$32,275,000. FHA-Insured Mortgage Revenue Refunding Bonds (St. John s Meadows Project), Series 2007

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1 NEW ISSUE (see RATING herein) In the opinion of Trespasz & Marquardt LLP, Bond Counsel to the Authority, based on existing statutes, regulations, rulings and court decisions, interest on the Series 2007 Bonds is not includable in gross income for federal income tax purposes assuming compliance with certain covenants and the accuracy of certain representations. Interest on the Series 2007 Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on corporations and individuals; however, a portion of such interest is includable in the calculation of the federal alternative minimum tax imposed on corporations (but not individuals). Additionally, in the opinion of Bond Counsel, based on existing statutes, interest on the Series 2007 Bonds is exempt from personal income taxes imposed by the State of New York and any political subdivision thereof (including The City of New York). See Tax Matters herein. Dated: Date of Delivery $32,275,000 Village of East Rochester Housing Authority (NEW YORK) FHA-Insured Mortgage Revenue Refunding Bonds (St. John s Meadows Project), Series 2007 Due: as shown below The Village of East Rochester Housing Authority FHA-Insured Mortgage Revenue Refunding Bonds (St. John s Meadows Project), Series 2007 (the Series 2007 Bonds ) will be issued pursuant to a Trust Indenture dated as of May 1, 2007 (the Indenture ), between the Village of East Rochester Housing Authority (the Authority ) and Manufacturers and Traders Trust Company, as trustee (the Trustee ). The proceeds of the sale of the Series 2007 Bonds will be used to in part refund outstanding indebtedness of St. John s Home for the Aging (the Institution ) in the Town of Brighton, Monroe County, New York (the Facility ). The Facility will be leased by the Institution to the Authority pursuant to an Institution Lease dated as of May 1, 2007 (the Institution Lease ) and subleased by the Authority to the Institution pursuant to a Lease Agreement, dated as of May 1, 2007 (the Lease Agreement ). The Series 2007 Bonds will be payable solely from payments to be made by the Institution under two notes insured by the United States Secretary of Housing and Urban Development (as more fully described herein, the Notes ), acting by and through the Federal Housing Commissioner, and from certain funds and accounts held by the Trustee under the Indenture and payments by the Institution under and pursuant to the Notes and the Lease Agreement. The Series 2007 Bonds are issuable only as fully registered bonds without coupons in the denomination of $5,000 and integral multiples thereof. When issued, the Series 2007 Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository for the Series 2007 Bonds. Purchases of the Series 2007 Bonds will be made in book-entry form. Purchasers will not receive certificates representing their interest in Series 2007 Bonds purchased. So long as Cede & Co. is the Bondholder, as nominee of DTC, references herein to the Bondholders or registered owners shall mean Cede & Co., as aforesaid, and shall not mean the beneficial owners of the Series 2007 Bonds. Interest on the Series 2007 Bonds will be payable semiannually on February 15 and August 15 of each year commencing February 15, 2008 by check mailed by the Trustee to the registered owners thereof; or, such amounts may be paid by wire transfer of immediately available funds upon the request of any registered owner of at least $250,000 in aggregate principal amount of Series 2007 Bonds, as more particularly described herein. However, so long as DTC or its nominee, Cede & Co., is the Bondholder, such payments will be made to Cede & Co., which in turn will remit such payments to the DTC Participants (as defined herein) and DTC Indirect Participants (as defined herein) for subsequent disbursement to the beneficial owners of the Series 2007 Bonds. The Series 2007 Bonds are subject to redemption to maturity as described herein. See THE SERIES 2007 BONDS - Redemption Provisions herein. THE SERIES 2007 BONDS ARE SPECIAL AND LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM CERTAIN REVENUES AND FUNDS PLEDGED UNDER THE INDENTURE. THE SERIES 2007 BONDS DO NOT AND SHALL NOT CREATE OR CONSTITUTE AN INDEBTEDNESS, LIABILITY OR OBLIGATION OF THE VILLAGE OF EAST ROCHESTER, THE COUNTY OF MONROE, THE STATE OF NEW YORK OR OF ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE VILLAGE OF EAST ROCHESTER, THE COUNTY OF MONROE, THE STATE OF NEW YORK NOR OF ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST ON THE SERIES 2007 BONDS. THE AUTHORITY HAS NO TAXING POWER. THE SERIES 2007 BONDS DO NOT CONSTITUTE AN OBLIGATION OR INDEBTEDNESS OF, AND THE PAYMENT OF THE SERIES 2007 BONDS IS NOT INSURED OR GUARANTEED BY, THE UNITED STATES OF AMERICA OR ANY AGENCY OR INSTRUMENTALITY THEREOF, INCLUDING THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT. MATURITY SCHEDULE $2,350, % Series 2007 Term Bonds due August 15, 3.94%, Price % CUSIP DN4 $3,475, % Series 2007 Term Bonds due August 15, 2017 Price 100% CUSIP DP9 $8,400, % Series 2007 Term Bonds due August 15, Price % CUSIP DQ7 $18,050, % Series 2007 Term Bonds due February 15, 4.50%, Price % CUSIP DR5 The Series 2007 Bonds are offered, subject to prior sale and to withdrawal or modification of the offer without notice, when, as and if issued and received by Cain Brothers & Company, LLC, subject to the approving opinion of Trespasz & Marquardt, LLP, Syracuse, New York, Bond Counsel to the Authority. Certain legal matters will be passed upon for the Underwriter, by its counsel, Hawkins Delafield & Wood LLP, New York, New York; for the Institution, by its counsel, Underberg & Kessler LLP, Rochester, New York; for the Authority, by its counsel, Trespasz & Marquardt, LLP, Syracuse, New York; and for the Mortgage Servicer (as defined herein), by its counsel, Byrne, Costello & Pickard, P.C., Syracuse, New York. It is expected that the Series 2007 Bonds will be delivered through the facilities of DTC in New York, New York on or about June 1, Dated: April 27, 2007 * Priced at the stated yield to the August 15, 2020 optional redemption date at par.

2 REGARDING THIS OFFICIAL STATEMENT This Official Statement does not constitute an offering of any security, other than the original offering of the Series 2007 Bonds specifically offered hereby. No person has been authorized by the Authority or the Institution to give any information or to make any representation with respect to the Series 2007 Bonds, other than that contained in this Official Statement, and if given or made, such other information or representation must not be relied upon as having been given or authorized by the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy and there shall be no sale of the Series 2007 Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. This Official Statement has been approved by the Authority and the Institution and its use and distribution for the purposes set forth above have been authorized by the Authority and the Institution. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any usage made hereunder, under any circumstances, shall create any implication that there has been no change in the affairs of the Institution since the date hereof. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2007 BONDS AT A LEVEL WHICH MIGHT NOT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The Series 2007 Bonds have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, nor has the Indenture been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon exemptions contained in such acts. The registration or qualification of the Series 2007 Bonds in accordance with applicable provisions of the securities laws of the states, if any, in which the Series 2007 Bonds have been registered or qualified and the exemption from registration or qualification in certain other states cannot be regarded as a recommendation thereof. Neither these states nor any of their agencies nor the Securities and Exchange Commission have passed upon the merits of the Series 2007 Bonds or the accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal offense. All information contained herein has been obtained from the Authority, the Institution and other sources which are believed to be reliable. Such other information is not guaranteed as to accuracy or completeness by, and is not to be relied upon as or construed as a promise or representation by the Institution or the Authority. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guaranty the accuracy or completeness of such information. The CUSIP (Committee on Uniform Securities Identification Procedures) numbers on the front cover of this Official Statement are included solely for the convenience of bondholders and no representations are made as to correctness of the CUSIP numbers printed on the front cover hereof. CUSIP numbers assigned to securities may be changed during the term of such securities based on a number of factors including but not limited to the refunding or defeasance of such issues or the use of secondary market financial products. None of the Authority, the Institution, the Underwriter or any other party participating in the issuance of the Series 2007 Bonds has agreed to, nor is there any duty or obligation to, update this Official Statement to reflect any change or correction in the CUSIP numbers printed on the front cover hereof.

3 TABLE OF CONTENTS INTRODUCTION...1 PLAN OF FINANCING...4 THE AUTHORITY...5 THE SERIES 2007 BONDS...6 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2007 BONDS...12 FHA MORTGAGE INSURANCE...16 THE MORTGAGE SERVICER...21 CERTAIN PROVISIONS OF THE FHA DOCUMENTS...22 BONDHOLDERS RISKS...25 LITIGATION...29 LEGAL MATTERS...29 TAX MATTERS...29 UNDERWRITING...31 RATING...31 CONTINUING DISCLOSURE...32 MISCELLANEOUS...32 Appendix A Information Concerning St. John s Home for the Aging... A-1 Appendix B Audited Financial Statements of St. John s Home For the Aging...B-1 Appendix C Definitions and Summaries of Principal Documents...C-1 Appendix D Form of Bond Counsel Opinion... D-1 Appendix E Form of Continuing Disclosure Agreement...E-1 Page i

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5 OFFICIAL STATEMENT relating to $32,275,000 Village of East Rochester Housing Authority (New York) FHA-Insured Mortgage Revenue Refunding Bonds (St. John s Meadows Project), Series 2007 Description and Summaries INTRODUCTION The descriptions and summaries of various documents hereinafter 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 thereof. All statements concerning and descriptions of such documents herein are qualified in their entirety by reference to the complete text of each document. See Appendix C for summaries of the principal legal documents, which include definitions of certain words and terms used herein which are not otherwise defined. Copies of the complete text of the basic documents referred to herein may be obtained by request to the Underwriter prior to closing on the Series 2007 Bonds, or after closing on the Series 2007 Bonds by request to Manufacturers and Traders Trust Company, as trustee (the Trustee ). Purpose of the Official Statement The purpose of this Official Statement, including the cover page and the appendices hereto, is to set forth information in connection with the offering by the Village of East Rochester Housing Authority (the Authority ) of its $32,275,000 FHA-Insured Mortgage Revenue Refunding Bonds (St. John s Meadows Project), Series 2007 (the Series 2007 Bonds ). The Series 2007 Bonds will be issued pursuant to a Trust Indenture, dated as of May 1, 2007 (the Indenture ), between the Authority and the Trustee. The Series 2007 Bonds and any additional bonds issued under the Indenture are hereinafter referred to collectively as the Bonds. All Bonds, including the Series 2007 Bonds, will be equally and ratably secured under the Indenture except as otherwise provided therein. Purpose of the Series 2007 Bonds The purpose of the Series 2007 Bonds is to: (a) provide for the refunding of the Prior Bonds (as defined herein) issued by the Authority on behalf of the St. John s Home For the Aging (the Institution ), a New York notfor-profit corporation, which were used to finance a portion of the facility of the Institution in the Town of Brighton, Monroe County, New York (the Facility ); (b) finance capital expenditures and renovations at the Facility, (c) fund the Debt Service Reserve Fund in an amount equal to the Debt Service Reserve Requirement, (d) fund the Extraordinary Expense Reserve Fund; and (e) pay costs of issuance for the Series 2007 Bonds. At the time of the issuance of the Series 2007 Bonds, the Institution and the Authority will enter into the Institution Lease dated as of May 1, 2007 (the Institution Lease ) pursuant to which the Institution will agree to lease the Facility to the Authority for a lump sum rental payment equal to a portion of the Series 2007 Bond proceeds on deposit with the Trustee (not including amounts on deposit with the Trustee in the Debt Service Reserve Fund and the Extraordinary Expense Reserve Fund). Simultaneously, the Authority and the Institution will enter into a Lease Agreement (the Lease Agreement ) pursuant to which the Authority will sublease the Facility to the Institution for rental payments sufficient to pay the debt service on the Series 2007 Bonds. The obligation of the Institution under the Lease Agreement will be secured by the mortgage granted by the Institution to the Authority in connection with the issuance of the Series 1997A Bonds (as defined herein), as modified and assigned to the Trustee, as FHA mortgagee, as described herein (the 1997 Mortgage ) and the second mortgage granted by the Institution to the Authority in connection with the issuance of the Series 1998A Bonds (as defined herein) as modified and assigned to the Trustee, as FHA mortgagee as described herein (the 1998 Mortgage, and together with the 1997 Mortgage, the Mortgage ). The Institution will deliver to the Trustee, as

6 FHA mortgagee, assignment of the Institution s note pertaining to the Series 1997A Bonds in the remaining principal amount of $25,160,480 (the 1997A FHA Note ) and the Institution s note pertaining to the Series 1998A Bonds in the remaining principal amount of $7,270,687 (the 1998A FHA Note, and together with the 1997A FHA Note, the Notes ). To secure payment of the Notes, the two separate Mortgages grant to the Trustee, as the mortgagee, a mortgage lien on and security interest in substantially all of the real and personal property comprising the Facility, subject to certain Permitted Encumbrances (as defined and set forth in the Indenture). The Mortgages do not include the Institution s 45 one-story cottages, as described below under the caption INTRODUCTION The Facility. Pursuant to a Commitment for Insurance of Advances dated April 18, 1997, (the 1997A FHA Commitment ), and a Commitment for Insurance of Advances dated November 12, 1998 (the 1998A FHA Commitment ) FHA has agreed to insure advances of funds under the Mortgages and evidenced by the Notes pursuant to Section 232 and Section 241 of the National Housing Act, as amended, and the regulations promulgated thereunder (the FHA Mortgage Insurance ). Under applicable FHA regulations, FHA Mortgage Insurance benefits are payable following assignment of the Notes and Mortgages to FHA upon a default by the Institution under either Note and/or the Mortgage in the form of cash, FHA Debentures (as defined below), or any combination thereof in an amount equal to 99% of the principal balance outstanding of the respective Note as of the date of default subject to certain adjustments (the FHA Mortgage Insurance Benefits ), at the option of FHA. To the extent that the FHA Mortgage Insurance Benefits are paid in cash, such benefits will be applied to the redemption or the Series 2007 Bonds on the first practicable date following receipt of such FHA Mortgage Insurance Benefits. To the extent that such FHA Mortgage Insurance Benefits are paid in the form of interest bearing 20-year non-amortizing debentures ( FHA Debentures ), interest received from the FHA Debentures will be applied first, to pay interest on the Series 2007 Bonds, second, to maturing principal of the Series 2007 Bonds, third, to fees and expenses of the Authority and the Trustee, and fourth, to the extent available (rounded downward to the nearest multiple of $5,000), to pay Sinking Fund Installments in the Series 2007 Bonds. In addition, under certain circumstances, if such debentures can be sold or tendered by HUD at a price sufficient (together with moneys on deposit in the Debt Service Reserve Fund) to redeem the Series 2007 Bonds in full with accrued interest to the date of redemption, the Trustee shall redeem Series 2007 Bonds therefrom on the earliest practicable date for which proper notice of redemption can be given at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the date fixed for redemption. FHA has announced that it will determine the method of payment of insurance benefits with respect to the Series 2007 Bonds (either in cash or debentures) at the time of payment. The determination will be based on a comparison of the applicable debenture rate with the United States Treasury borrowing rate and may also take into account administrative factors. Notwithstanding the above, the determination of whether to pay in cash or debentures with respect to the Series 2007 Bonds is solely at the discretion of FHA. See FHA MORTGAGE INSURANCE for more details concerning FHA Mortgage Insurance Benefits and the methods and conditions of payment. The FHA Mortgage Insurance does not constitute a guaranty of timely or total payment of the principal of, redemption price or interest on the Series 2007 Bonds. FHA Mortgage Insurance Benefits will not be available immediately upon a default under the Notes and/or the Mortgages and/or the Security Agreement and assignment thereof to FHA. In addition, processing claims for Mortgage Insurance Benefits may involve certain time delays, and such Mortgage Insurance Benefits may be subject to certain deductions. To provide an additional source of funds for the timely payment of the principal of and interest on the Series 2007 Bonds, the Debt Service Reserve Fund has been established and funded from proceeds of the Series 2007 Bonds. The use of the Debt Service Reserve Fund, its limitations and the application of Mortgage Insurance Benefits and other moneys if there are insufficient funds to pay the maturing principal of and interest on all Series 2007 Bonds outstanding are described below under BONDHOLDERS RISKS. For a discussion of how the FHA Mortgage Insurance Benefits may be paid in an amount that is less than the outstanding principal amount of the Series 2007 Bonds and the consequences thereof, see FHA MORTGAGE INSURANCE and BONDHOLDERS RISKS. The Authority The Authority has been established under Article III of the New York Public Housing Law, as amended (the Enabling Act ) and Chapter 490 of the 1968 Laws of New York, as amended (collectively with the Enabling Act, the Act ), which includes among its purposes the providing of adequate, safe, and sanitary low-rent housing accommodations for persons and families of low income. The Authority is empowered for such purposes to acquire real property and interests therein, buildings and other improvements thereon, and equipment for use in connection 2

7 therewith, and to lease the same, and to issue its special obligation bonds payable solely from and secured by the revenues derived from the leasing of the land, buildings and other improvements and equipment so acquired, subject to any agreement with the holders of such bonds pledging any particular moneys or revenues. The Authority may issue bonds other than the Series 2007 Bonds in the future, and each such series will constitute a special obligation of the Authority and the general funds of the Authority will not be pledged to any bonds or notes. See THE AUTHORITY herein. The Institution The Facility is owned by the Institution, which is a New York not-for-profit corporation exempt from federal income tax pursuant to Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the Code ). See THE INSTITUTION General and Corporate Structure and Affiliates in Appendix A hereto. The Facility The Facility consists of a 176-unit senior living apartment complex known as Chestnut Court and a 118- unit assistive living complex known as Hawthorne/Briarwood Complex, located at 1463 Elmwood Avenue in the Town of Brighton, Monroe County, New York. The Institution owns and operates the Facility. The Mortgages do not include the 45 one-story cottages owned by the Institution, also located at 1463 Elmwood Avenue, Brighton, New York. See The Facility in Appendix A hereto. The Series 2007 Bonds The Series 2007 Bonds are special and limited obligations of the Authority payable solely from payments to be made by the Institution under the Notes insured by the United States Secretary of Housing and Urban Development ( HUD ), acting by and through the Federal Housing Commissioner, and from revenues and funds pledged under the Indenture (except the Rebate Fund), from amounts payable by the Institution pursuant to the Lease Agreement and from amounts recoverable upon the exercise of remedies under the Mortgage and the Security Agreement. The Series 2007 Bonds bear interest at the annual rate and mature by their terms as set forth on the cover page hereof. The Series 2007 Bonds are subject to redemption prior to maturity, see THE SERIES 2007 BONDS-Redemption Provisions herein. Security for the Series 2007 Bonds Pledge of Pledged Revenues. Pursuant to the Indenture, the Authority will assign to the Trustee all of its right, title and interest in, the proceeds of the Series 2007 Bonds and the Mortgage Loan, and the security therefore, including without limitation, all FHA Documents and the FHA Mortgage Insurance. The Authority will also assign its interest in the Pledged Revenues including (A) all rights and interest of the Authority under, in and pursuant to the Lease Agreement and the Institution Lease, (B) Gross Receipts, and (C) any and all property or assets or interest therein which is mortgaged, pledged and assigned to the trustee pursuant to the Mortgages. Mortgages and Assignments. The Series 2007 Bonds will be secured by the Mortgages which will be assigned to the Trustee as mortgagee, granting mortgage liens on and security interests in substantially all of the real and personal property comprising the Facility, subject in each case to certain Permitted Encumbrances (as defined in the Indenture). The Mortgages do not include the Institution s 45-one story cottages, as described above under the caption INTRODUCTION The Facility. The Institution Lease and the Lease Agreement will each be unconditionally subject and subordinate to the lien of the Mortgages. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2007 BONDS herein. Debt Service Reserve Fund. At the time of the issuance of the Series 2007 Bonds, proceeds of the Series 2007 Bonds, plus amounts available to the Institution, at least equal to the Debt Service Reserve Fund Requirement of $1,727,000 will be deposited in the Debt Service Reserve Fund of which an amount of $169,389 will be deposited into the Mortgage Reserve Account of the Debt Service Reserve Fund established under the Indenture. If on any Interest Payment Date the amount in the Bond Fund after making all required deposits therein shall be insufficient to pay the interest and principal then due on the Series 2007 Bonds, the Trustee shall, subject to the limitations in the paragraph below, transfer cash from the Mortgage Reserve Account of the Debt Service Fund to the Bond Fund in an amount equal to the deficiency. Moneys in the Debt Service Reserve Fund are expected to be invested in 3

8 Qualified Investments (as defined in the Indenture). See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2007 BONDS Debt Service Reserve Fund herein. Notwithstanding the foregoing, except when Outstanding Series 2007 Bonds are to be redeemed, or unless the Trustee has filed with FHA notice of default and intent and election to assign, no money in the Debt Service Reserve Fund shall be used for payments of principal or of interest on the Series 2007 Bonds. Extraordinary Expense Reserve Fund. At the time of issuance of the Series 2007 Bonds, proceeds thereof in the amount of $25,000 will be deposited into the Extraordinary Expense Fund. In the event of a default on the Notes and their assignment to HUD, the Trustee shall draw on the balance on deposit in the Extraordinary Expense Reserve Fund to cover the cost of any extraordinary fees and expenses incurred by the Trustee or the Mortgage Servicer. Any interest earnings on the Extraordinary Expense Reserve Fund are to be transferred to the Bond Fund. Limited Obligations THE SERIES 2007 BONDS ARE SPECIAL AND LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM CERTAIN REVENUES AND OTHER FUNDS PLEDGED UNDER THE INDENTURE. THE SERIES 2007 BONDS ARE NOT A DEBT OF THE STATE OF NEW YORK OR ANY POLITICAL SUBDIVISION THEREOF, AND NEITHER THE STATE OF NEW YORK NOR ANY POLITICAL SUBDIVISION THEREOF WILL BE LIABLE THEREON. THE AUTHORITY HAS NO TAXING POWER. Application of Proceeds PLAN OF FINANCING The Series 2007 Bonds are being issued for the purpose of (a) providing for (i) the current refunding of the Authority s FHA-Insured Mortgage Revenue Bonds (St. John s Meadow Project), Series 1997A (the Series 1997A Bonds ) and (ii) the advance refunding of the Authority s FHA Insured Mortgage Revenue Bonds (St. John s Meadow Project), Series 1998A (the Series 1998A Bonds, and together with the Series 1997A Bonds, the Prior Bonds ), (b) financing capital expenditures and renovations at the Facility, (c) funding the Debt Service Reserve Fund in the amount of the Debt Service Reserve Requirement, (d) funding the Extraordinary Expense Reserve Fund; and (e) paying costs of issuance in connection with the issuance of the Series 2007 Bonds. The Series 1997A Bonds are expected to be redeemed on or about August 1, 2007 at a redemption price equal to 102% and the Series 1998A Bonds are expected to be redeemed on or about August 1, 2008 at a redemption price of 101%. Verification of Mathematical Computation Samuel Klein and Company, a firm of independent public accountants, will deliver to the Authority, the escrow agent, the trustee and the Institution on the date of issuance of the Bonds, its report indicating that it has verified, in accordance with standards established by the American Institute of Certified Public Accountants, the mathematical of the computations of (i) the adequacy of the maturing principal of and interest on the moneys and securities irrevocably deposited for the payment of the Prior Bonds (the Escrow Securities ) to pay, together with any uninvested amounts, (a) the maturing principal and sinking fund installments of and interest on the Series 1997A and 1998A Bonds to and including August 1, 2007 and August 1, 2008, respectively, and (b) the redemption price on August 1, 2007 for the Series 1997A Bonds maturing after August 1, 2007 and the redemption price on August 1, 2008 for the Series 1998A Bonds maturing after August 1, 2008 for the Series 1998A Bonds and (ii) the yields on the Series 2007 Bonds and the Escrow Securities. 4

9 Estimated Sources and Uses of Funds The following table sets forth the estimated sources and uses of funds in connection with the issuance of the Series 2007 Bonds and the refunding of the Prior Bonds: Sources of Funds Series 2007 Bonds... $32,275,000 Net Original Issue Premium... 1,339,671 Funds held by Prior Bond Trustee... 3,285,767 Uses of Funds Total Sources of Funds... $36,900,438 Escrow Deposit for the Series 1997A Bonds... $26,373,623 Escrow Deposit for the Series 1998A Bonds... 7,530,238 Financing fees ,577 Project Costs ,000 Debt Service Reserve Fund... 1,727,000 Extraordinary Expense Reserve Fund... 25,000 Total Estimated Uses of Funds... $36,900,438 General THE AUTHORITY The Authority has been established under Article III of the New York Public Housing Law, as amended (the Enabling Act ) and Chapter 490 of the 1968 Laws of New York, as amended (collectively with the Enabling Act, the Act ) which includes among its purposes the providing of adequate, safe, and sanitary low-rent housing accommodations for persons and families of low income. The Authority is empowered for such purposes to acquire real property and interests therein, buildings and other improvements thereon, and equipment for use in connection therewith, and to lease the same, and to issue its special obligation bonds payable solely from and secured by the revenues derived from the leasing of the land, buildings and other improvements and equipment so acquired, subject to any agreement with the holders of such bonds pledging any particular moneys or revenues. The Authority may issue bonds other than the Series 2007 Bonds in the future, and each such series will constitute a special obligation of the Authority, and the general funds of the Authority will not be pledged to any bonds or notes. The Authority currently does not own or operate any housing projects. Financings of the Authority The Authority may from time to time enter into further financing transactions with other entities in connection with projects unrelated to the project financed with, among other things, the proceeds of the Series 2007 Bonds. Such transactions will provide for the issuance of bonds or notes to be secured from other sources of revenues or other security. The Series 2007 Bonds are payable solely from the funds and accounts pledged under the Indenture (other than the Rebate Fund) and payments by the Institution under and pursuant to the Notes and the Lease Agreement, and any other obligations issued by the Authority are payable solely from the funds specifically pledged for the payment of such other obligations. THE SERIES 2007 BONDS ARE SPECIAL AND LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM CERTAIN REVENUES AND FUNDS PLEDGED UNDER THE INDENTURE (OTHER THAN THE REBATE FUND). THE SERIES 2007 BONDS DO NOT AND SHALL NOT CREATE OR CONSTITUTE ANY INDEBTEDNESS, LIABILITY OR OBLIGATION OF THE VILLAGE OF EAST ROCHESTER, THE COUNTY OF MONROE, THE STATE OF NEW YORK OR OF ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF 5

10 THE VILLAGE OF EAST ROCHESTER, THE COUNTY OF MONROE, THE STATE OF NEW YORK OR OF ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST ON THE SERIES 2007 BONDS. THE AUTHORITY HAS NO TAXING POWER. THE AUTHORITY HAS NOT ASSUMED ANY RESPONSIBILITY FOR, AND DOES NOT REPRESENT OR WARRANT IN ANY WAY, THE ACCURACY OR COMPLETENESS OF ANY OF THE INFORMATION IN THIS OFFICIAL STATEMENT, OTHER THAN THE INFORMATION CONCERNING THE AUTHORITY UNDER THE CAPTIONS THE AUTHORITY AND LITIGATION AS THE LATTER PERTAINS TO THE AUTHORITY. General THE SERIES 2007 BONDS The Series 2007 Bonds will be dated their date of delivery will bear interest from such date at the rates set forth on the cover page of this Official Statement, payable semiannually on each February 15 and August 15, commencing February 15, 2008 (each an Interest Payment Date ) and, subject to the redemption provisions set forth below, will mature on the dates and in the amounts set forth on the cover page of this Official Statement. The Series 2007 Bonds will each be issued only as registered bonds in denominations of $5,000 or integral multiples thereof. Interest on the Series 2007 Bonds shall be computed on the basis of a 360-day year consisting of twelve 30- day months. Book-Entry Only System The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Series 2007 Bonds. The Series 2007 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee). One fully-registered Series 2007 Bond certificate will be issued for each maturity of the Series 2007 Bonds, in the aggregate principal amount of such maturity, 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 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s direct 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 bookentry 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, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, 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 DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of Series 2007 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2007 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2007 Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but 6

11 Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2007 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 interests in Series 2007 Bonds, except in the event that use of the bookentry system for the Series 2007 Bonds is discontinued. To facilitate subsequent transfers, the Series 2007 Bonds deposited by Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. The deposit of the Series 2007 Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2007 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2007 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Series 2007 Bonds may wish to take certain steps to augment the transmissions to them of notices of significant events with respect to the Series 2007 Bonds, such as redemptions, tenders, defaults and proposed amendments to the principal financing documents. Beneficial Owners of the Series 2007 Bonds may wish to ascertain that the nominee holding the Series 2007 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners, or in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to Cede & Co. If less than all of the Series 2007 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 DTC nor Cede & Co. will consent or vote with respect to Series 2007 Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Institution 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 2007 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions and dividend payments on the Series 2007 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from issuers or agents, on payment dates 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 Participants and not of DTC, the Bond Trustee or the Commission, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Commission or the Bond Trustee, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. A Beneficial Owner shall give notice to elect to have its Series 2007 Bonds purchased or tendered, through its Participant to the Tender Agent, and shall effect delivery of such Series 2007 Bonds by causing the Direct Participant to transfer the Participant s interest in the Series 2007 Bonds, on DTC s records, to the Tender Agent. The requirement for physical delivery of Series 2007 Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Series 2007 Bonds are transferred by Direct Participants on DTC s records and followed by a book-entry credit of tendered Series 2007 Bonds to the Tender Agent s DTC account. DTC may discontinue providing its services as securities depository with respect to the Series 2007 Bonds at any time by giving reasonable notice to the Institution or the Trustee. Under such circumstances, in the event that 7

12 a successor securities depository is not obtained, Series 2007 Bond certificates are required to be printed and delivered. The Authority, at the direction of the Institution, may decide to discontinue use of the system of bookentry transfers through DTC (or a successor securities depository). In that event, Series 2007 Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the Institution believes to be reliable, but the Authority and the Institution take no responsibility for the accuracy thereof. The Authority, the Institution and the Trustee cannot and do not give any assurances that Direct Participants or Indirect Participants will distribute to the Beneficial Owners of the Series 2007 Bonds (i) payments of principal of, or interest and premium, if any, on the Series 2007 Bonds, (ii) confirmation of their ownership interests in the Series 2007 Bonds or (iii) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Series 2007 Bonds, or that they will do so on a timely basis or that DTC, Direct Participants or Indirect Participants will serve and act in the manner described in this Official Statement. NEITHER THE AUTHORITY, THE INSTITUTION NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO THE DIRECT PARTICIPANTS, THE INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY DIRECT PARTICIPANT OR ANY INDIRECT PARTICIPANT; (2) THE PAYMENT BY ANY DIRECT PARTICIPANT OR ANY INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OR REDEMPTION PRICE OF OR INTEREST ON THE SERIES 2007 BONDS; (3) THE DELIVERY BY ANY DIRECT PARTICIPANT OR ANY INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR PERMITTED TO BE GIVEN TO BONDHOLDERS UNDER THE TERMS OF THE INDENTURE; (4) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE SERIES 2007 BONDS; OR (5) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS BONDHOLDER. Payment of Interest and Principal; Record Dates Payment of principal, premium, and interest on the Series 2007 Bonds shall be paid by check or draft mailed to the registered owner thereof at his address as it appears on the registration books of the Trustee on the Record Date, without the requirement of presentation or surrender of such Series 2007 Bonds or Series 2007 Bonds except on the maturity date thereof. Upon request of a registered owner of at least $250,000 in principal amount of Series 2007 Bonds Outstanding, all payments of principal, premium, and interest on the bonds shall be paid by wire transfer in immediately available funds to an account designated by such registered owner. Before the date fixed for redemption, funds shall be deposited with the Trustee to pay, and the Trustee is hereby authorized and directed to apply such funds to the payment of, the Series 2007 Bonds or portions thereof called, together with accrued interest thereon to the redemption date. CUSIP number identification with appropriate dollar amounts for each CUSIP number must accompany all payments of principal, premium, and interest, whether by check or by wire transfer. Redemption Provisions Excess Moneys in the Bond Fund. After any receipt of FHA Debentures by the Trustee, on the earliest date for which proper notice of redemption can be given, the Series 2007 Bonds are subject to redemption in part to the extent there are excess moneys in the Bond Fund after payment of interest on any Interest Payment Date available for such redemption, at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the date fixed for redemption. Casualty and Condemnation Redemption. The Series 2007 Bonds are subject to redemption on the earliest practicable date for which proper notice of redemption can be given as a whole or in part at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the date fixed for redemption to the extent the Net 8

13 Proceeds of any condemnation award or insurance recovery (along with a reduction of the Debt Service Reserve Fund) are applied to the prepayment of the Notes. Redemption From FHA Mortgage Insurance Benefits in Cash. If FHA Mortgage Insurance benefits are paid to the Trustee in cash, the Trustee shall redeem the Series 2007 Bonds in whole or in part to the extent of the receipt of such benefits on the earliest practicable date for which proper notice of redemption can be given at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the date fixed for redemption. The Trustee shall not use moneys in the Debt Service Reserve Fund to redeem Series 2007 Bonds until all FHA Mortgage Insurance benefits have been paid in full. Redemption After Receipt of Proceeds from the Sale of FHA Debentures. If FHA Mortgage Insurance Benefits are paid to the Trustee in FHA Debentures and such FHA Debentures can be sold or tendered by HUD at a price sufficient (together with moneys on deposit on the Debt Service Reserve Fund) to redeem the Series 2007 Bonds in full with accrued interest to the date of redemption together with all amounts necessary to pay all fees and costs associated therewith or previously outstanding, the Trustee shall redeem Series 2007 Bonds therefrom on the earliest practicable date for which proper notice of redemption can be given at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the date fixed for redemption. Optional Redemption. On and after August 15, 2017, the Series 2007 Bonds are also subject to redemption as a whole at any time or in part on any Interest Payment Date to the extent of any prepayment of the Notes by the Institution (along with a reduction of the Debt Service Reserve Fund), or from proceeds of any refunding bonds at the redemption price expressed as a percentage of the principal amount set forth in the table below, plus the accrued interest through the date fixed for redemption: Period During Which Redeemed (Both Dates Inclusive) Redemption Price August 15, 2017 through August 14, % August 15, 2018 through August 14, August 15, 2019 through August 14, August 15, 2020 and thereafter 100 The Trustee shall in no event cause the Series 2007 Bonds to be redeemed by this subsection unless redemption premiums shall be made with moneys designated or intended for such redemption and present in the Bond Fund for a continuous 91-day period prior to mailing the notice of redemption and the Trustee receives a certificate from the owner to the effect that during such 91-day period no petition in bankruptcy has been filed with respect to the Institution or the Authority. The Trustee must have the Note prepayment proceeds, together with any applicable premium, on deposit in the Bond Fund prior to mailing notice of optional redemption. Special Bankruptcy Redemption. In the event that the Institution becomes subject to any bankruptcy proceedings and the trustee in bankruptcy causes there to be a prepayment (and any corresponding reduction in the Debt Service Reserve Fund) of the Notes without notice and without premium, Series 2007 Bonds in the amount of such prepayment shall be redeemed, as a whole or in part, on the earliest practicable date at a redemption price equal to the principal amount thereof without premium plus accrued interest to the date of redemption. Anticipatory Sinking Fund Redemption (in the event there are no defaults or partial prepayments). The Series 2007 Bonds are subject to redemption from certain available revenues in the Bond Fund. If there are no partial prepayments on the Notes and the Notes are not assigned to FHA for FHA Debentures or cash, the Series 2007 Bonds shall be redeemed in amounts specified in the following table (except that such amounts may be increased to the extent that on any prior Interest Payment Date, Series 2007 Bonds were not redeemed to the full extent permissible under the Indenture): 9

14 Date Anticipated Principal Amount to be Redeemed Date Anticipated Principal Amount to be Redeemed February 15, 2008 $100,000 February 15, 2023 $505,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,230,000 February 15, ,000 February 15, ,000 August 15, ,000 August 15, ,000 February 15, ,000 February 15, ,675,000 August 15, ,000 1 Includes Last Anticipated Sinking Fund Redemption for Series 2007 Bonds maturing August 15, Includes Last Anticipated Sinking Fund Redemption for Series 2007 Bonds maturing August 15, Includes Last Anticipated Sinking Fund Redemption for the Series 2007 Bonds maturing August 15, Last Anticipated Sinking Fund Redemption for the Series 2007 Bonds maturing February 15, Redemption Upon the Determination of HUD. After default on the Notes, on any date, as a whole or in part, Series 2007 Bonds shall be redeemed to the extent of any prepayments of the Notes made upon the determination of HUD in order to avoid an insurance claim under the Contract of Mortgage Insurance or any other applicable rules, regulations, policies and procedures of FHA. Selection of Bonds for Redemption If less than all the Series 2007 Bonds then Outstanding shall be called for redemption from excess revenues in the Bond Fund as a result of receipt of FHA debentures received in connection with a default on the 1997A Note, the 1998A Note or both Notes, the Trustee shall redeem Series 2007 Bonds in order of maturity and selected by lot within each maturity. The portion of any Series 2007 Bond to be redeemed shall be in the principal amount of $5,000 or some integral multiple thereof. If less than all the Series 2007 Bonds then Outstanding shall be called for redemption (other than as a result of the receipt of FHA Debentures received in connection with a default under either the 1997A Note, the 1998A Note or both Notes or, from anticipated sinking fund payments), the Trustee shall redeem an amount of Series 2007 Bonds and the scheduled sinking fund payments shall be reduced so that the resulting decrease in debt service on the 10

15 Series 2007 Bonds during each six-month period ending on an Interest Payment Date is proportional, as nearly as practicable, to the decrease in payments on the Notes in each period, all as certified by the Institution to the Authority to the Trustee in writing, which certification the Trustee shall rely upon conclusively. The Trustee shall transfer from the Debt Service Reserve Fund to the Bond Fund an amount equal to the excess over the Debt Service Reserve Requirement, as recomputed by the trustee after giving effect to the anticipated redemption. The Trustee shall then redeem Series 2007 Bonds in an amount equal, as nearly as practicable, to the amount of funds transferred to the Bond Fund. The Series 2007 Bonds to be redeemed shall be selected from among the maturities to accomplish such reduction in debt service and within each maturity by lot. Notice of Redemption Notice of the intended redemption of each Series 2007 Bond shall be given by the Trustee by first class mail, postage prepaid, to the registered owner at the address of such owner shown on the Registrar s bond register. All such redemption notices shall be given not less than thirty (30) days nor more than sixty (60) days prior to the date fixed for redemption. Such notice shall further state that payment of the applicable redemption price plus accrued interest to the date fixed for redemption will be made upon presentation and surrender of the Series 2007 Bonds. The Trustee shall not give notice of any redemption of Series 2007 Bonds (other than a redemption after receipt of proceeds from the sale of FHA Debentures), unless the Trustee shall have, at the time such notice is given, sufficient funds on hand to make such redemption. Notices shall state the redemption date and redemption price and, if less than all of the then Outstanding Series 2007 Bonds are called for redemption, shall state (i) the numbers of the bonds to be redeemed by giving the individual certificate of each bond to be redeemed or shall state that all Series 2007 Bonds between two stated certificate numbers, both inclusive, are to be redeemed or that all of the Series 2007 Bonds of one or more maturities have been called for redemption; (ii) the CUSIP numbers of all Series 2007 Bonds being redeemed if available; (iii) the amount of each Series 2007 Bond being redeemed (in the case of a partial redemption); (iv) the date of issue of the Series 2007 Bonds as originally issued; (v) the rate of interest borne by each Series 2007 Bonds redeemed; (vi) the maturity date of each Series 2007 Bonds being redeemed and (vii) any other descriptive information needed to identify accurately the Series 2007 Bonds being redeemed. The notice shall require that such Series 2007 Bonds be surrendered at the principal corporate trust officer of the Trustee and shall state that further interest on such Series 2007 Bonds will not accrue from and after the redemption date. CUSIP number identification with appropriate dollar amounts for each CUSIP number shall also accompany each redemption payment. Notice of redemption described under the caption Optional Redemption shall be given only if the Trustee has received (i) money sufficient to pay the redemption premium, together with an amount equal to all costs of redeeming the Series 2007 Bonds, and including accrued interest to the redemption date, at least 91 days prior to the giving of notice of redemption and the Trustee receives a certificate from the Institution and the Authority to the effect that during such period no petition in bankruptcy has been filed with respect to the Institution and the Authority and (ii) the amount of such prepayment, prior to the giving of a notice of redemption. Failure to give notice by mailing to the registered owner of any Series 2007 Bond designated for redemption or to any depository or information service shall not affect the validity of the proceedings for the redemption of any other Series 2007 Bond if notice of such redemption shall have been mailed as herein provided. Effect of Notice of Redemption Notice or redemption having been given in the manner provided in the Indenture, and money for the redemption being held by the Trustee for that purpose, thereupon the Series 2007 Bonds or portions thereof so called for redemption shall become due and payable on the redemption date, and interest thereon (or on such portion) shall cease to accrue on such date; and such Series 2007 Bonds or portions thereof shall thereafter no longer be entitled to any security or benefit under the Indenture except to receive payment of the redemption price thereof and, to the extent described above under Selection of Bonds for Redemption. 11

16 Registration of Series 2007 Bonds; Persons Treated as Owners The Trustee shall cause a bond register to be kept for the registration of transfers of Series 2007 Bonds. Any Series 2007 Bond may be transferred only upon an assignment duly executed by the registered owner or his duly authorized representative in such form as shall be satisfactory to the Trustee, and upon surrender of such Series 2007 Bond to the Trustee for cancellation. Whenever any Series 2007 Bond or Series 2007 Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and deliver to the transferee a replacement fully registered Series 2007 Bond or Series 2007 Bonds, of authorized denomination or denominations and for the amount of such Series 2007 Bond or Series 2007 Bonds so surrendered. Any Series 2007 Bond may, in accordance with its terms, be exchanged, at the corporate trust office of the Trustee, for a new fully registered Series 2007 Bond or Series 2007 Bonds, of the same maturity, of any authorized denomination or denominations and for the aggregate amount of such Series 2007 Bond then remaining Outstanding. In all cases in which Series 2007 Bonds shall be transferred or exchanged hereunder, the Trustee shall make a charge sufficient to reimburse it for any tax, fee or other governmental charge required to be paid with respect to such transfer or exchange, and in addition a sum sufficient to reimburse it for any expenses incurred in connection with such transfer or exchange. The Trustee shall not be required to transfer any Series 2007 Bond after the mailing of notice calling such Series 2007 Bond for redemption, or during the period of fifteen days next preceding the mailing of a notice of redemption of any Series 2007 Bonds. The person in whose name any Series 2007 Bond shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes and payment of or on account of the principal of and premium and interest any such Series 2007 Bond shall be made only to or upon the order of the registered owner thereof, or his legal representative, and neither the Authority nor the Trustee shall be affected by any notice to the contrary. All such payments shall be valid and effectual to satisfy and discharge the liability upon the Series 2007 Bond to the extent of the sum to be paid. Additional Bonds So long as the Lease Agreement is in effect and no Event of Default exists thereunder or under the Indenture (and no event exists which, upon notice or lapse of time or both, would become an Event of Default) the Authority may upon request of the Institution issue one or more series of Additional Bonds to provide funds to pay any one or more of the following: (1) costs of refunding or advance refunding any or all of the Series 2007 Bonds; (2) costs of making any modifications, additions or improvements to the Facility that the Institution may deem necessary or desirable; or (3) costs of the issuance and sale of the Additional Bonds, capitalized interest, funding debt service reserves, and other costs reasonably related to any of the foregoing. Additional Bonds may mature at different times, bear interest at different rates and otherwise vary from the Series 2007 Bonds authorized under the Indenture, all as may be provided in the supplemental indenture authorizing the issuance of such Additional Bonds. Each series of Additional Bonds shall be issued pursuant to a supplement to the Indenture and shall be equally and ratably secured under the Indenture with the Series 2007 Bonds and any other series of Additional Bonds without preference, priority or distinction of any Bonds over any other Bonds. Prior to the issuance of a series of Additional Bonds and the execution of a Supplemental Indenture in connection therewith, the Authority and the Institution shall enter into an amendment to the Lease Agreement, which shall provide, among other things, that the rentals payable under the Lease Agreement shall be increased and computed so as to amortize in full the principal of and interest on such Additional Bonds and any other costs in connection therewith. In addition, the Institution and the Authority entering into amendments of certain other documents with the Trustee which shall provide that the amounts guaranteed or otherwise secured thereunder are increased accordingly. Limited Obligations SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2007 BONDS The principal of, premium, if any, and interest on the Series 2007 Bonds are payable solely from (1) payments to be made by the Institution to the Authority under the Lease Agreement, (2) Mortgage Insurance 12

17 Benefits, in the event of a default by the Institution under the Notes and assignment thereof to FHA, (3) the funds held under the Indenture (except the funds held in the Rebate Fund) and (4) the proceeds of the Trustee s exercise of certain remedies under the Indenture, the Lease Agreement and the Mortgages. THE SERIES 2007 BONDS ARE SPECIAL AND LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM THE REVENUES AND FUNDS PLEDGED UNDER THE INDENTURE. THE SERIES 2007 BONDS DO NOT AND SHALL NOT CREATE OR CONSTITUTE ANY INDEBTEDNESS, LIABILITY OR OBLIGATION OF THE VILLAGE OF EAST ROCHESTER, THE COUNTY OF MONROE, THE STATE OF NEW YORK OR OF ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE VILLAGE OF EAST ROCHESTER, THE COUNTY OF MONROE, THE STATE OF NEW YORK OR OF ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST ON THE SERIES 2007 BONDS. THE AUTHORITY HAS NO TAXING POWER. The Series 2007 Bonds do not now and shall never constitute a charge against the general credit of the Authority. No Owner of any Series 2007 Bonds shall have the right to compel any exercise of the taxing power of the Village of East Rochester, the County of Monroe or the State of New York or any political subdivision thereof to pay the principal of, premium, if any, or interest on the Series 2007 Bonds and the Series 2007 Bonds do not constitute an indebtedness or a loan of credit within the meaning of any constitutional or statutory provision. The Series 2007 Bonds do not constitute an obligation or indebtedness of, and the payment of the Series 2007 Bonds is not insured or guaranteed by, the United States of America or any agency or instrumentality thereof, including HUD or FHA. In the event of conflict between the provisions of the FHA Documents and the Indenture or the Lease Agreement, the FHA Documents will control. The obligations of the Institution under the Notes, the Lease Agreement and the Mortgages are general obligations of the Institution. The obligations of the Institution under the Notes, the Lease Agreement and the Mortgages are without recourse to any property or assets of any affiliates of the Institution, and none of such affiliates are obligated to contribute or advance any moneys toward the operation of the Facility or the payment of the Institution s obligations under the Notes, the Lease Agreement or the Mortgages. Pledge and Assignment of Trust Estate Pursuant to the Indenture, the Authority will assign and pledge to the Trustee, for the equal and proportionate benefit, security and protection of the holders, from time to time, of the Series 2007 Bonds and all Additional Bonds issued under the Indenture, except as otherwise provided in the Indenture, all right, title and interest of the Authority in and to the Trust Estate which consists of: (a) all right, title and interest of the Authority in and to the Acquisition Fund, the Bond Fund, the Debt Service Reserve Fund and the Extraordinary Expense Reserve Fund including moneys and investments therein, and any other moneys held under the provisions of Article IV of the Indenture by the Trustee (but not the Series 2007 Rebate Fund) or under the provisions of any mortgage servicing agreement relating to the Project to which the Trustee is a party, (b) any and all of the Authority s right, title and interest in and to the proceeds of the Series 2007 Bonds and the Mortgage Loan and the security therefor, including, without limitation, all FHA Documents and the FHA Mortgage Insurance; and the Trustee is designated in the Indenture to hold the Notes and all revenues and receipts receivable therefrom and the security therefor, including the Mortgage and the FHA Mortgage Insurance, as security for payment of the principal of, premium, if any, and interest on the Series 2007 Bonds, (c) the Pledged Revenues including (A) all rights and interest of the Authority under, in and pursuant to the Lease Agreement and the Institution Lease, including, without limiting the generality of the foregoing, the present and continuing right (i) to make claim for, collect or cause to be collected or receive or cause to be received all payments and other sums of money payable or receivable by the Authority under the Lease Agreement, (ii) to bring actions and proceedings thereunder for the enforcement thereof, and (iii) to do any and all things which the Authority is or may become entitled to do under the Lease Agreement, (B) Gross Receipts, and (C) any and all property or assets or interest therein which is mortgaged, pledged and assigned to the Trustee pursuant to the Mortgages, (d) any and all other rights and interest in property, whether tangible or intangible, from time to time received by delivery or by writing of any kind, in which a security interest in favor of the Trustee is created or which is conveyed, mortgaged, pledged, assigned or transferred as and for additional security under the Indenture by the Authority or by anyone on its behalf or with its written consent to the Trustee, 13

18 which is hereby authorized to receive any and all such property at any and all times and to hold and apply the same subject to the terms of the Indenture. The Authority s security interest in the Institution s present and future rights in and to the Gross Receipts, including Gross Receipts from time to time on deposit in the funds and accounts created by the Indenture, as assigned to the Trustee, may be limited by, among other things: (a) any statutory liens or rights arising in favor of the Authority and the Trustee by the operation of the Act; (b) other statutory liens; (c) rights arising in favor of the United States of America or any agency thereof; (d) prohibitions against assignment contained in any state or Federal statutes; (e) constructive trusts, equitable liens or other rights impressed or conferred by any state or Federal court in the exercise of its equitable powers; rights of third parties in any Gross Receipts, including Gross Receipts converted to cash, not in the possession of the Trustee; and (g) the requirement that appropriate continuation statements be filed in accordance with the Uniform Commercial Code as enacted in the State of New York (the UCC ) as from time to time in effect. Appropriate financing statements will be duly executed and filed as required by the UCC, in order to perfect the security interest in the Institution s Gross Receipts to the extent possible by such filing. Generally, perfection may be accomplished by the filing of financing statements with respect to those Gross Receipts which constitute accounts or general intangibles under the UCC. A security interest in cash can be perfected only by possession. Accordingly, a security interest in Gross Receipts which constitute cash is not, and cannot be, perfected until such time as such cash is held by the Trustee. Notes, Mortgages and Security Agreements The 1997 Mortgage Loan. On July 2, 1997, the Institution executed the 1997 FHA Note in favor of the Mortgage Servicer in the amount of $26,000,000, with a permanent interest rate of 6.45%, and maturity date of July 1, The 1997 FHA Note was endorsed for mortgage insurance by HUD pursuant to Section 232 of the National Housing Act, on July 2, The 1997 FHA Note is secured by a mortgage given by the Institution and the Authority (the 1997 Mortgage ). The 1997 Mortgage was modified by means of a Mortgage Spreading Agreement dated December 9, 1998 and recorded in the Monroe County Clerk s Office on December 10, 1998, for the purpose of spreading the mortgage lien over certain additional premises (the Spreading Agreement ) in connection with the issuance of the Series 1998 Bonds. The 1997 Mortgage was assigned to The Bank of New York, as Trustee by means of an Assignment recorded in the Monroe County Clerk s Office on July 3, The 1998 Mortgage Loan. On December 9, 1998, the Institution executed the 1998 FHA Note in favor of the Mortgage Servicer in the amount of $7,695,900. The 1998 FHA Note bore interest at the permanent rate of 6.20% with a maturity date of November 1, The 1998 FHA Note is secured by the 1998 Mortgage. The 1998A FHA Note was endorsed by HUD for mortgage insurance on December 9, 1998, pursuant to Section 241/232 of the National Housing Act. The 1998 Mortgage was assigned to The Bank of New York, as Trustee by means of an Assignment recorded in the Monroe County Clerk s Office on July 3, Cross Default Provisions. The 1998 Mortgage and the 1998A FHA Note contain cross-default language pursuant to which a default under the 1997 Mortgage would entitle the holder of the 1997A FHA Note and 1997 Mortgage to declare a default under the 1998 Mortgage. There is no such provisions contained in the 1997A FHA Note and 1997 Mortgage. However, both Mortgages encumber the same real estate, so that a default which gives rise to a foreclosure proceeding under one of the Mortgages would have the same effect as if cross-default language had been included in both the 1997 and 1998 mortgage documents. Issuance of Series 2007 Bonds. In connection with the issuance of the Series 2007 Bonds, amortization payments of the 1997A FHA Note and the 1998A FHA Note and Mortgages will be reduced (retaining the same maturity dates), by means of separate assignments from the Trustee. The assignments and modifications will be accomplished by means of the following: 1. An Assignment of Note and Mortgage, for the 1997 Mortgage, and an Assignment of the 1998 FHA Note and Second Mortgage. 2. Contemporaneously with the assignments, the Institution and the trustee, will execute an Allonge for each of the Notes for the purpose of reducing the interest rate and 14

19 Lease Agreement amortization of each Note. The Allonges will be endorsed by HUD to evidence the continued existence of FHA mortgage insurance (pursuant to FHA Section 232 and Section 241/232, respectively). 3. A Mortgage Modification Agreement and Second Mortgage Modification Agreement, reflecting the reduction of interest rate and amortization payments (retaining the existing maturity dates). The modification agreements will be executed by the Institution and the Authority (collectively, the Owner ) and by the Trustee. 4. The Institution, the Authority and the Trustee, will execute certain additional documents, as required by HUD regulations, to evidence a continued security interest of HUD and the mortgagee in the real property and associated personal property. Such documents will include Amended and Restated Security Agreements, Amended HUD Regulatory Agreements and Affirmation of HUD Mortgagee s Certificate. Under the Lease Agreement between the Institution and the Authority and assigned to the Trustee, the Institution will be absolutely and unconditionally obligated to make monthly payments to the Trustee, as the assignee of the Authority, sufficient to provide for the payment of the principal of, and interest and premium, if any, on the Series 2007 Bonds when due, and to provide for deposits to the Bond Fund and Debt Service Reserve Fund, if required, at the times and in the amounts required by the Indenture and the Lease Agreement. As security for the obligations under the Lease Agreement and the Mortgage, the Institution has agreed in the Lease Agreement to grant a security interest in all Gross Receipts. As defined in the Indenture, Gross Receipts means all receipts, revenues, income (including investment income) and other moneys received or receivable by or on behalf of the Institution derived from the operation or ownership of the Facility including, without limitation, insurance and condemnation proceeds with respect to the Facility or any portion thereof, and all rights to receive the same, whether in the form of accounts, accounts receivable, contract rights, instruments, general intangibles, chattel paper, or other rights and the proceeds of such rights, whether now existing or hereafter coming into existence and whether now owned or held or hereafter acquired by the Institution; provided, however, that there shall be excluded from Gross Receipts the security deposits of tenants. The security interests in Gross Receipts is subject to the limitations desecribed above under the caption Pledge and Assignment of Trust Estate herein. Debt Service Reserve Fund Upon the delivery of the Series 2007 Bonds, the Trustee will deposit into the Debt Service Reserve Fund from the proceeds of the Series 2007 Bonds an amount equal to the Debt Service Reserve Requirement for the Series 2007 Bonds. In addition, proceeds of the Series 2007 Bonds shall be deposited in the Mortgage Reserve Account of the Debt Service Reserve Fund. If on any Interest Payment Date the amount in the Bond Fund after making all required deposits therein is insufficient to pay the interest and principal then due on the Series 2007 Bonds, the Trustee shall, subject to the limitations described in the paragraph below, transfer cash from the Mortgage Reserve Account of the Debt Service Reserve Fund to the Bond Fund in an amount equal to such deficiency; provided, however, that any such transfer by the Trustee shall not relieve the Institution of any of its obligations under the Notes or under the Mortgages. Subject to the paragraph below, the Trustee shall on each Interest Payment Date transfer to the Series 2007 Bond Fund from the Debt Service Reserve Fund and the Mortgage Reserve Account interest earnings on the Debt Service Reserve Fund and the Mortgage Reserve Account. The Institution shall value the Debt Service Reserve Fund and the Mortgage Reserve Account on each Interest Payment Date at the funded balance if invested in the Investment Agreement and at the lower of cost or amortized value if invested in other Qualified Investments and provide a certificate of same to the Trustee. Notwithstanding the foregoing, except when Outstanding Series 2007 Bonds are to be redeemed, or unless the Trustee has filed with FHA notice of default and intent and election to assign the Notes and Mortgages, no money in the Debt Service Reserve Fund shall be used for payments of principal or of interest on the Series 2007 Bonds. See Appendix C SUMMARY OF THE TRUST INDENTURE Series 2007 Debt Service Reserve Fund. 15

20 Extraordinary Expense Reserve Fund Upon delivery of the Series 2007 Bonds, the Trustee will deposit into the Extraordinary Expense Reserve Fund the amount of $25,000. In the event of a default on the Notes and their assignment to HUD, the Trustee shall draw on the balance on deposit in the Extraordinary Expense Reserve Fund to cover the cost of any extraordinary fees and expenses incurred by the Trustee or the Mortgage Servicer. Any interest earnings on the Extraordinary Expense Reserve Fund are to be transferred to the Bond Fund. Acceleration The payment of the principal of and accrued interest on the Series 2007 Bonds may be declared to be immediately due and payable following the occurrence of an Event of Default under the Indenture as described in Appendix C SUMMARY OF THE TRUST INDENTURE Events of Default and Acceleration; Other Remedies Upon Series 2007 Default. Limitations on Enforceability Enforcement of a claim for payment of the principal of or interest on the Series 2007 Bonds could be made subject to any statutes that may be constitutionally enacted by the United States Congress or the Legislature of the State affecting the time and manner of payment or imposing other constraints upon enforcement. The enforcement of the Indenture, the Lease Agreement, the Notes, the Mortgages, the Security Agreement and the Series 2007 Bonds may be limited by bankruptcy, insolvency, moratorium, and other similar laws and equitable principles affecting creditors rights and remedies generally, and by the exercise of judicial discretion in accordance with general principles of equity. See BONDHOLDERS RISKS Enforcement of Remedies; Bankruptcy herein. The ability of the Trustee to foreclose on the Mortgages and apply Gross Receipts and other amounts in the possession of the Trustee to the payment of the Series 2007 Bonds may be limited by the exercise of judicial discretion in accordance with general principles of equity and public policy to the extent constitutionally applicable, and by bankruptcy and other laws affecting creditors rights. General FHA MORTGAGE INSURANCE The Mortgages are insured by FHA pursuant to Section 232 and Sections 241 of the National Housing Act, as amended. The applicable FHA regulations regarding Section 232 of the National Housing Act, as amended, are contained in Part 232 of Title 24 of the Code of Federal Regulations, and, with certain exceptions, incorporate by reference the provisions of Subpart B, Part 207 of Title 24 of the Code of Federal Regulations covering mortgages, deeds of trust and other similar instruments insured under Section 207 of the National Housing Act, as amended. In the event of conflict between the FHA Documents and the Indenture or the Lease Agreement, the FHA Documents will control. The National Housing Act, as amended, and the applicable regulations provide that claims for mortgage insurance benefits under mortgages insured pursuant to Section 232 are to be paid in cash, debentures, or in any combination thereof, at the option of FHA. FHA S CURRENT POLICY IS TO MAKE A DETERMINATION REGARDING HOW BENEFITS WILL BE PAID FOR MORTGAGES INSURED PURSUANT TO SECTION 232 AT THE TIME OF THE PAYMENT. THERE CAN BE NO ASSURANCE THAT THE MORTGAGE INSURANCE BENEFITS ON THE SERIES 2007 MORTGAGE WILL NOT BE PAID IN CASH, FHA DEBENTURES OR IN A COMBINATION OF CASH AND FHA DEBENTURES. FHA has indicated that it will determine the method of payment at the time of the payment, and that its determination will be based on a comparison of the applicable debenture interest rate with the United States Treasury borrowing rate and may also take into account administrative factors. If FHA makes such payment with FHA Debentures, FHA reserves the option to redeem the debentures prior to their maturity. 16

21 Payment of FHA Mortgage Insurance Benefits If a payment default occurs under one or more of the Notes and is continuing for thirty days, the defaulted Note or Notes and the corresponding Mortgage shall be assigned to FHA in order to receive the FHA Mortgage Insurance Benefits. Upon such event and until final payments by FHA of all Mortgage Insurance Benefits, unless and until such default is waived in accordance with the Indenture, the Trustee shall transfer from the Debt Service Reserve Fund to the Bond Fund on the second business day preceding each interest payment date an amount sufficient, together with moneys then on deposit in the Bond Fund, to pay interest and principal then due on the Series 2007 Bonds outstanding. Notwithstanding the foregoing, no assurance can be given that moneys in the Debt Service Reserve Fund will be sufficient to make all payments of debt service on the Series 2007 Bonds from the time a payment default occurs under the defaulting Note until final payment of FHA Mortgage Insurance Benefits is made. See BONDHOLDERS RISKS and FHA MORTGAGE INSURANCE. The procedure to be followed by the Trustee in filing claims for Mortgage Insurance Benefits and the application of Mortgage Insurance Benefits are described in the summary of the Indenture set forth in Appendix C hereto. In the event of a default and an assignment as described above, the Mortgage Insurance Benefits may be paid in cash or debentures, or any combination thereof, at the discretion of FHA. Interest payments on the Mortgage Insurance Benefits received in the form of cash, FHA Debentures, or a combination of FHA Debentures and cash, will be applied to pay the maturing principal of and interest on the Series 2007 Bonds and the sinking fund redemption of Series 2007 Bonds (rounded downward to the nearest multiple of $5,000). However, at the written request of the holders of 100% in aggregate principal amount of the Series 2007 Bonds outstanding, or upon determination by the Trustee (in the absence of such request), which determination may be made in reliance upon a certification or verification by a financial consultant that is a firm of certified public accountants, that either (i) the proceeds of the sale of the FHA Debentures and all amounts or investments under the Indenture, except the Rebate Fund, would produce sufficient funds together with all immediately available funds held by the Trustee under the Indenture to pay the principal amount of all Series 2007 Bonds outstanding, accrued interest on the Series 2007 to the redemption date, and the fees and expenses of the Authority, the Trustee and the Mortgage Servicer, the Trustee shall sell such FHA Debentures and such other investments and deposit the proceeds so obtained and such other immediately available funds in the Redemption Account of the Bond Fund for application to the redemption of the Series 2007 Bonds or (ii) the funds available for redemption of the Series 2007 Bonds and the income and principal on any FHA Debentures received as FHA Mortgage Insurance Benefits (if applied on the first practicable date to redemption of the Series 2007 Bonds) would be sufficient to pay, when due, the principal amount of and interest on all Series 2007 Bonds outstanding and all fees and expenses of the Authority, the Trustee and the Mortgage Servicer, then the Trustee shall sell all investments on hand and deposit the proceeds of such sale, together with all cash proceeds and cash on hand, in the Redemption Account of the Bond Fund and apply such amounts to the redemption of Series 2007 Bonds and payment of such fees and shall deposit the FHA Debentures to the credit of the Bond Fund and apply the interest income thereon and the principal thereof to the sinking fund redemption of the Series 2007 Bonds. As described above, FHA reserves the option, in its sole discretion, to determine whether to make such payments in cash, FHA Debentures or a combination of cash and FHA Debentures. FHA s current policy, however, is that it will determine the method of payment at the time of the payment, and that its determination will be based on a comparison of the applicable debenture interest rate with the United States Treasury borrowing rate and may also take into account administrative factors. If FHA makes such payment with FHA Debentures, FHA reserves the option to redeem the debentures prior to their maturity. If such benefits are paid in cash and such moneys, together with all amounts then on deposit in all the funds and accounts (other than the Rebate Fund) established under the Indenture, are sufficient to redeem the Series 2007 Bonds, with interest to the redemption date, and to pay all accrued and estimated fees and expenses of the Authority, the Trustee and the Mortgage Servicer, then any investment agreement or other investment permitted by the Indenture in which moneys on deposit in any fund or account have been invested shall be liquidated or sold, and the proceeds thereof together with the proceeds of the FHA Mortgage Insurance Benefits and other available moneys, shall be used to pay such fees and expenses and the balance shall be deposited in the Redemption Account of the Debt Service Fund and used to redeem the Series 2007 Bonds. 17

22 In the event that such benefits are received from FHA in more than one cash installment, the Trustee shall immediately deposit the first such installment in the Redemption Account after providing, by deposit to the Bond Fund, for the payment of the maturing principal amount and interest due on the Series 2007 Bonds, if any, occurring on or prior to the date set for redemption and apply such moneys to the redemption of a portion of the Series 2007 Bonds, in direct order of maturity on the first practicable date such redemption can be made. See THE SERIES 2007 BONDS - Redemption Provisions. It is anticipated that the Mortgage Insurance Benefits, together with the funds held pursuant to the Indenture, will be sufficient to pay the principal of and interest on the Series 2007 Bonds. The Mortgage Insurance, however, does not constitute a guarantee or assurance of the timely payment of the principal or redemption price of, and interest on, the Series 2007 Bonds. Furthermore, Mortgage Insurance Benefits, together with other funds held on deposit under the Indenture, may not be sufficient to pay the principal or redemption price of, and interest on the Series 2007 Bonds, depending upon the amount, if any, of the offsets made by FHA in calculating the payment of a claim for Mortgage Insurance Benefits. See FHA MORTGAGE INSURANCE. FHA Debentures are obligations which mature 20 years from their date of issue, pay interest only for 20 years and then pay principal. Therefore, in the event of a default and an assignment of the Notes and the Mortgages to FHA, the date of payment of the principal of the Series 2007 Bonds will vary, depending on when the default under the Notes and the Mortgages occurs in relation to the final maturity date of the Series 2007 Bonds. If a default under the Notes and the Mortgages occurs more than twenty years prior to the final maturity date of the Series 2007 Bonds, the principal of the FHA Debentures is expected to be received prior to the final maturity date of the Series 2007 Bonds and the debenture principal, when received, would be available for the redemption of the Series 2007 Bonds. If the default occurs within twenty years of the maturity date of the Series 2007 Bonds, any FHA Debentures would not mature prior to the final maturity of the Series 2007 Bonds, but the interest alone on the FHA Debentures is expected to provide sufficient funds to pay the interest on all Series 2007 Bonds outstanding and to pay the principal thereof no later than the final maturity date of the Series 2007 Bonds. HUD regulations provide that at the option of HUD such debentures are redeemable on any January 1 or July 1 upon three months prior notice at 100% of the principal amount plus accrued interest to the date of redemption. The proceeds of any such redemption would be applied to the redemption on the Series 2007 Bonds. Default and Payment of FHA Mortgage Insurance Benefits FHA regulations define a default under an FHA-insured mortgage as (1) failure of the mortgagor to make any payment due under the note or the mortgage, or (2) failure to perform any other note or mortgage covenant (which includes covenants set forth in any regulatory agreement entered into in connection with the FHA-insured mortgage) if the mortgagee, because of such failure, has accelerated the debt. In the event that there is a default under the Regulatory Agreement (see CERTAIN PROVISIONS OF FHA DOCUMENTS-The Regulatory Agreement herein), if FHA so requests, the Trustee, as mortgagee may declare the unpaid whole indebtedness due and payable. Furthermore, FHA regulations provide that upon notice of a violation of a note or mortgage covenant, FHA reserves the right to require the mortgagee to accelerate payment of the outstanding principal due in order to protect its interest. A mortgagee is entitled to receive the benefits of the FHA Mortgage Insurance after the mortgagor has defaulted and such default has continued for a period of thirty days. If the default continues to exist at the end of the thirty-day grace period, the mortgagee is required to give FHA written notice of (1) the default within thirty days after such grace period, and (2) its intention to file an insurance claim and of its election either to assign the mortgage or to acquire and convey title to FHA within forty-five days after such grace period. Within an additional thirty days after notifying FHA of such election, the mortgagee must file its application form for FHA Mortgage Insurance benefits and effect such assignment, commence foreclosure proceedings or, with the approval of FHA, acquire title to the mortgaged property by means other than foreclosure, unless the time for taking action is extended by FHA. In addition to the above requirements, FHA provides that, in the event of a monetary default during the period when a prepayment premium in excess of one percent (1%) is payable under the Notes, the Trustee as mortgagee, must request an extension of a period of three months of the requirement to file its intention and election to file a FHA Mortgage Insurance claim in connection with such default. FHA may approve such request for the three months or a shorter period of time, or FHA may disapprove the request. The decision on such a request is at 18

23 the sole discretion of FHA, based on its analysis of the financial condition of the Institution and the assessment of FHA of the feasibility of arranging a successful refinancing in whole or in part. FHA has stated that it will consider granting such an extension, during which time the Trustee, as mortgagee, will assist the Institution in refinancing the Notes only if (a) the operation of the Facility has resulted in a net income deficiency which has not been caused solely by management inadequacy or lack of interest by the Institution, and is of such a magnitude that the Institution is currently unable to make required debt service payments, pay all operating expenses in connection with the Facility and fund all required reserves, (b) there is a reasonable likelihood that the Institution can arrange to refinance the Notes at a lower interest rate or otherwise reduce the debt service payments through partial prepayment, and (c) refinancing the Notes at a lower rate or partial prepayment of the Notes is necessary to restore the operations of the Facility to a financially viable condition and to avoid a mortgage insurance claim. To the extent a refinancing is arranged and approved by FHA, and the Notes are prepaid, in whole or in part, the proceeds shall be applied to the Extraordinary Mandatory Redemption of the Series 2007 Bonds. To the extent there is a partial prepayment of the Note pursuant to a partial prepayment of FHA Mortgage Insurance Benefits as requested by FHA, the Trustee, as the mortgagee, shall consent to any subordinate or parity liens on the Facility as may be required. If a non-monetary default by the Institution under the terms of the Mortgage shall occur, the Trustee shall, within thirty days after the occurrence of such default (or other grace period under applicable FHA Regulations), give notice of such default to FHA and the rating agency, and (1) if FHA so requests, declare, or cause the Mortgage Servicer to declare, an acceleration of the unpaid principal balance of the Notes by notice in writing to the Institution, and shall thereupon proceed in the manner set forth above by serving notice of its intention and election to file a FHA Mortgage Insurance claim and by se assigning the Mortgages to FHA, or (2) if FHA so requires, enter into an agreement with the Institution, approved by FHA, extending the time for curing such default, provided confirmation has been received from the rating agency as to its rating for the Series 2007 Bonds. Prior to the date the Notes and Mortgages are assigned to FHA, the Institution may cure a monetary or nonmonetary default, in which event the Trustee shall withdraw its notice of assignment to FHA. In all cases, the Trustee must have first received written confirmation from FHA that the withdrawal of any notice of assignment or election to receive FHA Mortgage Insurance Benefits of the Notes and the Mortgages will not adversely affect the FHA Mortgage Insurance, or be construed as a waiver or reduction thereof. To the extent (i) FHA does not immediately pay a claim when requested by the Trustee as described above, (ii) the processing of the FHA Mortgage Insurance claim does not proceed as described in the above paragraphs or (iii) if the rating agency does not provide confirmation that the rating on the Series 2007 Bonds will not be affected by a refinancing accomplished as described in the above paragraphs, then the Trustee shall proceed in a manner to preserve the FHA Mortgage Insurance of the Notes and the Mortgages, and otherwise protect the interest of the Bondholders. Unless directed in writing to the contrary by the Holders of 100% in aggregate principal amount of the Series 2007 Bonds then Outstanding, upon any default by the Institution that continues beyond any applicable grace period under the Notes or the Mortgages, the Trustee shall take all actions necessary to assign the Notes and the Mortgages to FHA and to recover its claim on the FHA Mortgage Insurance. In connection with an assignment to FHA of the Mortgages, the FHA Mortgage Insurance Benefits are payable in an amount equal to the aggregate of (1) the unpaid principal amount of the Mortgages, computed as of the date of default; plus (2) the amount of all payments made by or on behalf of the Trustee, as mortgagee, with respect to taxes, special assessments and water rates which are liens prior to the Mortgages, insurance on the property, mortgage insurance premiums paid after default, and an allowance for reasonable payments made, with FHA approval, for the completion and preservation of the Facility; plus (3) an amount equivalent to the FHA debenture interest which would have been earned on the FHA Mortgage Insurance Benefits, if any, paid in cash, such interest being computed from the date of default to the date on which the FHA Mortgage Insurance claim is settled in full (except that interest may be limited in the event that certain notices are not given to FHA within the prescribed time period or if certain action required in connection with the FHA Mortgage Insurance claim is not taken). From the aggregate of the foregoing amount is deducted the total of (a) an assignment fee of 1% of the unpaid principal balance of the Mortgages as of the date of default, (b) certain amounts which have been realized by or on behalf of the Trustee, as mortgagee, on account of the Mortgages or from the Facility after the date of default, (c) certain cash items held by or on behalf of the Trustee, as mortgagee, and not paid over to FHA, and (d) other offsets as described 19

24 below. The proceeds of the FHA Mortgage Insurance will also not include interest accruing on the Notes for the month preceding the date of default on the respective Mortgage. Prior to actual assignment of the Mortgages to FHA and receipt of FHA Mortgage Insurance Benefits, the Trustee, as mortgagee, must also satisfy certain legal requirements including submission of a title insurance policy showing that no liens or encumbrances (except those approved by FHA) are superior to the Mortgage lien. As part of the assignment process, the Trustee, as mortgagee, is also required to submit certain additional documentation to FHA within 45 days from the date the Notes and Mortgages are assigned to FHA. The documentation required to be supplied to FHA includes, but is not limited to, the Notes, the Mortgages, the Security Agreement, financing statements, a title insurance policy and a hazard insurance policy, together with assignments of such documents to FHA. Upon receipt of the notification of default and an assignment to FHA in exchange for FHA Mortgage Insurance Benefits, FHA reviews the documentation to determine compliance with its fiscal and legal requirements. In order to receive the FHA Mortgage Insurance Benefits, FHA requires, in the assignment process, that the mortgagee warrant that (1) no act or omission of the mortgagee has impaired the validity and priority of the mortgage; (2) the mortgage is prior to all mechanics and materialmen s liens filed of record subsequent to the recording of the mortgage, regardless of whether such liens attached prior to the recording date; (3) the mortgage is prior to all liens and encumbrances which may have attached or defects which may have arisen subsequent to the recording of the mortgage except such liens or other matters as may be approved by FHA; (4) the amount stated in the instrument of assignment is actually due under the mortgage and there are no offsets or counterclaims against such amount; and (5) the mortgagee has a good right to assign the mortgage. In assigning its security interest in chattels, including materials, located on the premises covered by the mortgage, or its security interest in building components stored either on-site or off-site at the time of assignment, the mortgagee is required to warrant that (a) no act or omission of the mortgagee has impaired the validity or priority of the lien created by the chattel security instruments; (b) the mortgagee has a good right to assign the security instruments; and (c) the chattel security instruments are a first lien on the items covered by the instrument except for such other liens or encumbrances as may be approved by FHA. If the Trustee, as mortgagee, fails to give FHA notice of default or fails to take any action required of a mortgagee in connection with a FHA Mortgage Insurance claim by the time stipulated in the regulations, and in a manner satisfactory to FHA, FHA may pay the Trustee interest at the debenture rate on the amount of the FHA Mortgage Insurance Benefits for that period only to the date on which the particular required action should have been taken or to which it was extended. In connection with a claim for FHA Mortgage Insurance Benefits, FHA may require delivery to it of certain cash items held by a mortgagee pursuant to a the FHA-insured mortgage. Cash items are defined to include, among other things, any cash held by or on behalf of the mortgagee which has not been applied to reduce the mortgage, funds held by the mortgagee for the account of the mortgagor, and any undrawn balance under letters of credit used in lieu of a cash deposit. The mortgagee is responsible for all funds in its custody and must therefore obtain approval from FHA (and others when required) prior to release of any funds which may be in its possession. Failure properly to protect such funds, including letters of credit (if any), may result in a deduction from the FHA Mortgage Insurance Benefits in an amount equal to funds FHA asserts should have properly been held as a deposit. The timing of payment by FHA is subject to change depending upon overall FHA policy considerations and workload. FHA Mortgage Insurance payments may be delayed if disputes arise as to the amount of the payment, or for other reasons described under BONDHOLDERS RISKS herein. Although the Debt Service Reserve Fund would be available to pay debt service on the Series 2007 Bonds during the period prior to payment by FHA in full of any FHA Mortgage Insurance claim, there is no assurance that the FHA Mortgage Insurance claim would be paid in full prior to exhaustion of the funds in the Debt Service Reserve Fund. FHA is authorized to borrow from the United States Treasury amounts which it determines to be necessary to make cash payment under the National Housing Act, as amended. The National Housing Act, as amended, contains authorization to appropriate such sums as may be necessary to cover losses sustained by the FHA General Insurance Fund. Annual appropriation acts of the United States Congress have in the past appropriated such sums. No assurances can be given regarding future appropriations. FHA debentures issued in respect of a claim for FHA Mortgage Insurance Benefits are dated as of the date of default. The date of default is the date of the first (1) uncorrected failure to perform a covenant or obligation, or (2) failure to make a monthly payment, which subsequent payments by the mortgagor, if any, are insufficient to cover when applied to overdue monthly payments in the order 20

25 in which they became due. The debentures shall also be registered as to principal and interest, mature twenty years from the date thereof, and bear interest from such date payable semi-annually on January 1 and July 1. The interest rate on the debentures associated with the 1997 FHA Note will be no less than 6.75 percent. The interest rate on the debentures associated with the 1998 FHA Note will be no less than percent. Debentures are issued in multiples of $50 and any difference, not in excess of $50, between the amount of the FHA Mortgage Insurance Benefits and the aggregate face amount of debentures issued is paid in cash. FHA debentures are negotiable, fully transferable and may be freely sold or assigned by holders. FHA debentures are fully guaranteed as to principal and interest by the United States of America, and are generally redeemable at par plus accrued interest on any semi-annual interest payment date upon three months notice by FHA. The interest on debentures called for redemption ceases to accrue on the semiannual interest date designated in the redemption notice. Casualty Insurance Requirements FHA requires the maintenance of specified casualty insurance on the Project. The mortgagee must obtain such coverage in the event the mortgagor fails to do so. If the mortgagee fails to pay any premiums necessary to keep the mortgaged property so insured, the mortgage insurance may be terminated at the election of FHA. Alternatively, failure to maintain such insurance may result in loss of mortgage insurance benefits in the event that the mortgage is assigned to FHA and there are uncompensated amounts arising out of a casualty loss, unless, at the time the mortgage was initially endorsed, the project was covered by casualty insurance and such insurance was later cancelled or not renewed and the mortgagee gave notice thereof to FHA within thirty days (or within such further time as FHA may approve) accompanied by a certification that diligent efforts to obtain casualty insurance at reasonably competitive rates were unsuccessful and that efforts to obtain adequate insurance coverage at competitive rates will be continued. Under current FHA regulations, if a mortgagee receives proceeds from any policy of casualty insurance, it may exercise its option under the mortgage to use such proceeds for repairing, replacing or rebuilding the mortgaged property or for application to the mortgage indebtedness but may not make any other disposition of the proceeds without FHA s prior written approval. If FHA fails to give its approval to the use of the insurance proceeds within thirty days after written request by the mortgagee, the mortgagee may use or apply the funds for the purposes specified in the mortgage without prior FHA approval. In the event that such casualty insurance proceeds are applied to prepayment of the Notes, they shall be deposited in the Bond Fund for application to the casualty and condemnation redemption of all or a portion of the Series 2007 Bonds. THE MORTGAGE SERVICER Servicing the Mortgage Loans; Mortgage Servicing Agreement The Trustee shall engage an FHA-approved mortgage banking company or financial institution to service the Mortgage Loan. So long as any Series 2007 Bonds remain outstanding, the Mortgage is required to be serviced in accordance with acceptable practices of prudent lending companies, the provisions of the National Housing Act and the rules and regulations thereunder. The Trustee is authorized under the Indenture to execute a Mortgage Servicing Agreement in substantially the form furnished by the Authority to the Trustee providing for the servicing of the Mortgage by Capmark Finance Inc. (the Mortgage Servicer ). In the event such Mortgage Servicing Agreement is terminated, the Trustee will service the Mortgage Loan on an interim basis until it itself or engage a qualified successor mortgage servicer to service the Mortgage Loan in accordance with the provisions described in the preceding paragraph. The Mortgage Servicer Capmark Finance Inc., a California corporation, the Mortgage Servicer is approved as an FHA Mortgagee. The Mortgage Servicer is engaged in originating and servicing mortgage loans, including FHA-insured mortgage loans and is an FHA-approved mortgagee. The mailing address of the Mortgage Servicer is 116 Welsh Road, Horsham, Pennsylvania Further information about the Mortgage Servicer may be obtained by written request to its address indicated in the preceding sentence. 21

26 The Trustee Manufacturers and Traders Trust Company will serve as FHA mortgagee of record and as Trustee for this financing. It currently serves a trustee or escrowee for approximately $95 billion aggregate principal amount of bonds. Manufacturers and Traders Trust Company assets are approximately $57.8 billion. It is an FHA Mortgagee. The 1997A FHA Note CERTAIN PROVISIONS OF THE FHA DOCUMENTS The 1997A FHA Note to be assigned to the Trustee as mortgagee shall be in the unpaid principal balance amount of $25,160, The 1997A FHA Note shall bear interest at the rate of 4.96% percent per annum payable on the first day of each month on the outstanding balances of principal. The first amortization payment on the 1997A FHA Note will be July 1, The 1997A FHA Note shall be payable on a level annuity basis by monthly payments of principal and interest in the amount of $130, The final maturity of the 1997A FHA Note will be no later than June 1, Payments in the 1997A FHA Note are made by the Institution to the Mortgage Servicer on behalf of the Trustee, as FHA mortgagee, on the first day of each month (which the Mortgage Servicer is then required to pay, less the servicing fee and mortgagee advances, to the Trustee immediately upon receipt). Interest on funds advanced under the 1997A FHA Note shall be paid from the Institution s revenues. In the event of a failure by the Institution to make any payment on the 1997A FHA Note when due, the entire amount of the 1997A FHA Note may be declared due and payable by the Trustee, as FHA mortgagee. Prepayment Provision: The 1997A FHA Note provides that it cannot be prepaid (other than with the proceeds of insurance or condemnation or a refinancing required by FHA in order to avoid a claim for Mortgage Insurance Benefits) in whole or in part except as follows: commencing on or after August 15, 2017, prepayments may be made in immediately available funds, subject to the approval of FHA, in whole at any time or in part on any interest payment date prior to maturity, upon at least 170 days prior written notice to the Trustee. Prepayments can only be made upon payment of the prices set forth below (expressed as a percentage of the amount of prepayment) for each 12-month period set forth below: Period During Which Prepayments is Made (Both Dates Inclusive) Price August 15, 2017 through August 14, % August 15, 2018 through August 14, August 15, 2019 through August 14, August 15, 2020 and thereafter 100 If the Series 2007 Bonds are no longer considered to be outstanding, the 1997A FHA Note and 1997A Mortgage may be released and assigned for a new issue. Additional fees must be paid by the Institution which are related to the costs of the Trustee to redeem bonds. Upon prepayment in part, payment of the remaining principal amount will be recast over the remaining term to the maturity of the 1997A FHA Note so as to be payable in approximately equal monthly amounts which, when applied first to interest on the outstanding balance and the remainder to principal, will be sufficient to repay the amounts due on the 1997A FHA Note by its maturity. The 1998A FHA Note The 1998A FHA Note to be assigned to the Trustee as mortgagee shall be in the unpaid principal balance amount of $7,270, The 1998A FHA Note shall bear interest at the rate of 5.06% per annum payable on the first day of each month on the outstanding balances of principal. The first amortization payment on the Note will be July 1, The 1998A FHA Note shall be payable on a level annuity basis by monthly payments of principal and interest in the amount of $38, The final maturity of the 1998A FHA Note will be no later than November 1, Payments in the 1998A FHA Note are made by the Institution to the Mortgage Servicer on behalf of the Trustee, as FHA mortgagee, on the first day of each month (which the Mortgage Servicer is then required to pay, less the servicing fee and mortgagee advances, to the Trustee immediately upon receipt). Interest on funds advanced under the 1998A FHA Note shall be paid from the Institution s revenues. In the event of a failure by the Institution 22

27 to make any payment on the 1998A FHA Note when due, the entire amount of the 1998A FHA Note may be declared due and payable by the Trustee, as FHA mortgagee. Prepayment Provision: The 1998A FHA Note provides that it cannot be prepaid (other than with the proceeds of insurance or condemnation or a refinancing required by FHA in order to avoid a claim for Mortgage Insurance Benefits) in whole or in part except as follows: commencing on or after August 15, 2017, prepayments may be made in immediately available funds, subject to the approval of FHA, in whole at any time or in part on any interest payment date prior to maturity, upon at least 170 days prior written notice to the Trustee. Prepayments can only be made upon payment of the prices set forth below (expressed as a percentage of the amount of prepayment) for each 12-month period set forth below: Period During Which Prepayments is Made (Both Dates Inclusive) Price August 15, 2017 through August 14, % August 15, 2018 through August 14, August 15, 2019 through August 14, August 15, 2020 and thereafter 100 If the Series 2007 Bonds are no longer considered to be outstanding, the 1998A FHA Note and 1998 Mortgage may be released and assigned for a new issue. Additional fees must be paid by the Institution which are related to the costs of the Trustee to redeem bonds. Upon prepayment in part, payment of the remaining principal amount will be recast over the remaining term to the maturity of the 1998A FHA Note so as to be payable in approximately equal monthly amounts which, when applied first to interest on the outstanding balance and the remainder to principal, will be sufficient to repay the amounts due on the 1998A FHA Note by its maturity. The Mortgages The Mortgages will be assigned to the Trustee, as FHA mortgagee. The Mortgages grant a lien on the Authority s and the Institution s respective interests in and to the Facility, together with all buildings, improvements and fixtures thereon, rent, issues and profits thereof, and all building materials, equipment, furnishings and other property incident to use and occupancy thereof. Until the final payment of the respective Notes, the Institution agrees not to sell, encumber or alienate the Facility in any way without the consent of the holder thereof and FHA. The Institution also covenants that it will not voluntarily create or permit to be created any other lien or liens against the Facility or execute or file for record any instrument which imposes a restriction upon the sale or occupancy of the Facility on the basis of race, creed or color. In the event the Institution fails to pay any of the sums required to be paid under the Notes or the Mortgages, the holder of the Mortgages, at its option, may pay such amounts. The Mortgages provide that all sums paid by the holder of the Mortgages may be added to the principal amount of the Notes, bear interest at the rate set forth in the Notes and will be due and payable on demand. The Institution agrees that, in addition to payments for debt service due on the Notes, it will pay monthly amounts to provide for the payment when due of premiums on the FHA Mortgage Insurance, casualty insurance, water rates, and taxes and assessments. If not so paid by the Institution, the holder of the Mortgages may pay such items and the amounts so paid shall be added to the Institution s indebtedness. The Institution shall keep the buildings in good repair, and the holder of the Mortgages may enter the property to make repairs. The cost thereof shall also be added to the indebtedness. The Institution may make no structural alterations to the Facility without consent of the Trustee as mortgagee of the Mortgage and FHA. The Institution is required to keep the property insured against casualties as stipulated by FHA, such insurance to be carried for terms and with companies acceptable to the holder of the Mortgages. Coverage shall not be less than the higher of 80% of the actual cash value of the insurable improvements and equipment or the unpaid balance of the Notes. Policies shall be endorsed with a standard mortgagee clause, payable to the holder of the Mortgages and FHA as their interests may appear. Any awards or claims for damages arising on account of the condemnation are payable or assigned to the holder of the Mortgages, to the extent of the indebtedness. Under the 23

28 Mortgages, the Institution covenants that it will not commit or permit waste and that it will maintain the Facility in good repair and will promptly comply with all applicable laws and regulations affecting the property. If the Institution fails to make any required inspection, repair, care or attention of any kind to the property, the holder of the Mortgages, in its discretion, may do so. In the event of a default under the Notes or the Mortgages, any sums owed by the Institution to the holder of the Mortgages under any of the FHA Documents shall, at the option of the holder of the Mortgages, become immediately due and payable. The Mortgages expressly provide that the holder of the Mortgages may foreclose and sell the Facility at public auction and convey the same to the purchaser; however, the Indenture requires the Trustee to assign the Notes and Mortgages to FHA in the event of default thereunder and does not authorize the Trustee to sell the Facility. The Mortgages also provide that in the event of a default under the Mortgages all payments made by the holder of the Mortgages to remedy a default by the Institution and the total of any payments due from the Institution to the holder of the Mortgages under the FHA Documents may be added to the debt secured by the Mortgages and repaid to the holder of the Mortgages upon demand. In addition, the Mortgages provides that any such amount shall be a lien against the Facility prior to any other lien attaching or accruing subsequent to the lien of the Mortgages. It is not anticipated that the Trustee will advance moneys under the above circumstances, except as may be necessary to preserve and protect the FHA Mortgage Insurance. Pursuant to the terms of the Indenture, the FHA Documents may be amended by the parties thereto, provided that no such amendments may have a material adverse effect on the security for the Series 2007 Bonds. The holder of the Mortgages may accelerate the indebtedness if any payment thereunder shall be overdue by 30 days, or if the Institution fails to perform any other covenant in the Notes and Mortgages and fails to cure any such default within 30 days. The Regulatory Agreement The Regulatory Agreement is entered into between the Institution and FHA, and sets forth certain of the Institution s obligations in connection with the management and operation of the Institution and the Facility. The Regulatory Agreement is incorporated by reference into the Mortgages. The Regulatory Agreement prohibits the use of the Facility for any purpose other than the purposes for which it was intended and requires the Institution to maintain all licenses or operating certificates necessary for the operation of the Facility as housing for the elderly. The Regulatory Agreement also prohibits the conveyance, transfer or encumbrance of the property or any personal property of the Facility. The Regulatory Agreement also provides that the Institution may use all rents and other receipts from the Facility only for expenses of the Institution including reasonable operating expenses and necessary repairs. The Regulatory Agreement also permits the Institution to make New York State Department of Health licensed home health care services available to residents of the Facility. The Regulatory Agreement provides that the Institution may not, without prior written approval of the FHA, remodel, add to or demolish any part of the Facility. The Institution also is required to maintain the Facility in good repair. In the event of a default under the Regulatory Agreement, the Regulatory Agreement provides that FHA may notify the FHA mortgagee of the default and request the FHA mortgagee to declare a default under the Mortgages and Notes. The Trustee, as FHA mortgagee, is not a party to the Regulatory Agreement and, therefore, may not directly declare the Institution in default thereunder. Upon satisfaction of the Notes in accordance with its terms and upon satisfaction by the Institution of all agreements and stipulations set forth in the Mortgages, the FHA mortgagee will execute a corresponding release and cancellation of the Mortgages. 24

29 BONDHOLDERS RISKS The Series 2007 Bonds are payable from the revenues and other moneys of the Institution and from other money available therefor under the Indenture. There is no assurance or any representation that the Institution will realize receipts and revenues in amounts sufficient to pay all principal of, premium, if any, and interest on the Series 2007 Bonds. The Institution s ability to generate revenues and its overall financial condition may be adversely affected by a wide variety of future events and conditions, including: the ability of the Institution to provide services required or expected by residents; capabilities of the Institution s management; changes in the economic conditions or demand for independent living, congregate living and assisted living services in the Institution s service area; rising costs; governmental regulation or deregulation. The Institution s operations and financial results could be adversely affected by the foregoing factors, as well as those discussed below, or by other unanticipated events. Risk of Redemption or Acceleration The Series 2007 Bonds are subject to redemption or acceleration prior to maturity in certain circumstances (see THE SERIES 2007 BONDS herein and see Appendix C hereto), including but not limited to the failure of the Institution to make timely payments under the Notes. Bondholders may not realize their anticipated yield on investment to maturity because the Series 2007 Bonds may be redeemed or accelerated prior to maturity at par or at a redemption price that results in the realization of less than anticipated yield to maturity. Competition The Institution is located in an area where other senior housing, assisted living and other competitive long term care facilities exist. The Institution may face additional competition in the future as a result of the construction or expansion of competing facilities in its service area. There may also arise in the future competition from other forms of housing for the elderly, some of which may be designed to offer similar facilities, but not necessarily similar services, at potentially, lower cost. Enforcement of Remedies; Bankruptcy Enforcement of the remedies mentioned under the headings Summary of Certain Provisions of the Trust Indenture Events of Default set forth in Appendix C hereto may be limited or delayed in the event of application of federal bankruptcy laws or other laws affecting creditor s rights and may be substantially delayed and subject to judicial discretion in the event of litigation or the required use of statutory remedial procedures. The enforceability of the lien of the Indenture, and the security interests created thereunder, and any security interests to be or hereafter secured thereunder, may be subject to subordination or prior claims in addition to any arising from bankruptcy proceedings. Examples of cases of possible limitations on enforceability and of possible subordination or prior claims are (i) statutory liens, (ii) rights arising in favor of the United States of America or any agency thereof, (iii) constructive trusts, equitable liens or other rights impressed or conferred by any state or federal court in the exercise of its equitable jurisdiction, (iv) federal bankruptcy laws affecting assignment of revenues earned after, or within 90 days prior to, any institution of bankruptcy proceedings by or against the Institution, (v) with respect to Pledged Revenues, claims that might arise as a result of the New York Uniform Commercial Code not providing for perfection of a security interest therein or if appropriate financing or continuation statements are not filed in accordance with such code as from time to time in effect, (vi) commingling of the Pledged Revenues and other moneys of the Institution not so pledged, and (vii) rights of third parties in Pledged Revenues converted to cash and not in the possession of the Trustee. The legal opinion to be delivered concurrently with the delivery of the Series 2007 Bonds will be qualified as to enforceability of the various agreements and other instruments by limitations imposed by State and federal laws, rulings and decisions affecting remedies and by bankruptcy, reorganization or other laws affecting the enforcement of creditors rights generally. The rights and remedies of the holders of the Series 2007 Bonds are subject to various provisions of title 11 of the United States Code (the Bankruptcy Code ). If the Institution were to file a petition for relief under the Bankruptcy Code, the filing would automatically stay the commencement or continuation of any judicial or other proceedings against that Institution and its property, including the commencement of a foreclosure proceeding under the Mortgages. The Institution would not be permitted or required to make payments of principal or interest under 25

30 the Lease Agreement and the Notes, unless an order of the United States Bankruptcy Court were issued for such purpose. In addition, without an order of the United States Bankruptcy Court the automatic stay may serve to prevent the Trustee from applying amounts on deposit in certain funds and accounts held under the Indenture from being applied in accordance with the provisions of the Indenture, including the application of such amounts to the payment of principal of and interest on the Series 2007 Bonds. Moreover, any motion for an order canceling the automatic stay and permitting such funds and accounts to be applied in accordance with the provisions of the Indenture would be subject to the discretion of the United States Bankruptcy Court, and may be subject to objection and/or comment by other creditors of the Institution, which could affect the likelihood or timing of obtaining such relief. The automatic stay may also extinguish the Mortgage Servicer s continuing security interest arising subsequent to the filing of the bankruptcy petition, adversely affect the ability of the Mortgage Servicer or the Trustee to exercise remedies upon default, including the acceleration of all amounts payable by the Institution under the Mortgage Note and Lease Agreement. Adequacy of Revenues Securing Series 2007 Bonds The primary security for the Series 2007 Bonds is the Mortgages and the benefits of the FHA Mortgage Insurance in connection with the Mortgages. Reliance has been placed solely upon the underwriting criteria utilized by FHA in insuring the Mortgages as evidence of the adequacy of the Institution s revenues to maintain the Facility and make the payments required under the Notes and the Mortgages. Neither the Trustee, the Mortgage Servicer nor the Underwriter has made any independent evaluation of such revenues to maintain the Project and to make the payments required under the Notes and the Mortgages. The ability of the Institution to make payments under the Notes and the Mortgages depends, among other things, on the capabilities of management, economic conditions including the demand for senior housing and services, the ability of the Institution to provide services required by its residents, confidence in the Institution, competition from other senior housing and long term care facilities and other factors. No assurances can be given that the revenues available to the Institution from the operation of the Facility will be available in amounts sufficient to make the required payments on the Note and the Mortgage, and under the Lease Agreement. Reduction or Loss of FHA Mortgage Insurance As more fully discussed above under FHA MORTGAGE INSURANCE-Casualty Insurance Requirement, the failure to maintain adequate casualty insurance on the Facility may result in the loss of Mortgage Insurance Benefits in the event of damage to or destruction of the Facility. Mortgage Insurance Benefits may also be lost for failure to pay required Mortgage Insurance premiums to FHA and failure to provide FHA with required notices or otherwise to comply with FHA rules and regulations governing insurance claims. A default under the FHA Documents is the only basis upon which the Trustee and/or the Mortgage Servicer may present a claim for Mortgage Insurance. A default under the Indenture or any other document to which the Institution is a party which is not also a default under the Notes, the Mortgages or the FHA Regulatory Agreement will not entitle the Trustee to present a claim for Mortgage Insurance Benefits. Debt Service Reserve Fund While funds and accounts held under the Indenture are intended to be held for the benefit of the holders of the Bonds, there is a risk that if the Trustee does not promptly exercise its rights upon the occurrence of an event of default under the Indenture, a court could permit a judgment creditor of the Institution to obtain the funds held in the Debt Service Reserve Fund. The United States District Court for the District of Columbia, in a case involving a judgment creditor of an organization for which revenue bonds of the District had been issued, permitted a judgment creditor to satisfy its judgment with funds in a debt service reserve fund established in connection with that bond issue because the trustee therein had failed to declare a default with respect to such bonds, which is an essential prerequisite to the exercise of the rights of such trustee as a secured party under the Uniform Commercial Code. 26

31 Increased Costs Without a Comparable Increase in Revenue Cost increases could result from, among other factors: issuance of additional indebtedness, increases in costs associated with inflation, additional staffing, increases in compensation levels made necessary to meet competition and increases in the costs of operating the physical plant of the Institution. The Institution assumes that it will experience increases in operating costs due to inflation, increased depreciation and other factors. There is no assurance that cost increases will be matched by increased rents and other charges in amounts sufficient to generate an excess of revenues over expenses at the levels experienced by the Institution in the past. Insurance, Claims and Losses The operations of the Institution may be affected by increases in the incidence of tort claims and by increases in the dollar amount of damage recoveries. These may result in increased insurance premiums and in increased difficulty in obtaining commercial general liability insurance. It is not possible at this time to determine either the extent to which commercial general liability insurance coverage will continue to be available to the Institution or the premiums at which such coverage can be obtained. To the extent that insurance coverage maintained by the Institution either through insurance policies and/or self insurance programs is inadequate to cover judgments made against it, such claims must be discharged by payments from funds of the Institution. Environmental Risks With respect to the ownership of real property, there are potential risks and liabilities regarding environmental conditions on, under, arising from, relating to, or affecting such property. The presence of hazardous substances on, under, arising from or affecting such property, or the presence of hazardous substances on other real property but relating to such property, may result in the owners of such property being liable for the costs of investigation and remediation, without regard to knowledge or responsibility for the presence of such hazardous substances. The presence of such hazardous substances or the failure to properly remediate such when present may adversely affect the owners ability to sell or rent such property or to borrow using property as collateral. The costs and liability for such investigation and remediation is generally not limited and could exceed the value of the property and/or the assets of the owner. At the present time, management of the Institution is not aware of any pending or threatened claim, investigation, or enforcement action regarding such environmental issues which, if determined adversely to the Institution, would have material adverse consequences. Realization of Value on the Facility; General Real Estate Risks There are many diverse risks involved in any investment in real estate, many of which are not within the Institution s control, which may have a substantial bearing on the ability of the Institution to generate revenues from the operation of the project facility. Such risks include possible adverse use of adjoining land, fires or other casualty, condemnation, increased taxes, changes in demand for such facilities, declines in the neighborhoods in which the project facility is located and general economic conditions. Tax-Exempt Status; Private Inurement As a non-profit tax-exempt organization, the Institution is subject to federal, state and local laws, regulations, rulings and court decisions relating to its organization and operation, including its operation for charitable purposes. Areas that have come under examination have included pricing practices, billing and collection practices, charitable care, executive compensation, exemption of property from real property taxation and others. These challenges and questions have come from a variety of sources, including state attorneys general, the Internal Revenue Service, labor unions, Congress, state legislatures and patients, and in a variety of forums, including hearings, audits and litigation. The Code contains restrictions on the issuance of tax-exempt bonds for the purpose of financing and refinancing different types of facilities for not-for-profit organizations, including facilities generating taxable 27

32 income. Consequently, the Code could adversely affect the Institution s ability to finance its future capital needs and could have other adverse effects on the Institution that cannot be predicted at this time. The Code continues to subject unrelated business income of nonprofit organizations to taxation. It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to taxation of not-for-profit corporations. There can be, however, no assurance that future changes in the laws and regulations of the federal, state or local governments will not materially and adversely affect the operations and revenues of the Institution by requiring it to pay income taxes. No Obligation of the State or Village of East Rochester The Series 2007 Bonds are not obligations of the State of New York or Village of East Rochester, New York, and neither the State, the County of Monroe, New York, nor the Village of East Rochester, New York has any liability thereunder. The Series 2007 Bonds are special revenues bonds payable solely from the sources described in this Official Statement and the Indenture. Default by the Institution or the Authority Under the Lease Agreement No representations or assurances can be given that the Institution or the Authority will not default in performing their respective obligations under the Lease Agreement. If an Event of Default occurs under the Indenture, the Trustee will accelerate the maturity of all Series 2007 Bonds Outstanding and interest will cease to accrue on the date of acceleration, notwithstanding the fact that the Bondholders may not receive notice of such acceleration until after such date. In addition, no premium will be received upon an acceleration of the Series 2007 Bonds due to a default. Loss of Federal Tax Exemption In the opinion of Bond Counsel, under existing law, interest on the Series 2007 Bonds is excluded from gross income for federal income tax purposes (see the caption TAX MATTERS herein). The exclusion of the interest on the Series 2007 Bonds for federal income tax purposes may be lost if certain events occur subsequent to the date of issuance of the Series 2007 Bonds that violate the requirements and limitations prescribed by the Code. Although the Institution has agreed not to violate the requirements and limitations of the Code, there can be no assurance that these events will not occur. If certain requirements are violated, the interest on the Series 2007 Bonds may be deemed to be taxable from the date of issuance. No Additional Interest in Case of Loss of Tax Exemption The exclusion of interest on the Series 2007 Bonds from gross income for federal income tax purposes is dependent upon continuing compliance with the provisions of Section 145 of the Code relating to Qualified 501(c)(3) Bonds as well as certain other provisions of the Code. There is no provision for acceleration or redemption of the Series 2007 Bonds or for the payment of additional interest if the interest on the Bonds becomes included in gross income for federal income tax purposes. See TAX MATTERS herein. Other Legislative and Regulatory Actions Due to the growing awareness of the increased activities of nonprofit organizations in areas in which services and products have been traditionally provided by for-profit corporations, both state and federal governments have undertaken to study nonprofit organizations and the revenue-producing activities in which they are engaged. Among other things, the need to mandate a greater level of charitable care by nonprofit health care institutions is under review. It is impossible to predict at this time what, if any, legislation or regulation will result from such studies or the effect of such legislation or regulation on the operations of the Institution. Other Factors In the future, the following factors, among others, may affect the operations and financial performance of facilities, including those operated by the Institution, to an extent that cannot be determined at this time: 28

33 1. Possible introduction and adoption in the State of legislation or other requirements (private or governmental) which would subject the operations of the Institution to further federal or state regulations. 2. Difficulties in increasing rents and other fees, while at the same time maintaining the amount or quality of services, may affect the Institution s ability to maintain sufficient operating margins. 3. Demand for the services of the Institution might be reduced if the population residing in the Institution s service area should decline. 4. Employee strikes and other adverse labor actions could result in a substantial reduction in revenues without corresponding decreases in costs. 5. Inability to control increases in operating costs, including salaries, wages and fringe benefits, supplies, energy and other expenses, given an inability to obtain corresponding increases in revenues. 6. Litigation with contractors, residents, suppliers, and state or local governmental bodies. 7. A shortage of qualified personnel. LITIGATION No litigation or proceedings are pending or, to the knowledge of the Institution, threatened against it except (i) litigation involving claims for professional liability in which the probable recoveries and the estimated costs and expenses of defense, in the opinion of the Institution, will be entirely within the applicable insurance policy limits (subject to applicable deductibles) and (ii) litigation involving other types of claims which if adversely determined would not, in the opinion of the Institution, materially and adversely affect the financial condition or the operation of the Institution. There is no litigation pending that in any manner questions the right of the Authority to enter into, or the validity or enforceability of the Indenture. LEGAL MATTERS Certain legal matters incident to the authorization, sale and issuance of the Series 2007 Bonds by the Authority are subject to the approval of Trespasz & Marquardt, LLP, Syracuse, New York, Bond Counsel. Certain legal matters will be passed upon for the Underwriter, by its counsel, Hawkins Delafield & Wood LLP, New York, New York; for the Institution, by its counsel, Underberg & Kessler LLP, Rochester, New York; for the Mortgage Servicer, by its counsel, Byrne, Costello & Pickard, P.C., Syracuse, New York; and for the Authority, by its counsel, Trespasz & Marquardt, LLP, Syracuse, New York. TAX MATTERS The Internal Revenue Code of 1986, as amended (the Code ) establishes certain requirements that must be met at and subsequent to the issuance and delivery of the Series 2007 Bonds in order that interest on the Series 2007 Bonds be and remain not includable in gross income under Section 103 of the Code. Included among these continuing requirements are the maintenance of the Institution s status as an organization described in Section 501(c)(3) of the Code, certain restrictions and prohibitions on the use of bond proceeds, restrictions on the investment of proceeds and other amounts, the rebate to the United States of certain earnings in respect of investments, required ownership and use of the bond-financed facility by a Section 501(c)(3) organization or a governmental unit, and, in certain circumstances, a limitation on the amount of tax-exempt bonds that are permitted to be outstanding for the benefit of the Institution, any related party thereto and any other test period beneficiary (within the meaning of Section 145(b) of the Code) of the facilities financed by the Series 2007 Bonds. Failure to 29

34 comply with the applicable requirements of the Code may cause interest on the Series 2007 Bonds to be includable in gross income for federal income tax purposes retroactively to the date of their issuance irrespective of the date on which such noncompliance occurs or is ascertained. In the Indenture, the Lease Agreement, the Tax Compliance Agreement and accompanying documents, exhibits and certificates, the Authority and the Institution have entered into certain covenants and have made certain representations and certifications designed to assure compliance with the requirements of the Code. In addition, Bond Counsel has relied, among other things, on the opinion of Underberg & Kessler LLP, Counsel to the Institution regarding the current qualification of the Institution as an organization described in Section 501(c)(3) of the Code and the representation of the Institution with respect to the intended operation of the Facility as substantially related to the Institution's charitable purpose under Section 513(a) of the Code. Neither Bond Counsel nor counsel to the Institution can give or has given any opinion or assurance about the future activities of the Institution, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof, or the resulting changes in the enforcement thereof by the Internal Revenue Service. Failure of the Institution to be organized and operated in accordance with the Internal Revenue Service's requirements for the maintenance of its status as an organization described in Section 501(c)(3) of the Code or to operate the Facility in a manner that is in furtherance of its charitable purpose under Section 501(c)(3) of the Code may result in interest payable with respect to the Series 2007 Bonds being included in federal gross income, possibly from the date of original issuance of the Series 2007 Bonds. In the opinion of Trespasz & Marquardt, LLP, Syracuse, New York, Bond Counsel to the Authority, assuming continuing compliance by the Authority and the Institution (and their successors) with the covenants, and the accuracy of the representations, referenced above, under existing statutes, regulations, rulings, and court decisions, interest on the Series 2007 Bonds is not includable in gross income for federal income tax purposes. Bond Counsel is further of the opinion that interest on the Series 2007 Bonds is not an "item of tax preference" for purposes of the federal alternative minimum tax on individuals and corporations. However, interest on the Series 2007 Bonds owned by corporations (other than S corporations, Regulated Investment Companies, Real Estate Investment Trusts, Real Estate Mortgage Investment Conduits, and Financial Asset Securitization Investment Trusts) will be included in the calculation of adjusted current earnings, a portion of which is an adjustment to corporate alternative minimum taxable income for purposes of calculating the alternative minimum tax imposed on corporations (but not individuals). Corporate purchasers of Series 2007 Bonds should consult their tax advisors concerning the computation of any alternative minimum tax. Bond Counsel is further of the opinion that the difference between the principal amount of the Series 2007 Bonds maturing August 15, 2012 (the Discount Bonds ) and the initial offering price to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of such Discount Bonds of the same maturity was sold constitutes original issue discount which is excluded from gross income for federal income tax purposes to the same extent as interest on the Series 2007 Bonds. Further, such original issue discount accrues actuarially on a constant interest rate basis over the term of each Discount Bond and the basis of each Discount Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount. The accrual of original issue discount may be taken into account as an increase in the amount of tax-exempt income for purposes of determining various other tax consequences of owning the Discount Bonds, even though there will not be a corresponding cash payment. Owners of the Discount Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such Discount Bonds. The Series 2007 Bonds maturing August 15, 2027 and February 15, 2047 (collectively, the Premium Bonds ) are being offered at prices in excess of their principal amounts. Bond Counsel is of the opinion that an initial purchaser with an initial adjusted basis in a Premium Bond in excess of its principal amount will have amortizable bond premium, which is not deductible from gross income for federal income tax purposes. The amount of amortizable bond premium for a taxable year is determined actuarially on a constant interest rate basis over the term of each Premium Bond based on the purchaser s yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, over the period to the call date, based on the purchaser s yield to the call date and giving effect to any call premium). For purposes of determining gain or loss on the sale or other disposition of a Premium Bond, an initial purchaser who acquires such obligation with an amortizable bond premium is required to decrease such purchaser s adjusted basis in such Premium Bond annually by the amount of amortizable bond premium for the taxable year. The amortization of bond premium may be taken into account as a reduction in the 30

35 amount of tax-exempt income for purposes of determining various other tax consequences of owning such Premium Bonds. Owners of the Premium Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such Premium Bonds. Certain requirements and procedures contained or referred to in the Indenture, the Lease Agreement, the Tax Compliance Agreement and other relevant documents may be changed and certain actions may be taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally-recognized bond counsel. Trespasz & Marquardt, LLP expresses no opinion regarding any Series 2007 Bond or the interest thereon if any such change occurs or action is taken upon the advice or approval of bond counsel other than Trespasz & Marquardt, LLP. Prospective purchasers of the Series 2007 Bonds should be aware that ownership of, accrual or receipt of interest on, or disposition of tax-exempt obligations may have collateral federal income tax consequences for certain taxpayers, including financial institutions, certain subchapter S corporations, United States branches of foreign corporations, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, taxpayers eligible for the earned income credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. The foregoing is not intended as an exhaustive list of potential tax consequences. Prospective purchasers should consult their tax advisors regarding any possible collateral tax consequences with respect to Series 2007 Bonds. Bond Counsel expresses no opinion regarding any such collateral tax consequences. In the opinion of Bond Counsel, interest on the Series 2007 Bonds is exempt under existing statutes from personal income taxes imposed by the State of New York and any political subdivision thereof (including The City of New York). Bond Counsel has not undertaken to advise in the future whether any events occurring after the date of issuance of the Series 2007 Bonds may affect the tax status of interest on the Series 2007 Bonds. No assurance can be given that any future legislation, including amendments to the Code or the State income tax laws, will not cause interest on the Series 2007 Bonds to be subject, directly or indirectly, to federal or State or local income taxation, or otherwise prevent Bondholders from realizing the full current benefit of the tax status of such interest. Prospective purchasers of the Series 2007 Bonds should consult their own tax advisers regarding any pending or proposed federal or state 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, including but not limited to regulation, ruling or selection of the Series 2007 Bonds for audit examination, or the course or result of any Internal Revenue Service examination of the Series 2007 Bonds, or obligations which present similar tax issues, will not affect the market price of the Series 2007 Bonds. UNDERWRITING The Series 2007 Bonds are being purchased by Cain Brothers & Company, LLC (the Underwriter ), at an underwriting discount of $277,565. The Underwriter s fees will be paid as a cost of issuance of the Series 2007 Bonds. The Underwriter may offer and sell the Series 2007 Bonds to certain dealers (including dealers depositing Series 2007 Bonds into investment trusts) and others at prices lower (or yields higher) than the public offering prices (or yields) stated on the cover page hereof, which may be changed after the initial offering by the Underwriter. The contract of purchase provides that the Underwriter will purchase all the Series 2007 Bonds, if any are purchased, and requires the Institution to indemnify the Underwriter and the Authority against losses, claims, damages and liabilities arising out of any statement or information contained in this Official Statement pertaining to the Institution or the Facility that is incorrect in any material respect. RATING Delivery of the Series 2007 Bonds is contingent upon receipt of a rating of AA from Standard & Poor s Ratings Services with respect to the Series 2007 Bonds based upon certain information supplied to said rating agency by the Institution for consideration in evaluating such Series 2007 Bonds including information related to the FHA-insured mortgages. 31

36 Such a rating reflects only the view of such organization, and an explanation of the significance of such a rating may be obtained from the rating agency furnishing the same. There is no assurance that such a rating will continue for any given period of time or that it will not be revised or withdrawn entirely by such rating agency if in the judgment of such rating agency circumstances so warrant. A revision or withdrawal of such a rating may have an adverse effect on the market price of the Series 2007 Bonds. CONTINUING DISCLOSURE In order to assist the Underwriter in complying with Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended ( Rule 15c2-12 ), the Institution has undertaken in a Continuing Disclosure Agreement dated as of May 1, 2007 (the Continuing Disclosure Agreement ) between the Institution and the Trustee, for the benefit of the holders of the Series 2007 Bonds, to provide to the Trustee certain annual information and notices required to be provided by Rule 15c2-12. The proposed form of the Continuing Disclosure Agreement is set forth in Appendix E hereto. The Continuing Disclosure Agreement may be amended or modified without the consent of the holders of the Series 2007 Bonds under certain circumstances set forth therein. Copies of the Continuing Disclosure Agreement when executed by the parties thereto at or prior to the delivery of the Series 2007 Bonds will be on file at the principal corporate trust office of the Trustee. The Authority has not committed to provide any continuing disclosure to the owners of the Series 2007 Bonds or to any other person. The Institution has covenanted with the Trustee for the benefit of Series 2007 Bondowners to provide certain financial information and operating data relating to the Institution by not later than 150 days following the end of the Institution s fiscal year beginning with the fiscal year ending December 31, 2007 (the Annual Report ), and to provide notices of the occurrence of certain enumerated events, if deemed by the Institution to be material. The Annual Report will be filed on behalf of the Institution with the National Municipal Securities Information Repositories. MISCELLANEOUS The references herein to the Act, the Series 2007 Bonds, the Indenture, the Institution Lease, the Lease Agreement, the Notes, the Mortgages, the Security Agreement and the Tax Compliance Agreement, are brief summaries of certain provisions thereof. Such summaries do not purport to be complete and for full and complete statements of the provisions thereof reference is made to the specific provisions thereof. Summaries of the Indenture and the Lease Agreement are included in Appendix C hereto. Copies of the Indenture, the Lease Agreement and the other documents listed above may be obtained upon request prior to the issuance of the Series 2007 Bonds from the Underwriter and following delivery of the Series 2007 Bonds will be on file and available for inspection at the offices of the Trustee. The agreement of the Authority with the owners of the Series 2007 Bonds is fully set forth in the Indenture, and neither any advertisement of the Series 2007 Bonds nor this Official Statement is to be construed as constituting an agreement with the purchasers of the Series 2007 Bonds. So far as any statements are made in this 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. The attached Appendices are integral parts of this Official Statement and must be read together with all of the foregoing statements. 32

37 The delivery of this Official Statement has been duly authorized by the Authority and approved by the Institution. VILLAGE OF EAST ROCHESTER HOUSING AUTHORITY By: Title: /s/ George Kuhn Chairman APPROVED: ST. JOHNS HOME FOR THE AGING By: Title: /s/ Charles K. Runynon President and Chief Executive Officer 33

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39 General THE INSTITUTION APPENDIX A St. John s Meadows (the Facility ) is owned and operated by St. John's Home for the Aging (the Institution ). The Facility is located at One Johnsarbor Drive West, Rochester, New York. The Institution is a New York not-for-profit corporation and is exempt from federal taxation as a corporation described under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. The Institution was established in 1899 under the name The German Evangelical St. John s Charitable Association of Rochester, Monroe County, New York. Corporate Structure and Affiliates The Institution is affiliated with St. Johns Health Care Corporation ( Health Care ), the owner and operator of a 475-bed skilled nursing facility located in Rochester, and St. John s Foundation (the Foundation ), an organization formed for the purpose of soliciting, receiving and maintaining real and personal property for the benefit of the Institution, Health Care and other health-related programs in Monroe County, New York. The sole member of the Institution, Health Care, and St. John s Community Services, Inc. ( Community Services ), an inactive notfor-profit organization, is St. John s Senior Services, Inc. d/b/a St. John s Senior Communities ( Senior Communities ), an oversight entity without any significant assets. All five corporations are organized as New York not-for-profit corporations and are exempt from federal income taxation as corporations described under Section 501(c)(3) under the Code. The Foundation was formed on August 3, 1992 under the New York Not-for-Profit Corporation Law and is a corporation described under Section 501 (c)(3) under the Code. The boards of directors of the Foundation and the Institution have no common members other than the President of the Institution, who is an ex-officio member of the board of directors of the Institution and an ex-officio member of the board of directors of the Foundation. Senior Communities is controlled by members (the Members ). The Members are the incumbent pastors, assistant pastors and associate pastors of the congregations of certain faithbased organizations (the Membership Organizations ) and two lay persons designated by each of the Membership Organizations, as well as the directors of Senior Communities. The Members meet annually in May of each year. Neither Community Services, Health Care, Senior Communities, the Foundation, the Members, the Membership Organizations, nor any entity other than the Institution is obligated in any respect for the payments or other obligations under the Series 2007 Bonds. Board of Directors The Institution's Board of Directors consists of eleven (11) persons, including three (3) elected officers (a Chair, Chair-Elect and Secretary), seven (7) Directors elected by Senior Communities (three (3) of whom are also Directors of Senior Communities), and the President of the Institution (who is also the President of Senior Communities), who serves as an ex-officio director with voting rights. The immediate past Chair of the Board of Directors (if such person's term as a Board member has expired) also serves as an ex-officio director without voting rights for one year. Honorary and advisory members of the Board of Directors (without voting rights) A-1

40 are also permitted. Directors, except the President, are eligible to serve up to two three-year terms. Directors are elected at the annual meeting of the Members. No significant overlap in Board membership or management between Senior Communities and the Foundation exists; however, there is significant overlap in management among Senior Communities, the Institution and Health Care (see Management below). All business affairs of the Institution are carried out under the direction of its Board of Directors. The Board holds regular quarterly meetings, with special meetings held as necessary. The Board's activities include establishing policies for conducting business, establishing corporate goals, developing, updating and monitoring long-range plans, and overseeing the Institution in a manner consistent with the applicable statutes and regulations of the New York State and Federal Governments, as well as the purposes and powers set forth in the Institution's Certificate of Incorporation and its Bylaws. The members of the Board of Directors, the expiration of their current terms and principal occupation are as follows: Member Term Expiration Principal Occupation Richard L. Smith, Chair 2007 Vice President & Assistant General Counsel; JP Morgan Chase Bank Joanne E. Braeunle, Chair- Elect 2008 Independent Consultant Gary W. Lazenby, Secretary 2009 Retired Elementary School Principal; Educational Consultant Wallace F. Baker 2009 Business Owner (Sporting Goods) Nancy M. Bowllan 2007 Assistant Professor of Nursing; St. John Fisher College Carol A. Brink 2008 Associate Professor Emeritus of Clinical Nursing; University of Rochester Robert K. Davis 2007 Vice President of Business Transformation; Xerox Corporation Beverly Fair-Brooks 2009 Assistant Vice President of M&T Bank; Community Reinvestment Officer Charles K. Runyon Ex-officio President and Chief Executive Officer of the Institution George C. Wiedemer 2008 Town of Penfield (New York) Supervisor Janis H. Wolpin 2008 Community Disability Advocate The Executive Committee consists of five (5) Board members, including the Chair, the Chair-Elect, the Secretary and two other Board Members who are nominated by the Network Nominating Committee of Senior Communities and elected by the Board at its annual meeting. The Executive Committee meets on an as-needed basis and may act on behalf of the Board, subject to certain limitations set forth in the Institution s By-laws. A-2

41 The Institution may engage in business transactions from time to time with entities with which members of the Board of Directors may be affiliated. In such cases, interested directors abstain from voting on matters related to these transactions. The Institution s By-laws require that any business transactions with affiliated parties are made on an arm's length basis, with full disclosure to and full knowledge of the Board of Directors. Management The President and Chief Executive Officer is responsible for the overall management of the Institution. The Vice President/Operations Home for the Aging and Chief Administrative Officer is responsible for day-to-day operations and the Vice President/Finance is responsible for financial management. The Vice President and Chief Communication Officer is responsible for the overall marketing strategy for the Institution. The management of Senior Communities, the Institution, and Health Care overlap to a significant degree. The President, the Vice President/Finance, and the Vice President and Chief Communication Officer of Senior Communities also serve as the President, the Vice President/Finance, and the Vice President and Chief Communication Officer, respectively, of the Institution, and of Health Care. Additionally, the Vice President/Operations Home for the Aging of Senior Communities also serves as the Vice President/Operations Home for the Aging of the Institution, and the Vice President/Operations Health Care of Senior Communities also serves as the Vice President Operations/Health Care of Health Care. Charles K. Runyon, President and Chief Executive Officer (age 47). Mr. Runyon has served in this capacity for four years. He has approximately twenty-five (25) years of health care experience and became a licensed nursing home administrator in He previously served as the Chief Operating Officer and Administrator of Health Care from 1993 to He is a member of the board of directors of the New York State Association of Homes and Services for the Aging (NYAHSA) and is also the Chairman of the Board of Directors of the Rochester Area Association of Homes and Services for the Aging. He also serves as Treasurer on the board of the local chapter of the Alzheimer s Association. Mr. Runyon holds a Bachelor of Business Administration Degree from St. Bonaventure University. Gerald S. Stryker, Vice President/Operations Home for the Aging and Chief Administrative Officer (age 45). Mr. Stryker joined the Institution in 1998 as Executive Director. He previously served as Vice President of Program Development at SHC Home Health Agency in Rochester. He also served as Executive Director of the Beverwyck Retirement Community in Slingerlands, New York, which opened in 1993 as the first retirement community in the Capital District. Mr. Stryker holds a Bachelor of Science, Health Services and Business Administration from Ithaca College and a Masters in Health Science Administration from George Washington University. John A. Toscano, Vice President/Finance (age 63). Mr. Toscano has served in this capacity for twenty-four (24) years. He holds a Bachelor of Business Administration Degree from St. John Fisher College. Catherine (Kit) Pollicove, Vice President and Chief Communication Officer (age 61). Ms. Pollicove oversees marketing, development, and public relations. She joined the Institution in She also serves as Executive Director of St. John s Foundation. She is accredited in A-3

42 public relations, past chair of the Rochester Chapter of the Public Relations Society of America, and past trustee and chair of the Brighton Library Board. She is a cum laude graduate of Michigan State University with a Bachelor s Degree in English. The Facility The Facility consists of one hundred seventy-six (176) senior independent living units, eighty (80) senior congregate care units, thirty-eight (38) assisted living units and forty-five (45) cottages. All units are leased on a monthly fee basis. The Facility was developed to respond to the need in the community for housing that is suitable for elderly persons. The Facility is designed to maintain the physical and mental well-being of its residents through a series of programs, services and facilities. While all residents are required to be at least fifty-five (55) years of age, most residents upon entry to the Facility are approximately eighty (80) years of age and older. The units are organized into four unit types: Chestnut Court consists of one hundred seventy-six (176) one and two-bedroom apartments, some with a den, patio or balcony. These units are designed for the most active residents of the Facility. Services are provided on an a la carte basis. No meals or housekeeping are included in the monthly rental fee. Open parking and garages are available to residents of these units. The units include fully-equipped kitchens, including dishwasher, garbage disposal and microwave oven. The Chestnut Court building also houses a swimming pool, fitness center, cafe, gift shop, computer room, billiard room, activity rooms and two libraries. These common areas are available to all residents of the Facility. Briarwood consists of eighty (80) one and two-bedroom apartments, some with a den, patio or balcony. The units include fully-equipped kitchens, including dishwasher, garbage disposal and microwave oven. These units are designed for residents who enjoy an independent lifestyle, combined with some congregate housing services including a meal at dinner, housekeeping and linen services. The Briarwood building houses a hair salon, manicurist, activity rooms and a library, a formal communal dining room, barber shop, beauty salon, recreation area, heated indoor pool, fitness center, cafe and gift shop. These common areas are available to all residents of the Facility. Hawthorne consists of thirty-eight (38) one bedroom apartments with kitchenette. These assisted living units are designed for residents who require assistance with activities of daily living. Services included in the rental fee include three meals, weekly housekeeping and linen service, personal laundry service and transportation. Personal Care services are provided by on a twenty-four hour, seven day a week basis by aides employed by Traditions In Caring, Inc., an affiliated home health agency. The building housing the Hawthorne includes a club room, an activity room, a whirlpool spa room and a medical suite offering physician services. The Cottages consist of forty-five (45) single-story cottage homes. Each of three different styles includes two bedrooms, two baths, a front porch, a patio, and an attached one-car garage. Some cottages include a den. Each unit includes a fully-equipped kitchen, a fireplace, vaulted ceiling, laundry area with hook-ups and walk-in closets. The amenities available in other areas of the Facility are available for use by residents of the Cottages. Lawn care and snow A-4

43 removal are included in the monthly rental fee. The Cottages property does not serve as security for the Series 2007 Bonds. See Outstanding Indebtedness herein. The Facility complies with all life safety codes and is equipped with safety features such as grab bars for bathtubs and toilets, wide entrance doorways, ramps and elevators for wheelchair use and floors designed to help prevent slips and falls. The Facility also offers indoor and outdoor activity areas. All residents have access to the Handicall 24-hour emergency telephone response system. Personnel are on duty at the Facility 24-hours a day to respond to problems and emergencies. The Institution does not provide health care services to residents. However, through an arrangement between the Institution and Traditions In Caring, Inc., the Institution will assist such residents in obtaining home health care services when necessary. In addition, residents enjoy priority consideration for admission to the skilled nursing facility owned and operated by Health Care. Rents at the Facility have historically been set at levels intended to be within the financial reach of a significant segment of the community's elderly persons. In addition, thirty-six (36) of the Chestnut Court units of the Facility are leased to persons whose adjusted income does not exceed fifty percent (50%) of the area median gross income with adjustments made for family size. Competitive Facilities Outlined below is a comparison of the Facility to other facilities that management of the Institution believes to be the most significant competitors by service. Monthly Fees, Entrance Fees, and Second Person Fees shown are 2006 rates which have been obtained by management from third party sources. Unless designated as such, all project sponsors are not-for-profit. Independent Living - Apartments Name Sponsor Monthly Fee Entrance Fee Chestnut Court The Institution $1,280 to $1,530 None Cherry Ridge St. Ann s Community $1,030 to $2,075 None The Renaissance Apartments For-Profit $894 to $1,343 None A-5

44 Congregate Housing Name Sponsor Monthly Fee Entrance Fee Square Footage 2 nd Person Fee Briarwood The Institution $2,335 to $2,990 None 760 1BR 770 2BR $595 The Highlands at Pittsford Via Health $927 to $1,315 $178k -1BR $252k - 2BR 927 1BR 1,315 2BR $737 The Gables Brookdale For Profit $2,390 to $3,042 None 632 1BR 870 2BR $551 Chapel Oaks St. Ann s Community $2,585 to $3,518 None 684 1BR 987 2BR $649 Valley Manor For-Profit $2,019 to $2,171 $53k - 1 BR $80k - 2 BR 650 1BR 780 2BR $811 Assisted Living Name Sponsor Monthly Fee Licensure Square Footage 2 nd Person Fee Hawthorne The Institution $4,575 Pending BR $935 The Glenmere at Cloverwood Friendly Home $4,130 to $4,355 Yes, With SNF Continuum 508 1BR 860 2BR $980 The Laurelwood Highlands at Pittsford Via Health $3,545 Yes, With SNF Continuum 500 1BR $1,100 Wolk Manor Jewish Home of Rochester $5,350 Yes, With SNF Continuum 579 1BR $1,100 Independent Living - Cottages Name Sponsor Monthly Fee Entrance Fee Square Footage 2 nd Person Fee Cottages The Institution $1,995 None 1,260 None The Highlands at Pittsford Via Health $1,550 to $1,850 $283k to $383k 1,550 1,850 $250 Legacy at Clover Blossom Mark IV- For Profit $2,675 None 1,100 $500 A-6

45 Cherry Ridge St. Ann s Community $2,626 None 1,000 to 1,300 None Cloverwood Friendly Home $2,486 $249k to $385k Source: Management, obtained from third party sources. 1,340 $210 Licensure and Accreditation Currently, the Cottages, Briarwood and Chestnut Court are not required to be licensed by the New York State Department of Social Services, the New York Department of Health, or any other State agency, and the activities of the Institution, except as described in the following paragraph, currently do not require licensure or certification by any State or federal regulatory agency. In 2005, the New York legislature passed a new law codified as Article 46-B of the Public Health Law that requires State approval of any congregate housing facility that offers assisted or assistive living (that is, Personal Care) services, which Hawthorne does. The new law requires an Assisted Living Residence, an Enhanced Living Residence or a Special Needs Assisted Living Residence to be certified, in addition, either an Adult Home or an Enriched Housing Program under the Social Services Law. The Institution filed its applications for an Enhanced Assisted Living Residence license and an Enriched Housing Program certification on March 31, Management of the Institution expects that the license and certification will be granted in due course, but can give no assurance that the license and certification will be granted or of the timing with respect thereto. Employees The Institution does not have any employees; all employees at the Institution are employed by Health Care. Currently, eighty (80) of Health Care s employees are located at the Institution. Labor costs are allocated to the Institution by Health Care on direct basis for employees working solely at the Institution and on an allocated basis for management and other shared services. Management considers its relations with its employees to be good. None of the Health Care employees located at the Institution are unionized. Employee Benefits and Pension Plan Health Care provides a defined benefit pension plan, covering substantially all full-time and some part-time employees who work twenty (20) hours or more. On February 22, 2007, the Senior Communities Board passed a resolution to freeze the pension plan, effective April 28, Therefore, as of such date, no new members will be added to the pension plan. Also, all benefits earned through April 28, 2007 will be paid, but there will be no increases in benefits after that time. There is no intention to terminate the pension plan at this time. The pension plan is not currently fully funded on an actuarial basis, but is expected to be by Health Care also provides other employee benefits that are considered standard for most not-for-profit institutions in the area. The benefits include, but are not limited to, health, dental A-7

46 and life insurance, and tuition assistance. In addition, the Senior Communities Board approved the establishment of a 401(k) retirement plan for employees, effective July 1, Occupancy Outlined below is the historic average annual occupancy for the different types of units at the Institution for the five fiscal years ended December 31, 2002 through December 31, St John s Home for the Aging Occupancy (in percentages) Cottages 95.0% 98.2% 99.8% 98.4% 96.6% Chestnut Court Briarwood Hawthorne Combined 96.3% 96.5% 96.9% 96.7% 95.8% Source: Institution Records As demonstrated above, since 2002, occupancy at the Facility has consistently been above 96% for the independent living units (Cottages, Chestnut Court and Briarwood) with assisted living units (Hawthorne) approximately 90% or higher. Recent Financial Performance The table below contains Summary Statements of Operations of the Institution for the five fiscal years ended December 31, 2002 through December 31, The summary statement does not include non-operating items. The fiscal year results were derived from the financial statements of the Institution for the applicable period. THIS SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE AUDITED FINANCIAL STATEMENTS INCLUDED IN THIS OFFICIAL STATEMENT AS APPENDIX B. A-8

47 Summary Statements of Operations (in thousands) Audited Fiscal Years Ended December Rental Revenue $8,279 $7,988 $7,756 $7,140 $6,850 Financial Revenue 116 (161) (130) (74) (259) Total Revenue 8,395 7,827 7,626 7,066 6,591 Administrative Expenses Utilities Expenses Operating & Maintenance Expenses Taxes and Insurance Financial Expenses Interest on Mortgage 2,090 2,108 2,126 2,141 2,156 Interest on Bonds Mortgage Insurance Miscellaneous Total Financial Expenses 2,594 2,622 2,648 2,672 2,701 Total Elderly and Congregate Expenses 2,327 2,259 2,229 1,988 2,022 Total Expenses before Depreciation and 7,865 7,509 7,275 6,901 6,841 Amortization Change in Net Deficit before Depreciation and Amortization and Non-operating Items (250) Depreciation and Amortization 1,127 1,094 1,067 1,050 1,097 Change in Net Deficit Before Nonoperating Items (597) (776) (716) (885) (1,347) Management s Discussion of Financial Performance Fiscal Year Ended December 31, 2006 For the year ended December 31, 2006, there was a negative change in net deficit before non-operating items of $597,000 compared to a negative change in net deficit before nonoperating items of $776,000 in the prior fiscal year. Total rental revenue of $8.279 million for the 2006 fiscal year represented an increase of approximately 3.6% from $7.988 million in the prior fiscal year. The increase of $291,000 was largely due to a 4.0% rental rate increase, partially offset by a decrease in occupancy from The increase in financial revenue of $277,000, from negative $161,000 to positive $116,000, was largely due to an increase in unrealized gain from an interest rate swap. Total expenses before depreciation and amortization increased by $356,000 or approximately 4.7% from fiscal year 2005 to fiscal year 2006 and was largely attributable to normal year to year increases in most expenses in addition to a 34.4% increase in utility expenses. A-9

48 Fiscal Year Ended December 31, 2005 For the year ended December 31, 2005, there was a negative change in net deficit before non-operating items of $776,000 compared to a negative change in net deficit before nonoperating items of $716,000 in the prior fiscal year. Total rental revenue of $7.988 million for the 2005 fiscal year represented an increase of approximately 3.0% from $7.756 million in the prior fiscal year. The increase of $232,000 was largely due to a 4.0% rental rate increase, partially offset by a decrease in occupancy from Total expenses before depreciation and amortization increased by $234,000, or 3.2%, from fiscal year 2004 to fiscal year 2005 and was largely attributable to normal year to year increases in most expenses. The increase was also a result of a 13.7% increase in administrative expenses due largely to a contribution payment made to the Foundation representing a partial return of monies made by the Foundation to purchase the Meadows land. Fiscal Year Ended December 31, 2004 For the year ended December 31, 2004, there was a negative change in net deficit before non-operating items of $716,000 compared to a negative change in net deficit before nonoperating items of $885,000 in the prior fiscal year. Total rental revenue of $7.756 million for the 2004 fiscal year represented an increase of approximately 8.6% from $7.140 million in the prior fiscal year. The increase of $616,000 was largely due to a 4.0% rental rate increase in addition to an increase in occupancy from Total expenses before depreciation and amortization increased by $374,000, or 5.4%, from fiscal year 2003 to fiscal year 2004 and was largely attributable to normal year to year increases in most expenses, in addition to an approximate 6.3% increase in administrative expenses due to increases in wages for administrative staff, and a 10.9% increase in taxes and insurance due to health and liability insurance premium increases. Fiscal Year Ended December 31, 2003 For the year ended December 31, 2003, there was a negative change in net deficit before non-operating items of $885,000 compared to a negative change in net deficit before nonoperating items of $1.347 million in the prior fiscal year. Total rental revenue of $7.140 million for the 2003 fiscal year represented an increase of approximately 4.2% from $6.850 million in the prior fiscal year. The increase of $290,000 was largely due to a 4.0% rental rate increase. The increase in financial revenue of $185,000, from negative $259,000 to negative $74,000, was due to a decrease in unrealized loss from an interest rate swap. Total expenses before depreciation and amortization increased by $60,000, or 1.0%, from fiscal year 2002 to fiscal year 2003 and was largely attributable to normal year to year increases in most expenses Fiscal Year Ended December 31, 2002 For the year ended December 31, 2002, there was a negative change in net deficit before non-operating items of $1.347 million compared to a negative change in net deficit before nonoperating items of $962,000 in the prior fiscal year. Total rental revenue of $6.850 million for A-10

49 the 2002 fiscal year represented an increase of approximately 2.7% from $6.669 million in the prior fiscal year. The increase of $181,000 was largely due to a 4.0% rental rate increase, partially offset by a decrease in occupancy from Total expenses before depreciation and amortization increased by $205,000, or 3.1%, from fiscal year 2001 to fiscal year 2002 and was largely attributable to normal year to year increases in most expenses. Outstanding Indebtedness The Institution has three series of bonds outstanding: the Series 1997A Bonds and the Series 1998A Bonds, which are to be refunded with a portion of the proceeds of the Series 2007 Bonds, and the Series 1997B Bonds which are to remain outstanding in the aggregate principal amount of $4,455,000. The Series 1997B Bonds are secured by a bank letter of credit. The Series 1997B Bonds are secured by rental revenues from the Cottages and a first mortgage lien on the Cottages property. Future Financing Plans From time to time, the Institution's Board of Directors may consider the adoption of certain projects. The Institution and its affiliates are currently in the early stages of exploring the development of another independent living community that would be located contiguous to the Facility. However no specific configuration or program has been determined at this time and there are no pending approvals from any local or state agencies with respect to the community. It is currently expected that the future project will be developed, owned and operated by an affiliate of the Institution. Insurance The Institution maintains, on a claims made basis, comprehensive general liability insurance coverage in the amounts of $1,000,000 per occurrence and $3,000,000 in the aggregate. The Institution maintains full replacement value property insurance and umbrella and business interruption insurance coverage with respect to the Facility. In the past, there have been no significant liability claims made against the Institution. The Institution believes that the intended insurance coverage will provide adequate protection against any such future claims. Litigation There is no litigation or proceeding pending or, to the knowledge of management, threatened against the Institution. Limited Recourse The obligations of the Institution under the Notes, the Lease Agreement and the Mortgages are general obligations of the Institution; however, the Institution has no assets other than the Facility and the revenues derived therefrom. The obligations of the Institution under the Notes, the Lease Agreement and the Mortgages are without recourse to any property or assets of any affiliate of the Institution. A-11

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71 APPENDIX C SUMMARY OF THE TRUST INDENTURE The following is a brief summary of the Trust Indenture (the Indenture ) securing the Village of East Rochester Housing Authority, FHA-Insured Mortgage Revenue Refunding Bonds, (St. John s Meadows Project) Series This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the Indenture, copies of which are on file with the Authority and the Trustee. Definitions Act means collectively, Article III of the New York Public Housing Law, as amended, and Chapter 490 of the laws of Additional Bonds means any Bonds issued pursuant to Section 2.11 hereof. Acquisition Fund means the fund of that name established under Section 4.01 hereof. Authority means the Village of East Rochester Housing Authority, a corporate governmental agency, duly organized and existing under the laws of the State, and any body, board, authority, agency or other governmental agency or instrumentality which shall hereafter succeed to the powers, duties, obligations and functions thereof. Authority s Reserved Rights means, collectively, (i) the right of the Authority in its own behalf to receive all Opinions of Counsel, reports, financial statements, certificates, insurance policies, binders or certificates, or other notices or communications required to be delivered to the Authority under the Lease Agreement; (ii) the right of the Authority to grant or withhold any consents or approvals required of the Authority under the Lease Agreement; (iii) the right of the Authority to enforce or otherwise exercise in its own behalf all agreements of the Institution with respect to ensuring that the Project shall always constitute a qualified project as defined in and as contemplated by the Act; (iv) the right of the Authority in its own behalf (or on behalf of the appropriate taxing authorities) to enforce, receive amounts payable under, or otherwise exercise its rights under Sections 3.1, 3.2, 4.4, 4.5, 4.6, 4.7, 6.1, 6.2, 6.3, 6.5, 6.7(b), 6.9, 6.12, 6.14, 6.18, 7.7, 9.3, 9.9 and 9.13, of the Lease Agreement; (v) the right of the Authority in its own behalf to declare an Event of Default under Section 7.1 of the Lease Agreement with respect to any of the Authority's Reserved Rights and to exercise any remedies of the Authority therein specified; and (vi) the right of the Authority to enforce the Environmental Compliance and Indemnification Agreement and to declare an Event of Default by reason of non-compliance therewith. Authorized Representative means, (i) in the case of the Authority, the Chairman, Vice Chairman, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the Authority, or any member, officer or employee of the Authority authorized to perform specific acts or to discharge specific duties, and (ii) in the case of the Institution, its President and any of its officers. C-1

72 Basic Payments means those payments due from the Institution under Section 3.2(a) of the Lease Agreement which shall be sufficient in time and amount to pay the principal, redemption premium, if any and interest on the Series 2007 Bonds when due. Board or Board of Directors means the board of directors of the Authority. Bond Fund means the fund of that name established under Section 4.01 hereof. Bond Holder or Holder or Owner of the Bonds means the person or persons in whose name such Bond or Bonds is or are registered, from time to time. Bonds means the Authority's Series 2007 Bonds and any Additional Bonds issued under this Indenture. Bond Resolution means the resolution of the Authority adopted on April 24, 2007 authorizing the issuance of the Series 2007 Bonds. Bond Year means each twelve-month period ending on the last day of December and beginning on the first day of January. CEDE & CO. means CEDE & CO., the nominee of DTC, and any successor nominee of DTC with respect to the Series 2007 Bonds. Closing Date means June 1, Code means the Internal Revenue Code of 1986, as amended, together with all administrative rulings and regulations promulgated or issued thereunder. Consultant means a person or firm which is a recognized professional management consultant, investment banker or accountant (which may be the Institution s external auditing firm) in the area of finance having the skill and experience necessary to render the particular opinion, certificate or report required by the provisions hereof in which such requirement appears. Contract of Mortgage Insurance means the contract between the Trustee, as Mortgagee, and FHA with respect to mortgage insurance pursuant to Section 232 of the National Housing Act, created by FHA endorsement of the FHA Note and incorporating the terms of the FHA Commitment and certain statutory and regulatory provisions. hereof. Debt Service Reserve Fund means the fund of that name established under Section 4.01 Debt Service Reserve Fund Requirement means an amount at least equal to the sum of (a) maximum annual debt service on the Series 2007 Bonds in any period of 12 consecutive months ending on an Interest Payment Date and (b) an amount equal to one month's principal and interest on the FHA Notes and held in the Series 2007 Mortgage Reserve Account. DTC means The Depository Trust Company, a limited purpose trust company organized under the laws of the State of New York, and its successors and assigns. DTC Participants means banks, brokers or dealers who are participants of DTC. Environmental Compliance Agreement means the Environmental Compliance and Indemnification Agreement, dated as of May 1, 2007, from the Institution, as Indemnitor, to the Authority. C-2

73 Event of Default means any of those events specified in and defined by the applicable provisions of Article VI hereof to constitute an event of default. Extraordinary Expense Reserve Fund means the fund of that name established under Section 4.01 hereof. Extraordinary Expense Reserve Requirement means amounts transferred by the Trustee to the Extraordinary Reserve Fund until the amounts on deposit therein equals at least $25,000. Facility means the Institution s 176-unit senior living apartment complex known as Chestnut Court and a 118-unit assistive living apartment complex known as the Hawthorne/Briarwood Complex on approximately 16.9 acres of land located at 1463 Elmwood Avenue, in the Town of Brighton, County of Monroe, State of New York, all as more specifically defined in the Institution Lease. FHA means the Federal Housing Administration and may refer to the Commissioner thereof, any authorized representative thereof or the successor thereof. FHA Commitments means the FHA Firm Commitments for Insurance of Advances (subject to certain conditions), pursuant to Section 232 of the National Housing Act, issued by HUD with respect to the Facility dated May 18, 1997 and November 12, 1998, as amended, and as assigned to the Trustee and as modified by HUD by virtue of its approval of the FHA Documents. FHA Debentures means debentures received in payment of a mortgage insurance claim against FHA. FHA Documents means the FHA Notes, the Allonges, the Mortgage, The Mortgage Modification Agreements, the Regulatory Agreements, the Regulatory Agreement Modifications and the other documents which are the subject of the FHA Commitment. FHA Mortgage Insurance means the insurance of the FHA Notes by FHA pursuant to the FHA Commitment and in accordance with Section 232 of the National Housing Act, as amended, and the applicable regulations promulgated thereunder. FHA Notes or Notes means the nonrecourse promissory notes of the Institution evidencing the Mortgage Loans and delivered to the Trustee, subject to the terms hereof. Final Calculation Date means February 15, 2047, or any earlier date on which the last Series 2007 Bond is discharged. Financing Documents shall mean the Series 2007 Bonds, the Institution Lease, the Lease Agreement, the Environmental Compliance Agreement, the Indenture, the Mortgages, the Mortgage Modification Agreements, the Allonges, the Notes, the Tax Compliance Agreement and any other agreement now or hereafter delivered as security for the Series 2007 Bonds or the Institution's obligations under any Financing Document. Future Value means future value as determined pursuant to Internal Revenue Code Regulation (c). Governmental Requirements means any present and future law, rules, orders, ordinances, regulations, statutes, requirements and executive orders applicable to the Project, of the United States, the State and any political subdivision thereof, and any agency, department, commission, board, bureau or instrumentality of any of them, now existing or hereafter created, and having or asserting jurisdiction over the Project or any part thereof. C-3

74 Gross Proceeds shall have the meaning ascribed to such term in Section 148 of the 1986 Code and the Regulations and shall mean (A) proceeds, including (i) original proceeds, being (a) sale proceeds (i.e., any amounts actually or constructively received by the Authority from the sale of the Series 2007 Bonds) and (b) investment proceeds (i.e., any amounts actually or constructively received from investing the original proceeds, (ii) discount proceeds, and (iii) transferred proceeds pursuant to Regulation Section (e)(2) including amounts actually or constructively received from investing such transferred proceeds, and (B) any funds (other than proceeds) that are part of a reserve or replacement fund for the issue, as set forth in the Regulations (including certain pledged and sinking funds for the Series 2007 Bonds). Gross Rebate Liability means the sum of rebatable arbitrage determined as of any installment Computation Date or the Final Calculation Date plus any income attributable to rebatable arbitrage pursuant to Treasury Regulation Section , being the excess of the future value of Nonpurpose Receipts earned on any Gross Proceeds of the Series 2007 Bonds over the future value of Nonpurpose Payments (each as defined in the Regulations), plus all previous rebate payments. Gross Receipts means all receipts, revenues, income (including investment income) and other moneys received or receivable by or on behalf of the Institution derived from the operation or ownership of the Facility including, without limitation, insurance and condemnation proceeds with respect to the Facility or any portion thereof, and all rights to receive the same, whether in the form of accounts, accounts receivable, contract rights, instruments, general intangibles, chattel paper, or other rights and the proceeds of such rights, whether now existing or hereafter coming into existence and whether now owned or held or hereafter acquired by the Institution; provided, however, that there shall be excluded from Gross Receipts the security deposits of tenants. HUD means the United States Department of Housing and Urban Development, and any authorized representative thereof, or the successor thereof. Indenture means these presents together with any other indentures supplemental hereto. Institution means St. John s Home for the Aging, organized under the laws of New York State as a not-for-profit corporation, and its permitted successors and assigns pursuant to Sections 6.1 or 9.3 of the Lease Agreement (including any surviving, resulting or transferee corporation as provided in Section 6.1 of the Lease Agreement). Institution Lease means the Institution Lease dated as of May 1, 2007 between the Authority and the Institution, and shall include any and all amendments thereof and supplements thereto hereafter made in conformity therewith and with the Indenture Interest Payment Date means each February 15 and August 15, commencing on August 15, Investment Agreement means the agreement providing for the investment of moneys held under the Indenture for the Debt Service Reserve Fund by and among the Authority, the Trustee and AIG Matched Funding Corp., or any substitute agreement having substantially similar terms which does not adversely affect the rating. Lease Agreement means the lease agreement dated as of May 1, 2007 by and between the Authority and the Institution, as said lease agreement may be amended or supplemented from time to time. Mortgages mean the 1997A Mortgage and the 1998A Mortgage as modified by the Mortgage Modification Agreements and assigned to the Trustee, securing payment of the Mortgage Loans. C-4

75 Mortgage Loans means the loans made to the Institution pursuant to the Notes, the Mortgages and the FHA Documents. Mortgage Reserve Account means the account by that name established under Section 4.01 hereof covering one month's principal and interest on the FHA Note. Mortgage Servicer means Capmark Finance Inc. f/k/a GMAC Commercial Mortgage Corporation, or its successor or assigns, which will service the Mortgage Loans on behalf of the Trustee pursuant to the provisions of the Servicing Agreement. Mortgage Servicing Agreement or Servicing Agreement means the agreement dated as of the date the Series 2007 Bonds are delivered, between the Trustee and the Mortgage Servicer. Net Proceeds when used with respect to any insurance or condemnation award, means the gross proceeds from the insurance or condemnation award with respect to which that term is used remaining after payment of all reasonable expenses incurred in the collection of such gross proceeds. Net Rebate Liability means the amount directed by the Authority to be remitted to the United States Government from time to time pursuant to Section 4.14 hereof, being the Gross Rebate Liability less any permitted de minimis rounding down of the Gross Rebate Liability pursuant to Regulations Sections (b)(2)(iv) and (b)(3)(iii) and less any credit pursuant to Treasury Regulation Section (b)(4) Code means the Internal Revenue Code of 1986, as amended, together with all administrative rulings and regulations promulgated or issued thereunder. Nonpurpose Investment means any investment property which is acquired with the Gross Proceeds of the Series 2007 Bonds and is not acquired in order to carry out the governmental purpose of the Series 2007 Bonds. Ordinary Mortgage Servicing Fees and Expenses means the fees and expenses of the Mortgage Servicer under the Mortgage Servicing Agreement not exceeding in any Series 2007 Bond Year an amount equal to.125% of the outstanding principal balance of the FHA Note during that year, computed monthly. In the event of an unscheduled prepayment of the Mortgage Loan, the Mortgage Servicing fees shall be reduced so that the resulting decrease is proportional, as nearly as practicable, to the decrease in the principal amount of FHA Note. Ordinary Trustee's Fees and Expenses means those fees, expenses and disbursements payable to the Trustee under Section 7.07 hereof for its ordinary services hereunder not exceeding in any semiannual period ending on an Interest Payment Date an amount equal to $2,500 per annum, payable semiannually as provided in Section 4.04 hereof, provided, further that any additional fees, expenses or disbursements will be paid by the Authority directly to the Trustee separate and apart from the flow of funds under this Indenture. In the event of an unscheduled prepayment of the Mortgage Loan, the Trustee s fees shall be reduced so that the resulting decrease is proportional, as nearly as practicable, to the decrease in the principal amount of FHA Note. Outstanding or Series 2007 Bonds Outstanding means Series 2007 Bonds of any series, as the case may be, which have been duly authenticated and delivered by the Trustee under this Indenture, except: (a) Series 2007 Bonds theretofore cancelled by the Trustee or theretofore delivered to the Trustee for cancellation; C-5

76 (b) Series 2007 Bonds for the payment or redemption of which cash funds shall have been theretofore deposited with the Trustee (whether upon or prior to the maturity or redemption date of any such Series 2007 Bonds); provided that if such Series 2007 Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given or arrangements satisfactory to the Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Trustee, shall have been filed with the Trustee; and (c) Series 2007 Bonds in lieu of which others have been authenticated hereunder. Permitted Encumbrances shall mean, as of any particular time, (i) the documents identified in the Closing Transcript for and executed in connection with the Authority s $32,275,000 FHA- Insured Mortgage Revenue Refunding Bonds (St. John s Meadows Project) Series 2007; (ii) the Lease Agreement, the Institution Lease, the Indenture, the Mortgage, the Security Agreement, and any other Financing Documents; (iii) liens for real estate taxes, assessments, levies and other governmental charges, which are not yet due and payable; (iv) utility, access and other easements and rights-of-way, covenants, restrictions approved by FHA and such other exceptions that an Authorized Representative of the Institution certifies to the Authority and the Trustee will not interfere with or impair the Institution's use of the Facility as provided in the Lease Agreement; (v) such minor defects, irregularities, encumbrances, easements, rights-of-way (including agreements with any railroad the purpose of which is to service a railroad siding) and clouds on title as normally exist with respect to property similar in character to the Facility and as do not, in the Opinion of Counsel, either singly or in the aggregate, materially impair the property affected thereby for the purpose for which it was acquired and held by the Authority under the Lease Agreement; (vi) any mechanic s, workmens, repairmen s, materialmens', contractors', warehousemen s, carriers', suppliers' or vendors' lien or right in respect thereof, all if and to the extent permitted by Section 6.7 of the Lease Agreement; and (vii) any mortgage, lien, security interest or other encumbrance which exists in favor of the Trustee or to which the Trustee shall consent. Pledged Revenues means (A) the revenues, receipts and other moneys received or to be received from the Institution under the FHA Notes, as modified by the terms of the Allonges, or the Mortgages (excluding the reserve for replacements, Mortgage insurance premium escrow and tax and insurance escrows) and interest and income derived or to be derived on any moneys held by the Trustee hereunder, and all moneys paid pursuant to the Contract of Mortgage Insurance and other benefits thereunder, and (B) all rights and interest of the Authority under, in and pursuant to Lease Agreement, including, without limiting the generality of the foregoing, the present and continuing right (i) to make claim for, collect or cause to be collected or receive or cause to be received all payments and other sums of money payable or receivable by the Authority under the Lease Agreement, (ii) to bring actions and proceedings thereunder for the enforcement thereof, and (iii) to do any and all things which the Authority is or may become entitled to do under the Lease Agreement. Prior Bonds means the Village of East Rochester Housing FHA-Insured Mortgage Revenue Bonds (St. John s Meadows Project) Series 1997A (the Series 1997A Bonds ) and the Village of East C-6

77 Rochester Housing FHA-Insured Mortgage Revenue Bonds (St. John s Meadows Project) Series 1998A (the Series 1998A Bonds ). Project means payment of the lump sum rental payment due to the Institution from the Authority pursuant to the Institution Lease, which rental payment will be used to (a) refund and defease the Prior Bonds, (b) fund a Debt Service Reserve Fund and an Extraordinary Expense Reserve Fund, (c) finance capital expenditures and renovations at the Facility and (d) pay the costs of issuing the Series 2007 Bonds. Purchase Contract means the agreement dated April 27, 2007, between Cain Brothers & Company, LLC and the Authority. Qualified Investments means any of the following which at the time of purchase meet the requirements of the Indenture if and to the extent permitted by law: (viii) direct obligations of or obligations the principal of and interest on which are unconditionally guaranteed by the full faith and credit of the United States Government, or (ix) obligations of any agency or instrumentality of the United States Government backed by the full faith and credit of the United States, or (x) certificates of deposit either fully insured by FDIC (excluding a bank where the Authority is a settlor of a trust account evidenced by deposits therewith) or issued by the Trustee or any of its affiliates or by any state or national bank so long as they maintain a short-term unsecured rating from Standard & Poor's Corporation of A-l+ or higher, or (xi) investment agreements, in substantially the same form as the Investment Agreement, which will not adversely affect the rating on the Series 2007 Bonds, or (xii) interests in any money market funds rated either AAAm or AAAm-G by Standard & Poor's Corporation that invest exclusively in obligations issued and guaranteed by the United States Government or its agencies or instrumentalities, which fund may be managed by the Trustee. Qualified Investments under (i), (iii), or (v) hereof shall have a maturity date not to exceed the lesser of 180 days from the date of purchase of such Qualified Investments or as needed under the Indenture. Rating Agency means Standard & Poor's Corporation. Rebate Analyst means a person or firm selected by the Institution which is a recognized professional in the field of investment banking, bond law or accounting (which may be the Institution's external auditing firm) in the area of rebate analysis and having the skill and experience necessary to perform the analysis required. Rebate Analyst Fee means a reasonably competitive rate in light of applicable market conditions with respect to such employment, in an amount not to exceed $1,000 in any Bond Year. In the event of an unscheduled prepayment of the Mortgage Loan, the Rebate Analyst s fees shall be reduced so that the resulting decrease is proportional, as nearly as practicable, to the decrease in the principal amount of the FHA Notes. Rebate Fund means the fund of that name established under Section 4.01 hereof. Record Date means with respect to the interest due on the Series 2007 Bonds on any Interest Payment Date, the last day of the calendar month preceding the calendar month in which such Interest Payment Date occurs. C-7

78 Regulatory Agreement shall mean that certain agreement between the Institution, the Authority and FHA issued with respect to the Facility. Rating Agency means Standard & Poor's Corporation. Series 2007 Bond Purchaser means Cain Brothers & Company, LLC and its successors and assigns. Series 2007 Bonds means the Authority s $32,275,000 original principal amount of FHA- Insured Mortgage Revenue Refunding Bonds (St. John s Meadows Project), Series State means the State of New York. Tax Compliance Agreement means the Tax Compliance Agreement dated June 1, 2007 executed by the Institution for the benefit of the Trustee and the Series 2007 Bondholders, and shall include any and all amendments thereof and supplements thereto hereafter made in conformity therewith and with the Indenture. Town means the Town of Brighton, New York. Trustee means Manufacturers and Traders Trust Company, and its successors in trust hereunder. Village shall mean the Village of East Rochester, New York. Restriction on Issuance of Series 2007 Bonds The total principal amount of Series 2007 Bonds that may be issued under the Indenture, other than Additional Bonds and Series 2007 Bonds issued in substitution for other Series 2007 Bonds, is expressly limited to $32,275,000 of Series 2007 Bonds. Special and Limited Obligations. The Series 2007 Bonds, together with interest thereon, are special and limited obligations of the Authority payable from the revenues, receipts and security pledged therefor, including the Pledged Revenues. Neither the United States of America, the State of New York, the Village of East Rochester, New York, the Town of Brighton, New York nor any other political subdivision or body corporate and politic of the State (except, as to the Authority, to the extent and in the manner provided herein) or any agency of the United States of America or any department thereof, shall in any event be liable for the payment of the principal of, premium, if any, or interest on the Series 2007 Bonds or for the performance of any pledge, obligation or agreement of any kind whatsoever of the Authority, and none of the Series 2007 Bonds or any of the Authority's agreements or obligations shall be construed to constitute an indebtedness of the United States of America, the State of New York, the Village of East Rochester, New York, the Town of Brighton, New York nor any other political subdivision or body corporate and politic of the State, within the meaning of any constitutional or statutory provision whatsoever. Delivery of Bonds Upon the execution and delivery of the Indenture, the Authority shall execute and deliver to the Trustee and the Trustee shall authenticate the Series 2007 Bonds and deliver them to or upon the order of the Authority upon receipt by the Trustee of the following documents: (a) an executed counterpart of this Indenture; C-8

79 (b) an opinion of Trespasz & Marquardt, LLP, Syracuse, New York, or other nationally recognized bond counsel to the effect that the Authority is duly organized and existing under the laws of the State and has duly authorized, executed and delivered the Indenture, other loan documents, and the Series 2007 Bonds and that the Series 2007 Bonds are entitled to the benefits of this Indenture and are valid and binding special and limited obligations of the Authority, which opinion may rely upon a written opinion of counsel to the Authority delivered in connection with the issuance of the Series 2007 Bonds; (c) a resolution, certified by the Secretary of the Board of Directors of the Authority, authorizing the execution and delivery of this Indenture and other necessary documents and the issuance, sale and delivery of the Series 2007 Bonds; (d) (e) (f) (g) (h) (i) (j) Prior Bonds; (k) the Contract of Purchase, duly executed by each party thereto; the Tax Compliance Agreement, duly executed by each party thereto; the FHA Commitments, duly executed by the FHA; The executed Mortgages and FHA Notes endorsed for insurance by FHA; the Allonges; The Institution Lease and Lease Agreement, duly executed by each party thereto; delivery of such refunding escrow documents and opinions as necessary to defease the conformed copies of all other FHA Documents; (l) a policy of title insurance in the face amount of the Series 2007 Bonds with a pending disbursements clause; (m) an opinion of counsel to the Institution to the effect that the Institution is duly organized and validly existing and in good standing as a not-for-profit corporation under the laws of the State of New York and has full corporate power and authority to enter into the agreements described herein to which it is a party, that its execution and delivery of and performance of its covenants in such agreements does not contravene law or any provision of any other agreement to which it is a party or by which it or such property is bound or affected, that all such agreements described herein are legal, valid and binding agreements of the Institution enforceable against the Institution in accordance with their respective terms, and addressing in a manner satisfactory to the Trustee such other matters as the Trustee may reasonably require; (n) an opinion of Trespasz & Marquardt, LLP, Syracuse, New York, or other nationally recognized bond counsel to the effect that the Series 2007 Bonds have been validly issued and constitute legal, valid and binding special and limited obligations of the Authority, and that the interest on the Series 2007 Bonds, under law in effect on the date of such opinion, is excludable from gross income for from federal income tax purposes; (o) 2007 Bonds; a letter of instructions from the Authority directing the Trustee to authenticate the Series C-9

80 Code. (p) (q) such other documents as the Trustee or its counsel may reasonably request.; and evidence that the Institution is an exempt organization under Section 501(c)(3) of the Additional Bonds So long as the Lease Agreement is in effect and no Event of Default exists thereunder or under the Indenture (and no event exists which, upon notice or lapse of time or both, would become an Event of Default thereunder or under the Indenture), the Authority may, upon a request from the Institution complying with the provisions of Section 2.11 of the Indenture, issue one or more series of Additional Bonds to provide funds to pay any one or more of the following: (1) costs of refunding or advance refunding any or all of the Series 2007 Bonds; (2) costs of making any modifications, additions or improvements to the Facility that the Institution may deem necessary or desirable; or (3) costs of the issuance and sale of the Additional Bonds, capitalized interest, funding debt service reserves, and other costs reasonably related to any of the foregoing. Additional Bonds may mature at different times, bear interest at different rates and otherwise vary from the Series 2007 Bonds authorized under the Indenture, all as may be provided in the supplemental indenture authorizing the issuance of such Additional Bonds. Each series of Additional Bonds shall be issued pursuant to a supplement to the Indenture and shall be equally and ratably secured under the Indenture with the Series 2007 Bonds and any other series of Additional Bonds without preference, priority or distinction of any Bonds over any other Bonds. Prior to the issuance of a series of Additional Bonds and the execution of a supplement to the Indenture in connection therewith, the Authority and the Institution shall enter into an amendment to the Lease Agreement, which shall provide, among other things, that the rentals payable under the Lease Agreement shall be increased and computed so as to amortize in full the principal of and interest on such Additional Bonds and any other costs in connection therewith. Prior to the execution of a supplemental indenture authorizing the issuance of Additional Bonds, the Authority must deliver the following documents to the Trustee: (1) A certificate of the Authority, dated as of the date of delivery of such Additional Bonds, requesting the issuance and approving the terms of the Additional Bonds and stating either that (a) as of the date of such certificate no event or condition is happening or existing which constitutes, or which, with notice or lapse of time or both, would constitute, an event of default under the FHA Note, the Mortgage, or the other FHA documents or (b) if any such event or condition is happening or existing, specifying such event or condition and stating in detail acceptable to the Trustee that such event or condition will be corrected promptly after the issuance of such Additional Bonds; (2) A certified copy of a resolution or resolutions of the Board of Directors of the Authority authorizing (a) the execution and delivery of a supplement to the Indenture and (b) the issuance, award, execution and delivery of such Additional Bonds; (3) An original executed counterpart of a supplement to the Indenture authorizing the issuance of the Additional Bonds and providing for the deposit into the Debt Service Reserve Fund of an amount of cash and/or irrevocable letter of credit fully collateralized by Qualified Investments which, together with the amounts previously on deposit in the Debt Service Reserve Fund, will be equal to the Debt Service Reserve Fund Requirement immediately following the issuance of such Additional Bonds; (4) A certificate of the Authority and any underwriter to the effect that the amount of revenues anticipated thereafter for deposit in the Bond Fund will be sufficient in amount and available in time in the current year and in each future year in which Series 2007 Bonds and Additional Bonds are Outstanding (a) to pay the principal and interest required to be paid on the Series 2007 Bonds and the Additional Bonds on each interest payment date and on each date on which the Series 2007 Bonds and the C-10

81 Additional Bonds mature or are required to be redeemed, and (b) to maintain the balance in the Debt Service Reserve Fund at the Debt Service Reserve Fund Requirement; (5) An original executed amendment or supplement to the FHA Note increasing the installments of principal and interest payable thereunder by the Authority to include amounts sufficient to provide for the payment of principal and interest on such Additional Bonds as the same become due; (6) A firm commitment issued by FHA to insure, under Section 241 pursuant to Section 232 or other appropriate Section of the National Housing Act, as amended, or any comparable Federal legislation, the additional amounts payable by the Institution on the same basis as the FHA Note is initially insured; (7) A written opinion of Trespasz & Marquardt, LLP, or other firm of attorneys nationally recognized on the subject of municipal bonds that the issuance of such Additional Bonds is permitted under the terms of the Indenture and has been duly authorized, that all conditions precedent to the authorization of the Additional Bonds required under the Indenture, as supplemented, have been duly complied with, and that the issuance of such Additional Bonds will have no adverse effect upon the exemption from Federal income taxation of interest on any Bonds then outstanding; and (8) A request and authorization of the Authority, signed by its Authorized Representative, to the Trustee to authenticate and deliver such Additional Bonds to such person or persons named therein upon payment to the Trustee for the account of the Authority of a specified sum plus accrued interest to the date of delivery. (9) A letter of instructions from the Authority directing the Trustee to authenticate the Additional Bonds. (10) Evidence satisfactory to the Trustee that such Additional Bonds have been assigned a rating by the Rating Agency (or by any other nationally recognized rating service if the Rating Agency no longer provides such ratings) which is the same as, or better than, the rating then in effect with respect to the Series 2007 Bonds. (11) The proceeds of such Additional Bonds shall be deposited by the Trustee as provided in the supplement to the Indenture referred to in subsection (3) above. Creation of Funds The Indenture establishes with the Trustee the following trust funds to be maintained by the Trustee under the Indenture until all Series 2007 Bonds are paid: Acquisition Fund; Bond Fund; Debt Service Reserve Fund; Mortgage Reserve Account; Extraordinary Expense Reserve Fund; and Rebate Fund. Application of Series 2007 Bond Proceeds Upon the receipt by the Trustee of the original proceeds of the sale and delivery of the Series 2007 Bonds (net of amounts delivered to the Prior Bond trustee to refund the Prior Bonds), including any other amounts received from the Institution pursuant to the Lease Agreement, the Trustee shall apply such proceeds and amounts as follows: C-11

82 (a) an amount equal to $1,727,000 shall be deposited into the Debt Service Reserve Fund of which an amount equal to $169,389 will be deposited into the Mortgage Reserve Account; (b) Fund; and (c) an amount equal to $25,000 shall be deposited into the Extraordinary Expense Reserve an amount equal to $1,244,577 shall be deposited into the Acquisition Fund. Disbursements from Acquisition Fund The amounts in the Acquisition Fund shall be subject to a security interest, lien and charge in favor of the Trustee until disbursed as provided in the Indenture. The Trustee shall apply the amount on deposit in the Acquisition Fund to pay the lump sum rental payment due to the Institution from the Authority pursuant to the Institution Lease which shall be applied by the Institution to undertake the Project. The Trustee is hereby authorized and directed to disburse moneys from the Acquisition Fund to pay the costs of the Project and costs of issuance upon receipt by the Trustee of a Request for Disbursement in the form of Exhibit B to the Indenture certified by an Authorized Representative of the Institution. Bond Fund There shall be deposited in the Bond Fund the amounts indicated in Section 4.02 of the Indenture and the amount disbursed thereto from earnings on the Debt Service Reserve Fund, including the Mortgage Reserve Account, and earnings on the Extraordinary Expense Reserve Fund. There shall also be deposited into the Bond Fund all payments on the FHA Note and all interest, profits or other income derived from the investment of all funds held under the Indenture including any FHA Debentures or cash received as a result of a default on the FHA Note and any payments made thereon. FHA Mortgage Insurance benefits, if any, are to be deposited in the Bond Fund. On each Interest Payment Date, the Trustee shall apply moneys in the Bond Fund in the following order of priority: (i) to pay any amounts due to the Rebate Fund as certified to the Trustee in writing by the Institution, (ii) (iii) to pay all interest due and principal due at maturity on the Series 2007 Bonds, to pay any Ordinary Trustee's Fees and Expenses and Rebate Analyst's Fees, (iv) to transfer any amounts necessary to be deposited in the Debt Service Reserve Fund (and the Mortgage Reserve Account therein), in order to restore the amount of money on deposit therein to the Debt Service Reserve Fund Requirement and to the amount required to be on deposit in the Mortgage Reserve Account; (v) to pay on each August 15, commencing August 15, 2008, or provide for payment of the ongoing surveillance fee of the Rating Agency of $1,500 per year subject to pro rata reduction to the extent of any prepayment of the Note other than scheduled Note amortization; (vi) to redeem Series 2007 Bonds pursuant to the provisions of the Indenture relating to anticipatory sinking fund redemption; On each Interest Payment Date after a Mortgage Loan default but prior to receipt of FHA Debentures, the Trustee shall pay from the Bond Fund interest due and principal due at maturity on the Series 2007 Bonds; C-12

83 On each Interest Payment Date after the Trustee's receipt of FHA Debentures, the Trustee shall apply money in the Series 2007 Bond Fund in the following order of priority: (i) to pay any amounts due to the Series 2007 Rebate Fund as certified to the Trustee in writing by the Authority, (ii) (iii) to pay all interest due and principal due at maturity on the Series 2007 Bonds, to pay the Ordinary Trustee's Fees and Expenses and any Rebate Analyst's Fees, (iv) to redeem Series 2007 Bonds pursuant to the provisions of the Indenture relating to excess proceeds or proceeds from the sale of FHA Debentures. Debt Service Reserve Fund That portion of any late payment or payments received on the FHA Note that is necessary to restore the amount on deposit in the Debt Service Reserve Fund to the Debt Service Reserve Fund Requirement shall be deposited by the Trustee in the Mortgage Reserve Account of the Debt Service Reserve Fund. If on any Interest Payment Date the amount in the Bond Fund after making all required deposits therein shall be insufficient to pay the interest and principal then due on the Series 2007 Bonds, the Trustee shall, subject to the limitations in the paragraph below, transfer cash from the Mortgage Reserve Account of the Debt Service Reserve Fund to the Bond Fund in an amount equal to such deficiency; provided, however, that any such transfer by the Trustee shall not relieve the Institution of any of its obligations under the FHA Note or under the Mortgage. Subject to the paragraph below, the Trustee shall on each Interest Payment Date transfer to the Series 2007 Bond Fund from the Debt Service Reserve Fund and the Mortgage Reserve Account interest earnings on the Debt Service Reserve Fund and the Mortgage Reserve Account. The Institution shall value the Debt Service Reserve Fund and the Mortgage Reserve Account on each Interest Payment Date at the funded balance if invested in the Investment Agreement and at the lower of cost or amortized value if invested in other Qualified Investments and provide a certificate of same to the Trustee. Notwithstanding the foregoing, except when Outstanding Series 2007 Bonds are to be redeemed, or unless the Trustee has filed with FHA notice of default and intent and election to assign, no money in the Debt Service Reserve Fund shall be used for payments of principal or of interest on the Series 2007 Bonds. Extraordinary Expense Reserve Fund In the event of a default on the FHA Note and its assignment to HUD, the Trustee shall draw on the balance on deposit in the Extraordinary Expense Reserve Fund to cover the cost of any extraordinary fees and expenses incurred by the Trustee or the Mortgage Servicer. Any interest earnings on the Extraordinary Expense Reserve Fund shall be transferred to the Bond Fund. Investment of Funds Any money held as part of any fund, other than the Rebate Fund, shall be invested or reinvested by the Trustee under the Investment Agreement to the maximum extent possible and otherwise in Qualified Investments at the direction of the Institution in writing or verbally and confirmed in writing. Moneys in the Rebate Fund shall only be invested in obligations described in clauses (i), (ii) and (v) of the definition of Qualified Investments at the direction of the Institution in writing. The investments so made shall be held by the Trustee and shall be deemed at all times to be a part of the fund in which such money was held; provided that for purpose of investment money held in any of the funds established under the Indenture may be commingled. The Trustee may act as principal or agent in the making or disposing of any investment. The Trustee is directed to sell and reduce to cash a sufficient amount of C-13

84 such investments whenever the cash balance in any fund shall be insufficient to cover a proper disbursement from any fund. Subject to the necessary withdrawals and deposits of interest earnings from various Funds to the Rebate Fund according to the instructions of Section 4.14 of the Indenture, all interest profits or income derived from the investment of any Fund shall be deposited in the Bond Fund. The Trustee shall not be liable for any losses resulting from any such investments consistent with these provisions. Except for the Investment Agreement, money held in the funds created by the Indenture shall be invested in securities and obligations maturing not later than six months or the dates on which such money will be needed to pay principal of or interest on the Series 2007 Bonds. Any subsequent investment made by the Trustee shall be in Qualified Investments or, after notification to Standard & Poor's Corporation, a substitute Investment Agreement. For the purpose of determining the amount on deposit to the credit of any Fund, obligations purchased as an investment of money therein shall be valued semiannually at the lower of cost or amortized value thereof, inclusive of accrued interest. FHA Debentures Received After Default. In the event that FHA shall make payment of a claim for FHA Mortgage Insurance in debentures, the Trustee shall, upon receipt of such debentures, deposit such debentures to the credit of the Bond Fund for the benefit of the Series 2007 Bond Holders only. The Trustee shall give notice to the Holders of all Series 2007 Bonds Outstanding in the same manner prescribed in Article III of the Indenture for notices of redemption that the Trustee has received such FHA Debentures. The Trustee shall hold such FHA Debentures to their maturity, or until the principal of and interest on all Series 2007 Bonds Outstanding has been paid, and shall apply the principal and interest thereof to the payment of the principal and interest on the Series 2007 Bonds outstanding; provided, however, that at the written request of the Holders of one hundred percent (100%) in aggregate principal amount of the Series 2007 Bonds Outstanding, or, in the absence of such request, upon the determination by the Trustee with the concurrence of a Consultant retained by the Trustee that the sale of the FHA Debentures would produce sufficient funds to pay the principal of and interest on all Series 2007 Bonds Outstanding together with all amounts necessary to pay all fees and costs associated therewith or previously outstanding, the Trustee shall sell such debentures and apply the proceeds so obtained as provided in Section 3.01 of the Indenture to the Series 2007 Bonds. The Rebate Fund The purpose of the Rebate Fund is to facilitate compliance with Section 148(f) of the Code. Any Rebate Amount deposited in such Fund shall be for the sole benefit of the United States of America and shall not be subject to the lien of the Indenture or to the claim of any other person, including, without limitation, the Bondholders and the Authority. These requirements are subject to, and shall be interpreted in accordance with, Section 148(f) of the Code and the Treasury Regulations applicable thereto (the Regulations ) and shall apply except to the extent the Trustee is furnished with an opinion of Bond Counsel. Promptly upon the close of each fifth Bond Year and also upon the retirement of the Series 2007 Bonds, the Trustee shall provide the Institution with a statement of earnings on funds and accounts held under the Indenture during any period not covered by a prior statement and a final statement or a supplement thereto covering the period ending February 15, 2047 or such earlier date on which all Series 2007 Bonds have been paid in full. Each statement shall include the purchase and sale prices of each investment, if any (including any commission paid thereon which shall be separately stated if such information is available), the dates of each investment transaction, information as to whether such transactions were made at a discount or premium and such other information known or reasonably C-14

85 available to the Trustee as the Institution or Rebate Analyst shall reasonably require. If so requested by the Institution or the Rebate Analyst at any time, the Trustee shall create within the Bond Fund separate accounts for purposes of assisting the Rebate Analyst in accounting for earnings on amounts attributable to the Series 2007 Bonds. The Trustee shall promptly transfer to the Rebate Fund each amount required to be deposited therein pursuant to the written direction of the Institution or the Rebate Analyst pursuant to the Tax Compliance Agreement from revenues which have been deposited into the Bond Fund and earnings thereon. To the extent that the amount to be deposited into the Rebate Fund exceeds the amount, which can be transferred from such Fund, the Trustee shall promptly notify the Institution and an amount equal to such deficiency shall be paid promptly by the Institution to the Trustee for deposit into the Rebate Fund. The Institution and the Trustee shall keep such records as will enable them to fulfill their respective responsibilities under the Indenture and Section 148(f) of the Code, and the Institution (or the Trustee upon the written request of the Institution and at the expense of the Institution) shall engage a Rebate Analyst as may be necessary in connection with such responsibilities. The Trustee, to the extent furnished to it, will retain records of all calculations performed by the Rebate Analyst until six years after the retirement of the last obligation of the Series 2007 Bonds. For purposes of the computation of the Rebate Amount required under the Tax Compliance Agreement, the Trustee shall make available to the Institution during normal business hours all information in the Trustee s control which is necessary to such computations. Notwithstanding any other provision in the Indenture, general or specific, to the contrary, the Trustee shall have no obligations hereunder relating to arbitrage restrictions or rebate requirements, except to comply with specific written instructions received by the Trustee from the Rebate Analyst with respect to deposits into the Rebate Fund and release of moneys therefrom. The Trustee shall not have any responsibility to make any calculations relating to arbitrage restrictions or rebate requirements, or to make any other determinations with respect to the excludability of interest on the Series 2007 Bonds from gross income for federal income tax purposes or to verify, confirm or review (and the Trustee shall not verify, confirm or review) any such calculations or requirements or determinations made under the Indenture or under the Tax Compliance Agreement relating to arbitrage restrictions or rebate requirements, or with respect to the excludability of the interest on the Series 2007 Bonds from gross income for federal income tax purposes or to take any other action with respect thereto under the Indenture. The Trustee shall not have any responsibility for verifying (and the Trustee shall not verify, confirm or review) that the use of proceeds of the Series 2007 Bonds is in compliance with the requirements of the Code. The Trustee shall not have any responsibility to notify the Rebate Analyst or any other person of any failure by the Rebate Analyst or any other person to provide to the Trustee timely written directions relating to arbitrage restrictions or rebate requirements as required under the Indenture or under the Tax Compliance Agreement, including, without limitation, representations with respect to certificates of deposit or investment agreements or certifications or directions regarding rebate determinations or rebate payments which may be due and payable to the Internal Revenue Service. In the absence of written direction from the Institution after a request by the Trustee, the Trustee shall not be required to take any action with respect to such provisions of the Indenture which make reference to the Tax Compliance Agreement, and the Trustee may proceed on the basis that no action is required. No Modification of Security; Additional Indebtedness The Authority covenants that it will not, without the written consent of the Trustee, alter, modify or cancel, or agree to consent to alter, modify or cancel any agreement to which the Authority is a party, or which has been assigned to the Authority, and which relates to or affects the security for the Series 2007 Bonds. The Authority further covenants not to incur any additional indebtedness prior to or on a C-15

86 parity with the lien of the Indenture, except as contemplated by Section 2.11 of the Indenture relating to Additional Bonds. Events of Default Each of the following shall be an Event of Default with respect to the Series 2007 Bonds (a Series 2007 Default ) under the Indenture: (a) default in the due and punctual payment of any interest on any Series 2007 Bond; or (b) default in the due and punctual payment of the principal of or premium, if any, on any Series 2007 Bond whether at the stated maturity thereof, or on proceedings for redemption thereof, or on the maturity thereof by acceleration; or (c) default, and the continuation thereof for a period of 30 days following notice to the Trustee, in the performance or observance of any other of the covenants, agreements or conditions on the part of the Authority in the Indenture or in the Series 2007 Bonds after written notice to the Authority from the Trustee or the registered owners of at least 100% of the Series 2007 Bonds outstanding at such time specifying such default and requiring the same to be remedied. The Trustee and the Authority agree that, notwithstanding the provisions of the Indenture, no default under the terms of the Indenture shall be construed as resulting in a default under the Note, the Mortgage or related Documents, unless such event also constitutes a default thereunder. Notwithstanding the foregoing, a failure to make a sinking fund payment shall not constitute an Event of Default if the Trustee does not have sufficient funds to make such payment. Acceleration; Other Remedies Upon Series 2007 Default Upon the occurrence of a Series 2007 Default as provided in (a) or (b) above, the Trustee may, and upon the written request of the Holders of not less than 25% of the Series 2007 Bonds then Outstanding shall, by notice in writing delivered to the Authority, declare the Principal of all Series 2007 Bonds then Outstanding and the interest accrued thereon immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable. If at any time after the Series 2007 Bonds shall have been so declared due and payable, and before any judgment or decree for the payment of the money due shall have been obtained or entered, the Authority shall pay to or deposit with the Trustee a sum sufficient to pay all principal of the Series 2007 Bonds then due (other than solely by reason of such declaration) and all unpaid installments of interest (if any) upon all the Series 2007 Bonds then due, with interest at the rate borne by the Series 2007 Bonds on such overdue principal and (to the extent legally enforceable) on such overdue installments of interest, and the reasonable expenses of the Trustee shall have been made good or cured or adequate provisions shall have been made therefor, and all other defaults hereunder have been made good or cured or waived in writing by 100% of the owners of the Series 2007 Bond obligation then Outstanding, then and in every case, the Trustee on behalf of the Holders of all the Series 2007 Bonds shall rescind and annul such declaration and its consequences; but no such rescission and annulment shall extend to or shall affect any subsequent default, nor shall it impair or exhaust any right or power consequent thereon. Upon the happening and continuance of a Series 2007 Default, the Trustee in its own name and as trustee of an express trust, on behalf and for the benefit and protection of the Holders of all Series 2007 Bonds with respect to which such a Series 2007 Default has occurred, may also proceed to protect and enforce any rights of the Trustee and, to the full extent that the Holders of such Series 2007 Bonds themselves might do, the rights of such Series 2007 Bond Holders under the laws of the State or under the C-16

87 Indenture by such of the following remedies as the Trustee shall deem most effectual to protect and enforce such rights: (1) by mandamus or other suit, action or proceeding at law or in equity, to enforce the payment of the principal of, premium, if any, or interest on the Series 2007 Bonds then Outstanding, or for the specific performance of any covenant or agreement contained herein or in the Note or the Mortgage, or to require the Authority to carry out any other covenant or agreement with Series 2007 Bond Holders and to perform its duties under the Act; (2) by action or suit in equity, to enjoin any acts or things that may be unlawful or in violation of the rights of the Holders of Series 2007 Bonds. No remedy by the terms of the Indenture conferred upon or reserved to the Trustee or to the Series 2007 Bond Holders is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Series 2007 Bond Holders under the Indenture or under the Note or the Mortgage, or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any Series 2007 Default shall impair any such right or power or shall be construed to be a waiver of any such Series 2007 Default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any Series 2007 Default hereunder, whether by the Trustee or by the Series 2007 Bond Holders, shall extend to or shall affect any subsequent default or Series 2007 Default or shall impair any rights or remedies consequent thereto. The Series 2007 Bond Holders shall have no rights or remedies hereunder nor do the Series 2007 Bond Holders have any right to enforce any provisions of the Indenture, except for Sections 4.04 and 6.05 of the Indenture relating to the Bond Fund and application of monies upon default. Rights of Bond Holders. If a Series 2007 Default as provided in Section 6.01(a) or (b) shall have occurred and if requested in writing so to do by the owners of not less than 25% of the Series 2007 Bonds outstanding with respect to which there is a default or 100% of the Series 2007 Bond Holders for any other Series 2007 Default, and if indemnified as provided herein, the Trustee shall be obliged to exercise one or more of the rights and powers conferred by this Article as the Trustee, being advised by counsel, shall deem most expedient in the interest of the affected Series 2007 Bond Holders. Subject to the provisions of Section 6.07, the Holders of a majority of the Series 2007 Bond obligation with respect to which a Series 2007 Default has occurred shall have the right at any time, by an instrument in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Indenture, or for the appointment of a receiver or any other proceedings hereunder, in accordance with the provisions of law and of the Indenture. Waiver by Authority. Upon the occurrence of an Event of Default, to the extent that such right may then lawfully be waived, neither the Authority nor anyone claiming through or under it shall set up, claim or seek to take advantage of any appraisal, valuation, stay, extension or redemption laws now or hereinafter in force, in order to prevent or hinder the enforcement of the Indenture; and the Authority, for itself and all who may claim through or under it, hereby waives to the extent that it lawfully may do so, the benefit of all such laws and all right of appraisement and redemption to which it may be entitled under the laws of the State and the United States. Application of Money Any money received by the Trustee after the occurrence and continuance of a Series 2007 Default, shall be applied in the following order, at the date or dates fixed by the Trustee and, in the case of C-17

88 the distribution of such money on account of principal, or premium, if any, or interest, upon presentation of Series 2007 Bonds, and notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: (a) first, to the payment of all amounts then due on the Series 2007 Bonds for principal, premium, if any, and interest, in respect of which or for the benefit of which, money has been collected (other than Series 2007 Bonds which have matured or otherwise become payable prior to such Series 2007 Default and money for the payment of which is held in the Series 2007 Bond Fund), ratably without preference or priority of any kind, according to the amounts due and payable on such Series 2007 Bonds, for principal, premium, if any, and interest respectively; and (b) next, to the payment of all amounts due the Trustee under Section 7.07 of the Indenture, any extraordinary mortgage servicing fees and expenses and any amounts owed to the Authority. FHA Mortgage Insurance Subject to the provisions of Section 6.08 of the Indenture relating to prepayment penalties and lockout period claim processing procedures: shall: (a) Subject to the foregoing, upon such payment default or performance default, the Trustee (i) immediately upon becoming entitled to do so, but not later than the 30th day following the due date of the payment under the FHA Note after a failure by the Institution to make such payment: (A) Subject to the provisions of Section 6.08 of the Indenture relating to prepayment penalties and lockout period claim processing procedures, give written notice of Intention and Election to Assign in writing to HUD Central (with a copy to the applicable HUD area office and the Rating Agency) which notice shall: 1. state that the Mortgage Loan was funded with the proceeds of tax-exempt bonds rated by the Rating Agency entitled to priority processing and expedited processing procedures by FHA; and 2. provide a schedule of payments of Series 2007 Debt Service with respect to the Series 2007 Bonds indicating funds available to make such payments; and 3. request forms and instructions relating to assignment of the FHA Mortgage and shall attach to such request a copy of the letter from HUD to the Rating Agency, dated June 23, 1987; (A.) give notice, in writing, to the HUD area office of the occurrence of the default entitling the Trustee to claim FHA Mortgage Insurance benefits with a copy to the HUD Central office and the Rating Agency; (B.) if such default is prior to Final Endorsement, request an updated title insurance policy. (ii) within five days of receiving the forms and instructions described in (i)(a)(3) above, the Trustee shall submit the required legal documentation to HUD's Office of General Counsel; C-18

89 (iii) as soon as possible, but in no event later than 30 days after recordation and assignment of the FHA Mortgage, submit fiscal documentation to HUD's Office of Finance and Accounting and complete and submit any outstanding legal documents; (iv) as soon as practicable after filing its election to assign with FHA, but not later than 30 days thereafter (or any shorter period required by FHA), the Trustee shall: (A.) assign the FHA Mortgage, the FHA Note, and such other necessary documents as shall be required by FHA directly to FHA, giving all required notices, (B.) record the Assignment of the FHA Note to FHA in accordance with instruction from HUD Central, (C.) submit to HUD Central the Application for FHA Mortgage Insurance benefits and request payment of the mortgage insurance benefits in cash, and (D.) request confirmation of THE RATING AGENCY rating prior to pursuing partial payment under Section (b) of HUD Regulations, or such other applicable Section of HUD Regulations, including any request for an extension to file any notices, (b) The Trustee shall not consent to any adjustments or revisions of the terms of the Mortgage Loan or the contract of FHA Mortgage Insurance, or take, or fail to take, any action in the event of a default, which would cause there to be insufficient money available for the scheduled payment of principal and interest on the Series 2007 Bonds, or for the payment of the Ordinary Trustee's Fees and Expenses and Ordinary Mortgage Servicing Fees and Expenses, nor will the Trustee request any extension of the time for filing its election to assign the FHA Mortgage, except for Section 6.08 of the Indenture. The Trustee may not foreclose upon the FHA Mortgage. The Trustee shall not release any FHA required letters of credit or cash escrows without the approval of FHA. Opportunity to Cure Default Under Mortgage Note. Prior to the date the Note and the Mortgage are assigned to FHA pursuant to Section 6.06 of the Indenture and prior to the date of notice of redemption of the Series 2007 Bonds pursuant to Section 3.03 of the Indenture, the Trustee may allow the Institution to cure any default under the Note and the Mortgage but only subject to the following conditions and provided that during the period the Trustee is allowing the Institution to cure, it shall continue to pursue full benefits under the FHA Mortgage Insurance: (a) The Institution must pay to the Trustee any overdue payments of principal and interest on the Note subject to receiving the opinion required in (c)(iii) below. (b) The Institution must cure any non-monetary defaults under the Mortgage, the Lease Agreement, the Indenture and any related documents to the satisfaction of the Trustee. (c) If any money has been withdrawn from the Trust Estate to be used in connection with the default, the Institution must: (i) withdrawn, or Redeposit under the Trust Estate an amount at least equal to the amount (ii) Provide the Trustee with cash or a letter of credit in such form acceptable to the Trustee (and which would not adversely affect the Rating Agency's rating on the Series 2007 Bonds) that (A) provides a source for the payment of the principal and interest on the Series 2007 C-19

90 Bonds and (B) is in an amount at least equal to the amount withdrawn from the Trust Estate plus an amount equal to the interest that would have been earned on the withdrawn amount had it been invested at the Investment Agreement rate on the Series 2007 Bond Fund or the Reserve Fund, as applicable, and (iii) Provide to the Trustee an unqualified opinion of nationally recognized bankruptcy counsel, satisfactory to the Trustee (and approved by the Trustee's counsel) with respect to the deposit specified in (i) or (ii) above and which opinion (A) if the deposit is in the form of a letter of credit (which letter of credit must be issued or confirmed by a bank whose unsecured long-term debt is rated by the Rating Agency at least as high as the rating then in effect on the Series 2007 Bonds) states that the letter of credit is a valid and binding obligation of the bank issuing the letter of credit and is enforceable against the bank or (B) if the deposit is in any other form states that such amounts are exempt from claims of creditors of the provider of such funds pursuant to 11 U.S.C. Sections 362 (a) and 547 (b). (d) The Institution must deposit with the Trustee an amount equal to any loss of investment income resulting from the failure to make any Note payments when due and provide to the Trustee an opinion of counsel of the type described in paragraph (c)(iii) above with respect thereto. (e) The Trustee must receive written confirmation from FHA that the cure of any such default and the withdrawal of any notice of assignment of the Note and Mortgage that had been given under Section 6.06 of the Indenture will not adversely affect the FHA Mortgage Insurance on the Note or be construed as a waiver or reduction thereof. (f) Cash flows, prepared by a qualified independent third party, must be delivered to the Trustee which show that after the action taken under (c) above, the timely payment of the principal and interest on the Series 2007 Bonds and the Ordinary Trustee's Fees and Expenses, and the Ordinary Mortgage Servicing Fees and Expenses, as set forth in the original cash flows, will not be adversely affected. (g) The Trustee shall not allow the cure of the default if it would adversely affect the Series 2007 Bond Holders. (h) The Institution shall pay all fees and expenses of the Trustee, the Authority and the Mortgage Servicer, extraordinary or otherwise (and including, without limitation, any reasonable legal fees and expenses) incurred in connection with such default and provide to the Trustee an opinion of counsel of the type described in paragraph (c )(iii) above with respect thereto. (i) Agency. If Project reserves are called upon to affect Mortgage default cure, notify the Rating (j) All delinquent payments required to be made under the Note (including escrow payments) have been made in full together with an opinion of counsel of the type described in (c)(iii) above. (k) All reserves have been funded to required levels, including interest income lost because of a draw down of funds. (l) Confirmation of the rating by the Rating Agency. The allowance by the Trustee of any cure upon a default under the Mortgage Note will not affect any subsequent default proceedings with respect to the FHA Mortgage Insurance or any claims thereunder. C-20

91 Prepayment Penalty or Lockout Period Claim Processing Procedures The Authority and the Trustee on behalf of the Authority certify that, in the event of a default on the Mortgage Loan during the term of a prepayment penalty and/or lock-out period and/or to the date on which prepayments may be made with a premium of one percent or less, the Trustee on behalf of the Authority will immediately after the Institution has failed to make a payment when due on the Mortgage Note for 30 days: (a) file a request with HUD Central for a three month extension of the time to notify HUD of the intention and election to assign simultaneously with the filing of the notice of default with the HUD area office with a copy to the HUD Central office and the Rating Agency. The Trustee shall include with the notice of default to the HUD area office and with the communication to HUD Central and the Rating Agency (i) a statement that the Project is financed with rated bonds subject to priority processing and expedited processing procedures as described in HUD's letter to the Rating Agency dated June 23, 1987 (attaching a copy of such letter), (ii) a schedule of debt service payments on the Series 2007 Bonds, indicating the funds available to make debt service payments on the Series 2007 Bonds and (iii) a request for priority processing and the forms and instructions necessary to assign the Mortgage Loan to FHA; (b) if HUD grants the requested (or a shorter) extension of the notice filing deadline, cooperate with the Authority and HUD in arranging a refinancing to cure the default and avert an insurance claim, but simultaneously pursue full assignment of the Mortgage Note pursuant to Section 6.06 of the Indenture; (c) report to HUD at least monthly on any progress in arranging a refinancing; (d) require any successors or assigns to certify in writing that they agree to be bound by these conditions for the remainder of the term of the prepayment lock-out and/or premium; (e) submit legal documents to HUD office of General Counsel within 5 days of receipt of forms and instructions from FHA; (f) submit fiscal documents required by HUD Office of Finance and Accounting and any additional legal documents as soon as possible but in no event later than 30 days after recordation; (g) notify HUD 30 days prior to any Payment Date on the Series 2007 Bonds that insufficient moneys are available to make such payment and request immediate payment of Mortgage Insurance benefits in cash; (h) if at any time during the extension period the Trustee determines that a workout is unfeasible, immediately request HUD to make such a determination and submit Notice of Intention and Election to Assign to HUD Central; (i) obtain prior written confirmation of the rating from the Rating Agency prior to consent to any workout agreement or any adjustment or revision of the contract of Mortgage Insurance, including a partial prepayment, pursuant to Section (b) of the FHA Regulations or such other applicable section of the FHA regulations; (j) obtain written confirmation of the rating from the Rating Agency prior to requesting an extension of the initial three month extension period; (k) if request for further extension is not met or upon the expiration of the extension period, immediately submit Notice of Intention and Election to Assign to HUD Central; C-21

92 (l) as soon as possible after submitting Notice of Intention and Election to Assign, or in accordance with instructions from FHA, submit Application for Insurance Benefits and record assignment of Mortgage Note to FHA; and (m) Indenture. after the lockout penalty period is over, follow the procedures in Section 6.06 of the Partial Assignment Option. In the event HUD requests that the Trustee on behalf of the Authority agree to partially assign the Mortgage Loan to FHA, the Trustee may accept such partial assignment only upon a confirmation in writing of the rating on the Series 2007 Bonds from the Rating Agency. The Trustee may request or accept an extension of time to file a Notice of Intention and Election to Assign, other than pursuant to Section 6.08 of the Indenture, only after a confirmation in writing of the rating on the Series 2007 Bonds from the Rating Agency. In no event shall the Trustee request an extension of time for filing the Notice of Intention and Election to Assign in excess of three months (or such shorter period required by HUD) from the date of the notice of default. Remedies Vested in Trustee. All rights of action, including the right to file proof of claims, under the Indenture or under any of the Series 2007 Bonds may be enforced by the Trustee without the possession of any of the Series 2007 Bonds or the production thereof in any trial or other proceedings relating thereto and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants any Holders of the Series 2007 Bonds, and any recovery of judgment shall be for the benefit as provided herein of the Holders of the Outstanding Series 2007 Bonds. Remedies of Bond Holders. No Holder of any Series 2007 Bond shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of the Indenture or for the execution of any trust hereunder or for the appointment of a receiver or any other remedy hereunder, unless: herein; (a) (b) a default shall have occurred of which the Trustee shall have been notified as provided such default shall have become an Event of Default; (c) the Holders of at least 25% of the Series 2007 Bonds Outstanding with respect to which there is an Event of Default shall have made written request to the Trustee and shall have offered reasonable opportunity to the Trustee either to proceed to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (d) such Holders shall have offered to the Trustee indemnity as provided herein; and (e) the Trustee shall within 60 days thereafter fail or refuse to exercise the powers hereinbefore granted, or to institute such action, suit or proceeding; it being understood and intended that no one or more Holders of the Series 2007 Bonds shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of the Indenture or the rights of any other Holders of Series 2007 Bonds or to obtain priority or preference over any other Holders or to enforce any right under the Indenture. Nothing contained in the Indenture shall, however, affect or impair the right of any Bond Holder to enforce the payment of the principal of, the premium, if any, and interest on any Series 2007 Bond at the maturity thereof or the obligation of the Authority to pay the principal of, premium, if any, and C-22

93 interest on the Series 2007 Bonds issued hereunder to the respective Holders thereof, at the time, in the place, from the sources and in the manner expressed in said Series 2007 Bonds. Waivers of Events of Default The Trustee shall waive any Default hereunder and its consequences and rescind any declaration of maturity or principal of and interest on the Series 2007 Bonds upon the written request of the Holders of 100% of the Series 2007 Bonds Outstanding with respect to which there is a default; provided, however, that there shall not be waived (a) any Series 2007 Default in the payment of the principal of any Series 2007 Bonds at the date of maturity specified therein, or upon proceedings for mandatory redemption, and (b) any default in the payment when due of the interest or premium on any such Series 2007 Bonds, unless prior to such waiver or rescission all arrears of interest, with interest (to the extent permitted by law) at the rate borne by the Series 2007 Bonds in respect of which such default shall have occurred on overdue installments of interest or all arrears of payments of principal or premium, if any, when due (whether at the stated maturity thereof or upon proceedings for mandatory redemption) as the case may be, and all expenses of the Trustee (including reasonable attorney's fees), in connection with such default shall have been paid or provided for, and in case of any such waiver or rescission, or in case any proceeding taken by the Trustee on account of any such default shall have been discontinued or abandoned or determined adversely, then and in every such case the Authority, the Trustee and the Series 2007 Bond Holders shall be restored to their former positions and rights hereunder, respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereto. The Series 2007 Bond Holders have no right of action under this Section of the Indenture. Notice to Bond Holders if Default Upon the occurrence of an Event of Default, or if an event occurs which could lead to a default with the passage of time and of which the Trustee is required to take notice pursuant to Section 7.02(h) of the Indenture, the Trustee shall, within 30 days, give written notice thereof by first-class mail to the owners of all Series 2007 Bonds then Outstanding, shown by the list of Series 2007 Bond Holders required to be kept at the office of the Trustee. Supplemental Indentures and Amendments Not Requiring Consent of Bond Holders The Authority and the Trustee may without the consent of, or notice to, any of the Bond Holders enter into an indenture or indentures supplemental to the Indenture and to any amendment of the FHA Note and the Mortgage as shall not be inconsistent with the terms and provisions of the Indenture or materially adverse to the Holders of the Bonds for any one or more of the following purposes: (a) To cure any ambiguity or formal defect or omission therein; (b) to change or modify any provision thereof so as to harmonize to the maximum extent practicable the provisions hereof with existing rules, regulations and procedures of HUD and FHA; (c) to grant to or confer upon the Trustee for the benefit of the Bond Holders any additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon the Bond Holders or the Trustee or either of them; (d) collateral; to subject to the lien and pledge of the Indenture additional revenues, properties or C-23

94 (e) to modify, amend or supplement the Indenture or any indenture supplemental hereto or the FHA Note or the Mortgage in such manner as to permit the qualification hereof and thereof under the Trust Indenture Act of 1939 or any similar Federal statute hereafter in effect or under any state Blue Sky Law; or (f) to authorize the issuance of and to secure one or more series of Additional Bonds as provided in and upon compliance with Section 2.11 of the Indenture. Supplemental Indentures and Amendments Requiring Consent of Bond Holders The Holders of not less than two-thirds of the aggregate principal amount of the Bonds shall have the right, from time to time, in the Indenture or in the Mortgage to the contrary notwithstanding, to consent to and approve the execution by the Authority and the Trustee of such indenture or indentures supplemental hereto and to any amendment of the Indenture or any Supplemental Indenture, the FHA Note and the Mortgage as shall be deemed necessary and desirable by the Authority for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Indenture or in any supplemental Indenture or the FHA Note or the Mortgage; provided, however, that nothing in this Section contained shall permit, or be construed as permitting (a) an extension of the stated maturity or reduction in the principal amount or reduction in the rate, or extension of the time of payment, of interest on, or reduction of any premium payable on the redemption of, any Bonds, without the consent of the Holders of all Bonds, or (b) the creation of any lien prior to or on a parity with the lien of the Indenture except as provided in Section 2.11 thereof with respect to Additional Bonds, or (c) a reduction in the aforesaid aggregate principal amount of Bonds the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holders of all the Bonds at the time Outstanding which would be affected by the action to be taken, or (d) the modification of the rights, duties or immunities of the Trustee, without the written consent of the Trustee, or (e) a privilege or priority of any Bond over any other Bonds or (f) any action which results in the income on the Bonds becoming taxable for Federal income tax purposes or (g) any change to Section 6.02 of the Indenture without the consent of all the Bond Holders or (h) except for reduction at final endorsement without 100% Series 2007 Bond Holders consent, to reduce the Authority's obligation on the Note, or (i) any amendment to the Indenture that conflicts with FHA regulations or the FHA Documents. If at any time the Authority shall request the Trustee to enter into any such supplemental indenture or any such amendment for any of the purposes of these provisions, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such supplemental indenture or any such amendment to be mailed, postage prepaid, to all registered Bond Holders. Such notice shall briefly set forth the nature of the proposed supplemental indenture and shall state that copies thereof are on file at the corporate trust office of the Trustee for inspection by all Bond Holders. If, within 60 days or such longer period as shall be prescribed by the Authority following the mailing of such notice, the Holders of not less than two-thirds in aggregate principal amount of the Bonds Outstanding at the time of the execution of any such supplemental indenture or any such amendment shall have consented to and approved the execution thereof as herein provided, no Holder of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the Authority from executing the same or from taking any action pursuant to the provisions thereof. Upon the execution of any such supplemental indenture or any such amendment as in this Section permitted and provided, the Indenture, the FHA Note or the Mortgage shall be and be deemed to be modified and amended in accordance therewith. The Trustee may rely upon an opinion of counsel as conclusive evidence that execution and delivery of a supplemental indenture has been effected in compliance with the provisions of this Article. Anything herein to the contrary notwithstanding, a supplemental indenture which affects any rights of the Authority shall not become effective unless and until the owner shall have consented to the execution and delivery of such supplemental indenture. In this regard, the Trustee shall cause notice of C-24

95 the proposed execution and delivery of any such supplemental indenture to be mailed by certified or registered mail to the Authority at least 15 days prior to the proposed date of execution and delivery of any supplemental indenture. Amendment by Unanimous Consent Notwithstanding any other provision of the Indenture, the Authority and the Trustee may consent to any Supplemental Indenture or to any amendment, change or modification of the FHA Note, or the Mortgage upon receipt of the consent of the Holders of all Bonds then outstanding. Opinion of Counsel Required. The Trustee shall not consent to any Supplemental Indenture or any amendment, change or modification of the FHA Note, or the Mortgage unless there shall have been filed with the Trustee an opinion of counsel that such Supplemental Indenture or such amendment, change or modification is authorized or permitted by the Indenture and complies with its terms and that on execution it will be valid and binding on the party or parties executing it in accordance with its terms. Amendment of Note and Mortgage Note Requiring Consent of Bond Holders. The Authority and the Trustee shall, without the consent of or notice to the Bond Holders but with confirmation from the Rating Agency that such action will have no adverse impact on the rating on the Bonds, consent to any amendment, change or modification of the Note or the Mortgage as may be required: (a) by the provisions of, or as contemplated in the FHA Note, the Mortgage, the Indenture or the FHA Commitment, (b) for the purpose of curing any ambiguity or formal defect or omission therein, (c) in connection with additional real estate equipment which is to become part of the Facility pursuant to the Security Agreement so as to identify the same more precisely, (d) in connection with the issuance of one or more series of Additional Bonds pursuant to Section 2.11 of the Indenture, (e) to make any change therein that may be required by FHA to conform such instruments to the requirements of applicable Federal law or regulations, (f) to release any property subject to the lien of the Mortgage, provided such release will not reduce the benefits provided under the FHA Mortgage Insurance, (g) to make any other change therein which, in the opinion of the Trustee, will not prejudice in any material respect the rights of the Holders of the Bonds then Outstanding. Discharge of Lien When (1) the Bonds have become due and payable or have been duly called for redemption or irrevocable instructions to call the Bonds shall have been given by the Authority to the Trustee, (2) the Trustee holds for such purpose cash or noncallable direct obligations of the United States of America the principal of and the interest on which at maturity will, as evidenced by the opinion or report of an independent certified public accounting firm, be sufficient (a) to redeem or pay at maturity Bonds then Outstanding, (b) to pay interest on Bonds prior to redemption or at maturity, and (c) to pay to the Trustee its reasonable fees and expenses and (3) the Authority has observed and performed all the covenants, C-25

96 conditions and agreements on the part of the Authority in the Indenture and in the Bonds contained, then the Trustee shall cancel and discharge the lien of the Indenture, discharge the indebtedness evidenced by the FHA Note (unless the Bonds have been paid, or deemed paid, by the issuance of Refunding Obligations in which case such indebtedness may remain outstanding), deliver any property held by it to the Institution, except funds or securities in which such funds are invested held by the Trustee for the payment of principal of, redemption premium, if any, and interest on the Bond except that if the FHA Note is in default, it will not be discharged and any property held by the Trustee will be delivered to the Institution. All Outstanding Bonds of any series shall prior to the maturity or redemption date thereof be deemed to have been paid within the meaning and with the effect expressed in the first paragraph of this section if, under circumstances which do not render interest on the Bonds subject to federal income taxation, the following conditions shall have been fulfilled: (a) in case any of the Bonds are to be redeemed on any date prior to their maturity, the Authority shall have given to the Bond Holders and the Trustee in form satisfactory to it irrevocable notice of redemption of the bonds on said date; and (b) there shall be on deposit with the Trustee either moneys or non-callable direct obligations of the United States of America in an amount together with anticipated earnings thereon as provided in the related investment agreement which will be sufficient to pay, when due, the principal or redemption price, if applicable, and interest due and to become due on the Bonds on the redemption date or maturity date thereof, as the case may be. No Recourse No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in any Bond, or under any judgment obtained against the Authority, or the enforcement of any assessment, or any legal or equitable proceedings by virtue of any constitution or statute or otherwise, or under any circumstances under or independent of the Indenture, shall be had against any incorporator, director or officer as such, past, present or future of the Authority, either directly or through the Authority or otherwise, for the payment for or to the Authority or any receiver thereof, or for or to the Holder of any Bond issued thereunder, or otherwise, of any sum that may be due and unpaid by the Authority upon any such Bond. Any and all personal liability of every nature whether at common law or in equity or by statute or by constitution or otherwise of any such incorporator, director or officer, as such, to respond by reason of any act or omission on his part or otherwise, for the payment for or to the Holder of any Bond issued thereunder or otherwise of any sum that may remain due and unpaid upon the Series 2007 Bond thereby secured or any of them is, by the acceptance hereof, expressly waived and released as a condition of and in consideration for the execution of the Indenture and the issuance of the Series 2007 Bond. Role of Authority The Authority shall not be required to take any action not expressly provided for herein or in the applicable HUD Regulations. In addition, the Authority shall have no obligation to review, control, or oversee the activities of the Trustee in (a) collecting any amounts payable pursuant to the FHA Note and Mortgage or (b) making any payments on the Series 2007 Bonds. FHA Documents and Regulations Control To the extent that there is any inconsistency or ambiguity between or among the Indenture and any of the FHA Documents or FHA regulations, the FHA Documents and FHA Regulations shall be deemed to be controlling and any such ambiguity or inconsistency shall be resolved in favor of and pursuant to the terms of the applicable FHA Document or Documents or FHA regulations. C-26

97 SUMMARY OF THE INSTITUTION LEASE The Facility is to be leased to the Authority pursuant to the Institution Lease. Reference is made to the Institution Lease for complete details of the terms thereof. The following is a brief summary of certain provisions of the Institution Lease and should not be considered a full statement thereof. Conveyance of Leasehold Interest The Institution leases to the Authority and the Authority leases from the Institution the Facility as described in Exhibits A and B attached to the Institution Lease for the term herein provided and for use as provided in the Lease Agreement. Term The term of this Institution Lease shall commence on the date of original issuance of the Series 2007A Bonds and expire one day subsequent to such date as the Lease Agreement shall extend or terminate under the terms thereof. Rent The sole rental hereunder shall be the single lump sum due to the Institution in accordance with Section 2.1 of the Lease Agreement and Section 4.03 of the Indenture. Other Provisions The use of the Facility, and all other rights, duties, liabilities and obligations of the Institution and the Authority with respect thereto, and the Facility to be leased and operated and the financing thereof not fixed in the Institution Lease shall be as set forth in the Lease Agreement. C-27

98 SUMMARY OF THE LEASE AGREEMENT The Facility is to be subleased to the Institution pursuant to the Lease Agreement. Reference is made to the Lease Agreement for complete details of the terms thereof. The following is a brief summary of certain provisions of the Lease Agreement and should not be considered a full statement thereof. Representations and Warranties by Authority The Authority makes the following representations and warranties: The Authority is a corporate governmental agency duly organized and existing under the laws of the State, and is authorized and empowered to enter into the transactions contemplated by the Lease Agreement and to carry out its obligations thereunder. By proper action of its members, the Authority has duly authorized the execution and delivery of the Lease Agreement and will do or cause to be done all things necessary to preserve and keep it in full force and effect. In order to pay the lump sum rental payment due to the Institution under the Institution Lease, the Authority proposes to issue the Series 2007 Bonds in the aggregate principal amount of $32,275,000. The Series 2007 Bonds will mature, bear interest, be redeemable and have the other terms and provisions set forth in the Indenture. Except for the assignment of the Lease Agreement and related documents to the Trustee as herein provided, the Authority has not and shall not sell, assign, encumber, convey or otherwise dispose of its rights under the Lease Agreement. Findings By Authority The Authority, based upon the representations and warranties of the Institution contained in the Lease Agreement and the information contained in the application and other materials heretofore submitted by or on behalf of the Institution to the Authority, hereby finds and determines that: (a) the financing of the Project by the Authority and the leasing of the Facility to the Institution is reasonably necessary to induce the Institution to proceed with the Project, and will allow the Institution to access affordable interest rates which will provide a substantial reduction in debt service costs to the Institution; and (b) the elderly population in and around Rochester, New York does not have access to a sufficient supply of decent, safe, and sanitary housing facilities designed to accommodate the special needs of the elderly and that the Project is reasonably designed to meet these needs and will mitigate this shortage. Representations and Warranties by Institution The Institution makes the following representations and warranties: (a) The Institution is a not-for-profit corporation duly organized, validly existing and in good standing under the laws of the State, is not in violation of any provision of its charter or by-laws, has the corporate power and authority to own its property and assets, to carry on its business as now being conducted by it, and to execute, deliver and perform the Lease Agreement. The Institution is duly qualified to do business in every jurisdiction in which failure to be so qualified would have a material adverse effect on the Institution's financial condition. (b) The execution, delivery and performance of the Lease Agreement and the consummation of the transactions therein contemplated have been duly authorized by all requisite corporate action on the C-28

99 part of the Institution and will not violate any provision of law, any order of any court or agency of government, or the by-laws of the Institution, or any indenture, agreement or other instrument to which the Institution is a party or by which it or any of its property is subject to or bound, or be in conflict with or result in a breach of or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement or other instrument or result in the imposition of any lien, charge or encumbrance of any nature whatsoever other than Permitted Encumbrances. (c) The assistance of the Authority in the financing of the costs of the Project is reasonably necessary to induce the Institution to proceed with the Project. (d) The total cost of the Facility is at least equal to the principal amount of the Series 2007 Bonds less the amount deposited into the Debt Service Reserve Fund. (e) At least 95 percent of the costs incurred with respect to that part of the Project paid from the proceeds of the sale of the Prior Obligations was capable of being treated on the books of the Institution as capital expenditures in conformity with generally accepted accounting principles applied on a consistent basis. (f) The property included in the Facility is either property of the character subject to the allowance for depreciation under Section 167 of the Code or land. (g) No part of the proceeds of the Series 2007 Bonds will be used to finance inventory or will be used for working capital, except as may be permitted by law. (h) The Project is included within the definition of project under the Act. (i) The Lease Agreement and the other Financing Documents to which the Institution is a party constitute the legal, valid and binding obligations of the Institution enforceable against the Institution in accordance with their respective terms. (j) The Facility has been designed, and the operation of the Facility has been and will be, in compliance with all applicable Federal, State and local laws or ordinances (including rules and regulations) relating to licensure, zoning, building, safety and environmental quality. The acquisition and operation of the Facility in the manner presently contemplated and as described herein will not conflict with any zoning, water or air pollution or other ordinance, order, law or regulation applicable thereto. The Institution has all necessary licenses and permits to conduct its business and operate the Facility. (k) There is no action or proceeding pending or to the best knowledge of the Institution threatened by or against the Institution by or before any court or administrative agency that might affect the ability of the Institution to perform its obligations under the Lease Agreement and each other Financing Document to which the Institution shall be a party, and all authorizations, consents and approvals of governmental bodies or agencies required to be obtained by the Institution as of the date of the Lease in connection with the execution and delivery of the Lease Agreement and each other Financing Document to which the Institution shall be a party or in connection with the performance of the obligations of the Institution thereunder and under each of the Financing Documents have been obtained. (l) The Institution intends to cause the Facility to be operated in accordance with the Lease Agreement and as a qualified project in accordance with and as defined under the Act. (m) The Institution has obtained all necessary approvals from any and all governmental agencies with respect to the Facility and the acquisition, construction, equipping and operation thereof, all of which are in compliance with all Federal, State and local laws, ordinances and regulations applicable thereto and in full force and effect and with the conditions and requirements of all policies of insurance with respect to the Project, the construction, equipping and operation of the Facility and the Lease C-29

100 Agreement. The Institution has further obtained, or will obtain, all required occupancy and operation permits, authorizations and licenses from appropriate authorities, if any be required, authorizing the occupancy, operation and use of the Facility for the purposes contemplated by the Lease Agreement, and each such permit, authorization and license continues in full force and effect. (n) The Institution has not taken and does not intend to take any action and knows of no action that any other person, firm or corporation has taken or intends to take, which would cause interest on the Series 2007 Bonds to be includable in the gross income of the recipients thereof for federal income tax purposes. (o) The information regarding the Institution and the Project in the Preliminary Official Statement dated April 20, 2007 (the Preliminary Official Statement ), and the information regarding the Institution and the Project in the Official Statement dated April 27, 2007 (the Official Statement ) prepared in connection with the issuance and sale of the Series 2007 Bonds (the Official Statement ), does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Any information regarding the Institution or the Project in any amendment or supplement to the Official Statement will be true and accurate in every material respect on the date as of which such information is dated or certified and such information shall not be incomplete by omitting to state any material information necessary to make such information not misleading in light of the circumstances under which they were made. The Institution acknowledges that the Trustee, the Underwriter, and the initial Holders of the Series 2007 Bonds are relying on such information. There is no fact known to the Institution that has not been disclosed in the Official Statement which could reasonably be expected to have a material adverse effect on the financial condition of the Institution or on the Project. (p) To the best of the Institution's knowledge, after due inquiry and investigation, none of the real property owned and/or occupied by the Institution and located in the State, including, but not limited to, the Facility has ever been used by previous owners and/or operators to refine, produce, store, handle, dispose of, transfer, process or transport Hazardous Materials, and the Institution has not in the past, nor does the Institution intend in the future, to use said real property, including, but not limited to, the Facility, for the purpose of refining, producing, storing, disposing of, handling, transferring, processing or transporting Hazardous Materials, except as is incidental to the operation of the Facility. (q) To the best of the Institution's knowledge, after due inquiry and investigation, no lien has been attached to any revenues or any real or personal property owned and/or occupied by the Institution and located in the State, including, but not limited to, the Facility, arising from an intentional or unintentional action or omission of the Institution or any previous owner and/or operator of said real property resulting in the releasing, spilling, pumping, pouring, emitting, emptying or dumping of Hazardous Materials into the waters of the State or onto lands from which it might flow or drain into said waters or into waters outside the jurisdiction of the State where draining may have resulted to the lands, waters, fish, shellfish, wildlife, air and other resources owned, managed, held in trust or otherwise controlled by the State. (r) The Institution has not received a summons, citation, directive, letter or other communication, written or oral, from regulatory body concerning any intentional or unintentional action or omission on the Institution's part resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of Hazardous Materials into the waters or onto the lands of the State, or into the waters outside the jurisdiction of the State resulting in damage to the lands, waters, fish, shellfish, wildlife, biota, air and other resources owned, managed, held in trust or otherwise controlled by the State. (s) The Institution represents that (i) it is an organization described in Section 501(c)(3) of the Code, or corresponding provisions of prior law, and is not a private foundation, as such term is defined under Section 509(a) of the Code, (ii) it has received a letter or other notification from the Internal Revenue Service to that effect, (iii) such letter or other notification has not been modified, limited C-30

101 or revoked, (iv) it is in compliance with all terms, conditions and limitations, if any, contained in such letter or other notification, (v) the facts and circumstances which form the basis of such letter or other notification as represented to the Internal Revenue Service continue to exist, and (vi) it is exempt from federal income taxes under Section 501(a) of the Code. The Institution agrees that (a) it shall not perform any act or enter into any agreement which shall adversely affect such federal income tax status and shall conduct its operations in the manner which will conform to the standards necessary to qualify the Institution as an organization within the meaning of Section 501(c)(3) of the Code or any successor provision of federal income tax law and (b) it shall not perform any act, enter into any agreement or use or permit the Facility to be used in any manner, or for any trade or business or other non-exempt use unrelated to the purposes of the Institution, which could adversely affect the exclusion of interest on the Series 2007 Bonds from federal gross income pursuant to Section 103 of the Code. (t) The Institution represents that it is an organization organized and operated: (i) exclusively for educational, benevolent or charitable purposes, (ii) not for pecuniary profit, and (iii) no part of the net earnings of which inures to the benefit of any person, private stockholder or individual, all within the meaning, respectively, of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The Institution agrees that it shall not perform any act or enter into any agreement which shall adversely affect such status as set forth in clauses (i), (ii) and (iii) of this Section. (u) The Institution covenants that it will maintain its corporate existence, will continue to operate as a non-profit institution for educational or charitable purposes as set forth in its charter, will obtain, maintain and keep in full force and effect such governmental approvals, consents, licenses, permits and accreditations as may be necessary for the continued operation of the Institution as an institution for educational or charitable purposes as set forth in its charter providing such services as it may from time to time determine, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another corporation or permit one or more corporations to consolidate with or merge into it; provided, however, that if no Event of Default shall have occurred and be continuing and prior written notice shall have been given to the Authority and the Trustee, the Institution may (i) sell or otherwise transfer all or substantially all of its assets to, or consolidate with or merge into, another organization or corporation which qualifies under Section 501(c)(3) of the Code, or any successor provision of federal income tax law, or (ii) permit one or more corporations or any other organization to consolidate with or merge into it, or (iii) acquire all or substantially all of the assets of one or more corporations or any other organization; provided, however, (a) that any such sale, transfer, consolidation, merger or acquisition does not in the opinion of counsel satisfactory to the Authority adversely affect the exclusion from federal gross income of the interest paid or payable on the Series 2007 Bonds, (b) that the surviving, resulting or transferee corporation, as the case may be, is incorporated under the laws of the State, and qualified under Section 501(c)(3) of the Code or any successor provision of federal income tax law, (c) that the surviving, resulting or transferee corporation, as the case may be, assumes in writing all of the obligations of and restrictions on the Institution under the Lease Agreement and under the Mortgage and furnishes to the Authority a certificate and an opinion of counsel to the effect that upon such sale, transfer, consolidation, merger or acquisition such corporation shall be in compliance with each of the provisions hereof and shall meet the requirements of the Act and the requirements of FHA and (d) such other certificates and opinions as may reasonably be required by the Authority. Compliance with Governmental Requirements. The Institution represents and warrants that the FHA Documents conform to all Governmental Requirements. The Institution covenants to fully perform, in timely fashion, all of its agreements and obligations under the Lease Agreement and the FHA Documents. The Institution shall comply in all material respects with all Governmental Requirements with respect to the Facility, or any part thereof, and the operation, maintenance, repair and replacement thereof and any requirement of an insurance company writing insurance thereon irrespective of the nature of the work required to be done, extraordinary as well as ordinary and foreseen as well as unforeseen. Anything contained in this Section to the contrary notwithstanding, the Institution shall have the right to contest the validity of any C-31

102 Governmental Requirement or the application thereof, if permitted by FHA, at the Institution's sole cost and expense. During such contest, compliance with any such contested Governmental Requirement may be deferred by the Institution, provided that prior to commencing any action or proceeding, administrative or judicial, contesting such Governmental Requirement, the Institution shall notify the Authority of the Institution's intention to contest such Governmental Requirement and, if the Authorized Representative of the Authority requests, shall furnish to the Authority a surety bond, moneys or other security, satisfactory to an Authorized Representative of the Authority, securing compliance with the contested Governmental Requirement and payment of all interest, penalties, fines, fees and expenses resulting from or in connection with such contest or the failure of the Institution to comply with the contested Governmental Requirement. Any such action or proceeding instituted by the Institution shall be commenced as soon as is reasonably practicable after the assertion of the applicability to the Facility, or any part thereof, of the contested Governmental Requirement by a governmental authority, and shall be prosecuted to final adjudication or other final disposition with reasonable dispatch. Notwithstanding the furnishing of any bond, deposit or other security, the Institution promptly shall comply with any such Governmental Requirement and compliance shall not be deterred if at any time the Facility, or any part thereof, to which such contested Governmental Requirement relates, would in the reasonable judgment of an Authorized Representative of the Authority be in substantial danger by reason of the Institution's noncompliance with such Governmental Requirement of being sold, attached, forfeited, foreclosed, transferred, conveyed, assigned or otherwise subjected to any proceeding, equitable remedy, lien, charge, fee or penalty that would impair (i) the interests or security of the Authority under the Lease Agreement, under the Indenture or the Mortgage; (ii) the ability of the Authority to enforce its rights thereunder; (iii) the ability of the Authority to fulfill the terms of any covenants or perform any of its obligations under the Lease Agreement or under the Indenture; or (iv) the ability of the Institution to fulfill the terms of any covenants or perform any of its obligations under the Lease Agreement or under the FHA Documents. To the extent that any provisions of the Lease Agreement shall conflict with any provisions of the FHA Documents, or conflict with the provisions of the National Housing Act or FHA Regulations, the provisions of the FHA Documents, the National Housing Act and/or FHA Regulations (or written program requirements thereunder), as the case may be, shall be controlling. The Lease Agreement is, and shall at times hereafter remain subject and subordinate to the FHA Documents, particularly the Mortgage and any and all modifications and/or extensions thereof. Lease of the Facility The Authority leases to the Institution and the Institution leases from the Authority the Facility, all for and during the term herein provided and upon and subject to the terms and conditions herein set forth. The Institution shall at all times during the term of the Lease Agreement occupy, use and operate the Facility, or cause the Facility to be occupied, used and operated, as elder living facilities including related elderly care services for the general purposes specified in the recitals to the Lease Agreement and Institution shall not occupy, use or operate the Facility or allow the Facility or any part thereof to be occupied, used or operated for any unlawful purpose or in violation of any certificate of occupancy affecting the Facility in any manner which may constitute a nuisance, public or private, or make void or voidable any insurance then in force with respect thereto. Rental Provisions; Pledge of Lease Agreement, Rent and Gross Receipts The Institution agrees to pay its obligations hereunder in accordance with the provisions of the Lease Agreement. (a) Basic Payments. Notwithstanding anything to the contrary contained herein, the Institution covenants that it shall make, commencing from the Closing Date, all payments due under the Note (collectively, the Basic Payments ). The foregoing to be paid in all events at such times and in such amounts to assure that payment of the principal of and premium, if any, and interest on, the Series 2007 Bonds shall be made when due, whether at maturity, by call for redemption, by declaration of acceleration or otherwise, in accordance with the terms and provisions of the Indenture. C-32

103 (b) Authority Expenses. Promptly after notice from the Authority, but in any event not later than fifteen (15) days after such notice is given, the Institution shall pay the amount set forth in such notice as payable to the Authority (i) to reimburse the Authority for any external costs or expenses incurred by it attributable to the issuance of the Series 2007 Bonds or the financing or construction of the Facility, including, but not limited to, costs and expenses of insurance and auditing (ii) for the costs and expenses incurred by the Authority to compel full and punctual performance by the Institution of all the provisions of the Lease Agreement, or of the Indenture, and (iii) for the fees and expenses of the Trustee and any Paying Agent (including reasonable fees and expenses of counsel) in connection with performance of their duties under the Indenture. (c) Event of Default. The Institution shall pay all amounts required to be paid by the Institution as a result of an Event of Default. (d) Rebate. The Institution shall pay the difference between the amount on deposit in the Rebate Fund or otherwise available therefor under the Indenture and the Tax Compliance Agreement for the payment of any rebate required by the Code to be paid and the amount required to be rebated to the Department of the Treasury of the United States of America in accordance with the Code in connection with the Series 2007 Bonds of any Series. Security Interest in Gross Receipts As security for its obligation to make the Lease Payments required under the Lease Agreement, the Institution grants to the Authority a security interest in all Gross Receipts and in its interest, if any, in the monies held by the Trustee under the Indenture, to secure, among other things, the Authority's right to receive rental payments under the Lease Agreement and all obligations of the Institution under the Lease Agreement, the Mortgage, Assignment and Security Agreement. The Institution hereby represents that as of the date of the delivery of the Lease Agreement it has granted no security interest in Gross Receipts other than the security interest referred to in this Section. Additional Payments Notwithstanding anything in the foregoing to the contrary, if the amount on deposit and available in the Bond Fund is not sufficient to pay the principal of, sinking fund installments for, redemption premium, if any, and interest on the Series 2007 Bonds when due (whether at maturity or by redemption or acceleration or otherwise as provided in the Indenture), the Institution shall forthwith pay the amount of such deficiency in immediately available funds to the Trustee for deposit in the Bond Fund and such payment shall constitute rental payments under this Section. Continuing Obligation In the event the Institution should fail to make or cause to be made any of the payments required under the foregoing provisions of this Section, the item or installment not so paid shall continue as an obligation of the Institution until the amount not so paid shall have been fully paid. Prepayment The Institution shall have the option to prepay its rental obligation with respect to the Series 2007 Bonds, in whole or in part, at the times and in the manner provided in Article VIII of the Lease Agreement as and to the extent provided in the Indenture for redemption of the Series 2007 Bonds. C-33

104 Reduction of Sinking Fund Installments At its option, to be exercised on or before the forty-fifth (45th) day next preceding the date any Series 2007 Bonds are to be redeemed from sinking fund installments, the Institution may deliver to the Trustee Series 2007 Bonds which are subject to sinking fund installment redemption in an aggregate principal amount not in excess of the principal amount of Series 2007 Bonds to be so redeemed on such date. Each such Bond so delivered shall be credited by the Trustee at one hundred percent (100%) of the principal amount thereof against the obligation of the Authority on such sinking fund installment payment date, and any excess over such sinking fund installment shall be credited to future sinking fund installments in reverse chronological order, and the principal amount of Bonds to be redeemed by operation of the sinking fund installments shall be accordingly reduced. No Further Rental Payments No further rental payments need be made to the Authority during the term of the Lease Agreement when and so long as the amount of cash and/or Government Obligations on deposit in the Bond Fund is sufficient to satisfy and discharge the obligations of the Authority under the Indenture and pay the Series 2007 Bonds. Pledge and Assignment to Trustee Pursuant to the Indenture, the Authority shall pledge and assign to the Trustee as security for the Series 2007 Bonds all of the Authority's right, title and interest in the Lease Agreement (except for the Authority's Reserved Rights), including all rental payments thereunder, and, in furtherance of said pledge, the Authority will unconditionally assign such rental payments to the Trustee for deposit in the Bond Fund in accordance with the Indenture. The Institution consents to the above described pledge and assignment of the Lease Agreement. Compliance The Institution covenants and agrees that it will comply with the provisions of the Indenture with respect to the Institution, authorizes and acknowledges the deposits to be made pursuant to the Indenture and agrees that the Trustee shall have the power, authority, rights and protection provided in the Indenture. The Institution further covenants to use its best efforts to cause there to be obtained for the Authority any documents or opinions required by the Authority under the Indenture. Obligation of Institution Unconditional The obligation of the Institution to pay the rent and all other payments provided for in the Lease Agreement and to maintain the Facility in accordance with Section 4.1 of the Lease Agreement shall be absolute and unconditional, irrespective of any defense or any rights of set-off, recoupment or counterclaim or deduction and without any rights of suspension, deferment, diminution or reduction it might otherwise have against the Authority, the Trustee or the Holder of any Bond, and the obligation of the Institution shall arise whether or not the Facility has been completed as provided in the Lease Agreement. The Institution will not suspend or discontinue any such payment or terminate the Lease Agreement (other than such termination as is provided for hereunder) for any cause whatsoever, and the Institution waives all rights now or hereafter conferred by statute or otherwise to quit, terminate, cancel or surrender the Lease Agreement or any obligation of the Institution under the Lease Agreement or the Facility or any part thereof except as provided in the Lease Agreement or to any abatement, suspension, deferment, diminution or reduction in the rentals or other payments thereunder. C-34

105 Additional Obligations; Additional Amounts Payable by Institution; Restoration of Debt Service Reserve Fund Prior to and as a condition precedent to the delivery of the Series 2007 Bonds in accordance with Section 2.10 of the Indenture, the Institution shall deliver to the Trustee a written report of an independent qualified insurance consultant retained by the Institution confirming (i) the existence of insurance in accordance with Section 4.6 of the Lease Agreement as of the date of delivery of the Series 2007 Bonds, and (ii) the adequacy of such insurance for projects similar to the operation of the Facility; and It is the intention of the Authority and the Institution that, notwithstanding any other provision of this Agreement, the Institution shall pay the rental payments due hereunder at such times and in such amounts as will enable the Authority to meet all of its obligations with respect to the Series 2007 Bonds and the Indenture, including any obligations surviving the payment of the Series 2007 Bonds, and including amounts due upon sinking fund installments, Extraordinary Redemption, other mandatory redemption or an acceleration of the maturity of the Series 2007 Bonds by the Trustee pursuant to the terms thereof and the terms of the Indenture. Accordingly, the Institution agrees (but such agreement shall not limit the generality of the preceding sentence) that if any additional amounts become payable by the Authority to the Owners of the Series 2007 Bonds or the Trustee pursuant to the terms thereof or the terms of the Indenture, then additional amounts, as part of the lease payments under the Lease Agreement, shall be due and payable by the Institution to the Trustee, as the assignee of the Authority, thereunder equal to any additional amounts that may be so payable by the Authority, before or after payment of principal on the Series 2007 Bonds and all lease payments thereunder, all of which amounts shall be paid by the Institution on the date that the comparable amounts are due by the Authority to the Trustee under the Series 2007 Bonds or the Indenture. The Institution expressly acknowledges receipt of a copy of the Indenture, agrees to undertake all obligations of the Institution specified therein and to cooperate with the Authority in connection with the performance by the Authority of its obligations thereunder and agrees to pay all amounts and perform all obligations of the Authority (to the extent that any of such obligations are capable of being performed by the Institution) and the Institution under the Indenture so that at all times there shall be no default thereunder. The Institution further agrees to pay all costs of maintenance and repair, all taxes and assessments, insurance premiums and other costs and expenses concerning or in any way related to ownership, maintenance and use of the Facility, or any part thereof, during the term of the Lease Agreement or any renewal thereof. The Institution shall pay upon demand to the Trustee in three (3) equal monthly installments the amount, if any, by which the value of the amounts on deposit in the Debt Service Reserve Fund are less than the Debt Service Reserve Fund Requirement. Any payments made from the Bond Fund pursuant to Section 4.04 of the Indenture shall be considered credited towards the payments required by the preceding two paragraphs. Credit Toward Rentals The following amounts (to the extent, if any, which such amounts shall not have previously been the basis for a credit) shall be credited against the payment of Basic Payments next required to be made by the Institution pursuant to the Lease Agreement and such payment of Basic Payments shall be accordingly reduced to the extent of any such credits: (a) Payments representing principal and interest made to the Trustee, as FHA mortgagee, pursuant to and in accordance with the terms of the FHA Note; (b) To the extent applied to the payment thereof in accordance with the Mortgage and the Indenture, the amount by which the net insurance proceeds of insurance maintained pursuant to Section 4.6 of the Lease Agreement exceeds the cost of replacing, repairing, rebuilding, restoring or renovating the Facility; C-35

106 (c) To the extent applied to the payment thereof, the amount by which the net condemnation proceeds of any condemnation award exceed the cost of restoring or replacing the Facility; and (d) The amount of moneys paid to the Trustee as the prepayment of Basic Payments pursuant to Section 3.2 (i) of the Lease Agreement. Lease Addendum. Notwithstanding any other provisions of the Lease Agreement, if and so long as the leasehold estate created by the Lease Agreement is subject to a mortgage insured, reinsured, or held by the Federal Housing Commissioner or given to the Commissioner in connection with a resale, or the demised premises are acquired by him because of a default under said mortgage: (a) The Institution is authorized to obtain a loan, the repayment of which is to be insured by Federal Housing Commissioner and secured by a mortgage on the leasehold estate. Institution is further authorized to execute a mortgage on the leasehold and otherwise to comply with the requirements of the Federal Housing Commissioner for obtaining such an insured mortgage loan. (b) The Federal Housing Commissioner shall have the option, in the event that he, or his successors in office, through the operation of Contract of mortgage insurance, shall acquire title to the leasehold estate created by the Lease Agreement, to purchase good and marketable fee title to the demised premises, free of all liens and encumbrances except such as may be waived or accepted by him, or his successor in office, within twelve (12) months after so acquiring the leasehold interest the sum of Ten and 00/100 Dollars ($10.00) payable in cash, or by Treasury check, provided rents are paid to date of transfer of title, upon first giving sixty (60) days written notice to the Authority or other person or corporation who may then be the owner of the fee, and the owner of the fee shall thereupon execute and deliver to Federal Housing Commission, a deed of conveyance to the demised premises, containing a covenant against the grantor's acts, but excepting therefrom such acts of the Institution and those claiming by, through or under the Institution of the leasehold of the leasehold interest. Nothing in this option shall require the Authority to pay any taxes or assessments which were due and payable by the Institution. (c) If approved by Federal Housing Commissioner, the Institution may assign, transfer or sell its interest in the demised premises. (d) (i) Insurance policies shall be in an amount, and in such company or companies and in such form, and against such risks and hazards, as shall be approved by the Trustee and/or Federal Housing Commissioner. (ii) The Authority shall not take out separate insurance concurrent in form or contributing in the event of loss with that specifically required to be furnished by the Institution to the Trustee and as determined by Federal Housing Commissioner. The Authority may at its own expense, however, take out separate insurance which is not concurrent in form or not contributing in the event of loss with that specifically required to be furnished by the Institution. (e) If all or any part of the demised premises shall be taken by condemnation that portion of any award attributable to the improvements or damage to the improvements shall be paid to the Trustee. (f) The Authority agrees that, within ten (10) days after receipt of written request from Institution, it will join in any and all applications for permits, licenses or other authorizations required by any governmental or other body claiming jurisdiction in connection with any work which the Institution may do hereunder, and will also join in any grants for easements for electric, telephone, gas, water, sewer and such other public utilities and facilities as may be reasonably necessary in the operation of the demised premises or of any improvements that may be erected thereon; and if, at the expiration of such ten (10) day period, the Authority shall not have joined in any such application, or grants for easements, C-36

107 the Institution shall have the right to execute such application and grants in the name of the Authority, and, for that purpose, the Authority hereby irrevocably appoints the Institution as its Attorney-in-fact to execute such papers on behalf of the Authority. (g) Nothing in the Lease Agreement contained shall require the Institution to pay any franchise, capital levy or transfer tax of the Authority, or any income, excess profits or revenue tax, or any other tax, assessment, charge or levy upon the rent payable by the Institution under the Lease Agreement. Maintenance, Alterations and Improvements During the term of the Lease Agreement, the Institution will keep the Facility in good and safe operating order and condition, ordinary wear and tear excepted, will occupy, use and operate the Facility in the manner for which it was designed, intended and contemplated by the Lease Agreement, and will make all replacements, renewals and repairs thereto (whether ordinary or extraordinary, structural or nonstructural, foreseen or unforeseen) reasonably necessary to ensure that the Facility remains functional and a qualified project under the Act. All replacements, renewals and repairs shall be equal in quality and class to the original work and be made and installed in compliance with the requirements of all regulatory bodies. The Authority shall be under no obligation to replace, service, test, adjust, erect, maintain or effect replacements, renewals or repairs of the Facility, to effect the replacement of any inadequate, obsolete, worn-out or unsuitable parts of the Facility, or to furnish any utilities or services for the Facility, and the Institution hereby agrees to assume full responsibility therefor. The Institution may expand, modify and renovate the Facility, provided any Additional Bonds issued to finance such construction conform to the provisions of Section 2.11 of the Indenture. Application of Proceeds of Hazard Insurance. The Mortgage provides that amounts paid by an insurance company under a contract of hazard insurance shall be paid to the mortgagee under the Mortgage, and shall be applied to the prepayment of reduction of the FHA Note or released for the repairing or rebuilding of the Facility if approved in writing by FHA prior to the payment of such proceeds. No such amounts may be so applied or released without the prior written approval of FHA to the extent so required. In the event of any damage to any property covered by insurance as required by Section 4.6 of the Lease Agreement, the Institution shall immediately notify the Authority, the Trustee, the Mortgage Servicer and FHA, prepare an estimate of the costs of repairing or replacing the damaged property, and (if appropriate) prepare plans and specifications therefor in cooperation with an architect. If the fire and extended coverage insurance proceeds exceed $25,000 (the Threshold Amount ), the estimate of costs of repair or replacement and a copy of any such plans and specifications shall be filed with the Trustee and FHA. If, within ninety (90) days from the receipt of the proceeds of such damage or destruction, the Institution and the Authority agree in writing that the efficient utilization of the Facility has not been so impaired that the ability of the Institution, taking into account all financial resources of the Institution, to make the payments required under the Lease Agreement and the FHA Documents will not have been materially adversely affected prior to the completion of the replacement or restoration of such part of the Facility so damaged or destroyed, the proceeds of insurance received by or allocable to the Trustee by reason of such occurrence (after deducting any reasonable expenses incurred by the Trustee, the Mortgage Servicer or the Institution in collecting the same) and any investment earnings on such proceeds (the Net Insurance Proceeds ) shall, subject to any applicable FHA requirements, be applied to the repair or replacement of the property damaged or destroyed. If no such agreement shall be reached within such 90- day period (or such longer period as the Trustee may agree in writing), all Net Insurance Proceeds shall, subject to any applicable FHA requirements, be credited to prepayment of the Note, shall be applied to the reduction of succeeding payments becoming due under the Note (as recast in the manner provided in the Note over the remaining term thereof) and transferred to the Bond Fund for application to the C-37

108 Extraordinary Mandatory Redemption of the Series 2007 Bonds pursuant to Section 5.07 of the Indenture. Such Net Insurance Proceeds shall not be credited as a prepayment of principal of the Note until the date of such redemption. If the Net Insurance Proceeds to be applied to the repair or replacement of the property damaged or destroyed exceed the Threshold Amount such proceeds shall be disbursed by the Trustee. If the Net Insurance Proceeds are equal to or less than the Threshold Amount such proceeds shall, at the request of the Institution and with the approval of FHA, be paid by the Trustee to or upon the order of the Institution, which shall keep them separate from all other funds for application first to pay the costs of repair or replacement of the property damaged or destroyed, second to payment in full of any unpaid fees or expenses of the Trustee and the Mortgage Servicer and third to any lawful purpose of the Institution. The Institution shall commence and diligently prosecute, or cause to be commenced and diligently prosecuted, the repair or replacement of the property damaged or destroyed in accordance with any plans and specifications approved by the Trustee and FHA (if required by the FHA Documents) and shall pay any amounts required for the completion of such repair or replacement if the Net Insurance Proceeds are insufficient therefor. Application of Proceeds of Condemnation Compensation. (a) The Mortgage provides that all proceeds of condemnation shall be paid to the mortgagee under the Mortgage to be applied to payment of the Note, unless otherwise approved in writing by FHA prior to the payment of such proceeds. The Trustee (as mortgagee under the Mortgage) shall recover and deliver to the Trustee all such proceeds of condemnation. Pending the application of such condemnation proceeds pursuant to subsection (c) below, such condemnation proceeds shall be held by the Trustee. No such amounts may be applied or released without the prior approval of FHA. (b) Upon the institution or condemnation proceedings with respect to the Facility, or any portion thereof, the Institution shall immediately notify the Authority, the Trustee, and the Mortgage Servicer. (c) Any condemnation proceeds, including by eminent domain (after deducting any reasonable expenses incurred by the Institution, the Trustee or the Mortgage Servicer in collecting the same), and any investment earnings on such proceeds (the Net Condemnation Proceeds ) received by or allocable to the Trustee from a taking of substantially all of the Facility shall be applied to prepayment of the Note. Any Net Condemnation Proceeds received from a taking of less than substantially all of the Facility shall be applied as follows: (i) if no part of the improvements included in the Facility is taken or damaged, and the Trustee (as mortgagee under the Mortgage) in its discretion determines that the efficient utilization of the Facility is not impaired by such taking, then all of the Net Condemnation Proceeds shall, whether or not such proceeds are equal to or less than the Threshold Amount, subject to any applicable FHA Requirements, be paid to the Institution. (ii) if any part of the improvements is taken or damaged, and if the Trustee (as mortgagee under the Mortgage) in its discretion determines that such repair, rebuilding, restoration, or rearrangement of the Facility is not possible so as to restore the operational condition of the Facility to substantially the condition existing immediately preceding such condemnation or if FHA will not permit the Net Condemnation Proceeds to be applied to the repair, rebuilding, restoration or rearrangement of the Facility, then all of the Net Condemnation Proceeds shall, subject to any applicable FHA requirements, be applied to the prepayment of principal of the Note and transferred by the Trustee to the Redemption Fund to be applied to the Extraordinary Mandatory Redemption of Bonds pursuant to Section 5.7 of the Indenture; C-38

109 (iii) if any part of such improvement is taken or damaged, and if the Trustee (as mortgagee under the Mortgage) in its discretion determines that such repair, rebuilding, restoration or rearrangement is possible and that the efficient utilization of the Facility has not been impaired, then all of the Condemnation Proceeds shall, subject to any applicable FHA requirements, be disbursed to the Institution as described in subparagraph (iv) below for the repair, rebuilding, restoration or rearrangement of the Facility, so as to restore the operational condition thereof, insofar as may be possible, to that existing immediately preceding such condemnation (provided that, if the Net Condemnation Proceeds exceed the Threshold Amount, the estimate of the cost of repair, rebuilding, restoration or rearrangement of the Facility and a copy of any plans and specifications prepared in connection therewith shall be filed with the Authority, the Trustee and FHA); (iv) if the Net Condemnation Proceeds are to be applied to the repair, rebuilding, restoration or rearrangement of the Facility, and if such Net Condemnation Proceeds are greater than the Threshold Amount, such Net Condemnation Proceeds shall be disbursed by the Trustee and if such Net Condemnation Proceeds are less than or equal to the Threshold Amount, such Net Condemnation Proceeds shall be paid by the Trustee in accordance with Section 4.03(e)(3) of the Indenture to or upon the order of the Institution; the Institution shall keep them separate from all other funds and apply them first to pay the costs of repair, rebuilding, restoration or rearrangement of the Facility, second to full payment of any unpaid fees or expenses of the Trustee or the Mortgage Servicer and third to any lawful purpose of the Institution; and in such event, the Institution shall commence and diligently prosecute, or cause to be commenced and diligently prosecuted, such repair, rebuilding, restoration or rearrangement of the Facility, and shall pay any amounts required for the completion thereof if the Net Condemnation Proceeds are not sufficient therefor. For purposes of this subsection (c), improvements shall mean all structures and other real and personal property comprising buildings and facilities of the Institution which are subject to the lien and security interests created by the Mortgage. (d) Net Condemnation Proceeds to be applied to prepayment of principal of the Note pursuant to subsection (c) above shall be applied to the reduction of succeeding payments due under the Note (as recast in the manner provided in the Note over the remaining term thereof); provided that such Net Condemnation Proceeds shall not be credited as a prepayment of principal of the Note until the date of such redemption. Events of Default. Any one or more of the following events shall constitute an Event of Default under the Lease Agreement: (a) Failure of the Institution to pay any rental that has become due and payable by the terms of Section 3.2 of the Lease Agreement; (b) Failure of the Institution to pay any amount (except the obligation to pay rent under Section 3.2 of the Lease Agreement) that has become due and payable or to observe and perform any covenant, condition or agreement on its part to be performed under Section 4.5 of the Lease Agreement and continuance of such failure for a period of ten (10) days after receipt by the Institution of written notice specifying the nature of such default from the Authority or the Trustee; (c) Failure of the Institution to observe and perform any covenant, condition or agreement in the Lease Agreement on its part to be performed (except as set forth in Section 7.1(a) or (b) of the Lease Agreement) and (1) continuance of such failure for a period of thirty (30) days after receipt by the Institution of written notice specifying the nature of such default from the Authority or the Trustee, or (2) C-39

110 if by reason of the nature of such default the same can be remedied, but not within the said thirty (30) days, the Institution fails (i) to commence such cure within such thirty (30) day period, (ii) to proceed continuously with reasonable diligence after receipt of said notice to cure the same, or (iii) to cure the same within ninety (90) days; (d) The Institution shall (i) apply for or consent to the appointment of or the taking of possession by a receiver, liquidator, custodian or trustee of itself or of all or a substantial part of its property, (ii) admit in writing its inability, or be generally unable, to pay its debts as such debts generally become due, (iii) make a general assignment for the benefit of its creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect), (v) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, (vi) take any action for the purpose of effecting any of the foregoing, or (vii) be adjudicated as bankrupt or insolvent by any court; (e) A proceeding or case shall be commenced, without the application or consent of the Institution, in any court of competent jurisdiction, seeking (i) liquidation, reorganization, dissolution, winding-up or composition or adjustment of debts, (ii) the appointment of a trustee, receiver, liquidator, custodian or the like of the Institution or of all or any substantial part of its assets, (iii) similar relief under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing against the Institution shall be entered and continue unstayed and in effect for a period of sixty (60) days, or (iv) the Institution shall fail to controvert in a timely or appropriate manner, or acquiesce in writing to, any petition filed against itself in an involuntary case under such Bankruptcy Code; the terms dissolution or liquidation of the Institution as used above shall not be construed to prohibit any action otherwise permitted by Section 6.1 of the Lease Agreement; (f) Any written representation or warranty made (i) by or on behalf of the Institution in the application, commitment letter and related materials submitted to the Authority for approval of the Project or its financing, or (ii) by the Institution herein or in any of the other Financing Documents, or (iii) in the Letter of Representation and Indemnity Agreement delivered to the Authority and the Trustee, or (iv) in the Tax Compliance Agreement, or (v) in any written report, certificate, financial statement or other instrument furnished pursuant hereto or any of the foregoing shall prove to be false, misleading or incorrect in any material respect as of the date made; (g) An Event of Default under the Indenture, the Mortgage or any other Financing Document shall occur; (h) The failure of the Institution to comply timely with any of the terms of the Environmental Compliance and Indemnification Agreement. (i) The failure of the Institution to pay any Impositions, as defined in Section 4.4 of the Lease Agreement, that have become due and payable. (j) if a final judgment for an amount exceeding applicable insurance coverage by $250,000 or more (adjusted by CPI) shall be outstanding against the Institution for any period of thirty (30) days or more from the date of its entry and shall not have discharged in full or stayed pending appeal; (k) other than as permitted in the Lease Agreement, any future sale, assignment, lease, mortgage or any other transfer of the Land or other security for the Series 2007 Bonds, including, without limitation, Gross Revenues, by the Institution, whether voluntarily or by operation of law, including, without limitation, through foreclosure; C-40

111 (l) an abandonment by the Institution of any portion of the Facility or failure by the Institution to continuously operate any portion of the Facility necessary for the operation of the Facility as currently or as hereinafter licensed; (m) failure to maintain the insurance required by the Lease Agreement or the Mortgage; (n) the suspension or revocation of any material licenses for the Facility, if such suspension or revocation is not remedied within five business days; (o) a voluntary violation by the Institution of the provisions of Sections 6.1 or 6.7 of the Lease Agreement, if such violation is not corrected within five business days; or Remedies on Default. Upon the occurrence of an Event of Default, and at any time thereafter during the continuation of such Event of Default, the Authority may exercise any right or remedy available to it in law or equity to enforce its rights to payment of its expenses and indemnification and the Trustee, as assignee of the Authority, may, whether or not the principal and interest on the Series 2007 Bonds have been accelerated, take one or more of the following remedial steps (and in the event that as a result of such Event of Default, the Trustee declares the principal amount of all Bonds then Outstanding, together with any premium thereon, to be immediately due and payable under Section 8.01 of the Indenture, the Trustee shall take the remedial step set forth in Section 7.2(a) of the Lease Agreement): provided, however, that prior to commencing any action, suit or proceeding under this Section against the Institution, the Authority shall have received the prior written consent of FHA, if required by the FHA Documents. The Trustee, as and to the extent provided in Article VIII of the Indenture, may cause all installments of rent constituting principal payments due on the FHA Note payable under Section 3.2 of the Lease Agreement for the remainder of the term of the Lease Agreement to be immediately due and payable, whereupon the same, together with any premium and the accrued interest thereon, shall become immediately due and payable; provided, however, that upon the occurrence of an Event of Default under Section 7.1(d) or (e) of the Lease Agreement, all installments of rent payable under Section 3.2 of the Lease Agreement for the remainder of the term of the Lease Agreement, together with any premium and the accrued interest thereon, shall immediately become due and payable without any declaration, notice or other action of the Authority, the Trustee, the Mortgage Servicer, the Holders of the Series 2007 Bonds or any other Person being a condition to such acceleration; The Authority or the Trustee may take whatever action at law or in equity as may appear necessary or desirable to collect the rent then due and thereafter to become due, including termination of the Lease Agreement, or to enforce performance or observance of any obligations, agreements or covenants of the Institution under the Lease Agreement; The Trustee may take any action permitted under the Indenture with respect to an Event of Default thereunder and the Authority or the Trustee may exercise rights under the Mortgage, the Lease Agreement and Institution Lease and all other rights of a secured party; In the event of a default with respect to any of the Authority's Reserved Rights, the Authority, without the consent of the Trustee or any Bondholder, (i) may proceed to enforce the Authority's Reserved Rights by an action for damages, injunction or specific performance and/or (ii) may convey all of the Authority's right, title and interest in the Facility to the Institution by quit claim deed, lease termination or other instrument which, in the opinion of the Authority's counsel, shall be necessary to convey to the Institution all of the Authority's right, title and interest in the Facility, subject to all liens, encumbrances, mortgages and interests then affecting the Facility. The Institution hereby appoints the Authority as the Institution's attorney-in-fact coupled with an interest to record such instrument(s) in the C-41

112 office of the Clerk of the County and to take all other and further action necessary to fully terminate the Authority's leasehold interest in the Facility. The Trustee may, after prior written notice to the Institution, perform for the account of the Institution any covenant in the performance of which the Institution is in default or make any payment for which the Institution is in default. The Institution shall pay to the Trustee such amount so paid by the Trustee within five days after any amounts paid by the Trustee in the performance of such covenant. Any amounts which shall have been paid by reason of failure of the Institution to comply with any covenant or provision of the Lease Agreement, including reasonable counsel fees, incurred in connection with prosecution or defense of any proceedings instituted by reason of default of the Institution, shall bear interest at two percentage points over the rate of interest from time to time applicable to the indebtedness evidenced by Article II hereof or the highest rate permitted by law, whichever is less, from the date of payment by the Trustee until paid by the Institution and shall be secured by other collateral pledged under the Lease Agreement. The Trustee may by its agents or attorneys, enter upon and take and maintain possession of all or any part of the Facility, together with all records, documents, books, papers and accounts of the Institution relating thereto, and may, as the attorney in fact or agent of the Institution, being duly authorized, or in its own name, hold, manage, and operate the Facility and collect the amounts payable by reason of such operation. After paying the expenses of operation and maintenance, including such repairs, replacements, alterations, additions and improvements as it deems proper, the Trustee shall apply the balance of the revenues as provided in Section 8.04 of the Indenture. The Trustee may have a receiver appointed to enter into possession of the Facility, collect the revenues, rents, issues and profits therefrom and apply the same as required under the Lease Agreement, the Indenture and the Mortgage and the Trustee may exercise any other remedy available at law or in equity. If any party shall have proceeded to enforce the Lease Agreement by suit or action in equity or in law and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to such party, then the Institution, the Authority and the Trustee shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Institution, Authority and the Trustee shall continue as though no such proceedings had taken place. In the event that the Institution fails to make any rental payment required in Section 3.2 of the Lease Agreement, the installment so in default shall continue as an obligation of the Institution until the amount in default shall have been fully paid. No action taken pursuant to Section 7.2 of the Lease Agreement (including termination of the Lease Agreement pursuant to Section 7.2 or by operation of law or otherwise) shall, except as expressly provided herein, relieve the Institution from the Institution's obligations under the Lease Agreement, all of which shall survive any such action. C-42

113 APPENDIX D June 1, 2007 Village of East Rochester Housing Authority 120 West Commercial Street East Rochester, New York $32,275,000 VILLAGE OF EAST ROCHESTER HOUSING AUTHORITY FHA-Insured Mortgage Revenue Refunding Bonds (St. John s Meadows Project) Series 2007 Ladies and Gentlemen: We have acted as bond counsel to the Village of East Rochester Housing Authority (the Authority ) in connection with the issuance on the date hereof by the Authority of its $32,275,000 aggregate principal amount FHA-Insured Mortgage Revenue Refunding Bonds (St. John s Meadows Project), Series 2007 (the Bonds ). The Bonds are authorized to be issued pursuant to (i) Article III of the New York Public Housing Law, as amended (the Enabling Act ) pursuant to Chapter 490 of the 1968 Laws of New York, as amended, which Chapter 490 of the 1968 Laws of New York and the Enabling Act are herein collectively called the "Act", (ii) a Bond Resolution, duly adopted by the Authority on April 24, 2007 (the Resolution ), (iii) a Bond Purchase Agreement, dated April 26, 2007 (the Bond Purchase Agreement ), by and among the Authority, Cain Brothers & Company, LLC (the Underwriter ), and St. John s Home for the Aging Inc. (the Institution ), and (iv) a Trust Indenture, dated as of May 1, 2007 (the Indenture ), by and between the Authority and Manufacturers and Traders Trust Company, as trustee for the benefit of the Owners of the Bonds (the Trustee ), for the purpose of providing funds to refund the Authority s Village of East Rochester Housing FHA-Insured Mortgage Revenue Bonds (St. John s Meadows Project) Series 1997A (the "Series 1997A Bonds") and Village of East Rochester Housing FHA-Insured Mortgage Revenue Bonds (St. John s Meadows Project) Series 1998A (the "Series 1998A Bonds"). The Series 1997A Bonds and the Series 1998A Bonds are referred to collectively herein as the Prior Bonds. The proceeds of the Prior Bonds were used to construct and equip a 176-unit senior living apartment complex known as Chestnut Court and a 118-unit assistive living apartment complex known as the Hawthorne/Briarwood Complex on approximately 16.9 acres of land located at 1463 Elmwood Avenue, in the Town of Brighton, County of Monroe, State of New York (the "Facility") and to pay the expenses incurred in connection with the issuance of the Prior Bonds, together with certain related costs and amounts. Pursuant to an Institution Lease dated as of May 1, 2007 between the Institution and the Authority (the "Institution Lease"), the Institution has leased the Facility to the Authority. D-1

114 Village of East Rochester Housing Authority June 1, 2007 Page 2 The Authority and the Institution have entered into a Lease Agreement dated as of May 1, 2007 (the "Lease Agreement"), pursuant to which the Authority subleased the Facility to the Institution in consideration of the payment of rentals by the Institution to the Authority sufficient to provide for the payment of the principal of, Redemption Price, if any, and interest on the Bonds as the same become due. The payment of the principal of and interest on the Series 2007 Bonds is secured by a mortgage given by the Institution to the Authority in connection with the issuance of the Series 1997A Bonds, as modified and assigned to the Trustee, as FHA mortgagee (the "1997 Mortgage ), and as further modified by a Mortgage Modification Agreement dated as of May 1, 2007, by and among the Institution, the Authority and the Trustee (the Mortgage Modification Agreement ). The payment of the principal of and interest on the Series 2007 Bonds is further secured by a second mortgage given by the Institution to the Authority in connection with the issuance of the Series 1998A Bonds, as modified and assigned to the Trustee, as FHA mortgagee (the "1998 Mortgage ), and as further modified by a Second Mortgage Modification Agreement dated as of May 1, 2007, by and among the Institution, the Authority and the Trustee (the Second Mortgage Modification Agreement ). The Pledged Revenues shall include proceeds from a note (the "1997A FHA Note") executed by the Institution in connection with the issuance of the Series 1997A Bonds, as modified and assigned to the Trustee, as FHA mortgagee, and as further modified by the Second Allonge to Mortgage Note dated as of May 1, 2007 by the Institution and the Trustee. The Pledged Revenues shall also include proceeds from a note (the "1998A FHA Note") executed by the Institution in connection with the issuance of the Series 1998A Bonds, as modified and assigned to the Trustee, as FHA mortgagee, and as further modified by the Second Allonge to Second Mortgage Note dated as of May 1, 2007 by the Institution and the Trustee. The 1997A FHA Note and the 1998A FHA Note have been finally endorsed for insurance by the Federal Housing Administration ("FHA") under Section 232 and 241/232 of the National Housing Act of The Bonds are dated their date of delivery and bear interest from the date thereof pursuant to the respective terms of the Bonds. The Bonds are subject to prepayment or redemption prior to maturity, as a whole or in part, at such time or times, under such circumstances and in such manner as is set forth in the Bonds and the Indenture. As bond counsel, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such instruments, certificates and documents (including all documents identified in the Closing Memorandum with respect to issuance of the Bonds) as we have deemed necessary or appropriate for the purposes of the opinion expressed below. In such examination, we have assumed the genuineness of all signatures, the authenticity of all D-2

115 Village of East Rochester Housing Authority June 1, 2007 Page 3 documents submitted to us as originals, the conformity to the original documents of all documents submitted to us as copies and have assumed the accuracy and truthfulness of the factual information, expectations, conclusions, representations, warranties, covenants and opinions of the Authority, the Institution, the Mortgage Servicer, the Trustee and their counsel and representatives as set forth in the various documents executed and delivered by them or any of them and identified in the Closing Memorandum for the Bonds. We call your attention to the fact that there are certain requirements with which the Authority and the Institution must comply after the date of issuance of the Bonds in order for the interest on the Bonds to remain excluded from gross income for federal income tax purposes. Based upon and subject to the foregoing, we are of the opinion that: 1. The Authority is a duly organized and validly existing public housing authority organized and existing under the laws of the State of New York and has good right and lawful authority to acquire the Facility and lease the Facility to the Institution and collect revenues and rental income therefrom, in accordance with the terms of the Lease Agreement and as provided in the Indenture. 2. The Authority is duly authorized to lease the Facility from the Institution, to issue, execute, sell and deliver the Bonds for the purpose of refunding the Prior Bonds and to sublease the Facility to the Institution. 3. The Bond Resolution has been duly adopted by the Authority and is in full force and effect. 4. The Authority has the right and power pursuant to the laws of the State of New York to enter into the Bond Purchase Agreement, the Indenture, the Institution Lease, the Lease Agreement, the Tax Compliance Agreement, the Mortgage Modification Agreement, the Second Mortgage Modification Agreement and the Environmental Indemnification Agreement and such documents have been duly authorized, executed and delivered by the Authority and are legal, valid and binding obligations of the Authority, enforceable against the Authority in accordance with their respective terms. 5. The Bonds have been duly authorized, executed and delivered by the Authority in accordance with the law and with the Indenture and are legal, valid and binding special obligations of the Authority payable solely from the revenues derived from the lease of the Facility and from the other security provided therefor, enforceable against the Authority in accordance with their respective terms. All conditions precedent to the delivery of the Bonds have been fulfilled. 6. The Bonds do not constitute a debt of the State of New York or of the Village of East Rochester, New York, and neither the State of New York nor the Village of East Rochester, New York, will be liable thereon. 7. The Internal Revenue Code of 1986, as amended (the Code ) establishes certain requirements that must be met at and subsequent to the issuance and delivery of the D-3

116 Village of East Rochester Housing Authority June 1, 2007 Page 4 Bonds in order that interest on the Bonds be and remain not includable in gross income under Section 103 of the Code. Included among these continuing requirements are the maintenance of the Borrower's status as an organization described in Section 501(c)(3) of the Code, certain restrictions and prohibitions on the use of bond proceeds, restrictions on the investment of proceeds and other amounts, the rebate to the United States of certain earnings in respect of investments, required ownership and use of the bond-financed facility by a Section 501(c)(3) organization or a governmental unit, and, in certain circumstances, a limitation on the amount of tax-exempt bonds that are permitted to be outstanding for the benefit of the Institution, any related party thereto and any other test period beneficiary (within the meaning of Section 145(b) of the Code) of the facilities financed by the Bonds. Failure to comply with the applicable requirements of the Code may cause interest on the Bonds to be includable in gross income for federal income tax purposes retroactively to the date of their issuance irrespective of the date on which such noncompliance occurs or is ascertained. In the Indenture, the Lease Agreement and accompanying documents, exhibits and certificates, the Authority and the Institution have entered into certain covenants and have made certain representations and certifications designed to assure compliance with the requirements of the Code. 8. Under existing statutes, regulations, rulings, and court decisions, and assuming compliance by the Authority and the Institution (and any successor of the Institution) with the covenants and the accuracy of the representations and certifications referenced above, interest on the Bonds is not includable in gross income for federal income tax purposes under Section 103 of the Code. Interest on the Bonds is not an item of tax preference for purposes of computing the federal alternative minimum tax on individuals and corporations. However, interest on the Bonds owned by corporations (other than S corporations, Regulated Investment Companies, Real Estate Investment Trusts, Real Estate Mortgage Investment Conduits and Financial Asset Securitization Investment Trusts) will be included in the calculation of adjusted current earnings, a portion of which is an adjustment to corporate alternative minimum taxable income for purposes of calculating the alternative minimum tax imposed on corporations (but not individuals). 9. The interest on the Bonds is exempt from personal income taxes imposed by the State of New York or any political subdivision thereof (including The City of New York). Except as stated in paragraphs 7, 8 and 9 above, we express no opinion as to any other Federal or State tax consequences of the ownership or disposition of the Bonds. Furthermore, we express no opinion as to any federal, State or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof upon the advice or approval of bond counsel other than Trespasz & Marquardt, LLP. The foregoing opinions are qualified to the extent that the enforceability of the Bonds, the Bond Purchase Agreement, the Indenture, the Institution Lease, the Lease Agreement, the Mortgage Modification Agreement, the Second Mortgage Modification Agreement and the Tax Compliance Agreement may be limited by bankruptcy, insolvency or other laws or enactments now or hereafter enacted by the State of New York or the United States affecting the enforcement of creditors rights and by restrictions on the availability of equitable remedies and to the extent, if any, that enforceability of the indemnification provisions of such documents may D-4

117 Village of East Rochester Housing Authority June 1, 2007 Page 5 be limited under law. We express no opinion with respect to the availability of any specific remedy provided for in any of the Financing Documents. In rendering the foregoing opinions, we are not passing upon and do not assume any responsibility for the accuracy, completeness, sufficiency or fairness of any documents, information or financial data supplied by the Authority, the Institution, the Mortgage Servicer or the Trustee in connection with the Bonds, the Bond Purchase Agreement, the Indenture, the Institution Lease, the Lease Agreement, the Mortgage Modification Agreement, the Second Mortgage Modification Agreement, the Tax Compliance Agreement, the Environmental Indemnification Agreement or the Facility, and we make no representation that we have independently verified the accuracy, completeness, sufficiency or fairness of any such documents, information or financial data. In addition, we express no opinion herein with respect to the accuracy, completeness, sufficiency or fairness of the Preliminary Official Statement, dated April 20, 2007, or the Official Statement, dated April 27, 2007, with respect to the Bonds. We express no opinion herein with respect to the registration requirements under the Securities Act of 1933, as amended, the registration or qualification requirements under the Trust Indenture Act of 1939, as amended, the registration, qualification or other requirements of state securities or Blue Sky laws, or the availability of exemptions therefrom. We express no opinion as to the sufficiency of the description of the Facility in the Institution Lease or the Lease Agreement, or as to the title to the Facility or as to the adequacy, perfection or priority of any mortgage lien on or any security interest in any collateral securing the Bonds. Very truly yours, TRESPASZ & MARQUARDT, LLP D-5

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