "AA," the Foundation shall either (i) deposit into the Bond Reserve Fund an amount sufficient to cause the cash or Investment Securities on deposit in the Bond Reserve Fund to equal the Bond Reserve Requirement on all outstanding Bonds, such amount to be paid over the ensuing five years in equal installments deposited at least semiannually. or (ii) replace such instrument \Vith a Reserve Facility meeting the requirements or this Section ,vithin six months of such occurrence. In the event (a) the raling of the claims~paying 1 ability of the issuer of the surely bond ur insurance policy falls below "A, ' or (b) the rating of the issuer of the letter of credit falls below "A," or (c) the issuer of the Reserve Facility defaults in its payment ohligations, or (d) the issuer of the Reserve Facility becomes insolvent, the Foundation shall either (i) deposit into the Bond Reserve Fund an amount sufficient to cause the cash or Investment Securities on deposit in the Bond Reserve Fund to equal Bond Reserve Requirement on all outstanding Bunds, such amount to be paid over the ensuing year in equal installments on at least a monthly basis, or (ii) replace such instrument ,vith a Reserve Facility meeting the requirements of this Section above within six months of such occurrence. (E) Application of Bond Reserve Fund. (I) Payment of Debt Service Deficiencies. All amounts in the Bond Reserve Fund (including all amounts that may be obtained from Reserve Facilities on deposit in the Bond Reserve Fund) shall be used and ,vithdra,vn by the Trustee for the purpose of making up any deficiency in the B-11 Interest Fund or the Principal Fund. The portion of the Bond Reserve Fund held in cash or Investment Securities may be used (together \Vith any other moneys available therefor) for the payment or redemption of all Bonds then Outstanding; such portion also may be used for the payment of the final principal and interest payment of a Series of Bonds if, follo\ving such payment, the amounts in the Bond Reserve Fund (including the amounts that may be obtained from Reserve Facilities bonds on deposit therein) \vill equal the Bond Reserve Requirement. The Trustee shall ascertain the necessity for a claim or dra\v upon a Reserve Facility and shall provide notice to the issuer of the Reserve Facility in accordance \Vith its terms not later than three days (or such longer period as may be necessal)' depending on the pennitted time period iOr honoring a dra\v under the Reserve Facility) prior to each interest payment date. The Trustee shall first draw on the portion of the Bond Re.serve Fund held in cash or Investment Securities and then, on a pro rata basis \Vith respect to the portion of the Bond Reserve Fund held in the form of Reserve Facilities (calculated by reference to the maximum amounts of such Reserve Facilities), draw on each Reserve Facility issued \Vith respect to the Bond Reserve Fund, in a timely manner and pursuant to the terms of such Reserve Facility to the extent necessary in order to obtain sufficient funds on or prior to the date such funds are needed to pay the principal of, Mandato!}' Sinking Account Payments with respect to, and interest on the Bonds \vhen due. (2) Repayment of Amounts Recovered as Preferences in Bankruptcy. If the Trustee has notice that any payment of principal of or interesl on a Bond has been recovered from a Bondholder pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee, pursuant to and provided that the terms of the Reserve Facility, if any, securing the Bonds so provide, shall so notify the issuer thereof and draw on such Reserve Facility to the lesser of the extent required or the maximum amount of such Reserve Facility in order to pay to such Bondholders the principal and interest so recovered. If and to the extent that the Bond Reserve Requirement is satisfied by a deposit of cash or Investment Securities and one or more Reserve Facilities (or any combination thereof), the Trustee shall first draw on the portion of the Bond Reserve Fund held in cash or Investment Securities and then make dra\vings under such Reserve Facilities shall be made on a pro rata basis (calculated by reference to the maximum amounts of such Reserve Facilities). (3) Reimbursement of Dra,vs on Reserve Facilities. Any Reserve Facility shall provide for a revolving feature under which the amount available thereunder will be reinstated to the extent of any reimbursement of dra\VS or claims paid. If a dra\ving is made on a Reserve Facility, the Trustee shall use amounts deposited in the Bond Reserve Fund by the Foundation follov,ing such dra\v first to make the payments required by the terms of the Reserve Facility, or related reimbursement or loan agreement so that the Reserve Facility shall, absent the delivery to the Trustee of a substitute Reserve Facility satisfying the requirements of this Section or the deposit in the Bond Reserve Fund of an amount sufficient to increase the balance in the Bond Reserve Fund to the Bond Reserve Requirement, be reinstated in the amount of such drav1:ing within one year of the date of such dra\ving. After such reinstatement, the Trustee shall use amounts deposited in the Bond Reserve Fund by the Foundation for the replenishment of the portion of Bond Reserve Fund held in cash or Investment Securities. The obligation to reimburse the issuer of a Reserve Facility for any fees, expenses, claims or dra\vs upon such Reserve Facility shall be subordinate to the payment of debt service on the Bonds. The right of the issuer of a Reserve Facility to payment or reimbursement of its fees and expenses shall be subordinated to cash replenishment of the Bond Reserve Fund, and, subject to the next sentence, its right to reimbursement for claims or draws shall be on a parity \Vith the cash replenishment of the Bond Reserve Fund. If the revolving feature is suspended or terminated for any reason, the right of the issuer of the Reserve Facility to reimbursement will be further subordinated to cash replenishment of the Bond Reserve Fund to an amount equal to the difference bet\veen the full original amount available under the Reserve Facility and lhe amount then available for further dra\vs or claims. If (a) the issuer of a Reserve Facility becomes insolvent, or (b) the issuer of a Reserve Facility defaults in its payment obligations thereunder, or (c) the claims~paying ability of the issuer of the insurance policy or surety bond falls below a Standard & Poor's "AA" or a Moody's "Aaa," or (d) the rating of the issuer of the letter of credit falls belO\V a Standard & Poor's "AAA," the obligation to reimburse the issuer of the Reserve Facility shall be subordinate lo the cash replenishment of the Bond Reserve Fund. B-12 (4) Surplus. Any amounts in the Bond Reserve Fund in excess of the Bond Reserve Requirement shall be transferred by the Trustee to the Foundation on October I of each year; provided that such amounts shall be transferred only from the portion of the Bond Reserve Fund held in the form of cash or Investment Securities. Redemption Fund. The Trustee will establish1 maintain, and ho1d in trust the Redemption Fund. All moneys deposited by the Foundation with the Trustee for the purpose of optionally redeeming Bonds shall, unless othenvise directed by the Foundation, be deposited in the Redemption Fund. All amounts deposited in the Redemption Fund shall be used and withdrawn by the Trustee solely for the purpose of redeeming Bonds or for the purchase of Bonds by the Foundation at public or private sale, in the manner, at the times and upon the terms and conditions specified in the Indenture. Rebate Fund. The Trustee shall establish and maintain the Rebate Fund as a fund separate from any other fund held by the Trustee. The Trustee shall disburse moneys from the Rebate Fund pursuant to \vritten instructions from tht: Foundation for the purpose or satisfying the Rebate Requirement (as defined in the 'rax Certificate). The Bondholders have no rights in or claim to any moneys deposited in the Rebate Fund. Investment of Money in Funds and Accounts All moneys in any of the funds and accounts held by the Trustee and established pursuant to the Indenture shall be invested solely as directed by the Foundation, solely in Investment Securities. Moneys in the Bond Reserve Fund shall be invested in Investment Securities maturing or available on demand within five years of the date of such investment, but in no event later than the final maturity of the Bonds. Moneys in the remaining funds and accounts shall be invested in Investment Securities maturing or available on demand not later than the date on \vhich it is estimated that such moneys will be required by the Trustee. Unless other,vise provided in the Indenture or in a Supplemental Indenture, all interest, profits, and other income received from the investment of moneys in any fund or account held by the Trustee shall be transferred to the Bond Fund. Issuance of Additional Series of Bonds Authority to Issue Additional Series of Bonds. 1'he Foundation may by Supplemental Indenture establish and issue one or more additional Series of Bonds, secured under the Indenture equally and ratably \Vith Bonds previously issued, subject to, among other things, the following specific conditions: I. No Event of Default shall have occurred and then be continuing. 2. The Supplemental Indenture providing for the issuance of such Series shall require that the balance in the Bond Reserve Fund, forthwith upon the receipt of the proceeds of the sale of such Series, be increased, if necessary, to an amount at least equal to the Bond Reserve Requirement \vith respect to all Bonds to be considered Outstanding upon the issuance of such Series. The deposit may be in the fonn of a letter of credit or insurance policy as described above. 3. The Foundation shall have certified to the Trustee that: (a) the Net Income Available for Debt Service for a period of t\velve (12) consecutive months during the eighteen (18) months immediately preceding the date on which such additional Series of Bonds \Viii become Outstanding shall have been at least equal to 1.0 times the amount of Maximum Annual Debt Service on all Series of Bonds and Parity Debt then Outstanding and the additional Series of Bonds then proposed to be issued, and (b) the Net Income Available for Debt Service for the same t\velve-month period, calculated including projected revenues and expenses associated \Vith any facility to be financed by such additional Series of Bonds (based on the assumption that the facility was placed in service and operating at the beginning of such twelve-month period), shall have been at least equal to l .2 times the B-13 amount of Maximum Annual Debt Service on all Series of Bonds and Parity Debt then Outstanding and the additional Series of Bonds then proposed to be issued. If the Additional Bonds refund any Outstanding Bonds, the foregoing requirement shall not apply if Annual Debt Service fOr all the Bonds is not increased in any year following the issuance of such refunding Additional Bonds. Certain Covenants of the Foundation Consolidation. Merger, Sale, or Transfer Under Certain Conditions. The Foundation covenants and agrees that it \vill not dissolve, sell, lease, or otherwise dispose of all or substantially all of its assets, or consolidate with or merge into another Person, or permit one or more other Persons to consolidate with or merge into it; provided, that the Foundation may, without violating the foregoing covenants, consolidate with or merge into, sell, or lease all or substantially all of its assets to another Person, or permit one or more other Persons to consolidate with or merge into it. if: a. Such actions are permitted by lav,; b. The surviving, resulting or transferee Person, as the case may be (1) assumes in \vriting, if such Person is not the Foundation, all of the obligations of the Foundation under the Indenture and agrees to fulfill and comply \Vith the tenns, covenants, and conditions thereof; and (2) is not, after such transaction, othenvise in default under any provision of the Indenture. Upon compliance with the foregoing provisions, (i) the Foundation and such Person shall be considered to be one entity for purposes of the Indenture, (ii) all computations under the Indenture shall be made on a combined basis for the Foundation and such Person, and (iii) no provision of the Indenture shall apply to transactions bet\veen the Foundation and such Person. A Person may also agree to become a co-obligor and jointly and severally liable \vith the Foundation ( \Vithout the necessity of merger, consolidation or transfer of assets) under the Indenture if the foregoing provisions are satisfied. In such event, references in the Indenture to Indebtedness of the Foundation shall be considered to refer to the combined Indebtedness of the Foundation and such Person and references to the financial condition or results of operation of the Foundation shall be considered to refer to the Foundation and such Person, and the Foundation and such Person shall be considered to be the Foundation for all purposes of the Indenture. Operating Agreement. The Foundation will not alter, modify, or cancel, or agree or consent to alter, modify, or cancel the Operating Agreement without the ,vrirten consent of the Holders of a majority in aggregate principal amount of Bonds then Outstanding; provided, ho\vever, that the Foundation may, \vithout notice to or the consent of any I Ialders of the Bonds, consent to alterations or modifications thereof that do not materially adversely affect the interests of the Holders of the Bonds then Outstanding. Without allowance for any days of grace that may or might exist or be a1iowed by law or granted pursuant to any tenns or conditions of the Operating Agreement, the Foundation \Vill in all respects promptly and faithfully keep, perform, and comply with all the terms, provisions, covenants, conditions, and agreements of the Operating Agreement to be kept, performed and complied vvith by it. The Foundation \vill not do or pcnnit anything to be done, or omit or refrain from doing anything, in the case \Vhere any such act done or permitted to be done, or any such omission of or refraining from action, would or might be a ground for declaring a forfeiture of the Operating Agreement. Rates and Charges. The Foundation covenants and agrees to fix, charge, and collect, or cause to be lixcd, charged, and collected, subject to applicable requirements or restrictions imposed by la\v, such rates, fees, prices for goods and serviccsi and charges that, together \Vith all other receipts and revenues of the Foundation and any other funds available therefor1 \\'ill be budgeted for the next Fiscal Year to be sufficient to produce Net Income Available for Debt Service equal to at lea.st 1.20 times Aggregate Annual Debt Service for all Bonds and Parity Debt then Outstanding for the next Fiscal Year. B-14 Limitations on Liens. The Foundation \Viii not create or incur or suffer or permit to be created or incurred or to exist any mortgage) lien) charge, or encumbrance on or pledge of Revenues, Operating Agreements, or any other property of the Foundation unless the Foundation secures its ohligations under the Indenture prior thereto, except that: 1. the Foundation may create, incur, or suffer to exist purchase money mortgages or other purchase money liens upon any real property purchased by the Foundation or acquire real property subject to mortgages and liens existing thereon at the date of acquisition, or acquire or agree to acquire and O\.Yn personal property subject to or upon chattel mortgages, security agreements, conditional sales agreements, or other title retention agreements; provided that: a. the principal amount of the indebtedness secured by each such mortgage, lien or agreement shall not exceed lOOo/o of the cost or fair value to the Foundation at the time of the acquisition thereof by the Foundation, \vhichever is less, of the property subject thereto, as determined by the Foundation Board; and b. each such mortgage, lien, or agreement shall apply only to the property originally subject thereto and fixed improvements erected on such real property or affixed to such personal property or equipment used in connection \Vith such real or personal property; 2. the Foundation may modify, extend, rene\V or replace any mortgage, lien or agreement permitted as described in (1) above upon the same property theretofore subject thereto, or modif)', replace, renc\v or extend the indebtedness secured thereby, provided that in any such case the principal amount of such indebtedness so modified, replaced, extended or revie\ved shall not be increased; and 3. the Foundation may create or incur liens securing indebtedness permitted by the [ndenture or the Series 200 I Indenture. Payment of Taxes. The Foundation shall pay or cause to be paid as they become due and payable all taxes, assessments, and other governmental charges la\vfully levied or assessed or imposed upon any property of the Foundation or its income. Limitations on Indebtedness. The Foundation \viii not, so long as any of the Bonds are Outstanding, issue any obligations or securities, ho\vsocvcr denominated, except the following: I. Bonds of any Series authorized pursuant to the Indenture. 2. Parity Debt, provided that the fol!o\ving conditions to the issuance of such Parity Debt arc satisfied: a. Such Parity Debt has been duly and legally authorized for any lawt\Jl purpose; b. No Event of Default shall have occurred and then be continuing, as evidenced in a Certificate of the Foundation tiled \vith the Trustee; c. The Foundation shall have certified to the Trustee (on the basis of calculations as of the date of delivery of such Parity Debt) that the debt service coverage requirements \Vith respect to additional Bonds have been met with respect to such Parity Debt; and d. The Foundation shall have filed \vith the 'l'rustee an Opinion of Counsel to the effect that such Parity Debt has been duly authorized in accordance \Vith law for a lawful purpose and all prior proceedings of the Foundation. 3. Obltgations that arc junior and subordinate to the payment of the principal, premium, interest, and reserve fund requiren1ents for the Bonds and all Parity Debt. B-15 Maintenance of Properties. The Foundation will cause all its properties to be maintained and kept in good condition, repair and \Vorking order and supplied with all necessary equipment and \Vill cause to be made all necessary repairs, rene\vals, replacements, betterments and improvements thereof, all as in the judgement of the Foundation may be necessary so that the business carried on in connection therc\vith may be properly and advantageously conducted at all times. Insurance. A. Casualty Insurance. The Foundation will at all times keep all its property of an insurable nature of the character usually insured by organizations operating similar properties insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar organizations, and \Vill carry the tOllo\ving additional amounts and types of insurance: fire, lightning, and extended coverage insurancc including vandalism and malicious mischief insurance, sprinkler systen1 leakage insurance and boiler 1 explosion insurance, in an amount equal to one hundred percent of the replacement cost of such properties (except that such insurance may be subject to deductible clauses for any one loss or not to exceed the lesser of $100,000 or the amount in the Bond Reserve Fund in excess of onc-fOurth of the Maxin1um Annual Debt Service and available for that purpose) or, in the alternative, in an amount and in a form sufficient (together with moneys in the Bond Reserve Fund and available for that purpose), in the event of total or partial loss, to enable the Foundation either to retire all Bonds then outstanding or to restore such properties to the condition existing before such loss. Said extended coverage endorsement shall, as nearly as practicable, cover loss or damage by explosion, \vindstorm, riot, aircraft, vehicle damage, smoke and such other hazards as arc normally covered by such endorsement. Each such policy of insurance shall contain a clause making all losses payable to the Trustee as its interest may appear. All such insurance shall be effected \Vith responsible insurance carriers. B. Application of the Proceeds of Casualty Insurance. In the event of any damage to or destruction of any property caused by the perils covered by such insurance, the Foundation, except as described bclO\V, shall cause the proceeds of such insurance to be utilized for the repair, reconstruction, or replacement of the damaged or destroyed portion of the property, and the Trustee shall hold proceeds separate and apart from all other funds in a special fund it is authorized to establish, to the end that such proceeds shall be applied to the repair, reconstruction, or replacement of the property to at least the same good order, repair, and condition as it \vas in prior to the damage or destruction, insofar as the same may be accomplished by the use of such proceeds. The Trustee shall permit \vithdra\vals of said proceeds from time to time upon receiving the Written Request of the Foundation, stating that the Foundation has expended moneys or incurred liabilities in an amount equal to the amount requested to be paid over to it for the purpose of repair, reconstruction, or replacement, and specifying the items of \Vhich such moneys \Vere expended, or such liabilities incurred. Any balance of said proceeds not required for such repair, reconstruction, or replacement shall be paid over to the Foundation by the 1'rustce. Alternatively, the Foundation, at its option, and if the proceeds of such insurance together with any other moneys then available for the purpose are at least sufficient to redeem an aggregate principal amount of Outstanding Bonds of the series \vhose proceeds were used to acquire or construct such property, equal to the amount of Outstanding Bonds of the series attributable to such property (determined by reference to the proportion which the reconstruction or replacement cost of such property bears to the construction or acquisition cost of all property included in the phase or the Project of \vhich said property is a part), may elect not to repair, reconstruct, or replace the damaged or destroyed portion of the Project and thereupon shall cause said proceeds to be used for the redemption of Outstanding Bonds of such series pursuant to the provisions of the Indenture or of the Supplemental Indenture pursuant to \Vhich such series \Vas issued and Article 5; provided, however, that the excess, if any, of the proceeds of such insurance over the amounts used for the redemption of Outstanding Bonds is to be remitted to the Foundation. C. Liability insurance. {l) Except a'i described in subparagraph (2) belo\v, the Foundation shall maintain or cause to be maintained, at all times \vhile any of the Bonds are outstanding, public liability insurance, with limits of not less than $1,000,000 for one person and $3,000,000 for more than one person involved in one accident, to protect the Foundation and its members, directors, officers, agents and employees and the Trustee from all direct or contingent loss or liability for damages for bodily injury or death occasioned by reason of the Foundation's operations including any use or occupancy of its properties. The Foundation shall also maintain or cause to be maintained, so long as any of the Bonds are outstanding, insurance against liability for property damage resulting from any casualty attributable to the Foundation's operations, in an amount not less than $200,000 for each accident. Such public liability insurance and such property damage insurance may be subject to a deductible clause of not to exceed $50,000 for any one accident. Such public liability insurance and such 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. B-16 (2) The Foundation shall have the right, exercisable from time to time, lo provide other kinds of insurance or methods or plans of protection against risk or loss, \Vhich shall be in substitution, or partial substitution, for any of the kinds of insurance required to be maintained by the Foundation under the Indenture, providing such other kinds of insurance, plans or methods shall afford reasonable protection to the Foundation, its directors, officers, agents and employees and the Trustee in light of all circumstances giving consideration to cost availability, and plans or methods of protection adopted by California Foundations similar to the Foundation. Before another method or plan may be provided by the Foundation, there shall be filed \Vith the Trustee a certificate ofan actuary, or other qualified person, stating that, in the opinion of the signer, the substitute method or plan of protection is in accordance \Vith the requirements described in this paragraph and, \vhen effective, \Vould affOrd adequate protection to the Foundation, its directors, officers, agents and employees and the 'rrustee against loss and damage from hazards and risks covered thereby. There shall also be filed \Vith the Trustee a Certificate of the Foundation setting forth the details of such substitute method or plan. D. Business Interruption Insurance. The Foundation shall maintain or cause to be maintained, at all times ,.vhile any of the Bonds are Outstanding, business interruption insurance in an amount not less than Maximum Annual Debt Service; in either case insuring against loss caused by the perils covered by the required insurance described in (A) above, except that such insurance may be subject to a deductible clause of not to exceed the aggregate total amount payable during the first thirty days of any loss. Any such insurance policy shall contain a loss payable clause making any loss thereunder payable to the Trustee, as its interest may appear. E. Bond Insurance. The Foundation may purchase, on all or any of the Bonds of any series, insurance assuring the Bondholders that the principal of and interest on the insured Bonds will be paid when due and payable. The purchase of any such insurance shall not constitute a preference or priority of the insured Bonds over any Bonds not so insured, and all Bonds outstanding, irrespective of the providing of such insurance on some of the Bonds, shall be equally and proportionately secured by the Indenture. Eminent Domain. If any property of the Foundation shall be taken by eminent domain proceedings (or sold to a government threatening to exercise the po\ver of eminent domain), the proceeds therefrom shall be deposited \Vith the Trustee in a special fund in trust, \vhich shall be applied and disbursed by the rrrustee as follo\vs: I. a. If the Trustee is furnished with a report to the effect that such eminent domain proceedings have not materially affected the ability of the Foundation to meet any of its obligations under the Indenture, and if such report states that such proceeds arc not needed for repair or rehabilitation of Foundation facilities the Trustee shall deliver such proceeds to the Foundation. b. If the Trustee is furnished \Vith a report to the effect that such eminent domain proceedings have not materially affected the ability of the Foundation to meet any of its obligations under the Indenture, and if such report states that such proceeds are needed for repair or rehabilitation of Foundation facilities, the Trustee shall pay to the Foundation, or to its order, from said proceeds such amounts as the Foundation may expend for such repair or rehabilitation, upon the tiling with the Trustee of such Written Requisitions of the Foundation, certificates of architects or engineers. c. In making any such application (including the application mentioned in the following paragraph (2)), the Trustee shall be provided, at the expense of the Foundation, the report of an independent engineer or other independent professional consultant. Any such application by the Trustee shall be final. 2. Ir less than all of the property of the Foundation shall have been taken in such eminent domain proceedings, and if the Trustee is furnished a report of an independent engineer concluding that such eminent domain proceedings have materially afiectcd the ability of the Foundation to meet any of its obligations under the Indenture, the Truslee shall apply such proceeds to the redemption of Bonds of such series as specified by the Foundation in the manner provided in the Indenture. 3. a. Jf all of the property of the Foundation shall have been taken in such eminent domain proceedings and if such proceeds, together with any other moneys then available to the Trustee for the purpose, arc sufficient to provide for the payment of the entire amount of principal then due or to become due upon the Bonds, togelher \Vith the interest thereon, so as to enable the Foundation tO. retire all of the Bonds then Outstanding by B-17 redemption or by payment at maturity, the Trustee shall apply such proceeds to the payment of such interest and to such retirement. b. If all of the property of the Foundation shall have been taken in such eminent domain proceedings and if such proceeds, together with any other moneys then available to the Trustee for the purpose, are insufficient to provide moneys for the purposes specified in subparagraph (a) of this paragraph (3), the Trustee shall declare that an Event of Default exists and take such actions as may be appropriate. 4, After all of the Bonds have been retired and the entire amount of principal due or to become due upon the Bonds, together \Vith the interest thereon, have been paid in full, the Trustee shall pay the remainder of such proceeds to the Foundation. Federal lncome Tax Covenants. The Foundation covenants that il \Vill at all times do and perform all acts and things permitted by la\v and the Indenture that are necessary and desirable in order to assure that interest on the Series 2002A Bonds \viii be excluded from gross income for federal income tax purposes and \Vill take no action that would result in such interest not being so excluded. Events of Default and Remedies of Bondholders Events of Default The follo,ving events shall be Events of Default: 1. default in the due and punctual payment of the principal or Redemption Price of any Bond vvhen and as the same shall become due and payable, 1,.vhcther at maturity as therein expressed, by proceedings for redemption, by declaration or othcr\vise, or default in the redemption from any Sinking Account of any Bonds in the amounts and at the times provided therefor; 2. default in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable; 3. failure by the Foundation to observe or perfonn any covenant, condition, agreement, or provision in the Indenture on its part to be observed or performed, other than as referred to in paragraph (1) or (2) above, for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, has been given to the Foundation by the Trustee; except that, if such failure can be remedied but not within such 60-day period and if the Foundation has taken all action reasonably possible to remedy such failure \Vithin such 60-day period, such failure shall not become an Event of Default for so long as the Foundation shall diligently proceed to remedy same in accordance \Vith and subject to any directions or limitations of time established by the Trustee; 4, any default under the Indenture or any agreement governing any Parity Debt and such default shall continue beyond the grace period, if any, provided for with respect to such default; 5. filing by the Foundation ofa petition in voluntary bankruptcy, for the composition of its affairs, or for its corporate reorganization under any state or federal bankruptcy or insolvency la\v, or makes an assignment for the benefit of creditors, or admits in writing to its insolvency or inability to pay debts as they mature, or consents in \Vriting to the appointment of a trustee or receiver; 6. entry by a court of competent jurisdiction of an order, judgment or decree declaring the Foundation insolvent, or adjudging it bankrupt, or appointing a trustee or receiver of the Foundation, or approving a petition filed against the foundation seeking reorganization of the Foundation under any applicable law or statute of the United States of America or any state thereof, and such order, judgment or decree shall not be vacated or set aside or stayed \vithin 60 days from the date of the entry thereof; or B-18 7. assumption of custody or control of the Foundation by any court of competent jurisdiction under the provisions of any other la\v for the relief or aid of dehtors and such custody or control shall not be terminated \Vithin 60 days from the date of assumption of such custody or control. Acceleration of Maturities. If an Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee may or, upon the receipt of written instructions from the J-Iolders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding, shall, upon notice in \Vriting to the Foundation, declare the principal of all of the Bonds then Outstanding, and the interest accrued !hereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the Bonds contained to the contrary not\vithstanding. Any such declaration, however, is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Foundation shall deposit ,vith the Trustee a sum sufficient to pay all the principal or Redemption Price of the Bonds due prior to such declaration and all matured installments of interest on the Bonds payment of \vhich is overdue, \Vith interest on such overdue payments of principal and interest installments at the rate borne by the respective Bonds, and the reasonable charges and expenses of the Trustee, and any and all other defaults of ,.vhich the Trustee has actual knowledge ( other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in cvel)' such case, if such declaration \Vas made by the Trustee in accordance v.:ith \vritten instructions of the Holders, the Trustee shall, upon receipt of \vritten instructions of the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Foundation, or, if such declaration \Vas made by the Trustee, the Trustee may, on behalf of the tlolders of all of the Bonds, rescind and annul such declaration and its consequences and \vaive such default; but no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust any right or po\ver consequent thereon. The provisions described in the preceding t\VO paragraphs are subject to the right of the Bond Jnsurer to control and direct the enforcement of all rights and remedies granted to the Bondholders or the 'frustee. See "Consent of the Series 2002 Bond Insurer" belo\V. Aonlication of Money Collected If an Event of Default shall occur and be continuing, the Trustee shall apply all funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (except as otherwise provided in the Indenture) as fol!O\VS and in the following order: l. 1'o the payn1cnt of any expenses necessary in the opinion of the 'l'rustce to protect the interests of the Holders of the Bonds and Parity Debt, including the costs and expenses of the Trustee and the Bondholders in declaring such Event of Default, and payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel and other agents) incurred in and about the performance of its powers and duties under the Indenture; 2. To the payment of the \vholc amount of principal then due on the Bonds and Parity Debt (upon presentation of the Bonds and Parity Debt 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, \Vith interest on such principal, at the rate or rates of interest borne by the respective Bonds and Parity Debt as follows: a. Unless the principal of all of the Bonds and Parity Debt shall have become or have been declared due and payable, to the payment to the persons entitled thereto of all installments of interest then due and the unpaid principal or Redemption Price of any Bonds and Parity Debt that shall have become due, \Vhether at maturity or by call for redemption, in the order of their due dates, with interest on the overdue principal at the rate home by the respective Bonds and Parity Debt, and, if the amount available shall not be sufficient to pay in full all the Bonds and Parity Debt due on any date, together ,vith B-19 such interest, then to the payment thereof ratably, according to the an1ounts of principal or interest due on such date to the persons entitled thereto, without any discrimination or preference. b. If the principal of all of the Bonds and Parity Debt shall have become or have hccn declared due and payable, to the payment of the principal and interest then due and unpaid upon the Bonds and Parity Debt~ with interest on the overdue principal at the rate or rates borne by the respective Bonds and Parity Debt, 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 of interest over principal, 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 and interest, to the persons entitled thereto \Vithout any discrimination or preference. Trustee to Represent Bondholders. The Trustee is irrevocably appointed (and the successive respective Holders of the Bonds, by taking and holding the same, shall be conclusively deemed lo have so appointed the Trustee) as trustee and true and lav,;ful attorney-in-fact of the Holders of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Holders under the provisions of the Bonds, the Indenture and applicable provisions of law. Upon the occurrence and continuance ofan Event of Default or other occasion giving rise to a right in the Trustee to represent the Bondholders, the Trustee in its discretion may, and upon the written request of the llolders of not less than 25o/o in aggregate principal amount of the Bonds then Outstanding (provided that, if more than one such request is received by the Trustee from Holders, the Trustee shall follow the written request executed by the I Iolders of the greatest percentage of principal amount of the Bonds then Outstanding in excess of 25%), and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such lloldcrs by such appropriate action, suit, mandamus, or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Indenture, or in aid of the execution of any power granted in the Indenture, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Holders under the Indenture or any law. Limitation on Suits. No Holder of any Bond shall have the right to institute any suit, action, or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture or any applicable la\v with respect to such Bond, unless (1) such Holder shall have given to the Trustee \vritten notice of the occurrence of an Event of Default; (2) the Holders of not less than 25% in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted under the Indenture or to institute such suit, action or proceeding in its own name (provided that, if more than one such request is received by the Trustee from Holders, the request referred to above shall mean the request executed by the Holders of the greatest percentage of principal amount of the Bonds then Outstanding in excess of25°/o and any suit, action, or proceeding instituted by an Holder shall conform to that contemplated by the request); (3) such Holder or said Jloldcrs shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee shall have rerused or omitted to comply \Vith such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (5) the Trustee shall not have received contrary directions from the I-lolders of a majority in aggregate principal amount of the Bonds then Outstanding. Such notification, request, tender of indemnity, and refusal or omission are conditions precedent to the exercise by any Holder of Bonds of any remedy under the Indenture or under la\v; it being understood and intended that no one or more Holders of Bonds shall have any right in any manner \vhatever by his or their action tu affect, disturb or prejudice the security of the Indenture or the rights of any other Holders of Bonds or to enforce any right under the Indenture or applicable la\v with respect to the Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all lloldcrs of the Outstanding Bonds, subject to the provisions of the Indenture. Control by Bondholders. Anything in the Indenture to the contrary notwithstanding, the Holders of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or B-20 concurrent instruments in \Vriting executed and delivered to the Trustee and upon furnishing the Trustee ,vith indemnification satisfactory to it, to direct the method of conducting all remedial proceedings taken by the Trustee, provided that such direction shall not be otherwise than in accordance ,vith la\V and the provisions of the Indenture, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction, and that the Trustee shall have the right to decline to follow any such direction that in the opinion of the Trustee \Vould be unjustly pr~judicial to Bondholders or O\vners of Parity Debt not parties to such direction. Modification or Amendment of the Indenture Sunolemental Indentures Without Consent of Bondholders. The Indenture and the rights and obligations of the Foundation, of the Trustee, and of the Holders of the Bonds may be modified or amended ffom time to time and at any time by a Supplemental Indenture, which the Foundation may adopt without the consent of any Bondholders but only to the extent permitted by law and only for any one or more of the follo,ving purposes: 1. to add to the covenants and agreements or the Foundation contained in the Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereoJ), or to surrender any right or po\ver reserved to or conferred upon the Foundation in the Indenture; 2. to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the Foundation 1nay dce1n necessary or desirable, and that shall not materially and adversely affect the interests of the Holders of the Bonds; 3. to modify, amend, or supplement the Indenture in such manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute in effect at any time, and to add such other terms, conditions, and provisions as may be permitted by said act or similar federal statute, and that shall not materially and adversely affect the interests of the Holders of the Bonds; 4. to provide for the issuance of Bonds in book-entry form, provided that no such provision shall materially and adversely affect the interests of the Holders of the Bonds; 5. to make modifications or adjustments necessary, appropriate, or desirable to accommodate credit enhancements including letters of credit, insurance policies, and surety bonds delivered with respect to the Bond Reserve Fund; 6. to create any additional Series of Bonds in accordance \Vith the requirements of the Indenture; and 7. for any other purpose that does not materially and adversely affect the interests of the Holders of the Bonds. Supplemental Indentures with Consent of Bondholders or Credit Providers. A. The Indenture and the rights and obligations of the Foundation, the I lolders of the Bonds, and the Trustee may be modified or amended from time to time and at any time by a Supplemental Indenture, \Vhich the Foundation and the Trustee may enter into with the \Vritten consent of the Ilolders of a majority in aggregate principal amount of the Bonds (or, if such Supplemental Indenture is only applicable to a Series of Bonds, such Series of Bonds) then Outstanding shall have been filed \Vith the Trustee; provided that, if such modification or amendment \Vill, by its terms, not take effect so long as any Bonds of any particular maturity remain Outstanding, the consent of the Holders of such Bonds shall not he required and such Bonds shall not be deemed to be Outstanding for the purpose of any calculation of Bonds Outstanding. B. The Indenture and the rights and obligations of the Foundation and of the Holders of the Bonds and of the Trustee may also be modified or amended at any time by a Supplemental Indenture entered into by the Foundation and the Trustee, \Vhich shall become binding \Vhen the written consents of each provider of a letter of credit or a policy of bond insurance for the Bonds shall have been filed with the Trustee, provided that at such time B-21 the payment of all the principal of and interest on all Outstanding Bonds shall be insured by a policy or policies of municipal bond insurance or payable under a letter of credit the provider of \Vhich shall be a financial institution or association having unsecured debt obligations rated, or insuring or securing other debt obligations rated on the basis of such insurance or letters of credit, in one of the two highest Rating Categories of ~oody's and Standard & Poor's. C. No such modification or amendment shall extend the fixed maturity of any Bond, or reduce the amount of principal thereof, or extend the time of payment or reduce the an1ount of any iv1andatory Sinking Account Payment provided for the payment of any Bond, or reduce the rate of interest thereon, or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, vvithout the consent of the I-Iolder of each Bond so affected, or c. reduce the aforesaid percentage of Bonds the consent of the Holders of \.vhich is required to effect any such modification or amendment, or permit the creation of any lien on the assets pledged under the Indenture prior to or on a parity \Vith the lien created by lhe Indenture, or deprive the I Iolders of the Bonds of the lien created by the Indenture on such assets (in each case, except as expressly provided in the Indenture), without the consent of the Holders of all of the Bonds then Outstanding. Defeasance Discharge of Indenture. Bonds of any Series may be paid by the Foundation in any of the fol101,ving \vays: a. by paying or causing to be paid the principal of and interest on such Bonds, as and 1,vhen the same become due and payable; b. by depositing with the Trustee, an escrow agent or other fiduciary, in trust, at or before maturity, money or securities in the necessary amount to pay or redeem such Bonds; or c. by delivering such Bonds to the Trustee for cancellation by it. If the Foundation shall pay all Series for 1,vhich any Bonds are Outstanding and also pay or cause to be paid all other sums payable under the Indenture by the Foundation, then and in that case, at the election of the Foundation, evidenced by a Certificate of the Foundation filed \vith the Trustee signifying the intention of the Foundation to discharge all such indebtedness and the Indenture, and notwithstanding that any Bonds shall not have been surrendered for payment, the Indenture, the pledge of assets made under the Indenture, all covenants and agreements and other obligations of the Foundation under the Indenture, and the rights and interests created by the Indenture (except as to any surviving rights of transfer or exchange of Bonds and rights to payment from moneys deposited with the Trustee) shall cease, terminate, become void, and be completely discharged and satisfied. In such event, upon Request of the Foundation, the Trustee shall cause an accounting for such period or periods as may be requested by the Foundation to be prepared and filed \.Vith the Foundation and shall execute and deliver to the Foundation all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign, or deliver to the Foundation all moneys or securities or other property held by it pursuant to the Indenture that, as evidenced by a verification report (upon \vhich the Trustee may conclusively rely) from a firm of certified public accountants, or other firm acceptable to the Trustee, arc not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption. Discharge of Liability on Bonds. Upon the deposit \Vith the Trustee, escro\.v agent or other fiduciary, in trust, at or before maturity, of money or Defcasancc Securities in the necessary amount to pay or redeem any Outstanding Bond (whether upon or prior to its maturity or the redemption date of such Bond), then all liability of the Foundation in respect of such Bond shall cease, tenninate, and be completely discharged, except that thereafter (i) the l loldcr thereof shall be entitled to payment of the principal of and premium, if any, and interest on such Bond by the Foundation and the Foundation shall remain liable for such payment, but only out of such money or securities deposited witb the Trustee as aforesaid for their payment and (ii) the Holder thereof shall retain its rights of transfer or exchange of Bonds. B-22 The Foundation may at any time surrender to the Trustee tOr cancellation by it any Bonds previously issued and delivered, \Vhich the Foundation may have acquired in any manner \Vhatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. Consent of the Bond Insurer So long as the Policy is in effect and the Bond Insurer is not in default \Vith respect to its payment obligations thereunder, the follo\ving provisions shall be in etlect: (A) Control of Remedies. Upon the occurrence and continuance of an Event of Default, the Bond Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Holders of the Series 2005 Bonds, including, without limitation, (I) the right to accelerate the principal of the Series 2005 Bonds and (2) the right to annul any declaration of acceleration; and the Bond Insurer shall also be entitled to approve all \vaivcrs of Events of Default concerning the Series 2005 Bonds. (B) Amendments and Supplements, No modification, amendment, or supplement to the Indenture may become effective except upon obtaining the prior \Vrittcn consent of the Bond Insurer. B-23 (This Page Intentionally Left Blank) APPENDIXC FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the "Disclosure Agreement") is entered into by the University Enterprises, Inc. (the "Foundation") and The Bank of New York Trust Company, N.A. (the "Trustee" and the "Dissemination Agent"), in connection with the issuance of University Enterprises, Inc., Auxiliary Organization Bonds, Series 2005A and Series 2005B Refunding (federally taxable) (the "Series 2005 Bonds"). The Series 2005 Bonds are being issued pursuant to an Indenture dated July 1, 2005 (the "Indenture"), between the Foundation and The Bank of New York Trust Company, N.A., as trustee. The Foundation and the Dissemination Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Foundation and the Dissemination Agent for the benefit of the Holders and Beneficial Owners of the Series 2005 Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule l 5c2- 12(b )(5). SECTION 2. Definitions. The terms defined in this Section shall, for all purposes of this Disclosure Agreement, have the meanings herein specified. Capitalized terms used in this Disclosure Agreement and not otherwise defined in this Section shall have the meanings specified in the Indenture. Annual Report means any annual report provided by the Foundation pursuant to, and as described in, Sections 3 (Provision of Annual Reports) and 4 (Content of Annual Reports) of this Disclosure Agreement. Beneficial Owner means any person that (a) has or shares the power, directly or indirectly, to make investment decisions concerning ownership of, any Series 2005 Bonds (including persons holding Series 2005 Bonds through nominees, depositories, or other intermediaries), or (b) is treated as the owner of any Series 2005 Bonds for federal income tax purposes. CPO means the Internet-based filing system currently located at www.DisclosureUSA.org, or such other similar filing system approved by the Securities and Exchange Commission. Disclosure Representative means the Executive Director of the Foundation or his or her designee, or such other officer or employee as the Foundation shall designate in writing to the Dissemination Agent from time to time. Dissemination Agent means The Bank of New York Trust Company, N.A., acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Foundation and that has filed with the Trustee a written acceptance of such designation. C-1 Listed Events means any of the events listed in Section 5(a) (Listed Events) of this Disclosure Agreement National Repository shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Information on the National Repositories as of a particular date is available on the Internet at www.sec.gov/info/municipal/nrmsir.htm. Participating Underwriter means any of the original underwriters of the Series 2005 Bonds required to comply with the Rule in connection with offering of the Series 2005 Bonds. Repository means each National Repository and each State Repository. Rule means Rule 15c2-12(b)(5), as amended, adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. State means the State of California. State Repository means any public or private repository or entity designated by the State as a state information depository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. a. Delivery of Annual Report to Repositories. The Foundation shall, or shall cause the Dissemination Agent to, not later than six months after the end of the Foundation's fiscal year (which currently ends on June 30), commencing with the report for the 2004-2005 fiscal year, provide to the Participating Underwriter and to each Repository (or to the CPO pursuant to subsection (f) (Delivery of Annual Report to CPO)) an Annual Report that is consistent with the requirements of Section 4 (Content of Annual Report) of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents within a package and may include by reference other information, as provided in Section 4 (Content of Annual Reports) of this Disclosure Agreement; provided that the audited financial statements of the Foundation may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. b. Change of Fiscal Year. If the fiscal year of the Foundation changes, the Foundation shall give notice of such change in the same manner as for a Listed Event under Section 5(1) (Notice of Material Events). c. Delivery of Annual Report to Dissemination Agent and Trustee. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) (Delivery of Annual Report to Repositories) for providing the Annual Report to the Repositories, the C-2 Foundation shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). The Foundation shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively reply upon such certification of the Foundation and shall have no duty or obligation to review such Annual Report. If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the Disclosure Representative. d. Report of Non-Compliance. If the Dissemination Agent is unable to verify that an Annual Report has been provided to the Repositories by the date required in subsection (a) (Delivery of Annual Report to Repositories), the Dissemination Agent shall send a notice to the Participating Underwriter, to the Municipal Securities Rulemaking Board, and to the State Repository, if any, in substantially the form attached as Exhibit A. In lieu of filing the notice with each Repository, the Dissemination Agent may file such notice with the CPO. e. Annual Compliance Certification. The Dissemination Agent shall: (I) determine each year prior to the date for providing the Annual Report the name and address of each Repository; and (2) to the extent that it can confirm the same, file a report with the Trustee and the Disclosure Representative certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. f. Delivery of Annual Report to CPO. In lieu of filing the Annual Report with each Repository in accordance with subsection (a) (Delivery of Annual Report to Repositories), the Dissemination Agent may file such Annual Report solely with the CPO. SECTION 4. Content of Annual Reports. The Annual Report shall contain or include by reference the following: a. Financial Statements. The audited financial statements of the Foundation for the prior fiscal year, prepared in accordance with generally accepted accounting principles. If the Foundation's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a) (Delivery of Annual Report to Repositories), the Annual Report shall contain unaudited financial statements of the Foundation in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. b. Student Enrollment. Total student enrollment and full-time equivalent student enrollment at the University for the fall term of the current year. C-3 c. Debt Service Coverage. A calculation of the Net Facilities Revenue Available for Debt Service and Maximum Aggregate Annual Debt Service on all Bonds and Parity Debt. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Foundation or related public entities, that have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Foundation shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Significant Events. a. Listed Events. Pursuant to the provisions of this Section, the Foundation shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2005 Bonds, if material: (I) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Series 2005 Bonds; (7) modifications to rights of Bondholders; (8) bond calls (other than mandatory sinking fund redemption); (9) defeasances; (I 0) release, substitution, or sale of property securing repayment of the Series 2005 Bonds; and (11) rating changes. b. Notice bv Trustee to Foundation. The Trustee shall, within one (I) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the Foundation promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (t) (Notice of Material Events). For purposes of this Disclosure Agreement, "actual knowledge" of such Listed Events shall mean knowledge by an officer of the Trustee at its corporate trust office with regular responsibility for matters related to the Indenture and the Series 2005 Bonds. c. Determination of Materiality of Listed Events. Whenever the Foundation obtains knowledge of the occurrence of a Listed Event whether because of a notice from the Trustee pursuant to subsection (b) (Notice by Trustee to Foundation) or otherwise, the Foundation shall as soon as possible determine if such event would be material under applicable federal securities laws. The Dissemination Agent shall have no responsibility C-4 for such determination and shall be entitled to conclusively reply on the Foundation's determination. d. Notice to Dissemination Agent (Material Events). If the Foundation has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Foundation shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f) Qlotice of Material Events). e. Notice to Dissemination Agent (Non-material Events). lf, in response to a request under subsection (b) Qlotice by Trustee to Foundation), the Foundation determines that the Listed Event would not be material under applicable federal securities laws, the Foundation shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f) Qlotice of Material Events). f. Notice of Material Events. The Foundation shall file, or cause the Dissemination Agent to file, a notice of the occurrence of a Listed Event, if material, with the Municipal Securities Rulemaking Board, the Participating Underwriter, and the State Repository, if any, and with the Trustee. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) (bond calls) and (9) (defeasances) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Series 2005 Bonds pursuant to the Indenture. The Dissemination Agent may conclusively rely on an opinion of counsel that the Foundation's instructions to the Dissemination Agent under this Section comply with the requirements of the Rule. g. Filing of Notice of Listed Events with CPO. In lieu of filing the notice of the occurrence of a Listed Event, if material, with the Municipal Securities Rulemaking Board and the State Repository in accordance with subsection (d) Qlotice of Listed Events), the Dissemination Agent may file such notice of a Listed Event with the CPO. SECTION 6. Termination of Reporting Obligation. The Foundation'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 Series 2005 Bonds or upon the delivery to the Dissemination Agent of an opinion of nationally recognized bond counsel to the effect that continuing disclosure is no longer required by the Rule. If such termination occurs prior to the final maturity of the Series 2005 Bonds, the Foundation shall give notice of such termination in the same manner as for a Listed Event under Section 5(f) Qlotice of Material Events). SECTION 7. Dissemination Agent. a. Appointment of Dissemination Agent. The Foundation 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 Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be C-5 responsible in any manner for the content of any notice or report prepared by the Foundation pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be The Bank of New York Trust Company, N .A. b. Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the Foundation for its services provided hereunder in accordance with its schedule of fees as agreed to between the Dissemination Agent and the Foundation from time to time and all expenses, legal fees and advances reasonably made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Foundation, Holders or Beneficial Owners or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the Foundation or an opinion of nationally recognized bond counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the Foundation. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Foundation, the Dissemination Agent and the Trustee may, with notice to the Participating Underwriter, amend this Disclosure Agreement (and the Trustee and the Dissemination Agent shall agree to any amendment so requested by the Foundation that shall not impose any greater duties, nor risk of liability, on the Trustee), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: a. Change in Circumstances. If the amendment or waiver relates to the provisions of Sections 3(a) (Delivery of Annual Report to Repositories), 4 (Content of Annual Reports), or 5(a) (Listed Events), it may only be made in connection with a change in circumstances that arises form a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Series 2005 Bonds, or the type of business conducted; b. Compliance as of Issue Date. 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 Series 2005 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and c. Consent of Holders, Non-impairment Opinion. The amendment or waiver either (i) is approved by the Holders of the Series 2005 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 a nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Series 2005 Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Foundation shall describe such amendment 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 principals, C-6 on the presentation) of financial information or operating data being presented by the Foundation. 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 the same manner as for a Listed Event under Section 5(f) (Notice of Material Events), and (ii) the Annual Report for the year in which the change is made should 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 account principles and those prepared on the basis of the former accounting principles. The Dissemination Agent may rely on an opinion of counsel that the amendment or waiver complies with the requirements of the Rule. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Foundation 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 Foundation 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 Foundation 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. Any such information disseminated by the Foundation or Dissemination Agent shall also be delivered to the Participating Underwriter. SECTION 10. Default. In the event of a failure of the Foundation or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Trustee shall, at the request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Series 2005 Bonds, and upon receipt of satisfactory indemnification, or any Holder or Beneficial Owner of the Series 2005 Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Foundation or 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, and the sole remedy under this Disclosure Agreement in the event of any failure of the Foundation or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. All of the immunities, indemnities, and exceptions from liability in the Indenture, insofar as they relate to the Trustee shall apply to the Trustee and the Dissemination Agent in this Disclosure Agreement. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Foundation agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense, and 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 C-7 misconduct. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Foundation, Holders or Beneficial Owners or any other party. The Dissemination Agent shall not be responsible in any manner for the format or content of any notice or Annual Report prepared by the Foundation pursuant to this Disclosure Agreement. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the Foundation or an opinion of nationally recognized bond counsel. The obligations of the Foundation under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Series 2005 Bonds. No person shall have any right to commence any action against the Trustee or Dissemination Agent seeking any remedy other than to compel specific performance of this Agreement. Any company succeeding to all or substantially all of the Dissemination Agent's corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act. SECTION 12 Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the Foundation: University Enterprises, Inc. Attention: Executive Director 6000 J Street Sacramento, California Telephone/Fax: (916) 278· 7011 I (916) 278-6063 To the Trustee/Initial Dissemination Agent: The Bank of New York Trust Company, N.A. Corporate Trust Division 700 South Flower Street, Suite 500 Los Angeles, California 90017-4104 Telephone/Fax: (213) 630-6240, fax: (213) 630-6215 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Foundation, the Trustee, the Dissemination Agent, the Participating Underwriters, and Holders and Beneficial Owners from time to time of the Series 2005 Bonds, and shall create no rights in any other person or entity. C-8 SECTION 14 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: August 17, 2005 UNIVERSITY ENTERPRISES, INC. By: Executive Director THE BANK OF NEW YORK TRUST COMPANY, N.A., as Dissemination Agent By: Authorized Officer C-9 Exhibit A Form of Notice to Municipal Securities Rulemaking Board and State Repository of Failure to File Annual Report To: Municipal Securities Rulemaking Board 1900 Duke Street Alexandria, VA 22314 Attention: MSIL Department State Information Depository [if any] !address] Name of Issuer: University Enterprises, Inc, Name of Issue: University Enterprises 1 Inc., Auxiliary Organization Bonds, Series 2005A Refunding and Series 20058 Refunding (federally taxable) Date of Issuance: August 17, 2005 NOTICE IS HEREBY GIVEN that University Enterprises, Inc. (the "Foundation") has not provided an Annual Report with respect to the above-named Bonds as required by Section 10.7 (Continuing Disclosure) of the Indenture dated July l, 2005, between the Foundation and The Bank of Ne\v York Trust Con1pany, N.A., as trustee. [The Foundation anticipates that the Annual Report ,.viii be filed by .] Dated: ------[sample only} on behalf of the Foundation C-10 APPENDIXD FORM OF OPINION OF 8011/D COUNSEL Upon issuance and delivery of the Series 2005 Bonds, Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, proposes to render its final approving opinion with respect to the Series 2005 Bondv in substantially the following form: [Closing Date] Trustees of The California State University 40 I Golden Shore Long Beach, California University Enterprises, Inc. 6000 J Street Sacramento, California Re: University Enterprises, Inc., Auxiliary Organization Bonds, Series 2005A Refunding and Series 2005B Refunding (federally taxable) (Final Approving Opinion) Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the University Enterprises, Inc., formerly the California State University, Sacramento Foundation (the "Foundation"), of $48,550,000 principal amount of Auxiliary Organization Bonds, Series 2005A Refunding (the "Series 2005A Bonds") and Series 2005B Refunding (federally taxable) (the "Series 2005B Bonds") (collectively the "Bonds"), pursuant to an indenture dated July I, 2005 (the "Indenture"), by and between the Foundation and The Bank of New York Trust Company, N.A., as trustee (the "Trustee"). Capitalized terms not otherwise defined herein have the meanings ascribed to such terms in the Indenture. We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the representations of the Foundation contained in the Indenture and the certified proceedings and upon other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. We have not been engaged or undertaken to review the accuracy, completeness, or sufficiency of the Official Statement or other offering material relating to the Bonds and we express no opinion relating thereto. Based upon the foregoing, we are of the opinion, under existing law, as follows: I. The Bonds constitute the valid and binding obligations of the Foundation. D-1 2. The aggregate principal amount of the Bonds that have been issued under the Indenture 1s permitted under and does not exceed any limitation imposed by law, or the Indenture. 3. The Indenture has been duly authorized, executed, and delivered by the Foundation and is a valid and binding obligation of the Foundation. The Indenture creates a valid pledge of the Revenues to secure the payment of the principal of and interest on the Bonds, to the extent set forth in the Indenture and subject to the provisions of the Indenture that permit the Foundation to apply the Revenues for the purposes and on the terms and conditions set forth in the Indenture. 4. The Bonds are not a lien or charge upon the funds or property of the State of California or the Trustees of The California State University (the "CSU Board"). The Bonds are not a debt of the State of California or the CSU Board and neither is liable for the payment thereof. 5. Interest on the Series 2005A Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The opinions set forth in the preceding sentence are subject to the condition that the Foundation comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the issuance of the Series 2005A Bonds in order that interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The Foundation has covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause the inclusion of interest on the Series 2005A Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 6. Interest on the Series 2005A and the Series 20058 Bonds is exempt from all taxation in the State of California other than estate and generation skipping transfer taxes. The opinions set forth above are further qualified as follows: a. It is to be understood that the rights of the holders of the Bonds and the enforceability of the Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium, and other similar laws affecting creditors' rights heretofore or hereafter enacted, to the extent constitutionally applicable, to the application of general principles of equity, including without limitation concepts of materiality, reasonableness, good faith, and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies imposed on actions against public agencies in the State of California. b. We express no opm1on as to the enforceability under certain circumstances of contractual provisions respecting various summary remedies without notice or opportunity for D-2 hearing or correction, especially if their operation would work a substantial forfeiture or impose a substantial penalty upon the burdened party. c. We express no opinion as to the effect or availability of any specific remedy provided for in the Indenture under particular circumstances, except that we believe such remedies are, in general, sufficient for the practical realization of the rights intended thereby. d. We express no opinion as to the enforceability of any indemnification, contribution, choice of law, choice of forum, or waiver provisions contained in the Indenture. e. 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. We disclaim any obligation to update this opinion for events occurring after the date hereof. Very truly yours, KRONICK, MOSKOVITZ, TIEDEMANN & GIRARD A Professional Corporation D-3 (This Page Intentionally Left Blank) APPENDIXE FORM OF MUNICIPAL BOND NEW ISSUE INSURANCE POLICY (This Page Intentionally Left Blank) Exhibit A F6IC Financial Guaranty Insurance Company Doing business in California as FG!C Insurance Company 125 Park Avenue New York, NY 10017 T 212·312·3000 T 800·352·0001 Municipal Bond New Issue Insurance Policy Issuer: Policy Number: 0010001 Bonds: Financial Guaranty Insurance Company~·~c I uaranty"), a New York stock insurance company, in consideration of the payment of the pre · d su ject to the terms of this Policy, hereby unconditionally and irrevocably agrees to pay to U.S. B rust National Association or its successor, as its agent (the "Fiscal Agent"), for the benefit of Bondholders, that portion of the principal and interest on the above described debt obligations (the "Bonds") which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next fo1lowing the day on which Financial Guaranty shall have received Notice of Nonpayment, whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent, in form reasonably satisfactory to it. of (i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and shall be fully subrogated to all of the Bondholder's rights thereunder, including the Bondholder's right to payment thereof. This Policy is non-cancellable for any reason. Toe premium on this Policy is not refundable for any reason, including the payment of the Bonds prior to their maturity. This Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein, the term "Bondholder" means, as to a particular Bond, the person other than the Issuer who, at the time of Nonpayment, is entitled under the tenns of such Bond to payment thereof. "Due for Payment" means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a Bond, the stated date for payment of interest. "Nonpayment" in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the paying agent for payment in full of all FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from Us parent company. FGJC Corporation Form9000(10/93) Page1of2 F6IC Financial Guaranty Insurance Company Doing hu~iness in California as FGIC Insurance Company 125 Park Avenue New York, NY 10017 T 212"312·3000 T 800·352·0001 Municipal Bond New Issue Insurance Policy principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice, subsequently confumed in writing, or written notice by registered or c~rt'1ed mail, from a Bondholder or a paying agent for the Bonds to Financial Guaranty. "Business Daf~ any day other than a Saturday, Sunday or a day on which the Fiscal Agent is authorized by l~w1..V c ed. In Witness Whereof, Financial Guaranty has caused · I e affixed with its corporate seal and to be signed by its duly authorized officer in fa~~ ome effective and binding upon Financial Guaranty by virtue of the countersignature;~~~rized representative. President Effective Date: Authorized Representative U.S. Bank Trust l\ational Association, acknowledges that it has agreed to perform the duties ofFiscal Agent under this Policy. Authorized Officer FG!C is a registered service mark used by Financial Guaranty Insurance Company under license from its parent oompany1 FGIC Corporation. Form 9000 {10193) Page 2 of 2 F6IC Financial Guaranty Insurance Company Doing business in California as FG!C Insurance Company 125 Park Avenue New York.NY 10017 T 212·312·3000 T 800·352·0001 Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: 0010001 It is further understood that the term "Nonpayment"· ~~ a and includes any payment of principal or interest made to a Bondholder by or on behal e iss'..\ of such Bond which has been recovered from such Bondholder pursuant to the I;nited St cy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a co<:, 1ng ompetent jurisdiction. NOTHING HEREIN SHALL BE CONSTRUED TO WAIVE, ALTER, REDUCE OR AMEND COVERAGE IN ANY OTHER SECTION OF THE POLICY. IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF THIS ENDORSEMENT SUPERSEDE THE POLICY LANGUAGE. In Witness Whereof. Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President Effective Date: Authorized Representative Acknowledged as of the Effective Date written above: Authorized Officer U.S. Bank Trust Natlonal Association, as Fiscal Agent FGJC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company, FGIC Corporation. Form E-0002 (10193) Page 1 of 1 F6IC Financial Guaranty Insurance Company Doing business in California as FG!C Insurance Company 12.5 Park Avenue New York, NY 10017 T 212'312·3000 T 800·352·0001 Mandatory California State Amendatory Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: 0010001 The insurance provided by this Policy is ~\ the California Insurance Guaranty Association (California Insurance Code, Article 14.2c....._._x V NOTHING HEREIN SHALL BE CO~TRUED TO WAIVE, ALTER, REDUCE OR AMEND COVERAGE IK ANY OTHER SECTION OF THE POLICY. IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF THIS ENDORSEMENT SUPERSEDE THE POLICY LANG CAGE. In Witness Whereof, Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President Effective Date: Authorized Representative Acknowledged as of the Effective Date written above: Authorized Officer li.S. Bank Trust National Association, as Fiscal Agent FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company. FGIC Corpooation Form E--0059 {10/93) Page 1 of 1 F6IC Financial Guaranty Insurance Company Doing business in California as FGJC insurance Company 125 Park Avenue NL'WYork, NY 10017 T 212·312-3000 T 800·352·000 I Mandatory California State Amendatory Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: Notwithstanding the terms and conditions in t~~;~further understood that there shall be no acceleration of payment due under such Pon ~Qh acceleration is at the sole option of Financial Guaranty. C...\ NOTilDIG HEREIN SHALL BE CO~TRUED TO WAIVE, ALTER, REDUCE OR AMEND COVERAGE IN ANY OTHER SECTION OF THE POLICY. IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF THIS ENDORSEMENT SUPERSEDE THE POLICY LANGUAGE. In Witness Whereof, Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President Effective Date: Authorized Representative Acknowledged as of the Effective Date written above: Authorized Officer t:.S. Bank Trust National Association, as Fiscal Agent FGIC is a reqistered service mark used by Financial Guaranty Insurance Company under i,cense from 1ts parent company. FGIC Corporation. Fonn E-0075 (3194) Page 1 of 1 (This Page Intentionally Left Blank) APPENDIXF BOOK-ENTRY SYSTEM The information in this appendix concerning DTC and DTC's book-entry system has been obtained.from DTC; the Underwriter and the Foundation take no responsibility for the accuracy thereof The Foundation and the Underwriter cannot and do not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments ofprincipal of or interest and premium, if any, on the Series 2005 Bonds, (b) Series 2005 Bonds representing ownership interest in or other confirmation of ownership interest in the Series 2005 Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Series 2005 Bonds, or that they will so do on a timely basis, or that DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement. DTC will act as securities depository for the Series 2005 Bonds. The Series 2005 Bonds will be delivered initially in the form of 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 executed for each maturity date, each in the aggregate principal amount maturing on such date, and will be deposited with DTC. DTC, the world's largest 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 17 A of the Securities Exchange Act of 1934, as amended. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U .S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that its participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, GSCC, MBSCC, and EMCC are also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the OTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest ranking: AAA. The Rules applicable to DTC and its Direct and Indirect Participants arc on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. F-1 Purchases of Series 2005 Bonds under the OTC system must be made by or through the Direct Participants, which will receive a credit for the Series 2005 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 Partcipants' records. Beneficial Owners will not receive written confirmation from OTC of their purchase. Beneficial Owners, however, are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owner entered into the transaction. Transfer of ownership interests in the Series 2005 Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interest in Series 2005 Bonds, except in the event that use of the book-entry system for the Series 2005 Bonds is discontinued. To facilitate subsequent transfers, all Series 2005 Bonds deposited by Participants with OTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other names as may be requested by an authorized representative of OTC. The deposit of Series 2005 Bonds with OTC and their registration in the name of Cede & Co. or such other OTC nominee do not effect any change in beneficial ownership. OTC has no knowledge of the actual Beneficial Owners of the Series 2005 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2005 Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by OTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to OTC. If less than all of the Series 2005 Bonds within a maturity are being redeemed, DTC's practice is to determine by lot of the amount of the interest of each Direct Participant in such maturity to be redeemed. Beneficial Owners of the Series 2005 Bonds may wish to take certain steps to augment the Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2005 Bonds, such as redemptions, tenders, defaults and proposed amendments to the Series 2002 Bond documents. For example, Beneficial Owners of the Series 2005 Bonds may wish to ascertain that the nominee holding the Series 2005 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. Redemption notices shall be sent to OTC. lfless than all of the Series 2005 Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither OTC nor Cede & Co. (nor any other OTC nominee) will consent or vote with respect to Series 2005 Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an omnibus proxy (the "Ominibus Proxy") to the Foundation 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 the Series 2005 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). F-2 Principal and interest payments on the Series 2005 Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of OTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Trustee, on each payment 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 OTC (nor its nominee), the Trustee, or the Foundation, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representativeof OTC) is the responsibility of the Trustee, disbursement of such payments to Direct Participants is the responsbility of OTC, and disbursement of such payments to Beneficial Owners will be the responsbility of Direct and Indirect Participants. F-3 (This Page Intentionally Left Blank) George K. Baum & Company