Citigroup as Remarketing Agent

Transcription

1 EXISTING ISSUE REOFFERED BOOK-ENTRY-ONLY EXPECTED RATINGS Moody s: Aa1/VMIG 1; S&P: AA/A-1+ (see RATINGS herein.) On the date of original issuance and delivery of the Series 2002 Bonds, Bond Counsel delivered its opinions (collectively, the Approving Opinions ) that: (i) under then-existing statutes, regulations and court decisions, and assuming compliance with certain tax covenants, interest on the Series 2002 Bonds is not included in gross income for federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended; (ii) interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; and (iii) interest on the Bonds is included in the computation of adjusted current earnings for purposes of calculating the federal alternative minimum tax imposed on certain corporations. Bond Counsel also delivered its opinions that interest on the Series 2002 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). The Approving Opinions have not been updated or reissued in connection with the remarketing of the Series 2002 Bonds. See TAX MATTERS herein for a discussion of certain federal and state income tax matters. $57,330,000 TOMPKINS COUNTY INDUSTRIAL DEVELOPMENT AGENCY VARIABLE RATE DEMAND CIVIC FACILITY REVENUE BONDS (CORNELL UNIVERSITY PROJECT) $41,940,000 SERIES 2002A (CUSIP Number BT0) $15,390,000 SERIES 2002B (CUSIP Number BU7) DATE OF ORIGINAL ISSUANCE: February 14, 2002 DATE OF REOFFERING: June 1, 2012 PRICE: 100% DUE: Series 2002A Bonds: July 1, 2030 Series 2002B Bonds: July 1, 2015 The outstanding Tompkins County Industrial Development Agency Variable Rate Demand Civic Facility Revenue Bonds (Cornell University Project), Series 2002A Bonds (the Series 2002A Bonds ) and Series 2002B Bonds (the Series 2002B Bonds and together with the Series 2002A Bonds, the Series 2002 Bonds ) will be reoffered as fully registered bonds in the denomination of $100,000 or any integral multiple of $5,000 in excess of $100,000, and were originally issued in the original aggregate principal amount of $58,945,000 (comprised of $43,555,000 Series 2002A Bonds and $15,390,000 Series 2002B Bonds) pursuant to an Indenture of Trust (the Indenture ), dated as of February 1, 2002, between Manufacturers and Traders Trust Company, Buffalo, New York, as trustee (the Trustee ) and the Tompkins County Industrial Development Agency (the Issuer ). The Series 2002 Bonds will bear interest at the Weekly Interest Rate until converted to the Fixed Interest Rate. The Weekly Interest Rate is a variable rate of interest that will be determined by the Remarketing Agent (as defined herein) on the Business Day immediately preceding each Thursday. The Series 2002 Bonds are subject to optional and mandatory tender for purchase, optional and mandatory redemption prior to maturity as more fully described herein. See THE SERIES 2002 BONDS. Interest on the Series 2002 Bonds is payable on the first Business Day of each month, commencing July 2, The Series 2002 Bonds are being reoffered only as fully registered bonds without coupons, and when reoffered, will be registered in the name of Cede & Co., as nominee for The Depository Trust Company ( DTC ), New York, New York, which will act as securities depository for the Series 2002 Bonds. Purchases of beneficial interests in the Series 2002 Bonds will be made in the book entry-only form. So long as Cede & Co., as nominee of DTC, is the registered owner of the Series 2002 Bonds, references herein to the Holders, Bondowners or owners of the Series 2002 Bonds shall mean Cede & Co., as aforesaid, and shall not mean the Beneficial Owners of the Series 2002 Bonds. In addition, so long as DTC or Cede & Co., as its nominee, is the registered owner of the Series 2002 Bonds, payments of the principal of, redemption price, if applicable, and interest on the Series 2002 Bonds will be made directly to DTC by the Trustee. Disbursements of such payments to DTC Participants is the responsibility of DTC and disbursements of such payments to the Beneficial Owners of the Series 2002 Bonds is the responsibility of DTC Direct Participants and Indirect Participants as more fully described herein. See BOOK ENTRY ONLY SYSTEM herein. After June 1, 2012 the purchase price of each Series of the Series 2002 Bonds tendered but not remarketed is to be payable pursuant to a separate standby bond purchase agreement each among Cornell University, the Trustee and The Northern Trust Company (the Bank ). The Bank s obligation to purchase Series 2002 Bonds is subject to certain conditions contained in the standby bond purchase agreements and each standby bond purchase agreement can be terminated without notice. The expiration date of the standby bond purchase agreement relating to the Series 2002A Bonds is June 1, The expiration date of the standby bond purchase agreement relating to the Series 2002B Bonds is July 1, This Reoffering Circular in general describes the Series 2002 Bonds only while the Series 2002 Bonds bear interest at a Weekly Interest Rate. The Series 2002 Bonds are payable solely out of the revenues or other receipts, funds or moneys of the Issuer pledged therefor or otherwise available to the Trustee for the payment thereof, including those derived under an Installment Sale Agreement between the Issuer and CORNELL UNIVERSITY (the University ). Under the Installment Sale Agreement, the University has covenanted, as a general obligation of the University, to make installment sales payments to the Issuer which will be sufficient to pay, in addition to the fees and expenses of the Issuer and the Trustee, all Debt Service Payments, redemption price of and Sinking Fund Payments, if any, on the Series 2002 Bonds. The Series 2002 Bonds are special limited obligations of the Issuer payable solely from payments made by the University under the Installment Sale Agreement and moneys and securities held by the Trustee under the Indenture. The Series 2002 Bonds are further secured by a guarantee of the University. NEITHER THE STATE OF NEW YORK NOR TOMPKINS COUNTY, NEW YORK IS OR SHALL BE OBLIGATED TO PAY THE PRINCIPAL OR REDEMPTION PRICE, IF APPLICABLE, OF, OR INTEREST ON THE SERIES 2002 BONDS, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF NEW YORK OR TOMPKINS COUNTY, NEW YORK IS PLEDGED TO SUCH PAYMENT. THE SERIES 2002 BONDS ARE NOT A DEBT OF THE STATE OF NEW YORK OR OF TOMPKINS COUNTY, NEW YORK AND NEITHER THE STATE OF NEW YORK NOR TOMPKINS COUNTY, NEW YORK SHALL BE LIABLE THEREON. THE ISSUER HAS NO TAXING POWER. This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of the Series 2002 Bonds. Investors are advised to read the entire Reoffering Circular, including the appendices, to obtain information essential to the making of an informed decision. Citigroup as Remarketing Agent May 22, 2012

2 No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Reoffering Circular and, if given or made, such other information or representations must not be relied upon as having been authorized by the Tompkins County Industrial Development Agency (the Issuer ), Cornell University (the University ), The Northern Trust Company (the Bank ) or the Remarketing Agent. The information contained in this Reoffering Circular is subject to change without notice and neither the delivery of this Reoffering Circular nor any reoffering hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Issuer, the University or the Bank since the date hereof. This Reoffering Circular does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2002 Bonds in any jurisdiction in which such offer, solicitation or sale is not qualified under applicable law or to any person to whom it is unlawful to make such offer, solicitation or sale. The Remarketing Agent has provided the following sentence for inclusion in this Reoffering Circular. The Remarketing Agent has reviewed the information in this Reoffering Circular in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Remarketing Agent does not guarantee the accuracy or completeness of such information. The Issuer assumes no responsibility as to the accuracy or completeness of the information contained in this Reoffering Circular, other than that appearing under the caption THE ISSUER, all of which other information has been furnished by others. The information set forth herein under the captions THE UNIVERSITY, Appendix A and Appendix B has been furnished by the University and from other sources which are believed to be reliable, but is not guaranteed as to accuracy or completeness by, nor is it to be construed as a representation or warranty by, the Issuer or the Remarketing Agent. The Series 2002 Bonds will not be registered under the Securities Act of 1933, as amended, and neither the Tompkins County Industrial Development Agency nor the Remarketing Agent intend to list the Series 2002 Bonds on any stock or other securities exchange. The Securities and Exchange Commission has not passed upon the accuracy or adequacy of this Reoffering Circular. With respect to the various states in which the Series 2002 Bonds may be offered, no attorney general, state official, state agency or bureau, or other state or local governmental entity has passed upon the accuracy or adequacy of this Reoffering Circular or passed upon or endorsed the merits of this reoffering or the Series 2002 Bonds. The CUSIP numbers listed on the cover page are being provided solely for the convenience of Bondholders, and the Issuer does not make any representation with respect to such numbers or undertake any responsibility for their accuracy. The CUSIP numbers are subject to being changed after the reoffering of the Series 2002 Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of the Series 2002 Bonds. IN CONNECTION WITH THE REOFFERING OF THE SERIES 2002 BONDS, THE REMARKETING AGENT MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2002 BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

3 TABLE OF CONTENTS Page INTRODUCTION...1 THE ISSUER...2 THE UNIVERSITY...3 SOURCES OF PAYMENT AND SECURITY FOR THE SERIES 2002 BONDS...3 General...3 Liquidity Facility...4 DEBT SERVICE REQUIREMENTS OF THE UNIVERSITY...8 THE SERIES 2002 BONDS...9 General...9 Redemption Provisions...12 CERTAIN CONSIDERATIONS AFFECTING SALES OF VARIABLE RATE BONDS...14 BOOK-ENTRY-ONLY SYSTEM...15 TAX MATTERS...16 Federal Income Taxes...16 State and Local Income Tax...17 Other Considerations...17 RATINGS...18 REMARKETING...18 LEGALITY FOR INVESTMENT AND DEPOSIT...18 APPROVAL OF LEGAL PROCEEDINGS...18 CONTINUING DISCLOSURE...19 INDEPENDENT ACCOUNTANTS...19 FINANCIAL ADVISOR...19 MISCELLANEOUS...19 APPENDIX A CERTAIN INFORMATION CONCERNING THE UNIVERSITY... A-1 APPENDIX B FINANCIAL STATEMENTS OF THE UNIVERSITY...B-1 APPENDIX C DEFINITIONS...C-1 APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE... D-1 APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE INSTALLMENT SALE AGREEMENT...E-1 APPENDIX F OPINIONS OF BOND COUNSEL... F-1 APPENDIX G THE BANK... G-1 APPENDIX H FORM OF AGREEMENT TO PROVIDE CONTINUING DISCLOSURE... H-1 -i-

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5 TOMPKINS COUNTY INDUSTRIAL DEVELOPMENT AGENCY REOFFERING CIRCULAR Relating to $57,330,000 Variable Rate Demand Civic Facility Revenue Bonds (Cornell University Project), $41,940,000 Series 2002A $15,390,000 Series 2002B INTRODUCTION This Reoffering Circular, including the cover page and the appendices hereto, sets forth certain information in connection with the reoffering of the Variable Rate Demand Civic Facility Revenue Bonds (Cornell University Project), Series 2002A Bonds (the Series 2002A Bonds ) and Series 2002B Bonds (the Series 2002B Bonds and together with the Series 2002A Bonds, the Series 2002 Bonds ) in the aggregate outstanding principal amount of $57,330,000 of Tompkins County Industrial Development Agency (the Issuer ), a corporate governmental agency constituting a body corporate and politic and a public benefit corporation of the State of New York. The Series 2002 Bonds were originally authorized to be issued pursuant to the New York State Industrial Development Agency Act, constituting Title I of Article 18-A of the General Municipal Law, Chapter 24 of the Consolidated Laws of New York, as amended, and pursuant to Chapter 535 of the 1971 Laws of New York, as amended (collectively, the Act ), a resolution of the Issuer adopted on December 6, 2001, as amended on February 1, 2002 (the Bond Resolution ) and an Indenture of Trust, dated as of February 1, 2002 (the Indenture ), by and between the Issuer and Manufacturers and Traders Trust Company, as trustee (the Trustee ). The Trustee also is acting as Bond Registrar and paying agent. The Series 2002 Bonds will be reoffered as book-entry-only obligations to be held by The Depository Trust Company, as depository (the Depository ) for the Series 2002 Bonds. See BOOK-ENTRY-ONLY SYSTEM herein. Since the date of their original issuance, the Series 2002 Bonds have borne interest at a Weekly Interest Rate. The Series 2002 Bonds are subject to optional and mandatory tender as described herein. If certain conditions are met on June 1, 2012 (the Substitution Date ), from and after the Substitution Date, the purchase price of each Series of the Series 2002 Bonds tendered but not remarketed is to be payable pursuant to a separate standby bond purchase agreement among Cornell University (the University ), the Trustee and The Northern Trust Company (the Bank ) subject to the terms of such standby bond purchase agreement (each a Liquidity Facility ). See SECURITY FOR THE SERIES 2002 BONDS Liquidity Facility herein. On the Substitution Date, the $57,330,000 aggregate principal amount of Outstanding Series 2002 Bonds will be subject to mandatory tender by holders thereof for purchase at a price of par. The Series 2002A Bonds and Series 2002B Bonds were issued on a parity basis under the Indenture. The Indenture constitutes a first lien, subject only to Permitted Encumbrances, upon the Trust Estate (each defined in the Indenture). Contemporaneously with execution of the Indenture, the Issuer and the University executed the Installment Sale Agreement, dated as of February 1, 2002 (the Installment Sale Agreement ) which requires the payment by the University of installment sale payments sufficient to provide for the payment of the principal of, including any applicable redemption price, interest on, and other amounts due with respect to, the Series 2002 Bonds as the same become due. To further secure the Series 2002 Bonds, the Issuer executed and delivered to the Trustee a pledge and assignment dated as of February 1, 2002 (the Pledge and Assignment ), which Pledge and Assignment assigned to the Trustee certain of the Issuer s rights under the Installment Sale Agreement (except the Unassigned Rights) for the benefit of the owners of the Series 2002 Bonds. Pursuant to the Pledge and Assignment, installment sale payments made by the University under the Installment Sale Agreement are to be paid directly to the Trustee. The Series 2002 Bonds are special obligations of the Issuer payable solely from payments made by the University under the Installment Sale Agreement and moneys and securities held by the Trustee under the Indenture. In addition, the payment of the principal of, redemption price, if applicable, Purchase Price of and interest on the Series 2002 Bonds has been

6 guaranteed pursuant to a Guaranty Agreement dated as of February 1, 2002 from the University to the Trustee (the Guaranty Agreement ). THE SERIES 2002 BONDS ARE SPECIAL OBLIGATIONS OF THE ISSUER. NEITHER THE STATE OF NEW YORK NOR TOMPKINS COUNTY, NEW YORK IS OR SHALL BE OBLIGATED TO PAY THE PRINCIPAL OR REDEMPTION PRICE, IF APPLICABLE, OR INTEREST ON THE SERIES 2002 BONDS, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF NEW YORK OR TOMPKINS COUNTY, NEW YORK IS PLEDGED TO SUCH PAYMENT. THE SERIES 2002 BONDS ARE NOT A DEBT OF THE STATE OF NEW YORK OR OF TOMPKINS COUNTY, NEW YORK AND NEITHER THE STATE OF NEW YORK NOR TOMPKINS COUNTY, NEW YORK SHALL BE LIABLE THEREON. THE ISSUER HAS NO TAXING POWER. No recourse shall be had for any claim based thereon against any past, present or future member, officer, employee or agent (other than the University), as such, of the Issuer or of any predecessor or successor corporation, either directly or through the Issuer or otherwise, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise. Brief descriptions of the Issuer, the University and the plan of finance, and certain provisions of the Series 2002 Bonds, the Indenture, the Installment Sale Agreement, and the Guaranty Agreement, are set forth herein or in the Appendices. Such descriptions do not purport to be comprehensive or definitive. All references herein to the foregoing documents are qualified in their entirety by reference to such documents, and the description herein of the Series 2002 Bonds is qualified in its entirety by reference to the terms thereof. All such descriptions are further qualified in their entirety by reference to laws relating to or affecting the enforcement of creditors rights generally. Copies of the foregoing documents may be obtained on and after the date of issuance of the Series 2002 Bonds from the Trustee at its office at Manufacturers and Traders Trust Company, Buffalo, New York 14203, Attention: Corporate Trust Department. Capitalized terms not otherwise defined in this Reoffering Circular shall have the meanings specified in APPENDIX C DEFINITIONS hereto. Terms not otherwise defined in this Reoffering Circular have the meanings provided in the specific documents. THE ISSUER The Issuer is a public benefit corporation organized and existing under the laws of the State of New York. The Issuer is created by and constitutes an Industrial Development Agency under the Act. The Issuer was created for the purpose of promoting, developing, encouraging and assisting in the acquiring, constructing, reconstructing, improving, maintaining, equipping and furnishing of civic, industrial, manufacturing, warehousing, commercial, research and recreational facilities, thereby advancing the job opportunities, health, general prosperity and economic welfare of the people of the State of New York and improving their recreational opportunities, prosperity and standard of living. Under the Act, the Issuer has the power to acquire, hold and dispose of personal property for its corporate purposes; to acquire, use for its corporate purposes and dispose of real property within the corporate limits of Tompkins County, New York; to appoint officers, agents and employees; to make contracts and leases; to acquire, construct, reconstruct, lease, improve, maintain, equip or furnish one or more projects; to borrow money and issue bonds and to provide for the rights of the holders thereof; to grant options to renew and lease with respect to any project and to grant options to buy any project at such price as the Issuer may deem desirable; to designate depositories of its money; and to do all things necessary or convenient to carry out its purposes and exercise the powers given in the Act. The members of the Issuer are appointed by the governing body of Tompkins County, New York. The Issuer has seven (7) members. THE SERIES 2002 BONDS ARE SPECIAL OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE PAYMENTS MADE BY THE UNIVERSITY UNDER THE INSTALLMENT SALE AGREEMENT, MONIES AND SECURITIES HELD BY THE TRUSTEE UNDER THE INDENTURE AND THE SECURITY PROVIDED BY THE INDENTURE, THE PLEDGE AND ASSIGNMENT AND THE GUARANTY. NEITHER THE ISSUER NOR ITS MEMBERS, DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS (OTHER THAN THE UNIVERSITY) ARE PERSONALLY LIABLE WITH RESPECT TO THE SERIES 2002 BONDS. ACCORDINGLY, NO FINANCIAL INFORMATION WITH RESPECT TO THE ISSUER OR ITS MEMBERS OR OFFICERS HAS BEEN INCLUDED IN THIS REOFFERING CIRCULAR. 2

7 The Act provides that the Bonds of the Issuer shall not be a debt of the State of New York or of Tompkins County, New York, and neither the State of New York nor Tompkins County, New York shall be liable thereon. The Issuer has no taxing power. THE UNIVERSITY Cornell University ( Cornell or the University ) is a private, not-for-profit, co-educational, nonsectarian institution of higher learning chartered and operated under Laws of the State of New York. See APPENDIX A CERTAIN INFORMATION CONCERNING THE UNIVERSITY. SOURCES OF PAYMENT AND SECURITY FOR THE SERIES 2002 BONDS Set forth below is a narrative description of certain contractual provisions relating to the source of payment of and security for the Series 2002 Bonds. These provisions have been summarized and this description does not purport to be complete. Reference should be made to the Act, the Installment Sale Agreement, Guaranty Agreement and the Indenture. Copies of the Installment Sale Agreement, Guaranty Agreement and the Indenture are on file with the Trustee. See also APPENDIX C DEFINITIONS, APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE and APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE INSTALLMENT SALE AGREEMENT for a more complete statement of the rights, duties and obligations of the parties thereto. General Concurrently with the issuance of the Series 2002 Bonds, the Issuer entered into the Installment Sale Agreement with the University. The University is obligated under and pursuant to the Installment Sale Agreement to make installment sale payments to the Trustee sufficient to pay the principal of, redemption price, if applicable, and interest on the Series 2002 Bonds as the same respectively become due. Pursuant to the Pledge and Assignment, dated as of February 1, 2002 from the Issuer to the Trustee (the Pledge and Assignment ), the Issuer assigned to the Trustee substantially all of its right, title and interest in and to the Installment Sale Agreement, including all rights to receive installment sale payments sufficient to pay the principal, redemption price, if applicable, Purchase Price of and interest and all other amounts due on the Series 2002 Bonds as the same become due, to be made by the University pursuant to the Installment Sale Agreement, but excluding certain rights special to the Issuer or the Issuer s statutory purposes. In addition, the payment of the principal of, redemption price, if applicable, Purchase Price of and interest on the Series 2002 Bonds is to be guaranteed by the University to the Trustee pursuant to the Guaranty Agreement. Each of the Installment Sale Agreement and the Guaranty Agreement is a general obligation of the University. No security interest in any revenues or assets of the University has been granted by the University to the Issuer under the Installment Sale Agreement or the Guaranty Agreement. In addition, pursuant to the Installment Sale Agreement, the University may incur Debt secured by a lien and pledge of revenues of the University without granting to the Issuer any security interest in any revenues to secure the University s obligations under the Installment Sale Agreement or the Guaranty Agreement. For a discussion of the outstanding indebtedness of the University, see APPENDIX A CERTAIN INFORMATION CONCERNING THE UNIVERSITY Indebtedness, herein. The Issuer may issue Additional Bonds on behalf of the University, secured on a parity with the Series 2002 Bonds, on the terms and conditions and for the purposes described under the caption Additional Bonds in APPENDIX D - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE, herein. The University also may incur debt in addition to the Series 2002 Bonds. THE SERIES 2002 BONDS ARE SPECIAL OBLIGATIONS OF THE ISSUER. NEITHER THE STATE OF NEW YORK NOR TOMPKINS COUNTY IS OR SHALL BE OBLIGATED TO PAY THE PRINCIPAL OR REDEMPTION PRICE, IF APPLICABLE, OR INTEREST ON THE SERIES 2002 BONDS, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF NEW YORK OR TOMPKINS COUNTY IS PLEDGED TO SUCH PAYMENT. THE SERIES 2002 BONDS ARE NOT A DEBT OF THE STATE OF NEW YORK OR OF TOMPKINS COUNTY AND NEITHER THE STATE OF NEW YORK NOR TOMPKINS COUNTY SHALL BE LIABLE THEREON. THE ISSUER HAS NO TAXING POWER. Neither the members, directors, officers or agents of the Issuer nor any person executing the Series 2002 Bonds shall be liable personally or be subject to any personal liability or accountability by reason of the issuance thereof. 3

8 Liquidity Facility Pursuant to the Indenture, the University is not required to provide a Liquidity Facility. However, the University has elected to provide a Liquidity Facility for each Series of Series 2002 Bonds. At any time, subject to the terms and provisions set forth in the respective Liquidity Facility, the University may either terminate the Liquidity Facility then in effect and determine not to provide a Liquidity Facility for one or both Series of the Series 2002 Bonds or may provide a Substitute Liquidity Facility for one or both Series of the Series 2002 Bonds. The affected Series 2002 Bonds will be subject to mandatory tender upon either of such events. The Liquidity Facilities The following is a summary of certain provisions of the standby bond purchase agreements (each, a Liquidity Facility and collectively, the Liquidity Facilities ) with respect to each Series of Series 2002 Bonds to be entered into among the University, The Northern Trust Company (the Bank ) and the Trustee. The following summary does not purport to be a full and complete statement of the provisions of each Liquidity Facility. The Liquidity Facility for each Series of Series 2002 Bonds should be read in full for a complete understanding of all the terms and provisions thereof. Copies of each Liquidity Facility are on file with the Trustee. For certain information regarding the Bank, see APPENDIX G - THE BANK. The Bank agrees under each Liquidity Facility, on the terms and conditions set forth therein, to purchase, at the Purchase Price (as defined in such Liquidity Facility), Series 2002 Bonds of the applicable Series bearing interest at a Weekly Rate and which are not Series 2002 Bonds owned by or on behalf of, or for the benefit of or for the account of, the University, the Issuer or the Bank which are tendered or deemed tendered for purchase pursuant to an optional or mandatory tender ( Tendered Bonds ) pursuant to certain provisions of the Indenture and for which remarketing proceeds have not been received by 10:30 a.m., New York City time on the purchase date. See THE SERIES 2002 BONDS. The amount of the Bank s commitment under each Liquidity Facility is initially equal to the outstanding principal amount of the applicable Series of the Series 2002 Bonds and up to 34 days of interest thereon at a maximum rate of 12% per annum on the basis of a year of 365 days and actual days elapsed. The amount of the commitment under each Liquidity Facility may be adjusted as provided in each Liquidity Facility. The Liquidity Facility for the Series 2002A Bonds is scheduled to terminate on June 1, 2017 unless extended as described therein or unless terminated as described below. The Liquidity Facility for the Series 2002B Bonds is scheduled to terminate on July 1, 2015 unless terminated as described below. If requested by the University, the Liquidity Facility for the Series 2002A Bonds may be extended in the sole discretion of the Bank. Failure to extend such Liquidity Facility will result in a mandatory tender of the Series 2002A Bonds as described under the heading THE SERIES 2002 BONDS - General - Mandatory Tender. If Tendered Bonds of a particular Series are not remarketed by the Remarketing Agent on the day such Series 2002 Bonds are to be tendered, the Trustee will give the Bank notice as provided in the applicable Liquidity Facility. Upon receipt of such notice, and upon the Bank s determination that the conditions precedent to purchase specified in such Liquidity Facility are satisfied (including, the Bank s determination that its commitment to purchase the related Series 2002 Bonds under the Liquidity Facility has not terminated or been suspended), the Bank will transmit to the Trustee in immediately available funds an amount equal to the aggregate purchase price of such Tendered Bonds for which remarketing proceeds are not available as requested by the Trustee. Tendered Bonds purchased with such funds provided by the Bank will be registered in the name of the Bank and shall be held by the Trustee for the benefit of the Bank. EACH LIQUIDITY FACILITY IS AVAILABLE TO FUND PURCHASES OF THE SERIES 2002 BONDS COVERED THEREBY WHICH ARE TENDERED BUT FOR WHICH REMARKETING PROCEEDS ARE NOT AVAILABLE. EACH LIQUIDITY FACILITY DOES NOT SUPPORT THE PAYMENT OF PRINCIPAL OF AND PREMIUM, IF ANY, AND INTEREST ON THE SERIES OF THE SERIES 2002 BONDS COVERED THEREBY AS THE SAME BECOMES DUE AND PAYABLE. UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN, PURCHASES WILL NOT BE MADE UNDER EACH LIQUIDITY FACILITY AND, THEREFORE, FUNDS MAY NOT BE AVAILABLE TO PURCHASE TENDERED BONDS. The Liquidity Facilities contain certain covenants on the part of the University. Such covenants may be waived or amended at any time upon agreement of the Bank and the University and without the consent of the holder of any Series 2002 Bond. As used in the Liquidity Facilities, the term Related Documents means the applicable Liquidity Facility, the applicable Fee Agreement between the University and the Bank, the applicable Custody Agreement, the Indenture, the Guaranty, the Installment Sale Agreement, the Acknowledgement, the Remarketing Agreement, the Reoffering Circular, the applicable Series of the Series 2002 Bonds and certain other agreements relating thereto, all as supplemented and amended. 4

9 Events of Default Under Liquidity Facility The following are Events of Default under each Liquidity Facility: (a) any material representation or warranty made by the University in such Liquidity Facility (or incorporated therein by reference) or in any of the other Related Documents or in any certificate, document, instrument, opinion or financial or other statement contemplated by or made or delivered pursuant to or in connection with such Liquidity Facility or with any of the other Related Documents, shall prove to have been incorrect, incomplete or misleading in any material respect when made; (b) any event of default shall have occurred under any of the Related Documents (as defined respectively therein); (c) failure by the University to pay to the Bank the principal amount of or accrued interest on any Purchased Bonds as described in such Liquidity Facility when and as due thereunder; (d) failure by the University to pay to the Bank any other obligations when and as due under such Liquidity Facility and the related Fee Agreement; (e) principal of or interest on the applicable Series of the Series 2002 Bonds shall not be paid when due, whether on any regularly scheduled interest payment date, at maturity, upon redemption or acceleration (other than solely related to an acceleration relating to the remedies described below under the caption Consequences of Events of Default ), or otherwise; (f) default in the due observance or performance by the University of certain covenants set forth (or incorporated by reference) in such Liquidity Facility; (g) default in the due observance or performance by the University of any other term, covenant or agreement set forth (or incorporated by reference) in such Liquidity Facility and the continuance of such default for 30 days after the occurrence thereof; (h) any material provision of such Liquidity Facility or any of the Related Documents with respect to the payment of principal of or interest on the related Series 2002 Bonds shall cease to be valid and binding, as determined by any court or governmental agency having appropriate jurisdiction in a final nonappealable judgment, or the University shall contest any such provision, or the University or any agent or trustee on behalf of the University shall deny that it has any or further liability under the Liquidity Facility or any of the other Related Documents with respect to the payment of principal of or interest on the related Series 2002 Bonds; (i) the University shall (i) have entered involuntarily against it an order for relief under the United States Bankruptcy Code, as amended, (ii) admit in writing its inability to pay, its debts generally as they become due, (iii) make an assignment for the benefit of creditors, (iv) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, conservator, liquidator or similar official for it or any substantial part of its property, (v) institute any proceeding seeking to have entered against it an order for relief under the United States Bankruptcy Code, as amended, to adjudicate it insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, marshalling of assets, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (vi) fail to contest in good faith any appointment or proceeding described in (j) immediately below, or (vii) take any action in furtherance of any of the foregoing purposes; (j) a custodian, receiver, trustee, conservator, liquidator or similar official shall be appointed for the University or any substantial part of its property, or a proceeding described in (i)(v) immediately above shall be instituted against the University and such appointment continues undischarged or any such proceeding continues undismissed and unstayed for a period of sixty (60) or more days; (k) default shall occur under any evidence of indebtedness in an aggregate principal amount in excess of $5,000,000 issued, assumed, or guaranteed by the University or under any indenture, agreement or other instrument under which the same may be issued, and such default shall continue for a period of time sufficient to permit the acceleration of the maturity of any such indebtedness (whether or not such maturity is in fact accelerated) or any such indebtedness shall not be paid when and as due (whether by lapse of time, acceleration or otherwise); (l) any judgment or judgments, writ or writs or warrant or warrants of attachment, or any similar process or processes in an aggregate amount in excess of $5,000,000 shall be entered or filed against the University or against any of its property and remain unvacated, unbonded or unstayed for a period of thirty (30) days; 5

10 (m) the occurrence of certain events with respect to certain retirement or pension plans maintained by the University or certain related entities; (n) (i) principal of or interest on the Series 2002 Bonds or any other bonds subject to any other agreement between the Borrower and the Bank shall, in either case, not be paid when due, whether on any regularly scheduled interest payment date, at maturity, upon redemption or acceleration (other than solely relating to an acceleration of payment on any bonds owned by a creditor as a result of a draw on the facility for reasons other than failure to pay regularly scheduled principal or interest owed to such creditor), or otherwise, or (ii) any other default shall occur and be continuing under the related Liquidity Facility or any other agreement between the Borrower and the Bank or under any other obligation owed by the Borrower to the Bank; or (o) Moody s and S&P shall each have lowered its respective ratings of the University s long-term unsecured Indebtedness to below Baa3 and BBB- (or to the equivalent rating then in effect with respect to Moody s and/or S&P), respectively. Consequences of Events of Default Upon the occurrence of any Event of Default under either Liquidity Facility described in paragraphs (c), (e), (h), (i), (j), (n)(i) or (o) above the Bank s obligation to purchase Series 2002 Bonds of the applicable Series under such Liquidity Facility shall immediately terminate without notice or other action on the part of the Bank and its commitment to purchase Tendered Bonds under such Liquidity Facility shall immediately terminate and all accrued fees and other amounts due and outstanding under such Liquidity Facility shall be immediately due and payable. Upon the occurrence and during the continuance of any event or condition described in paragraph (j) above which, but for the giving of notice or the lapse of time, or both, would constitute an Event of Default, the obligation of the Bank to purchase Series 2002 Bonds of the applicable Series under either Liquidity Facility shall be immediately and automatically suspended, without notice, until any appointment referred to in (j) is discharged or any such proceeding referred to in (j) is dismissed or stayed prior to expiration of the 60 days referred to therein. In the event any appointment is discharged or any such proceeding is dismissed or stayed prior to expiration of the 60 days, the obligations of the Bank to purchase Bonds under each Liquidity Facility shall be reinstated and the terms of each Liquidity Facility will continue in full force and effect (unless the obligations of the Bank to purchase the related Series 2002 Bonds under a Liquidity Facility shall have otherwise terminated in accordance with the terms thereof) as if there had been no such suspension. In addition to the rights and remedies set forth in the two immediately preceding paragraphs, upon the occurrence of any other Event of Default under either Liquidity Facility, the Bank may, in its sole and absolute discretion, terminate its obligation to purchase Tendered Bonds under such Liquidity Facility by written notice to the Tender Agent (such termination and reduction to be effective thirty (30) days after such notice is received by the Tender Agent), and declare that all accrued fees and other amounts due and outstanding under such Liquidity Facility shall be immediately due and payable. In addition to the rights and remedies set forth above, upon the occurrence of any Event of Default under either Liquidity Facility, the Bank may take any other action or remedies available to it under such Liquidity Facility, the Related Documents or otherwise pursuant to law or equity in order to enforce the rights of the Bank thereunder, under the Related Documents or otherwise, provided, however, that the Bank shall not have the right to terminate its obligation to purchase unremarketed Series 2002 Bonds, to declare any amount due under the Liquidity Facilities due and payable, or to accelerate the maturity date of any Series 2002 Bonds except as provided in the Liquidity Facilities and in the Indenture. Termination of a Liquidity Facility The obligation of the Bank to purchase Series 2002 Bonds of a particular Series under either Liquidity Facility shall expire on the earliest of (i) in the case of the Series 2002A Bonds June 1, 2017 (subject to extension as provided in the applicable Liquidity Facility) and in the case of the Series 2002B Bonds July 1, 2015, (ii) the date on which no Series 2002 Bonds of the applicable Series covered by such Liquidity Facility are Outstanding, (iii) the date on which the Available Commitment is voluntarily terminated by the University, (iv) the date on which the Bank s obligation to purchase Tendered Bonds has been terminated as described under Consequences of Event of Default described above, (v) the Bank s close of business on the business day following the effective date on which the interest rate on all of the Bonds is converted or otherwise changed to a rate other than a Weekly Interest Rate, or (vi) the Bank s close of business on the date on which a substitute Liquidity Facility is issued pursuant to the terms of the Indenture. 6

11 Substitute Liquidity Facility Subject to any limitations contained in any Liquidity Facility then in effect or the agreement with the Facility Provider related to such Liquidity Facility, the University may replace the Liquidity Facility for one or both Series of the Series 2002 Bonds with a Substitute Liquidity Facility in accordance with the Indenture. A Liquidity Facility is not requiredtobereplacedif the ratings on the applicable Series of the Series 2002 Bonds are reduced, suspended or withdrawn by Moody s or S&P. See PART 3 - THE SERIES 2002 BONDS - Description of the Series 2002 Bonds - Mandatory Tender. [REST OF PAGE INTENTIONALLY LEFT BLANK] 7

12 DEBT SERVICE REQUIREMENTS OF THE UNIVERSITY The following table sets forth, for each fiscal year ending June 30, the amounts required to be made available for the payment of debt service by the University. Refer to APPENDIX A CERTAIN INFORMATION CONCERNING THE UNIVERSITY - Indebtedness for a description of the obligations of the University for which debt service is shown under Estimated Aggregate Debt Service. June 30 Series 2002 Debt Service Other Existing Debt Service Estimated Aggregate Debt Service (1) 2012 $ 3,879,338 $ 115,058,530 $ 118,937, ,879, ,526, ,405, ,875, ,122, ,997, ,264,582 93,291, ,555, ,336,578 93,480,974 96,817, ,338,834 93,571,556 96,910, ,337,474 93,622,393 96,959, ,337, ,637, ,974, ,333,680 79,972,341 83,306, ,336,020 80,069,114 83,405, ,334,066 80,123,016 83,457, ,337,818 80,147,258 83,485, ,331,824 80,180,348 83,512, ,331,310 80,225,625 83,556, ,330,824 75,473,019 78,803, ,330,140 75,490,975 78,821, ,334,032 75,526,527 78,860, ,332,048 75,666,156 78,998, ,334,188 70,977,085 74,311, ,078,848 89,078, ,211,220 89,211, ,304,045 89,304, ,747,500 83,747, ,965,250 83,965, ,291,500 71,291, ,392,250 71,392, ,267,000 57,267, ,264,500 57,264, ,881,250 36,881,250 Total $80,915,050 $2,889,565,831 $2,970,480,881 (1) For the purpose of this table, the variable interest rate on $41.9 million of the Series 2002A Bonds, which are hedged with an interest rate swap, is assumed at the applicable fixed swap rate of 4.52% to the maturity of such bonds. Variable interest rates for approximately $150.1 million of other debt, where the interest rates have been hedged with interest rate swaps, are assumed at the applicable fixed swap rates of 3.51% and 4.63% to the maturity of such debt. In addition, the variable interest rate on $51.1 million of the Series 2000A Bonds, which are hedged with an interest rate swap expiring prior to the final maturity of such bonds, is assumed at the applicable fixed swap rate of 2.99% through 2015, and then is assumed at a rate of 3.50% to the maturity of such bonds. The interest rate on the remaining portion of unhedged debt, including $15.4 million of the Series 2002B Bonds, is assumed at a rate of 3.50% to the maturity of such debt. This table excludes the $59 million outstanding amount of tax-exempt commercial paper and $83.8 million outstanding amount of taxable commercial paper. This table also excludes payments on $424.4 million notional amount of currently effective interest rate swaps, and $200 million notional amount of swaps to be effective July 1, 2012 and July 1, 2014, a portion of which are used to hedge commercial paper and which may be used to hedge the cost of potential future debt issuance. Refer to APPENDIX A CERTAIN INFORMATION CONCERNING THE UNIVERSITY Indebtedness and the University s audited financial statements included in Appendix B. 8

13 General THE SERIES 2002 BONDS Each Series of the Series 2002 Bonds were issued pursuant to the Indenture and bear interest at the Weekly Interest Rate, which is a variable rate of interest determined by the Remarketing Agent on the Business Day immediately preceding each Thursday for periods commencing on and including such Thursday and ending on and including the immediately following Wednesday, unless and until such Series of the Series 2002 Bonds is converted to bear interest at the Fixed Interest Rate. All of the Bonds of each Series of the Series 2002 Bonds must bear interest at the same rate mode, but each Series may be converted to a different rate mode independently of the other Series. This Reoffering Circular in general describes the Series 2002 Bonds only while the Series 2002 Bonds bear interest at the Weekly Interest Rate. The Series 2002 Bonds are registered in the name of and held by Cede & Co. or such other name as may be requested by an authorized representative of DTC, as nominee for The Depository Trust Company, New York, New York ( DTC ). So long as DTC, Cede & Co. (or such other nominee), is the registered owner of the Series 2002 Bonds, payments of the principal, Purchase Price and Redemption Price of and interest on the Series 2002 Bonds will be made by the Trustee directly to Cede & Co. (or such other nominee). Disbursement of such payments to the DTC Participants (as hereinafter defined) is the responsibility of DTC and disbursement of such payments to the Beneficial Owners of the Series 2002 Bonds is the responsibility of the DTC Participants and the Indirect Participants (as hereinafter defined). See BOOK-ENTRY ONLY SYSTEM. If the Series 2002 Bonds are not registered in the name of DTC, Cede & Co. (or such other nominee), the principal, Purchase Price or Redemption Price of Series 2002 Bonds will be payable at the principal corporate trust office of Manufacturers and Traders Trust Company, Buffalo, New York, as Trustee, Paying Agent and Tender Agent upon presentation and surrender of such Series 2002 Bonds to it. Interest on the Series 2002 Bonds will be payable in immediately available funds by check or draft or, at the request of a Holder, by wire transfer to the wire transfer address within the continental United States to which such Holder has, prior to the applicable Record Date, directed the Trustee to wire such interest. The Record Date is the close of business on the Business Day immediately preceding each Interest Payment Date. The Series 2002 Bonds are fully registered Bonds in denominations of $100,000 and any integral multiple of $5,000 in excess of $100,000 (an Authorized Denomination ). The Series 2002 Bonds may be exchanged for other Series 2002 Bonds of any other Authorized Denominations upon payment of a charge sufficient to reimburse the Issuer or the Trustee for any tax, fee or other governmental charge required to be paid with respect to such exchange and for the cost of preparing the new bond, and otherwise as provided in the Indenture. The Issuer will not be obligated to make any exchange or transfer of Series 2002 Bonds (i) during the period beginning on the Record Date next preceding an Interest Payment Date for such Series 2002 Bonds and ending on such Interest Payment Date (defined below) or (ii) after the date next preceding the date on which the Trustee commences selection of Series 2002 Bonds for redemption. [REST OF PAGE INTENTIONALLY LEFT BLANK] 9

14 Rate Period Table The following Rate Period Table is provided for the convenience of the Holder. The information contained in the chart is not intended to be comprehensive. Reference is made to the above description and to the Indenture for a more complete description. Weekly Interest Rate Period Table Duration of Weekly Interest Rate Period Interest Payment Dates Interest Rate Determination Dates Optional Tender Date Bondholder Notice of Tender Due Seven days beginning on and including a Thursday to and including the following Wednesday The first Business Day of each month and the Conversion Date By 4:00 p.m. New York City time on the Business Day prior to the first day of the Weekly Interest Rate Period Any Business Day No later than 5:00 p.m. New York City time on the seventh day preceding the Optional Tender Date Interest Payment Dates Interest will be paid July 2, 2012 and on the first Business Day of each month thereafter, while bearing interest at a Weekly Interest Rate, until converted to bear interest at Fixed Interest Rates, and on each Conversion Date (each, an Interest Payment Date ). Interest on the Bonds will be computed during any Weekly Interest Rate Period on the basis of a 365-day or 366 day year, as appropriate, for the actual number of days elapsed. Rate Periods Each Series of the Series 2002 Bonds will bear interest at the Weekly Interest Rate for successive Weekly Interest Rate Periods until converted to the Fixed Interest Rate Period. Each Weekly Interest Rate Period will begin on a Thursday and end on Wednesday of the following week or on an earlier Conversion Date to the Fixed Interest Rate Period. While each Series of the Series 2002 Bonds may be converted from the Weekly Interest Rate Period to the Fixed Interest Rate Period, neither Series of the Series 2002 Bonds may be converted to the Weekly Interest Rate Period after they have been converted to the Fixed Interest Rate Period. Establishment of Rates The Weekly Interest Rate applicable to each Series of the Series 2002 Bonds will be the rate of interest that, in the Remarketing Agent s judgment, having due regard for the prevailing financial market conditions for revenue bonds or other securities the interest on which is excludable from gross income for federal income tax purposes and which are comparable to the Series 2002 Bonds as to credit and maturity or tender dates, would be the lowest interest rate which would enable such Series of the Series 2002 Bonds to be sold at a price of par, plus accrued interest, if any, on the first day of the Adjustment Period. In no event may the interest rate on any Series 2002 Bond for any Weekly Interest Rate Period exceed the Maximum Rate. The Weekly Interest Rate to be effective for each Weekly Interest Rate Period is to be determined no later than 4:00 p.m., New York City time, on the Business Day next preceding the first day of such Weekly Interest Rate Period. If for any reason the Weekly Interest Rate for any Weekly Interest Rate Period is not established, no Remarketing Agent is serving under the Indenture or the Weekly Interest Rate is held to be invalid or unenforceable, then the Weekly Interest Rate for such Weekly Interest Rate Period will be 100% of the Securities Industry and Financial Markets Association Municipal Swap Index in accordance with the Indenture. If a Weekly Interest Rate cannot be determined, the Weekly Interest Rate will be the Rate in effect during the immediately preceding Weekly Interest Rate Period. Conversion to the Fixed Interest Rate Period The Issuer, at the direction of the University, may convert either Series of the Series 2002 Bonds from the Weekly Interest Rate to the Fixed Interest Rate. Such Series of the Series 2002 Bonds will be subject to mandatory tender upon such conversion. 10

15 If a Series of the Series 2002 Bonds are to be converted from the Weekly Interest Rate Period to the Fixed Interest Rate Period, the Trustee is to give at least 30 days written notice of such conversion (a Conversion Notice ), to the Holders of such Series of the Series 2002 Bonds by first class mail. The Conversion Notice must set forth, among other things (a) the proposed Conversion Date, (b) that the interest rate on such Series of the Series 2002 Bonds will be converted to the Fixed Interest Rate, (c) the date the Fixed Interest Rate will be determined and (d) that, whether or not tendered to the Tender Agent, all Series 2002 Bonds of such Series will be deemed to have been properly tendered for purchase on the Conversion Date and the Holders of such Series of the Series 2002 Bonds will no longer be entitled to the payment of the principal of or interest on such Series of the Series 2002 Bonds, but will only be entitled to payment of the Purchase Price. In the event that the Conversion is deemed not to have occurred, the mandatory tender will take place and the Remarketing Agent will remarket such Series of the Series 2002 Bonds. If on the proposed Conversion Date, the conditions required for a conversion to the Fixed Interest Rate have not been met, the applicable Series of the Series 2002 Bonds will not convert to the Fixed Interest Rate, but will remain in the Weekly Interest Rate. The interest rate on such Series of the Series 2002 Bonds during such Weekly Interest Rate Period will be determined on the date such Series of the Series 2002 Bonds were to have converted to the Fixed Interest Rate. Optional Tender While each Series of the Series 2002 Bonds bear interest at the Weekly Interest Rate, the Holders of such Series of Series 2002 Bonds may elect to tender their Series 2002 Bonds of such Series (or portions thereof in Authorized Denominations so long as the portion retained by the Holder is in an Authorized Denomination of not less than $100,000) for purchase at the Purchase Price on any Business Day (an Optional Tender Date ). While any Series 2002 Bonds are not registered in the name of DTC or any nominee thereof, to exercise the tender option, a Bondholder must deliver to the Tender Agent at its principal office, not later than 5:00 p.m., New York City time, on the seventh calendar day preceding the Optional Tender Date, irrevocable notice (the Tender Notice ) which states (i) the aggregate principal amount in an Authorized Denomination of each Series 2002 Bond to be purchased and (ii) that each such Series 2002 Bond (or portion thereof in an Authorized Denomination) is to be purchased on the Optional Tender Date. So long as any Series 2002 Bonds are registered in the name of DTC or any nominee thereof, in connection with any optional tender of such Series 2002 Bonds bearing interest at a Weekly Interest Rate, the beneficial owners of such Series 2002 Bonds are responsible for submitting the Tender Notice to the Remarketing Agent only. As long as the Series 2002 Bonds are registered in the name of Cede & Co., as nominee of DTC (or such other nominee), the tender option may only be exercised by a DTC Participant (as hereinafter defined) on behalf of a Beneficial Owner (as hereinafter defined) of Series 2002 Bonds by giving written notice of its election to tender at the times and in the manner described above. An election to tender a Series 2002 Bond for purchase is irrevocable and binding on the Holder or DTC Participant making such election, the Beneficial Owner on whose behalf the notice was given and on any transferee thereof. See BOOK-ENTRY-ONLY SYSTEM herein. Mandatory Tender The Series 2002 Bonds of each Series are subject to mandatory tender and purchase at the Purchase Price on the following dates (each a Mandatory Tender Date ): (i) the Conversion Date, (ii) on the fifth day (or if such day is not a Business Day, the preceding Business Day) next preceding the date on which any Liquidity Facility then in effect expires, (iii) upon the issuance of a substitute Liquidity Facility, (iv) as of the effective date of termination of the Liquidity Facility at the option of the University and (v) at the direction of the Bank upon the occurrence of certain events of default under the Liquidity Facility. If the conditions for conversion to a Fixed Interest Rate or for the issuance of a substitute Liquidity Facility are not satisfied, the Series 2002 Bonds will remain subject to mandatory tender as scheduled. Immediate Termination or Suspension of Obligation to Purchase Series 2002 Bonds Under the Liquidity Facility in Certain Circumstances WHILE EACH OF THE LIQUIDITY FACILITIES IS IN PLACE, UPON THE OCCURRENCE AND CONTINUANCE OF CERTAIN EVENTS OF DEFAULT, THE OBLIGATION OF THE BANK TO PURCHASE THE APPLICABLE SERIES OF SERIES 2002 BONDS UNDER SUCH LIQUIDITY FACILITY WILL TERMINATE OR BE SUSPENDED IMMEDIATELY WITHOUT PRIOR NOTICE OR DEMAND TO HOLDERS OF SUCH SERIES OF THE SERIES 2002 BONDS AND WITHOUT MANDATORY TENDER OF SUCH SERIES OF THE SERIES 2002 BONDS. AFTER THE OCCURRENCE OF SUCH DEFAULTS, OWNERS OF A SERIES 2002 BOND TENDERED FOR PURCHASE WOULD NOT BE ENTITLED TO HAVE THEIR SERIES 2002 BOND PURCHASED BY THE BANK FROM FUNDS MADE AVAILABLE UNDER THE APPLICABLE LIQUIDITY FACILITY. See SOURCES OF PAYMENT AND 11

16 SECURITY FOR THE SERIES 2002 BONDS Liquidity Facility Description of Liquidity Facility - Events of Default Under Liquidity Facility Consequences of Events of Default herein. Delivery of Tendered Bonds So long as the Series 2002 Bonds are registered in the name of DTC or its nominee, Cede & Co. (or such other nominee), the delivery of tendered bonds are to be reflected in accordance with the procedures established by DTC. If the Series 2002 Bonds are no longer registered in the name of DTC or its nominee, the tendered bonds are to be delivered and surrendered to the Tender Agent at its principal corporate trust office in The City of New York on the Optional Tender Date or Mandatory Tender Date. If on the Optional Tender Date or the Mandatory Tender Date there is on deposit with the Tender Agent sufficient moneys to pay the Purchase Price of the Tendered Bonds, such Bonds will be deemed tendered without physical delivery to the Trustee and the Holders or DTC Participants and Beneficial Owners of such Bonds will have no further rights thereunder other than the right to the payment of the Purchase Price. The Purchase Price for Tendered Bonds is payable solely out of the moneys derived from the remarketing of such Series 2002 Bonds and the moneys made available by the University or pursuant to a Liquidity Facility if one is then in effect. The Issuer has no obligation to pay the Purchase Price out of any other moneys. Remarketing and Purchase The Remarketing Agent is required to use its best efforts to remarket the tendered Series 2002 Bonds. However, the Remarketing Agent is not required to remarket any tendered Series 2002 Bonds under certain circumstances, including if Remarketing Agent has actual knowledge that an Event of Default with respect to the Series 2002 Bonds has occurred and is continuing under the Indenture and the Installment Sale Agreement. In addition, the Remarketing Agreement provides that the Remarketing Agent is not required to remarket any tendered Series 2002 Bonds if (i) the Remarketing Agent determines that any applicable disclosure document or continuing disclosure undertaking required in connection with the remarketing of the Series 2002 Bonds is either unavailable or not adequate or (ii) the Remarketing Agent has received an Opinion of Bond Counsel that the exclusion from gross income of interest on the Series 2002 Bonds for federal income tax purposes, or the exemption from registration under the Securities Act of 1993, or the exemption from qualification of the Indenture under the Trust Indenture Act of 1939 can be challenged. In addition, the Issuer, with the consent of the University so long as no event of default has occurred and is continuing under the Installment Sale Agreement, may direct the Remarketing Agent to discontinue or suspend its remarketing of the Series 2002 Bonds. Tendered Bonds will be purchased from the Holders on the mandatory tender date or optional tender date at the Purchase Price from the proceeds of remarketing. To the extent that remarketing proceeds are insufficient to pay the Purchase Price of Tendered Bonds, the Purchase Price is to be paid, subject to the satisfaction of certain conditions precedent as described under SOURCES OF PAYMENT AND SECURITY FOR THE SERIES 2002 BONDS Liquidity Facility Description of the Liquidity Facilities from amounts advanced under the applicable Liquidity Facility (the Purchased Bonds ) if one is then in effect or from amounts paid by the University. Under certain circumstances, the Liquidity Facility may terminate without notice to Bondholders or a mandatory tender may be caused. See SOURCES OF PAYMENT AND SECURITY FOR THE SERIES 2002 BONDS - Liquidity Facility Description of the Liquidity Facility - Events of Default Under Liquidity Facility - Consequences of Events of Default. Interest on tendered Series 2002 Bonds to be purchased after the Record Date for an Interest Payment Date will be paid to the registered owner of the tendered Series 2002 Bonds on the Record Date. No Series 2002 Bond tendered for purchase at the option of the Holder which does not strictly conform to the description contained in the notice of tender will be purchased from its Holder. Redemption Provisions The Series 2002 Bonds are subject to optional, special and mandatory redemption as described below. Optional Redemption. The Series 2002 Bonds are subject to redemption at the election of the Issuer in whole or in part on any Interest Payment Date at a redemption price equal to 100% of the principal amount of Series 2002 Bonds or portions thereof to be redeemed plus accrued interest, if any, to the date of redemption. 12

17 Mandatory Sinking Fund Redemption. The Series 2002A Bonds are subject to redemption prior to maturity, in part, on the first Business Day of July of the years set forth below in the respective principal amounts set forth below at a Redemption Price equal to 100% of the principal amount of Series 2002A Bonds to be redeemed, plus accrued interest, if any, to the date of redemption, from mandatory Sinking Fund Installments which are required to be made in amounts sufficient to redeem on each such redemption date the principal amount of Series 2002A Bonds shown below: * Final Maturity Year Principal Amount 2012 $1,445, ,510, ,575, ,645, ,720, ,800, ,880, ,965, ,050, ,145, ,240, ,345, ,445, ,555, ,670, ,790, ,920, ,050, * 3,190,000 The Series 2002B Bonds are not subject to sinking fund redemption prior to maturity. The Issuer may from time to time direct the Trustee to purchase Series 2002A Bonds with moneys in the Redemption Account in the Bond Fund, at or below par plus accrued interest to the date of such purchase, and apply any Series 2002A Bonds so purchased as a credit, at 100% of the principal amount thereof, against and in fulfillment of a required Sinking Fund Installment on the Series 2002A Bonds. The University also may purchase Series 2002A Bonds and apply any Series 2002A Bonds so purchased as a credit, at 100% of the principal amount thereof, against and in fulfillment of a required Sinking Fund Installment on the Series 2002A Bonds. To the extent the Issuer s obligation to make Sinking Fund Installments in a particular year is fulfilled through such purchases, the likelihood of redemption through mandatory Sinking Fund Installments of any Bondholder s Series 2002A Bonds so purchased will be reduced for such year. Excess Insurance or Condemnation Proceeds Redemption. Each Series of the Series 2002 Bonds are subject to redemption in whole or in part on any Interest Payment Date prior to maturity in the event and to the extent excess property insurance proceeds or condemnation awards received in connection with the damage, destruction, taking or condemnation of the facilities refinanced with the proceeds of such Series of Series 2002 Bonds shall remain after the application thereof pursuant to the Installment Sale Agreement and the Indenture, in each case at a Redemption Price equal to one hundred percent (100%) of the principal amount of the Series 2002 Bonds to be redeemed, together with interest accrued thereon to the Redemption Date. See APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE INSTALLMENT SALE AGREEMENT Application of Proceeds of Hazard Insurance and Application of Proceeds of Condemnation. Selection of 2002 Bonds to be Redeemed. In the case of redemptions of Series 2002 Bonds, other than mandatory redemptions, the Issuer will select the Series of the Series 2002 Bonds to be redeemed. If less than all of the Series 2002 Bonds of a Series are to be redeemed, the Trustee shall select for redemption Purchased Bonds before selecting other Series 2002 Bonds for redemption. Series 2002 Bonds to be redeemed, which are not Purchased Bonds, will be selected by the Trustee, by lot, using such method of selection as the Trustee shall consider proper in its discretion. Notice of Redemption. The Trustee is to give notice of the redemption of the Series 2002 Bonds in the name of the Issuer, specifying certain information listed in the Indenture, by mailing a copy of such notice by first class mail, not more than sixty (60) nor less than thirty (30) days prior to the Redemption Date, to the Remarketing Agent and the registered owners of any Series 2002 Bonds which are to be redeemed, at their last addresses, if any, appearing upon the registration books kept by the Registrar, but any defect in such notice shall not affect the validity of the proceedings for the redemption of such Series

18 Bonds with respect to which proper mailing was effected; and cause notice of such redemption to be sent to at least two (2) of the national information services that disseminate redemption notices. With respect to any optional redemption of the Series 2002 Bonds, notice will state that such redemption will be conditional upon receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, redemption premium, if any, and interest on Series 2002 Bonds to be redeemed, and that if such moneys shall not have been so received said notice will be of no force and effect and the Issuer will not be required to redeem such Series 2002 Bonds. If on the redemption date moneys for the redemption of the Series 2002 Bonds of like maturity to be redeemed, together with interest thereon to the redemption date, are held by the Trustee so as to be available for payment of the redemption price, and if notice of redemption has been mailed, then interest on the Series 2002 Bonds of such maturity will cease to accrue from and after the redemption date. For a more complete description of the redemption and other provisions relating to the Series 2002 Bonds, see APPENDIX D - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE. CERTAIN CONSIDERATIONS AFFECTING SALES OF VARIABLE RATE BONDS The Remarketing Agent is Paid by the University. The Remarketing Agent s responsibilities include determining the interest rate from time to time and remarketing Series 2002 Bonds that are optionally or mandatorily tendered by the owners thereof (subject, in each case, to the terms of the Remarketing Agreement), all as further described in this Reoffering Circular. The Remarketing Agent is appointed by the University and is paid by the University for its services. As a result, the interests of the Remarketing Agent may differ from those of existing holders and potential purchasers of Series 2002 Bonds. The Remarketing Agent Routinely Purchases Bonds for its Own Account. The Remarketing Agent acts as remarketing agent for a variety of variable rate demand obligations and, in its sole discretion, routinely purchases such obligations for its own account. The Remarketing Agent is permitted, but not obligated, to purchase tendered Series 2002 Bonds for its own account and, in its sole discretion, may routinely acquire tendered Series 2002 Bonds in order to achieve a successful remarketing of the Series 2002 Bonds (i.e., because there otherwise are not enough buyers to purchase the Series 2002 Bonds) or for other reasons. However, the Remarketing Agent is not obligated to purchase Series 2002 Bonds, and may cease doing so at any time without notice. The Remarketing Agent may also make a market in the Series 2002 Bonds by routinely purchasing and selling Series 2002 Bonds other than in connection with an optional or mandatory tender and remarketing. Such purchases and sales may be at or below par. However, the Remarketing Agent is not required to make a market in the Series 2002 Bonds. The Remarketing Agent may also sell any Series 2002 Bonds it has purchased to one or more affiliated investment vehicles for collective ownership or enter into derivative arrangements with affiliates or others in order to reduce its exposure to the Series 2002 Bonds. The purchase of Series 2002 Bonds by the Remarketing Agent may create the appearance that there is greater third party demand for the Series 2002 Bonds in the market than is actually the case. The practices described above also may result in fewer Series 2002 Bonds being tendered in a remarketing. Series 2002 Bonds May be Offered at Different Prices on any Date Including a Rate Determination Date. Pursuant to the Remarketing Agreement, the Remarketing Agent is required to determine the applicable rate of interest that, in its judgment, is the lowest rate that would permit the sale of the Series 2002 Bonds bearing interest at the applicable interest rate at par plus accrued interest, if any, on and as of the first day of the Adjustment Period. The interest rate will reflect, among other factors, the level of market demand for the Series 2002 Bonds (including whether the Remarketing Agent is willing to purchase Series 2002 Bonds for its own account). The Remarketing Agreement requires that the Remarketing Agent use its best efforts to sell tendered bonds at par, plus accrued interest. There may or may not be Series 2002 Bonds tendered and remarketed on the first day of the Adjustment Period, the Remarketing Agent may or may not be able to remarket any Series 2002 Bonds tendered for purchase on such date at par and the Remarketing Agent may sell Series 2002 Bonds at varying prices to different investors on such date or any other date. The Remarketing Agent is not obligated to advise purchasers in a remarketing if it does not have third party buyers for all of the Series 2002 Bonds at the remarketing price. The Remarketing Agent, in its sole discretion, may offer Series 2002 Bonds on any date, including the first day of the Adjustment Period, at a discount to par to some investors. The Ability to Sell the Series 2002 Bonds other than through Tender Process May Be Limited. The Remarketing Agent may buy and sell Series 2002 Bonds other than through the tender process. However, it is not obligated to do so and may cease doing so at any time without notice and may require holders that wish to tender their Series 2002 Bonds to do so through the tender agent with appropriate notice. Thus, investors who purchase the Series 2002 Bonds, whether in a remarketing or otherwise, should not assume that they will be able to sell their Series 2002 Bonds other than by tendering the Series 2002 Bonds in accordance with the tender process. Under Certain Circumstances, the Remarketing Agent May Be Removed, Resign or Cease Remarketing the Series 2002 Bonds, Without a Successor Being Named. Under certain circumstances the Remarketing Agent may be removed or have the 14

19 ability to resign or cease its remarketing efforts, without a successor having been named, subject to the terms of the Remarketing Agreement. In the event there is no Remarketing Agent, the Trustee may assume such duties as described in the Indenture. BOOK-ENTRY-ONLY SYSTEM DTC will act as securities depository for the Series 2002 Bonds. The Series 2002 Bonds will be reoffered as fullyregistered bonds registered in the name of Cede & Co. (DTC s partnership nominee). One fully-registered certificate was issued for the Series 2002 Bonds and was deposited with DTC SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE SERIES 2002 BONDS, AS NOMINEE FOR DTC, REFERENCES HEREIN TO BONDHOLDERS, HOLDERS OR OWNERS OF THE SERIES 2002 BONDS (OTHER THAN UNDER THE CAPTION TAX MATTERS HEREIN) SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE SERIES 2002 BONDS. The information contained in the following paragraphs of this subsection Book-Entry-Only System has been extracted from information provided by DTC. The Issuer, the University and the Remarketing Agent make no representation as to the completeness or the accuracy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. DTC 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 securities that its participants ( Participants ) deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of the Series 2002 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2002 Bonds on DTC s records. The ownership interest of each actual purchaser of each bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but 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 interest in the Series 2002 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 2002 Bonds, except in the event that use of the book-entry system for the Series 2002 Bonds is discontinued. To facilitate subsequent transfers, the Series 2002 Bonds deposited by Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. The deposit of the Series 2002 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 2002 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2002 Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Redemption notices shall be sent to Cede & Co. If less than all of the Series 2002 Bonds are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such Series 2002 Bonds to be redeemed. 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. Neither DTC nor Cede & Co. will consent or vote with respect to the Series 2002 Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as issuer of the Series 2002 Bonds 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 2002 Bonds are credited on the record date (identified on a listing attached to the Omnibus Proxy). 15

20 Principal and interest payments on Series 2002 Bonds will be made to DTC. DTC s practice is to credit Direct Participants accounts on the date payable in accordance with their respective holdings shown on DTC s records unless DTC has reason to believe that it will not receive payment on the date payable. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant not of DTC, the Trustee, or the Issuer, 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 Issuer or the 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. DTC may discontinue providing its services as securities depository with respect to the Series 2002 Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, certificates for the Series 2002 Bonds are required to be printed and delivered. The Issuer may decide to discontinue the use of book-entry transfers through DTC (or a successor securities depository). In that event, certificates for the Series 2002 Bonds will be printed and delivered. A Beneficial Owner shall give notice to elect to have its Series 2002 Bonds purchased or tendered, through its Participant, to the tender agent, and shall effect delivery of such Series 2002 Bonds by causing the Direct Participant to transfer the Participant s interest in the Series 2002 Bonds, on DTC s records, to the tender agent. The requirement for physical delivery of the Series 2002 Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Series 2002 Bonds are transferred by Direct Participants on DTC s records and followed by a book-entry credit of tendered Series 2002 Bonds to the tender agent s DTC Account. NEITHER THE ISSUER, THE TRUSTEE NOR THE REMARKETING AGENT (IN THEIR CAPACITY AS SUCH) WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DIRECT PARTICIPANTS, TO INDIRECT PARTICIPANTS OR TO ANY BENEFICIAL OWNERS WITH RESPECT TO (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT; (II) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE SERIES 2002 BONDS; (III) ANY NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GIVEN TO OWNERS OF THE SERIES 2002 BONDS; OR (IV) ANY CONSENT GIVEN BY DTC OR OTHER ACTION TAKEN BY DTC AS A BONDOWNER. Federal Income Taxes TAX MATTERS On February 14, 2002, Harris Beach PLLC, Bond Counsel, rendered its opinions (collectively, the Approving Opinions ) to the effect that under existing statutes, regulations and court decisions as of the date of such opinions, and assuming compliance with the representations, certifications and covenants described in the immediately succeeding paragraph, interest on the Series 2002 Bonds is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Code and is not an item of tax preference for purposes of computing the federal alternative minimum tax imposed on individuals and corporations. Such Approving Opinions also stated, however, that interest on the Series 2002 Bonds held by certain corporate taxpayers is included in the computation of adjusted current earnings a portion of which will be taken into account in determining the federal alternative minimum tax imposed on such corporations. Corporate purchasers of the Series 2002 Bonds should consult their tax advisors regarding the computation of any alternative minimum tax. The Code establishes certain requirements which must be met at and subsequent to the issuance and delivery of the Series 2002 Bonds in order that interest on the Series 2002 Bonds will be and remain excludable from gross income for federal income tax purposes. Included among these continuing requirements are certain restrictions and prohibitions on the use of bond proceeds, restrictions on the investment of proceeds of the Series 2002 Bonds and other moneys or properties, required ownership of a facility by an organization described in Section 501(c)(3) of the Code or a governmental unit, and the rebate to the United States of certain earnings in respect of investments. Failure to comply with the continuing requirements may cause the interest on the Series 2002 Bonds to be included in gross income for federal income tax purposes retroactive to the date of their issuance irrespective of the date on which such noncompliance occurs. In the Indenture, the Installment Sale Agreement, the Tax Compliance Agreement and accompanying documents, exhibits and certificates, the Issuer and the University have covenanted to comply with certain procedures, and have made certain representations and certifications, designed to assure satisfaction of the requirements of the Code. In rendering the above-described opinions, Bond Counsel assumed the accuracy of such representations and certifications and the continuing compliance by the Issuer and the University with such covenants. 16

21 The Approving Opinions are attached to this Reoffering Circular as Appendix F. Bond Counsel is not restating or otherwise bringing down the Approving Opinions, or any of the opinions set forth therein, to the date of this Reoffering Circular or the date of any remarketing of the Series 2002 Bonds. In addition to the matters referred to in the preceding paragraphs, prospective purchasers of the Series 2002 Bonds should be aware that the accrual or receipt of interest on the Series 2002 Bonds may otherwise affect the federal income tax liability of the recipient. The extent of these other tax consequences may depend upon the recipient s particular tax status or other items of income or deduction. Bond Counsel expresses no opinion regarding any such consequences. Examples of such other federal income tax consequences of acquiring or holding the Series 2002 Bonds include, without limitation, that (i) with respect to certain insurance companies, the Code reduces the deduction for loss reserves by a portion of the sum of certain items, including interest on the Series 2002 Bonds, (ii) interest on the Series 2002 Bonds earned by certain foreign corporations doing business in the United States may be subject to a branch profits tax imposed by the Code, (iii) passive investment income, including interest on the Series 2002 Bonds, may be subject to federal income taxation under the Code for certain S corporations that have certain earnings and profits, and (iv) the Code requires recipients of certain Social Security and certain other federal retirement benefits to take into account, in determining gross income, receipts or accruals of interest on the Series 2002 Bonds. In addition, the Code denies the interest deduction for indebtedness incurred or continued by a taxpayer, including without limitation, banks, thrift institutions, and certain other financial institutions to purchase or carry tax-exempt obligations, such as the Series 2002 Bonds. All prospective purchasers of the Series 2002 Bonds should consult with their tax advisors in order to understand the implications of the Code as to these and other federal and state tax consequences, as well as any local tax consequences, of purchasing or holding the Series 2002 Bonds. Certain requirements and procedures contained or referred to in the Indenture, the Installment Sale Agreement, the Tax Compliance Agreement and other relevant documents may be changed, and certain actions may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of Bond Counsel. Bond Counsel expresses no opinion as to any Series 2002 Bond or the interest thereon if any such change occurs or actions are taken or not taken upon the advice or approval of bond counsel other than Harris Beach PLLC. Bond Counsel has not undertaken to advise in the future whether any events occurring (or not occurring) or any actions taken (or not taken) after the date of issuance and delivery of the Series 2002 Bonds may affect the tax status of interest on the Series 2002 Bonds. In addition, no assurance can be given that future legislation or amendments to the Code, if enacted into law, will not contain provisions which could directly or indirectly reduce the benefit of the exclusion of the interest on the Series 2002 Bonds from gross income for federal income tax purposes. State and Local Income Tax The Approving Opinions also stated that, under existing statutes in existence as of the date of original issuance of the Series 2002 Bonds, interest on the Series 2002 Bonds is exempt from personal income taxes imposed by the State of New York or any political subdivision thereof (including without limitation the City of New York and the City of Yonkers). Interest on the Series 2002 Bonds may or may not be subject to state or local income taxes in jurisdictions other than the State of New York under applicable state or local tax laws. Bond Counsel expresses no opinion as to the tax treatment of the Series 2002 Bonds under other state or local jurisdictions. Each purchaser of the Series 2002 Bonds should consult his or her own tax advisor regarding the taxable status of the Series 2002 Bonds in a particular state or local jurisdiction other than the State of New York. Other Considerations Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Series 2002 Bonds may adversely affect the value of, or the tax status of, interest on, the Series 2002 Bonds. No assurance can be given that any future legislation, including amendments to the Code or the state income tax laws, regulations, administrative rulings, or court decisions, will not cause interest on the Series 2002 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. Furthermore, no assurance can be given that the introduction or enactment of any such future legislation, or any judicial decisions or actions of the Internal Revenue Service, including but not limited to regulations, rulings, the selection of the Series 2002 Bonds for audit examination, or the course or result of any Internal Revenue Service examination of the Series 2002 Bonds or of obligations which present similar tax issues, will not affect the market price or marketability of the Series 2002 Bonds. Prospective purchasers of the remarketed Series 2002 Bonds should consult their own tax advisors regarding the forgoing matters. 17

22 All quotations from and summaries and explanations of provisions of law do not purport to be complete and reference is made to such laws for full and complete statements of their provisions. ALL PROSPECTIVE PURCHASERS OF THE SERIES 2002 BONDS SHOULD CONSULT WITH THEIR TAX ADVISORS IN ORDER TO UNDERSTAND THE IMPLICATIONS OF THE CODE AS TO THE FEDERAL TAX CONSEQUENCES, AS WELL AS ANY STATE AND LOCAL TAX CONSEQUENCES, OF PURCHASING OR HOLDING THE SERIES 2002 BONDS. RATINGS Moody s Investors Service ( Moody s ) has assigned credit ratings of Aa1/VMIG 1 to the Series 2002 Bonds. Standard & Poor s Ratings Services, a division of The McGraw Hill Companies, Inc. ( Standard & Poor s ) has assigned a longterm credit rating of AA to the Series 2002 Bonds and is expected to assign a short-term credit rating of A-1+ to the Series 2002 Bonds by the Substitution Date. All such ratings reflect only the view of the respective rating agencies, and any desired explanation of the significance of such rating should be obtained from the respective rating agency. Generally, a rating agency bases its ratings on the information and materials furnished it and on investigations, studies and assumptions by the rating agency. There is no assurance that a particular rating will apply for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the agency originally establishing the rating, circumstances so warrant. The Remarketing Agent has undertaken no responsibility either to bring to the attention of the holders of the Series 2002 Bonds any proposed revision or withdrawal of the ratings of the Series 2002 Bonds or to oppose any such proposed revision or withdrawal. Any downward revision or withdrawal of such ratings, or either of them, could have an adverse effect on the market price of the Series 2002 Bonds. Such ratings should not be taken as a recommendation to buy or hold the Series 2002 Bonds. REMARKETING Citigroup Global Markets Inc., as remarketing agent (the Remarketing Agent ), has agreed to sell the Series 2002 Bonds tendered on the Substitution Date on a best efforts basis. The University has agreed to indemnify the Remarketing Agent and the Issuer with respect to certain liabilities, including certain liabilities under the federal securities laws. LEGALITY FOR INVESTMENT AND DEPOSIT Under the Act, the Series 2002 Bonds are made securities in which all public officers and bodies of the State and all municipalities and political subdivisions, all insurance companies and associations and other persons carrying on an insurance business, all banks, bankers, trust companies, savings banks and savings associations, including savings and loan associations, building and loan associations, investment companies and other persons carrying on a banking business, all other persons whatsoever who are now or may hereafter be authorized to invest in bonds or notes or other obligations of the State, may, to the extent that the legality of their investments is governed by the laws of the State, properly and legally invest funds including capital in their control or belonging to them. The Series 2002 Bonds are also made securities which may be deposited with and shall be received by all public officers and bodies of the State and all municipalities and municipal subdivisions, to the extent that the legality of their investments is governed by the laws of the State, for any purpose for which the deposit of bonds or other obligations of the State is now or may hereafter be authorized. APPROVAL OF LEGAL PROCEEDINGS Certain legal matters incident to the authorization and issuance of the Series 2002 Bonds were subject to the approval of Harris Beach PLLC, Rochester, New York, Bond Counsel, whose Approving Opinions in connection with the original issuance of the Series 2002 Bonds are attached hereto as Appendix F. Legal matters in connection with the substitution of the Liquidity Facility for the Series 2002 Bonds are subject to the opinion of Harris Beach PLLC, Rochester, New York, Bond Counsel. Certain legal matters will be passed upon for the Issuer by its counsel, Mariette Geldenhuys, Esq., Ithaca, New York, for the University by its University counsel, for the Remarketing Agent by its counsel, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., New York, New York and for the Bank by its counsel SNR Denton US LLP, Chicago, Illinois. 18

23 CONTINUING DISCLOSURE The University, the Trustee and a dissemination agent shall enter into an undertaking for the benefit of the holders of the Series 2002 Bonds. The form of such undertaking is attached hereto as Appendix H. The University has not failed to comply in all material respects with any previous undertakings with regard to Securities and Exchange Commission Rule 15c2-12 to provide annual reports or notices of material events, other than a notice of a change in credit rating by Standard & Poor s from AA+ to AA in This notice was filed May 17, INDEPENDENT ACCOUNTANTS The financial statements of the University as of June 30, 2011, and for the year ended, included in Appendix B to this Reoffering Circular, have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing therein. FINANCIAL ADVISOR The Yuba Group LLC, also known as Yuba Group Advisors (the Financial Advisor ), has been retained by the University to serve as its financial advisor on matters related to the structuring and issuing of debt. The Financial Advisor is not obligated to make, and has not undertaken, an independent verification of any of the information contained in this Reoffering Circular and makes no guarantee as to the accuracy, completeness or fairness of such information. The Financial Advisor is an independent financial advisory and consulting firm and is not engaged in the underwriting or trading of municipal securities or other negotiable instruments. MISCELLANEOUS Information concerning the University contained in this Reoffering Circular has been furnished by the University. Neither the Issuer nor the Remarketing Agent makes any representation or warranty as to the accuracy or completeness of such information. Any statements made in this Reoffering Circular involving matters of opinion or estimates, whether or not expressly stated, are intended as such, and not as representations of facts. No representation is made that any of the opinions or estimates will be realized. This Reoffering Circular is not intended to be construed as a contract or agreement between the Issuer or the University and the purchasers or holders of any of the Series 2002 Bonds. The distribution of this Reoffering Circular to prospective purchasers of the Series 2002 Bonds by the Remarketing Agent has been duly authorized by the Issuer and by the University. This Reoffering Circular is made available only in connection with the reoffering of the Series 2002 Bonds and may not be used in whole or in part for any other purpose. CORNELL UNIVERSITY TOMPKINS COUNTY INDUSTRIAL DEVELOPMENT AGENCY By: /s/ Patricia A. Johnson University Treasurer By: /s/ Michael Stamm Administrative Director 19

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25 APPENDIX A Introduction CERTAIN INFORMATION CONCERNING THE UNIVERSITY Cornell University ( Cornell or the University ) is a private, not-for-profit, co-educational, nonsectarian institution of higher learning chartered and operated under the laws of the State of New York (the State ). Cornell was founded by Ezra Cornell whose original endowment was augmented by a substantial land grant from the State of New York received under the Federal Land Grant (Morrill) Act of The University is comprised of six privately funded schools and colleges located in Ithaca, New York (the Endowed Colleges ), four State-supported schools located in Ithaca, New York (the Contract Colleges ), and the Joan and Sanford I. Weill Medical College and Graduate School of Medical Sciences of Cornell University located in New York City (the Medical College ). During the fall of 2011, approximately 14,200 undergraduate students and 7,900 graduate and professional students were enrolled in the University. In addition to the academic programs of the University located at its main campus in Ithaca, New York and in New York City, extension services and research are carried out throughout New York State and in many countries around the world. The Medical College also has a teaching facility in Doha, Qatar. In December 2011, the University entered into an agreement with the City of New York to build a new applied sciences and engineering campus on Roosevelt Island in New York City ( CornellNYC Tech ). CornellNYC Tech, which pairs Cornell with its partner, Technion-Israel Institute of Technology, will have an economic development and entrepreneurship-oriented curriculum aimed at turning the best ideas of faculty and graduate students into new technologies and commercial applications. Construction on the new campus will commence in July 2014 with occupancy in July A $350 million gift from Atlantic Philanthropies will fund the estimated first ten years of capital and operating costs. Further construction will be on a pay-as-you-go basis, and no construction will begin on a facility until it is fully funded. Cornell has no plans to fund further construction with bond financing. Cornell s land holdings, as of December 2011, comprise approximately 11,181 tax-exempt and 377 taxable acres in Tompkins County, New York; approximately 6,105 tax-exempt and 214 taxable acres in other areas of the State; and 1,500 taxable acres outside the State. As of Fall 2011, the physical plant at Cornell s campus in Tompkins County includes 762 buildings; and the physical plant at Cornell s Medical College campus in New York City includes approximately 19 with an additional 38 buildings that are leased. The University also owns approximately 72 buildings at the Agricultural Experiment Station in Geneva, New York. The privately funded Endowed Colleges in Ithaca are the College of Architecture, Art and Planning; the College of Arts and Sciences; the College of Engineering; the School of Hotel Administration; the Law School; and the Samuel Curtis Johnson Graduate School of Management. The Medical College in New York City is also privately funded and is the academic and teaching component of the New York Presbyterian Hospital-Cornell Medical Center. The four State-supported Contract Colleges are operated by the University on behalf of the State pursuant to statute or contractual agreements under general supervision of the trustees of the State University of New York ( SUNY ). The annual State appropriations for the Contract Colleges and income generated by their operation (other than the portion of tuition remitted to SUNY) are allocated to their use. The Contract Colleges are the College of Agriculture and Life Sciences; the College of Human Ecology; the School of Industrial and Labor Relations; and the College of Veterinary Medicine. The New York State Agricultural Experiment Station at Geneva is a unit of the College of Agriculture and Life Sciences and its departments are integral parts of the University. In 1865, the State Legislature designated Cornell as the State s land grant institution under the Morrill Act of Although a private institution, Cornell s Board of Trustees includes public representatives, consonant with its land grant status. As units of the State land grant institution, Cornell s four Contract Colleges have been assigned by State legislation specific responsibilities in research and cooperative extension directed to State needs. These specific statutory objectives in research and cooperative extension do not exist for other units of the SUNY system. Cornell s academic programs offer students the opportunity to pursue studies in the arts, sciences, humanities, human and veterinary medicine, law, engineering, agriculture, architecture, planning, human ecology, hotel A-1

26 administration, industrial and labor relations, and management. Undergraduate students may work toward the Bachelor of Architecture, Bachelor of Arts, Bachelor of Fine Arts or Bachelor of Science degree. Graduate programs award degrees at the Master s, Professional Master s and Doctoral level. Professional degrees are offered in the fields of law, management, medicine and veterinary medicine. Cornell is accredited by the Middle States Association of Colleges and Secondary Schools and the Medical College is also accredited by the Liaison Committee for Medical Education for the American Medical Association and the Association of American Medical Colleges. Other programs of the University are accredited by appropriate education accrediting associations. Cornell s research programs are broadly based, including disciplines of engineering and physical sciences, life and agricultural sciences, social sciences and humanities and medical sciences. Many national centers, which have the mission to serve the research needs of investigators nationally and, in some cases, internationally, are located at Cornell. Contract Colleges The four Contract Colleges enroll approximately 34% of the student body and account for approximately 26% of the sponsored research work of the University and 34% of total research expenditures of the University. The cost of construction and acquisition for certain Contract College facilities is borne primarily by the State. State operating and capital contributions provide significant financial support to the integrated academic and research program of the University as well as general campus overhead costs. Total funding from all sources (tuition, State, Federal, gifts, etc.), for the operations of the Contract Colleges amounted to approximately $624 million for the year ended June 30, The State appropriations for operation of the Contract Colleges received through SUNY of approximately $134 million for represent about 21% of the operating budget for the Contract Colleges. State operating budget appropriations are received as part of the SUNY appropriation budget and are based on negotiation with SUNY and the New York State Department of Budget. In addition to the direct operating budget appropriation received through SUNY, State funds (which do not appear in Cornell s budget) also support employee benefits and debt service on bonds used to finance certain Contract College facilities. Future State support for the Contract Colleges is dependent on the enactment of annual appropriations by the State and the willingness and ability of the State and SUNY to provide such payments. Cornell s four Contract Colleges have been assigned by State legislation specific responsibilities in research and extension directed to State needs. The specialized missions of the Contract Colleges, as set forth in the State Education Law, are included in the Cornell Charter. As units of Cornell most directly involved in the delivery of the University s overall land grant mission, the Contract Colleges administer the Agricultural Experiment Stations at Geneva and Ithaca, New York, which receive research funding under the federal Hatch Act, along with the Cornell Cooperative Extension System which receives support under the federal Smith-Lever Act. The School of Industrial and Labor Relations operates an extension division with regional offices across the State, providing services and programs to workers, management and unions. The College of Veterinary Medicine runs the State s only Veterinary Teaching Hospital and Medical Center. These colleges also operate a number of major contract programs for State agencies other than SUNY, including the State s Animal Diseases Diagnostic Laboratories for the Department of Agriculture and Markets, the State s Equine Drug Testing Program for the Racing and Wagering Board, an Integrated Pest Management Program for the Department of Agriculture and Markets, Child Protective Services Training for the Department of Social Services, and conduct public policy analyses for the State such as the impact of managed care on Workers Compensation programs and costs. Governance Cornell is governed by a 64-member Board of Trustees (the Board ) which meets four times a year. The Board includes: 43 members elected by the Board for staggered terms of four years each; eight members elected by alumni for staggered terms of four years each; two members elected by faculty for terms of four years each; two members elected by students for terms of two years each; one member elected by employees for a term of four years and three members appointed by the Governor for terms of three years. There are four ex-officio trustees who serve during their respective terms of office: the Governor of the State of New York; the President Pro Tempore of the New York State Senate; the Speaker of the New York State Assembly and the President of the University. In addition, the eldest lineal descendant of Ezra Cornell serves as trustee for life. The Board is as follows: A-2

27 CORNELL UNIVERSITY BOARD OF TRUSTEES Trustee Affiliation Board Position PETER C. MEINIG Chairman and Chief Executive Officer, HM International, Inc. Chairman (thru Dec. 31, 2011) ROBERT S. HARRISON Chief Executive Officer, Chairman Clinton Global Initiative, (effective Jan, 1, 2012) William J. Clinton Foundation DAVID J. SKORTON President, Cornell University Ex-Officio JAN ROCK ZUBROW President, MedCapital, LLC Chairman of the Executive Committee DIANA M. DANIELS Former Vice President, General Counsel and Vice Chairman Secretary The Washington Post Company ROBERT J. KATZ Senior Director, Goldman, Sachs & Co. Vice Chairman ANDREW H. TISCH Co-Chairman of the Board, Vice Chairman Loews Corporation DAVID W. ZALAZNICK Chairman, Jordan/Zalaznick Advisors, Inc. Vice Chairman ACTIVE TRUSTEES as of July 1, 2011 ELIZABETH J. ALTMAN, Doctoral Student in Management, Harvard Business School STEPHEN B. ASHLEY, Chairman and Chief Executive Officer, The Ashley Group ROSEMARY J. AVERY, Professor and Department Chair, Policy Analysis and Management, Cornell University JESSICA M. BIBLIOWICZ, Chairman, President, and Chief Executive Officer, National Financial Partners SAMUEL W. BODMAN III, Former United States Secretary of Treasury RICHARD L. BOOTH, Managing Director and Partner, HBK Capital Management ALEXANDER W. BORES, Student, Cornell University DOUGLAS L. BRAUNSTEIN, Chief Financial Officer, J.P. Morgan Chase & Co. RONNI S. CHERNOFF, Associate Director, GRECC, Central AR Veterans Healthcare System EZRA CORNELL, President, Cornell Pochily DAVIDD.CROLL,ManagingPartner,MCVenturePartners ANDREW CUOMO, Governor of New York State IRA DRUKIER, Co-Owner, BD Hotels, LLC DARRICK T.N. EVENSEN, MS/PhD Student, Department of Natural Resources, Cornell University DAVID R. FISCHELL, Chief Executive Officer, Angel Medical Systems CHERYL A. FRANCIS, Co-Chairman, Corporate Leadership Center GREGORY J. GALVIN, President and Chief Executive Officer, Kionix RANA GLASGAL, Associate Vice Provost, Stanford University BLANCHE SAVIN GOLDENBERG, Retired Chairman, The Hartford Foundation for Public Giving KENNETH A. GOLDMAN, Chief Financial Officer, Fortinet PAUL A. GOULD, Managing Director, Allen & Company, LLC NELSON G. HAIRSTON, JR., Professor, Ecology and Evolutionary Biology, Cornell University PATRICIA E. HARRIS, First Deputy Mayor DENIS M. HUGHES, President, New York State AFL-CIO RUBEN J. KING-SHAW, JR., Managing Partner, Mansa Capital ROBERT S. LANGER, Professor, Massachusetts Institute of Technology LINDA R. MACAULAY, Research Associate, Cornell Lab of Ornithology RONALD D. MCCRAY, Former Vice President and Chief Compliance Officer, Nike, Inc. BETH McKINNEY, Director, Wellness Program, Cornell University HOWARD P. MILSTEIN, Chairman, President, & Chief Executive Officer, New York Private Bank & Trust ELIZABETH D. MOORE, General Counsel, Consolidated Edison Company of New York, Inc. JOHN A. NOBLE, President, Noblehurst Farms, Inc. A-3

28 PETER J. NOLAN, Managing Partner, Leonard Green & Partners, L.P. LUBNA SULIMAN OLAYAN, Chief Executive Officer, Olayan Financing Corporation ARMANDO J. OLIVERA, Chief Executive Officer, Florida Power & Light Company DONALD C. OPATRNY, Retired Advisory Director, The Goldman Sachs Group Inc. WILLIAM D. PEREZ, Former President and Chief Executive Officer, Wm. Wrigley Jr. Company LELAND C. PILLSBURY, Cofounder, Thayer Lodging Group Inc. BRUCE S. RAYNOR, Executive Vice President SEUI, Workers United Union PHILIP R. REILLY, Venture Partner, Third Rock Venture GENE RESNICK, President, Oncology Business Unit and Executive Vice President of Averion International Corporation IRENE B. ROSENFELD, Chairman and Chief Executive Officer, Kraft Foods ROBERT L. RYAN, Former Senior Vice President and Chief Financial Officer, Medtronic, Inc. PAUL A. SALVATORE, Partner and Co-chair, Proskauer Rose, LLP SHELDON SILVER, Speaker of the New York State Assembly DEAN G. SKELOS, President Pro Tempore, New York State Senate DALIA P. STILLER, Architectural Consultant, Woolbright Development CHIAKI TANUMA, President and Chief Executive Officer, Green House Co. Ltd., (effective January 1, 2012) RATAN N. TATA, Chairman, Tata Sons Limited LISA SKEETE TATUM, Retired General Partner, Cardinal Partners SHERYL H. TUCKER, Media and Conference Development Consultant, Time Warner Inc., M. EILEEN MCMANUS WALKER, Former Human Resources Executive, IBM BARTON J. WINOKUR, Chairman and Chief Executive Officer, Dechert LLP SHERYL WuDUNN, Senior Managing Director, Mid-Market Securities CRAIG YUNKER, Managing Member, CY Farms/Batavia Turf MICHAEL J. ZAK, General Partner, Charles River Ventures KAREN P. ZIMMER, Clinical Director, ECRI Institute The Board also has the following ten standing committees: Executive, Board Membership, Academic Affairs, Student Life, Investment, Audit, Finance, Buildings and Properties, Governmental Relations, and Alumni Affairs and Development. Administration The President of Cornell, as chief executive officer, is charged with the principal responsibility for administration of the University. The Board elects all officers of Cornell, some of whom include: Name Position David J. Skorton President W. Kent Fuchs Provost Laurie H. Glimcher Provost for Medical Affairs James J. Mingle University Counsel and Secretary of the Corporation Joanne M. DeStefano Vice President for Finance and Chief Financial Officer Brief biographies for each of the above listed officers follow: DAVID J. SKORTON became Cornell s 12th President on July 1, He holds faculty as professor in the Departments of Medicine and Pediatrics at Weill Cornell Medical College in New York City, and in Biomedical Engineering at the College of Engineering on Cornell s Ithaca campus. He is also past chair of the Business Higher Education Forum; life member of the Council on Foreign Relations; and member of the board of directors of the Association of American Medical Colleges. A Master of the American College of Cardiology, he has also been elected to the Institute of Medicine of the National Academies and a fellow of the American Academy of Arts and Sciences. Before coming to Cornell, he was president of the University of Iowa (UI) for three years ( ) and a faculty member at UI for 26 years. Co-founder and co-director of the UI Adolescent and Adult Congenital Heart Disease Clinic at the University. He earned his bachelor s degree in psychology in 1970 and an M.D. in 1974, both from Northwestern University. W. KENT FUCHS was appointed as Cornell s Provost effective January 1, He served as the Joseph Silbert Dean of Engineering from He was formerly the head of the School of Electrical and Computer A-4

29 Engineering and the Michael J. and Catherine R. Birck Distinguished Professor at Purdue University, Prior to that appointment, he was a professor in the Department of Electrical and Computer Engineering and the Coordinated Science Laboratory, University of Illinois, His research interests focus on computer engineering, particularly, dependable computing and failure diagnosis. He is a fellow of the Institute of Electrical and Electronics Engineers ( IEEE ) and the Association for Computing Machinery ( ACM ). He has over 185 publications and has served as the thesis advisor for 22 Ph.D. students and 35 M.S. students. He has received awards for both teaching and research. Fuchs received a B.S.E. degree from Duke University, M. Div. Degree from Trinity Evangelical Divinity School, and a Ph.D. in electrical engineering from the University of Illinois. LAURIE H. GLIMCHER, MD was appointed the Stephen and Suzanne Weiss Dean of Weill Cornell Medical College and Provost of Medical Affairs effective January 1, She is also Professor of Medicine. Previously, she was the Irene Heinz Given Professor of Immunology at the Harvard School of Public Health, where she was director of the Division of Biological Sciences, and Professor of Medicine at Harvard Medical School, where she headed one of the top immunology programs in the world. She also serviced as Senior Physician and Rheumatologist at the Brigham and Women s Hospital. Doctor Glimcher received her postdoctoral training at Harvard and in the Laboratory of Immunology at the National Institute of Allergy and Infectious Diseases in Bethesda, Maryland, and is board certified in Internal Medicine and Rheumatology. She received her BA degree from Radcliffe College and her MD from Harvard Medical School. Dr. Glimcher is the recipient of numerous awards and honors. She is a Fellow of the American Academy of Art and Sciences, and a Member of the National Academy of Sciences. She is the former President of the American Association of Immunologists. She is a member of the American Asthma Foundation, Immune Diseases Institute, Health Care Ventures, Burroughs-Wellcome Fund and Memorial Sloan Kettering Cancer Center Scientific advisory Boards, and services on the Cancer Research Institute Fellowship Committee. She is on the Corporate Board of Directors of the Bristol-Myers Squibb Pharmaceutical Corporation and the Waters Corporation. JAMES J. MINGLE is the Cornell University Counsel and Secretary of the Corporation. Previously, he was head of the Educational Affairs Division of the Maryland Attorney General s Office, where he served as chief counsel to the University of Maryland, the Maryland State Universities and Colleges, Morgan State University, several state higher education boards and commissions and Maryland Public Television. In 1989, Mr. Mingle was appointed General Counsel of the University of Virginia and served in that role until 1995 when he joined Cornell. He has held adjunct professor positions at the Law Schools of the University of Virginia and the University of Maryland, and currently at Cornell Law School where he teaches a seminar on Law and Higher Education. Mr. Mingle received his Bachelor of Arts degree in English from St. Joseph s College (Philadelphia) and his Juris Doctor degree from the University of Virginia. He is admitted to practice in New York, Virginia, and Maryland. He also serves as a Cornell-appointed member on the Joint Advisory Board for the Weill Medical College of Cornell University in Qatar and for the Cornell-Nanyang Institute of Hospitality Management in Singapore. JOANNE M. DESTEFANO is Cornell s Vice President for Finance and Chief Financial Officer and is responsible for directing business, financial and informational services in support of academic programs. As part of this responsibility, Ms. DeStefano has custody and control of the University s funds and has general responsibility for the maintenance of financial records of the University. Ms. DeStefano holds a B.S. from Syracuse University (1978, Accounting), and an MBA from Cornell University (1997, Finance). She came to Cornell in 1990 as General Accounting Manager for the Contract Colleges and has since held a number of progressively responsible roles in the finance division, most recently, Vice President for Finance. Prior to joining the University, Ms. DeStefano worked as the Controller for Racemark International, Inc., and as accounting manager for Schlumberger, Inc. Joanne held national Board of Directors positions with the Kuali Foundation and the Council on Governmental Relations (COGR). She is also a member of NACUBO, locally services as the Chair of the Board of Directors for Challenge Industries, and was the Chair of the Cornell 2008 United Way Campaign. Financial Management Cornell consists of three major organizational units: Endowed Ithaca, which includes the Endowed Colleges, the central University administration, and the enterprise and service operations for the Ithaca campus; the Contract Colleges at Ithaca (colleges operated by the University on behalf of New York State); and the Joan and Sanford I. Weill Medical College and Graduate School of Medical Sciences in New York City. These three units are subject to the common administrative authority and control of the Cornell University Board of Trustees, but generally operate as financially discrete entities. The laws establishing the Contract Colleges at Ithaca prohibit other units of the University from using funds attributable to those colleges. Except as specifically required by law, the Contract and Endowed Colleges at Ithaca are, to the extent practicable, governed by common management principles and policies A-5

30 determined at the private discretion of the University. In addition to the three major organizational units, the University s subsidiaries and certain affiliated organizations are included in the consolidated financial statements. All significant intercompany transactions and balances are eliminated in the consolidated financial statements included in Appendix B Financial Statements of Cornell University (With Independent Accountants Report Thereon). Cornell s operating and capital budget is approved by the Board of Trustees in May of each year and is developed through the following process: The development of the operating budget begins in the fall with individual operating units and the University as a whole setting basic priorities and income estimates. These estimates become the basis for the development of unit budget plans in the spring. For the Contract Colleges, a budget submission is typically made to the State University of New York (SUNY) in the fall in accordance with SUNY budget planning processes. Major University planning assumptions such as tuition rates, housing and dining rates, and endowment payout are reviewed by the Chief Financial Officer and by the Board of Trustees in January. Unit-level budget planning assumptions and guidelines are typically distributed in February and operating units complete their budget planning by April. The amount of State funding appropriated for the Contract College is established through the State budget process. Preliminary State appropriation estimates are generally announced in late January as part of or subsequent to the Governor presenting a proposed budget to the State legislature. Final State appropriations are not determined until the enactment of a final State budget (State fiscal year is April 1 March 31). Individual operating unit budgets are consolidated to establish the overall University operating plan for review by the Chief Financial Officer and approval by the Trustees in May. The Medical College budget must first be approved by the Board of Overseers of the Medical College before becoming ratified by the Board of Trustees. The development and review of capital priorities, costs, and financing of capital projects occurs throughout the year, but the formal development of an annual capital budget begins in the fall with individual operating units submitting capital funding requests and plans. The amount of resources available for capital activity is established on a preliminary basis in January and is finalized by April as the operating budget is finalized. Capital needs are prioritized and a one-year capital budget and five-year capital plan is approved by the Board of Trustees in May. Application, Admissions and Enrollment OPERATING INFORMATION The following table sets forth (a) the number of applications received for admission for full-time freshman enrollment, (b) the number of those applicants accepted, (c) the ratio of acceptances to total applicants, (d) the number of such successful applicants who declared their intentions to enroll and (e) the ratio of entering students to acceptances. For fall 2012, Cornell has received 37,717 total applications and has accepted 6,123 students to date. Freshman Admission Statistics Fall Total Applications Acceptances Acceptance Rate Number Enrolled Yield ,383 6, % 3, % ,073 6, , ,371 6, , ,338 6, , ,387 6, , A-6

31 The quality of applicants, as measured by class rank and entrance examination scores, is consistently high. The following table sets forth the percentage of Cornell s entering freshmen achieving a score of 600 or greater on each component of the Scholastic Aptitude Test ( SAT ) for the past five years. For fall 2011, 77% scored over 600 on the verbal component and 89% scored over 600 on the math component. In addition, 89% of entering freshmen graduated in the top 10% of their high school class. Percentage of Entering Freshmen Scoring 600+ on SAT Fall Verbal Math % 93% The following table sets forth admissions to the Graduate School and Professional Schools for fall Graduate and Professional School Admissions Fall 2011 School Total Applications Acceptances Acceptance Rate Number Enrolled Yield Graduate School 18,091 3,883 21% 1,863 48% Graduate School of Medical Sciences Medical College (MD) 5, Law School 5,556 1, Graduate School of Management 1, Veterinary School The following table includes enrollment figures for the undergraduate, graduate and professional programs in Ithaca, and for the Medical College in New York City. Enrollment Summary Full-Time Total Full-Time Graduate/Professional Full-Time Fall Undergraduate & Medical College Enrollment ,510 7,136 20, ,846 7,292 21, ,931 7,640 21, ,935 8,089 22, ,167 7,945 22,112 Cornell attracts a diverse student body with students from every state of the United States and more than 100 foreign countries represented. For the fall of 2011, 28% of students enrolled at the Ithaca campus were from New York State, which is a decrease from 31% since fiscal year The percentage of international students enrolled increased 1% over the last five years to 19%. The percentage of students, collectively, from the Middle Atlantic States (excluding New York), New England, the Midwest, the West, the South and the Southwest increased 2% over the same five-year period to 53%. A-7

32 Tuition and Other Student Charges The table below indicates tuition rates and student activity fees for undergraduate and graduate students for the major divisions of the University: Tuition and Other Student Charges Tuition Rates ENDOWED ITHACA Undergraduate $36,300 $37,750 $39,450 $41,325 $43,185 Graduate (research) 29,500 29,500 29,500 29,500 29,500 Graduate (professional) 36,300 37,750 39,450 41,325 43,185 Graduate School of Mgt (entering) 44,950 47,150 49,272 51,480 53,796 Graduate School of Mgt (continuing) 44,950 46,700 49,272 51,480 53,796 Law School (entering) 46,670 48,950 51,150 53,150 55,220 Law School (second) 45,800 48,950 51,150 53,150 55,220 Law School (third) 44,850 48,050 51,150 53,150 55,220 ENDOWED NEW YORK CITY Medical College (entering) 41,730 44,650 41,545 46,000 47,150 Medical College (continuing) 37,240 39,100 45,545 46,000 47,150 Graduate Medical College 26,872 27,830 28,480 29,282 30,160 CONTRACT COLLEGES Undergraduate: Resident 20,160 21,610 23,310 25,185 27,045 Non-resident (Entering Students) 35,200 37,750 39,450 41,325 43,185 Graduate: Non-Veterinary (research) 20,800 20,800 20,800 20,800 20,800 Non-Veterinary (professional - resident) 23,750 24,700 25,815 27,040 44,250 Non-Veterinary (professional non-resident) 23,750 24,700 25,815 27,040 Veterinary Medicine: Resident (D.V.M.) 25,100 26,500 27,700 28,400 29,400 Non-resident (D.V.M.) 37,100 39,500 41,700 42,750 44,250 Graduate (Masters, Ph.D.) 20,800 20,800 20,800 20,800 20,800 In addition to tuition, students on the Ithaca campus pay an annual activity fee (approximately $216 for undergraduate students and $76 for graduate and professional students for ) and students in the Medical College pay a health service fee ($1,350 for ). There are several room and board plans. The average cost for room and board for is $13,160. Financial Aid Students receive assistance from various sources, which include University funds, State and federal financial aid programs, and other awards from outside sources. Cornell recently reaffirmed its policy of making admissions decisions without regard to the ability of students or parents to pay educational costs. For the academic year , approximately 62% of all Cornell undergraduates received some form of financial assistance. Approximately 58% were provided need-based financial aid, which amounted to $245.6 million from all sources, in the form of grant aid, loans and jobs. The following table provides a breakdown of the sources from which undergraduate need-based scholarship and grant aid has been provided over the last five academic years: A-8

33 Sources of Undergraduate Aid (In Thousands) Academic Year Cornell Aid State Aid Federal Aid Outside Awards Total $115,677 $5,221 $40,499 $7,758 $169, ,065 4,969 40,633 7, , ,474 5,322 29,460 7, , ,238 4,847 34,302 5, , ,684 4,751 36,660 6, ,204 In addition to the amounts described above, need-based financial assistance to undergraduate students for academic year included various loan programs ($8.5 million) and jobs ($8.4 million). In fiscal year , the University continued to make financial aid a priority with the elimination of parental contribution for students from families with income below $60,000 and assets below $100,000. In addition, annual loans are capped at $7,000 annually for students from families with income above $120,000. The University will continue to withdraw $35 million annually from the University endowment to support the financial aid programs thru fiscal year Faculty The Cornell faculty includes leading scientists and scholars in hundreds of disciplines from many parts of the United States and abroad. Faculty members include Nobel Laureates, Pulitzer Prize winners, National Medal of Science winners, as well as other national award recipients. The resident faculty (exclusive of the Medical College), 98% of which held doctorates, first professional, or terminal professional degrees in academic year , is supplemented each year by visiting scholars and lecturers from around the world. In academic year , Ithaca campus faculty totaled 1,564 and the Medical College faculty for academic year totaled 1,160. The following table sets forth the faculty profile for the last five academic years, including acting appointments but excluding faculty at the Medical College and courtesy, visiting, adjunct, emeritus, Health Services and ROTC appointments. Faculty Profile Academic Year Full-Time Faculty Part-Time Faculty Total Faculty Percent of Total Faculty Tenured , , , , , , , , , , Employee Relations Cornell University has collective bargaining agreements with seven unions covering approximately 1,352 of its 3,590 non-exempt regular full-time and 433 non-exempt regular part-time employees. The contracts are with the Building Trades Council (June 2015), the Communication Workers of America (March 2013), the International Union of Operating Engineers (March 2014), the Cornell University Police Union (June 30, 2014), the United Auto Workers (June 2012), the Security, Police and Fire Professionals of America (September 2015) and the Cornell Adjunct Faculty Alliance (June 2013). Financial Position ANNUAL FINANCIAL STATEMENT INFORMATION As of June 30, 2011, Cornell s total assets were $10.81 billion, liabilities were $3.30 billion, and Cornell s net assets were $7.51 billion. The assets were dominated by investments of $6.35 billion, and land, buildings, and equipment of $3.15 billion. The $6.35 billion of investments was primarily $5.06 billion of endowment and similar A-9

34 funds. The $3.15 billion of land, buildings, and equipment was net of $2.11 billion of accumulated depreciation. Receivables from various kinds of government agencies, patients of the faculty practice plan at the Medical College, students (including amounts loaned to present and former students), donor contributions and others were $1.0 billion, with funds held in trust by others, collateral for securities loaned, inventories and deferred expenses making up the balance of the assets. Following is a summary of Assets, Liabilities and Net Assets as of June 30, for the fiscal years 2008 through Assets, Liabilities, and Net Assets June 30, (In Thousands) Assets Cash and cash equivalents $ 41,279 $ 193,739 $ 100,168 $ 146,070 Collateral for securities loaned 215,854 24,970 23,247 - Accounts receivable, net 276, , , ,568 Contributions receivable, net 666, , , ,483 Inventories and prepaid expenses 62,829 51,929 48,556 47,727 Student loans receivable, net 72,284 70,535 69,994 69,093 Investments 6,549,288 5,073,854 5,633,184 6,348,227 Land, buildings, and equipment, net 2,616,230 2,846,850 3,056,633 3,147,011 Funds held in trust by others 105,904 91,514 97, ,035 Total assets $10,607,376 $9,093,260 $9,973,532 $10,808,214 Liabilities Accounts payable and accrued expenses $ 306,654 $ 370,099 $ 421,385 $ 367,160 Payable under security loan agreements 215,854 27,408 25,685 - Deferred revenue and other liabilities 299, , , ,035 Obligations under split interest agreements 128, , , ,077 Deferred benefits 425, , , ,564 Funds held in trust for others 147,036 93,652 92, ,153 Bonds and notes payable 999,170 1,705,378 1,930,582 1,932,136 Government advances for student loans 47,146 46,536 47,353 47,094 Total liabilities 2,568,721 3,020,750 3,276,574 3,297,219 Net Assets Unrestricted 5,129,765 3,186,340 3,508,534 2,751,527 Temporarily restricted 919, , ,503 2,432,376 Permanently restricted 1,988,930 2,029,655 2,216,921 2,327,092 Total net assets 8,038,655 6,072,510 6,696,958 7,510,995 Total liabilities and net assets $10,607,376 $9,093,260 $9,973,532 $10,808,214 Annual Operations In fiscal year , revenues supporting general operations were approximately $3.0 billion of which 1.6% was for restricted purposes. Net tuition and fees contributed 16.3% of total operating revenues. State and federal appropriations accounted for 5.6% of unrestricted revenues. Investment earnings distributed contributed 10.5% of operations revenues. Expenses for operating activities approximated $2.97 billion. The decrease in unrestricted net assets was approximately $757.0 million, resulting from to a $1.09 billion change in accounting principal with the implementation of the New York Prudent Management of Institutional Funds Act (NYPMIFA), New York State s version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). The change in accounting principal reclassified net assets related to accumulated earnings on endowment from unrestricted net assets to temporary restricted. See note 1 to the financial statements of the University included in Appendix B. Permanently restricted net assets increased by approximately $110 million, largely due to contributions for capital acquisitions. Since June 30, 2011, there has been no material adverse change in the net assets of the University. A-10

35 The following is a summary of revenues and other additions and expenses as of June 30, for the years 2008 through 2011 and is derived from the audited financial statements of the University. The following summary should be read in conjunction with the financial statements and the notes for the fiscal year ended June 30, 2011 thereto included herein as Appendix B. Summary of Revenues and Other Additions and Expenses June 30, (In Thousands) Operating Revenues Tuition and fees $ 669,681 $ 697,493 $ 741,836 $ 787,882 Scholarship allowance (194,071) (220,522) (280,300) (306,809) Net tuition and fees 475, , , ,073 State and federal appropriations (1) 190, , , ,013 Grants, contracts and similar agreements Direct 390, , , ,997 Indirect cost recoveries 114, , , ,039 Contributions 217,519 94, , ,677 Investment return, distributed 280, , , ,440 Medical Physicians Organization 451, , , ,568 Auxiliary enterprises 140, , , ,354 Educational activities and other sales and services 376, , , ,653 Total operating revenues 2,639,157 2,654,140 2,938,115 2,955,814 Operating Expenses Compensation and benefits 1,746,496 1,845,274 1,758,101 1,830,907 Purchased services 144, , , ,787 Supplies and general 478, , , ,730 Utilities, rents, and taxes 138, , , ,376 Interest expense 27,784 26,041 59,791 70,065 Depreciation 173, , , ,828 Total operating expenses 2,708,913 2,824,501 2,804,269 2,974,693 Change in net assets from operating activities (69,756) (170,361) 133,846 (18,879) Non-operating Revenues State and federal appropriations for capital acquisitions 55,580 26,896 25,824 44,552 Grants, contracts and similar agreements for capital acquisitions 2, Contributions for capital acquisitions, trusts and endowments 364, , , ,286 Investment return, net of amount distributed (109,754) (1,811,607) 251, ,084 Change in value of split interest agreements 6,892 (22,241) 16,206 21,144 Pension and postretirement changes other than net periodic costs (16,481) (4,815) (5,608) 40,158 Other (33,432) (96,847) (50,478) 15,692 Net asset released for capital acquisitions and reclassifications Change in net assets from non-operating activities 269,946 (1,795,784) 490, ,916 Change in net assets 200,190 (1,966,145) 624, ,037 Total net assets, beginning of year 7,838,465 8,038,655 6,072,510 6,696,958 Total net assets, end of year $8,038,655 $6,072,510 $6,696,958 $7,510,995 (1) Includes operating support and capital expenditures for the Contract Colleges. Independent Accountants The financial statements as of June 30, 2011 and for the year then ended, included herein as Appendix B have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing herein. Organized Research According to the most recently published National Science Foundation statistics (fiscal year 09), Cornell ranked 16 th among American universities in terms of total organized research and development expenditures in sciences and A-11

36 engineering and 22 nd in federally financed expenditures. Organized research is defined as those research activities separately budgeted and accounted for, and supported by competitive grants and contracts and non-competitive state and federal appropriations or institutional funds. Among private institutions, Cornell ranked sixth in the nation in total and 11 th in federal government supported research and development expenditures for sciences and engineering. Among institutions in New York State, Cornell was first in overall support of organized research. During fiscal year 11, total organized research expenditures at Cornell were $796 million compared to $764 million in fiscal year 10. In fiscal year 11, sponsored research (i.e., research supported by competitive grants and contracts from the federal government, and non-federal sources) accounted for $600 million of the total expenditures for organized research. Consistent with National Science Foundation reporting guidelines, the University expended $490 million from the federal government in fiscal year 11 compared to $461 million in fiscal year 10. Federal grants and contracts designated for sponsored research contributed the major portion ($483 million in fiscal year 11 and $454 million in fiscal year 10) of these funds, with the University receiving approximately $381 million from the National Science Foundation and the Department of Health and Human Services. Inasmuch as federally sponsored research is obtained competitively, it may vary from year to year, and no assurance can be given that it will continue at the levels experienced in recent years. Similar to peer institutions, Cornell s fiscal year 10 and fiscal year 11 federal awards were positively influenced by the American Recovery and Reinvestment Act of 2009 The following table is a five-year summary of federally financed research and development expenditures at Cornell: Federal Support of Organized Research (In Thousands) Fiscal Year Expenditures Percent of Total Sponsored Research Expenditures $409, % , , , , , State Support for Contract Colleges In fiscal year 2012, Cornell was advised that the base appropriation allocated to the University through SUNY will be reduced by $12.0 million (net), bringing the total base appropriation from New York State to approximately $121.4 million. The Governor s budget for fiscal year 2013 remained relatively flat to fiscal year 2012 which leaves the base appropriation to Cornell intact for one more year. Investments The University s Investment Policy for the Long Term Investments ( LTI ) is to manage a balanced fund using external managers for domestic and international equity, commodities, and fixed income investments and various partnerships for hedge funds, real estate and private equity. The assets are managed to maximize total return subject to risk constraints. The University manages its investments through the use of a master fund comprised of four investment groupings that include the LTIP, PBIF, the Life Income Fund Pools and the Separately Invested Portfolio. The LTIP is a mutual fund-like vehicle used for investing the University s permanently restricted endowment funds, funds functioning as endowment, and other funds not expected to be expended for at least three years. Generally, the investment objective of the pool is to maximize total return (investment income plus market value changes) within established risk parameters. Total investment return includes dividends, interest and realized and unrealized market gains and losses. The LTIP payout is set in advance by the Board of Trustees as part of the budget approval process. The PBIF is maintained for funds that are expected to be expended within three years and for working capital. The PBIF is divided into two investment vehicles. The working capital portion is invested only in short-term, liquid fixed income instruments. Other PBIF funds are invested substantially similarly to the LTIP. Assets in the PBIF are A-12

37 invested in the same manner as those in the LTIP, with a payout managed by the University Budget Office as directed by the President. The Life Income Fund Pools consist of donated funds, the income of which is payable to one or more beneficiaries during their lifetime. On the termination of life interests, the principal becomes available for University purposes, and may be restricted by the donor. The Separately Invested Portfolio consists of several types of funds that, for legal or other reasons, or by request of the donor, could not participate in any of the investment pools. In many cases, the University has a remainder interest in the principal with payments made to others for specified periods of time. In addition, the University has chosen to separately invest certain major expendable funds to maintain liquidity. Each of such funds has separate investment objectives. The Investment Committee of the Board oversees all investable assets, including the selection of external investment managers, the allocation of investments among managers and any restrictions on the amounts of funds in any type of investment. The Investment Committee delegates authority for day-to-day management, supervision and administration of the funds to the Chief Investment Officer. The University s portfolio of investment assets as of December 31, 2011 is summarized in the following table: University Investments at Fair Value (Unaudited) (In Millions) Type Amount Percentage Investment Grade / Cash $ % Domestic equities Non-US equities Enhanced Fixed income Marketable alternative Hedged equities Emerging Markets equity Private equities Special Opportunities Core Fixed income Real assets Resource related Total $5,024.8* 100% *Approximately 73% of Long-Term Investments ( LTI ) were valued as of December 31, 2011 with the remaining 27% valued as of September 30, As of December 31, 2011, the LTI represented 89% of the University portfolio of investments. As of December 31, 2011, the University had $544 million of its investments in U.S. Treasuries, Aaa-rated federal agency securities, repurchase agreements and money market fund holdings, which may be liquidated on a same-day or next day basis. The amount so invested fluctuates daily, and the University s target allocations and actual allocations are subject to change. Endowment and Similar Funds As of June 30, 2011, Cornell s endowment and funds functioning as endowment, not including life income funds, had a fair value of approximately $5.1 billion. Such amount included approximately $1.7 billion of funds functioning as endowment on that date. Both the income and principal of funds functioning as endowment are expendable. In 2011, the University enacted New York State s version of the Uniform Prudent Management of Institutional Funds Act (NYPMIFA) which reclassified unrestricted net assets related to accumulated earnings on endowment funds from unrestricted to temporarily restricted. As of June 30, 2011, approximately 26% of the University endowment was unrestricted, 34% temporarily restricted and 40% permanently restricted. The following is a five-year summary of the endowment and similar funds, net asset balances for all divisions of the University. Living trust funds are excluded since the income from living trusts is payable to one or more beneficiaries during their lifetime, and is not available to Cornell. On the termination of life interests, the principal becomes available for University purposes, and may be restricted as to use by the donor. A-13

38 Fair Value of Endowment and Similar Funds (In Millions) June 30 Permanently Restricted Endowment and Related Appreciation Funds Functioning as Endowment Funds Held in Trust Total Endowment and Similar Funds 2007 $3,460.9 $1,652.2 $134.0 $5, , , , , , , , , , , , ,059.4 Endowment and similar funds are invested as described under Investments above. See Investments above for a discussion of changes in fair value since June 30, Gifts and Bequests Cornell received approximately $1.9 billion in gifts and bequests over the last five fiscal years ended June 30, In addition, Cornell University extended its Capital Campaign to align with Cornell s strategic plan and the University s sesquicentennial in 2015 with an expanded goal of $4.75 billion. As of February 2012, the University raised approximately $3.3 billion in cash and pledges toward the campaign goal. The tables below show gifts (excluding pledges and outside trusts) by type of donor as reported by the Cornell Alumni Affairs Office. Gifts By Type Of Donor (In Millions) Donor Corporations $ 27.9 $ 25.2 $ 18.6 $ 20.1 $ 18.5 Foundations Alumni Friends/Other Total $406.9 $409.4 $446.8 $308.2 $315.5 Facilities The recorded cost of Cornell s plant facilities (exclusive of accumulated depreciation) for June 30, 2007 through June 30, 2011 is as follows: Plant Facilities June 30, (In Millions) Land, Buildings & Equipment $2,616.2 $2,902.2 $3,207.8 $3,389.8 $3,725.2 Furniture, Equipment, Books & Collections , ,134.7 Construction in Progress Total $3,854.3 $4,244.2 $4,604.4 $4,969.0 $5,254.5 For fiscal year 2011, the University recognized $214.8 million in depreciation expense, and the balance of accumulated depreciation was $2.11 billion. The investment in plant cost, net of accumulated depreciation, was $3.15 billion at June 30, The 2011 figures include land, buildings, and equipment of the Contract Colleges aggregating $558.4 million, the acquisition cost of which was borne primarily by the State. A-14

39 Cornell University carries blanket property insurance policies providing replacement cost coverage with a $1 million self-insured retention of loss for all Cornell University buildings and properties (including all Endowed, State, and College facilities but except the Teaching and Research Center located in Hartford, New York) for each occurrence, and an overall limit of $1 billion. The coverage is a comprehensive all risk policy form and includes business interruption coverage to the full policy limits. Capital Plan The University s five year capital plan approved in May 2011 projected capital expenditures for projects with an authorized budget of $1.12 billion with an estimated total ultimate budget of $1.65 billion. Funding for the projects is expected to come from a variety of sources, including fund raising, funds provided by New York State and additional borrowings. Spending in fiscal year 2012 is projected to be approximately $374 million. University spending in the subsequent fiscal years will depend upon the future determinations by the University to proceed with the construction of specific projects. Indebtedness As of June 30, 2011, the University had $1.93 billion of outstanding debt which included 80% fixed rate debt and 20% variable rate debt. As of May 14, 2012, the University had issued a net increase of $5.0 million in taxable commercial paper (program authorized up to $200 million) for fiscal year The University does not expect to issue additional debt this fiscal year. Approximately $300 million of the variable rate debt outstanding is hedged with interest rate swaps as of May 14, The University has $1.1 billion notional amount of executed swap agreements with various counterparties including Morgan Stanley Capital Services, Inc, Goldman Sachs Mitsui Marine Derivative Products, L.P., Merrill Lynch Capital Services, Inc., Bank of New York and JPMorgan Chase Bank, N.A., pursuant to which the University pays or will pay a fixed rate in exchange for receiving a floating rate. Forward starting swap agreements comprise $400 million notional amount of the swaps and are intended to hedge the University s variable interest rate exposure on future variable rate bonds projected to be issued between 2012 and Under certain circumstances the University may be required to post collateral to secure its obligations under the interest rate exchange agreements. As of May 14, 2012, the University did not post any collateral. In addition, each agreement may be terminated following the occurrence of certain events, at which time the University may be required to make a termination payment to the swap counterparty. In accordance with generally accepted accounting principles, the University is required to record the market value of swaps. The market value of the swaps as of May 14, 2012 is a $319 million liability. The swaps are valued on a daily basis and the market value will fluctuate based on interest rates. The University has two working capital lines of credit up to $100 million with JPMorgan Chase Bank, N.A. and Bank of America. As of May 14, 2012, the University did not have any outstanding balances on the lines of credit. A-15

40 Standby Purchase Agreements The University has standby purchase agreements with various financial institutions to purchase all of the University s variable-rate demand bonds in the event that they cannot be remarketed. In the event that the bonds covered by these standby purchase agreements are not remarketable and the agreements are not otherwise renewed, the University would be required to refund the bonds or refinance in a different interest rate mode. Detailed information about the standby purchase agreements is shown in the following table: Summary of Standby Purchase Agreements Series Provider Expiration 2000A JP Morgan Chase March B JP Morgan Chase March A * JP Morgan Chase November B ** JP Morgan Chase November HSBC April 2014 * To be substituted with a standby purchase agreement with The Northern Trust Company on June 1, 2012, with an expiration date of June 1, ** To be substituted with a standby purchase agreement with The Northern Trust Company on June 1, 2012, with an expiration date of July 1, Pension Plans The University s employee pension plan coverage is provided by two basic types of plans: (1) based on a predetermined level of funding (defined contribution); and (2) based on a level of benefit to be provided (defined benefit). The primary plans for Endowed Ithaca and for exempt employees (those not subject to the overtime provisions of the Fair Labor Standards Act) at the Medical College are carried by the Teachers Insurance and Annuity Association and College Retirements Equities Fund, the Vanguard Group (Medical College only), and Fidelity Investments (Endowed Ithaca only), all of which permit employee contributions. Total pension costs of the Endowed Ithaca and the Medical College plans for the years ended June 30, 2011 and June 30, 2010, amounted to $84.1 million and $81.3 million, respectively. In accordance with ERISA requirements, for the defined benefit plans the University must annually fund with an independent trustee an actuarially determined amount representing normal costs plus amortization of prior service costs over a forty-year period that began on July 1, Employees of the Contract Colleges are covered under the New York State pension plan. Contributions to the State retirement system and other fringe benefit costs are paid directly by the State. The amount of the direct payments applicable to the University as revenue and expenditures is not currently determinable and is not included in the consolidated financial statements. The University reimburses the State for fringe benefit costs on certain salaries, principally those associated with externally sponsored programs. The amount reimbursed to the State during the years ended June 30, 2011 and June 30, 2010, was $20.5 million and $20.1 million, respectively, which are included in the expenses of general operations. LITIGATION Litigation and other claims incident to the normal operation of the University are pending against Cornell. While the ultimate liability, if any, of Cornell is not presently determinable, such litigation and other claims, in the opinion of the University s administration, will not, in the aggregate, have a material adverse effect on Cornell s financial position or changes in net assets. A-16

41 APPENDIX B FINANCIAL STATEMENTS OF THE UNIVERSITY For Fiscal Year Ended June 30, 2011 with Report of Independent Accountants B-1

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43 CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors Report The Board of Trustees of Cornell University: In our opinion, the accompanying consolidated statement of financial position and the related consolidated statements of activities, and of cash flows, present fairly, in all material respects, the financial position of Cornell University ( the University ) at June 30, 2011, and the changes in their net assets and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the University s management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative information has been derived from Cornell University s June 30, 2010 financial statements, and in our report dated October 29, 2010, we expressed an unqualified opinion on those financial statements. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1P to the consolidated financial statements, the University changed the manner in which it classifies accumulated total investment returns within net assets as a result of the adoption of ASC 958, Not-for-Profit Entities (formerly FASB Staff Position No ). September 27, 2011 Rochester, New York 10

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45 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF JUNE 30, 2011 (in thousands) (WITH COMPARATIVE INFORMATION AS OF JUNE 30, 2010) Assets 1 Cash and cash equivalents $ 146,070 $ 100,168 2 Collateral for securities loaned - 23,247 3 Accounts receivable, net (note 2-A) 353, ,554 4 Contributions receivable, net (note 2-B) 584, ,926 5 Inventories and prepaid expenses 47,727 48,556 6 Student loans receivable, net (note 2-C) 69,093 69,994 7 Investments (note 3) 6,348,227 5,633,184 8 Land, buildings, and equipment, net (note 4) 3,147,011 3,056,633 9 Funds held in trust by others (note 5) 112,035 97, Total assets $ 10,808,214 $ 9,973,532 Liabilities 11 Accounts payable and accrued expenses $ 367,160 $ 421, Payable under securities loan agreements - 25, Deferred revenue and other liabilities (note 8-D) 294, , Obligations under split interest agreements (note 5) 114, , Deferred benefits (note 6) 431, , Funds held in trust for others (note 7) 111,153 92, Bonds and notes payable (note 8) 1,932,136 1,930, Government advances for student loans 47,094 47, Total liabilities 3,297,219 3,276,574 Net assets (note 11) 20 Unrestricted 2,751,527 3,508, Temporarily restricted 2,432, , Permanently restricted 2,327,092 2,216, Total net assets 7,510,995 6,696, Total liabilities and net assets $ 10,808,214 $ 9,973,532 The accompanying notes are an integral part of the consolidated financial statements. 11

46 CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR-ENDED JUNE 30, 2011 (in thousands) (WITH SUMMARIZED INFORMATION FOR THE YEAR-ENDED JUNE 30, 2010) Operating revenues Unrestricted Temporarily Restricted 1 Tuition and fees $ 787,882 $ - 2 Scholarship allowance (306,809) - 3 Net tuition and fees 481,073-4 State and federal appropriations 164,013-5 Grants, contracts and similar agreements 6 Direct 471,997-7 Indirect cost recoveries 151,039-8 Contributions 78, ,848 9 Investment return, distributed (note 3-A) 244,189 66, Medical Physician Organization 577, Auxiliary enterprises 154, Educational activities and other sales and services 414, Net assets released from restrictions 169,592 (169,592) 14 Total operating revenues 2,907,307 48,507 Operating expenses (note 10) 15 Compensation and benefits 1,830, Purchased services 125, Supplies and general 587, Utilities, rents and taxes 145, Interest expense (note 8) 70, Depreciation 214, Total operating expenses 2,974, Change in net assets from operating activities (67,386) 48,507 Nonoperating revenues and (expenses) 23 State and federal appropriations for capital acquisitions 44, Grants, contracts and similar agreements for capital acquisitions Contributions for capital acquisitions, trusts and endowments 27,762 8, Investment return, net of amount distributed (note 3-A) 266, , Change in value of split interest agreements , Pension and postretirement changes other than net periodic costs (note 6-C) 40, Other 15, Net asset released for capital acquisitions and reclassifications 5,581 (14,263) 31 Change in net assets from nonoperating activities 400, , Change in net assets before effect of change in accounting principle 333, , Cumulative effect of change in accounting principle (1,090,249) 1,090, Change in net assets (757,007) 1,460, Net assets, beginning of the year 3,508, , Net assets, end of the year $ 2,751,527 $ 2,432,376 The accompanying notes are an integral part of the consolidated financial statements. 12

47 Permanently Restricted Total Total $ - $ 787,882 $ 741, (306,809) (280,300) 2-481, , , , , , , , , , , , , , , , , , ,955,814 2,938, ,830,907 1,758, , , , , , , ,065 59, , , ,974,693 2,804, (18,879) 133, ,552 25, , , , , , , ,661 21,144 16, ,158 (5,608) 28-15,692 (50,478) 29 8, , , , , , , , , , ,216,921 6,696,958 6,072, $ 2,327,092 $ 7,510,995 $ 6,696,

48 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR-ENDED JUNE 30, 2011 (in thousands) (WITH COMPARATIVE INFORMATION FOR THE YEAR-ENDED JUNE 30, 2010) Cash flows from operating activities Change in net assets $ 814,037 $ 624,448 Adjustments to reconcile change in net assets to net cash provided/(used) by operating activities 2 Contributions for capital acquisitions, trusts and endowments (105,411) (251,687) 3 Depreciation 214, ,234 4 Net realized and unrealized (gain)/loss on investments (800,514) (463,047) 5 Pension and postretirement changes other than net periodic costs (40,158) 5,608 6 Change in value of interest rate swaps (25,198) 73,948 7 Other adjustments 2,557 3,132 Change in assets and liabilities 8 Accounts receivable, net 32,986 (72,060) 9 Contributions receivable, net (26,557) (132,551) 10 Inventories and prepaid expenses 829 7, Accounts payable and accrued expenses (29,026) (22,662) 12 Deferred revenue and other liabilities 90,975 (39,349) 13 Change in obligations under split interest agreements (9,391) (2,529) 14 Deferred benefits 24,241 12, Net cash provided/(used) by operating activities 144,198 (77,845) Cash flows from investing activities 16 Proceeds from the sale and maturities of investments 19,289,490 21,438, Purchase of investments (19,206,457) (21,534,640) 18 Acquisition of land, buildings, and equipment (net) (307,732) (392,956) 19 Student loans granted (9,811) (8,507) 20 Student loans repaid 10,680 9, Change in funds held in trust for others 18,828 (1,327) 22 Net cash used by investing activities (205,002) (489,218) Cash flows from financing activities Contributions restricted to 23 Investment in endowments 85, , Investment in physical plant 15,911 93, Investment subject to living trust agreements 3,747 2, Principal payments of bonds and notes payable (37,291) (74,156) 27 Proceeds from issuance of bonds and notes payable 38, , Bond issuance costs incurred - (4,216) 29 Government advances for student loans (259) Net cash provided by financing activities 106, , Net change in cash and cash equivalents 45,902 (93,571) 32 Cash and cash equivalents, beginning of year 100, , Cash and cash equivalents, end of year $ 146,070 $ 100,168 Supplemental disclosure of cash flow information 34 Cash paid for interest $ 93,871 $ 67,630 The accompanying notes are an integral part of the consolidated financial statements. 14

49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES A. Description of the Organization Cornell University ( the University ) consists of three major organizational units: Endowed Ithaca, which includes the endowed colleges, the central University administration, and the enterprise and service operations for the Ithaca campus; Contract Colleges at Ithaca (colleges operated by the University on behalf of New York State); and the Joan and Sanford I. Weill Medical College and Graduate School of Medical Sciences ( the Medical College ) in New York City. These three units are subject to the common administrative authority and control of the Cornell University Board of Trustees, but generally operate as financially discrete entities. The laws establishing the Contract Colleges at Ithaca prohibit other units of the University from using funds attributable to those colleges. Except as specifically required by law, the contract and endowed colleges at Ithaca are, to the extent practicable, governed by common management principles and policies determined at the private discretion of the University. In addition to the three major organizational units, the University s subsidiaries and certain affiliated organizations are included in the consolidated financial statements. All significant intercompany transactions and balances are eliminated in the accompanying consolidated financial statements. B. Basis of Presentation In accordance with the guidance provided in the New York Prudent Management of Institutional Funds Act (NYPMIFA), the University s Board of Trustees, with consideration of the actions, reports, information, advice and counsel provided by its duly constituted committees and appointed officers of the University, including University Counsel, has instructed the University to preserve the historical dollar value of donor-restricted (true) endowment funds, absent explicit donor direction to the contrary. As a result, the University classifies as permanently restricted net assets the original gift value of true endowments, plus any subsequent gifts and accumulations made in accordance with the directions of the applicable gift instruments. The portion of the true endowment fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets in accordance with accounting standards. Temporarily restricted net assets also include gifts and appropriations from the endowment that can be expended, but for which the donors purpose restrictions have not yet been met, as well as net assets with explicit or implied time restrictions such as pledges and split interest agreements. Expiration of donor restrictions is reported in the consolidated statement of activities as a reclassification from temporarily restricted net assets to unrestricted net assets on the net assets released from restriction lines. Unrestricted net assets are the remaining net assets of the University. C. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in bank accounts, money market funds and other temporary investments held for working capital purposes with an original maturity term of ninety days or less. The carrying amount of cash equivalents approximates fair value because of their short terms of maturity. Cash that is part of the University s investment portfolio and awaiting investment is reported as investments and included in Note 3. 15

50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) D. Collateral for Securities Loaned As of June 30, 2011, the University has discontinued its securities lending program. The program was operative during most of the fiscal year-ended June 30, 2011 based on the University s long-standing agreement with its investment custodian. Under the agreement, the University lent securities to approved brokers for a fee. The securities on loan were returnable on demand and were collateralized by cash deposits that were adjusted daily based on the market value of the securities loaned. The collateral was invested in short-term securities with the goal of preserving capital, and the earnings were recorded as additional income to the investment pools. Collateral was reported as both an asset and liability of the University. E. Contributions Contributions, including unconditional promises to give (pledges), are recognized as revenues in the appropriate categories of net assets in the period received. A pledge is recorded at present value of estimated future cash flows, based on an appropriate discount rate determined by management at the time of the contribution. Amortization of this discount in subsequent years is included in contribution revenue. A contribution of assets other than cash is recorded at its estimated fair value on the date of the contribution. Contributions for capital projects, endowments, and similar funds are reported as nonoperating revenues. Conditional promises to donate to the University are not recognized until the conditions are substantially met. Temporarily restricted net assets include contributions to the University and to the Cornell University Foundation, an affiliated entity that is included in the consolidated financial statements. The Foundation maintains a donor-advised fund for which the donors can make recommendations to the fund s trustees regarding distributions to the University or other charitable organizations. Distributions from the Foundation to external charitable organizations are recorded as nonoperating expenses. F. Investments The University s investments are recorded in the consolidated financial statements at fair value. The values of publicly traded securities are based on quoted market prices and exchange rates, if applicable. The fair value of nonmarketable securities is based on valuations provided by external investment managers. These investments are generally less liquid than other investments, and the values reported by the general partner or investment manager may differ from the values that would have been reported had a ready market for these securities existed. The University exercises due diligence in assessing the policies, procedures, and controls implemented by its external investment managers, and believes the carrying amount of these assets is a reasonable estimate of fair value. Investment income is recorded on an accrual basis, and purchases and sales of investment securities are reflected on a trade-date basis. Realized gains and losses are calculated using average cost for securities sold. G. Derivative Instruments The University has approved the use of derivatives by outside investment managers, based on investment guidelines negotiated at the time of a manager s appointment. The derivatives are used to adjust fixed income durations and rates, to create synthetic exposures to certain types of investments, and to hedge foreign currency fluctuations. The University records the fair value of a derivative instrument within the applicable portfolio. The change in the fair value of a derivative instrument held for investment is included in nonoperating investment return in the consolidated statement of activities. In addition, the University holds other derivatives to manage its current and/or future long-term debt. These instruments are recorded at fair value as either prepaid or accrued expenses in the consolidated statement of financial position, and the change in fair value is recorded as other nonoperating activity in the consolidated statement of activities. Derivatives involve counterparty credit exposure. To minimize this exposure, the University carefully monitors counterparty credit risk and requires that investment managers use only those counterparties with strong credit ratings for these derivatives. H. Land, Buildings, and Equipment Land, buildings, and equipment are stated in the consolidated statement of financial position at cost on the date of acquisition or at fair value on the date of donation, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the asset, and is reflected as an operating expense. Expenditures associated with the construction of new facilities are recorded as construction in progress until the projects are completed. 16

51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) The University s collections, whether paintings, rare books, or other property, have been acquired through purchases and contributions since the University s inception. They are recognized as capital assets and are reflected, net of accumulated depreciation, in the consolidated statement of financial position. A collection received as a gift is recorded at fair value as an increase in net assets in the year in which it is received. I. Funds Held in Trust by Others Funds held in trust by others represent resources that are not in the possession or under the control of the University. These funds are administered by outside trustees, with the University receiving income or residual interest. Funds held in trust by others are recognized at the estimated fair value of the assets or the present value of the future cash flows due to the University when the irrevocable trust is established or the University is notified of its existence. Gains or losses resulting from changes in fair value are recorded as nonoperating activities in the consolidated statement of activities. J. Split Interest Agreements The University s split interest agreements with donors consist primarily of charitable gift annuities, pooled income funds, and charitable trusts for which the University serves as trustee. Assets held in trust are either separately invested or included in the University s investment pools in accordance with the agreements. Contribution revenue and the assets related to split interest agreements, net of related liabilities, are classified as increases in temporarily restricted net assets or permanently restricted net assets. Liabilities associated with charitable gift annuities and charitable remainder trusts represent the present value of the expected payments to the beneficiaries based on the terms of the agreements. Pooled income funds are recognized at the net present value of the net assets expected at a future date. Gains or losses resulting from changes in fair value, changes in assumptions and amortization of the discount are recorded as changes in value of split interest agreements in the appropriate restriction categories in the nonoperating section of the consolidated statement of activities. K. Endowments To ensure full compliance with NYPMIFA, a supplemental statement to the University s investment policy was adopted and approved by the Board in September, The responsibility for accepting, preserving and managing the funds entrusted to Cornell rests, by law, with the Board of Trustees, however, the Trustees have delegated authority for investment decisions to the Investment Committee of the Board of Trustees. The Committee determines investment policy, objectives and guidelines including allocation of assets between classes of investments. The University s investment objective for its endowment assets is to maximize total return within reasonable risk parameters, specifically to achieve a total return, net of expenses, of at least five percent in excess of inflation, as measured by the Consumer Price Index over rolling five-year periods. The achievement of favorable investment returns enables the University to distribute increasing amounts from the endowment over time so that present and future needs can be treated equitably in inflation-adjusted terms. Diversification is a key component of the University s standard for managing and investing endowment funds and asset allocation targets are subject to ongoing reviews by the Investment Committee of the Board of Trustees. The University applies the prudent person standard when making its decision whether to appropriate or accumulate endowment funds considering the following factors, in accordance with NYPMIFA: the duration and preservation of the endowment fund, the purposes of the institution and the endowment fund, general economic conditions including potential effect of inflation or deflation, the expected total return of the fund, other resources of the University, the needs of the University and the fund to make distributions and preserve capital, and the University s investment policy. The Board authorizes an annual distribution, or payout, from endowment funds that is five percent greater than the prior fiscal year, as long as that increase allows the payout to remain within a defined target percentage range of a 12-quarter rolling average of the unit fair value. The Trustees may occasionally make step adjustments, either incremental or decremental, based on prior investment performance, current market conditions, or any of the factors for prudent judgment described above. Total distributions or spending reflected on the consolidated statement of activities includes payout, investment expenses, and service charges that support the general and stewardship costs of the University endowment. The University, in compliance with NYPMIFA, notified available donors who had established endowments prior to September 17, 2010 of the new law, and offered these donors the option of requiring the University to maintain historical 17

52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) dollar value for their endowment funds. A minority of donors requested this option; for those who did, the University has designed procedures to ensure that the University maintains historical dollar value by not expending the payout on any fund whose fair value is less than its historical dollar value (i.e., underwater ). L. Sponsored Agreements Revenues under grants, contracts, and similar agreements are recognized at the time expenditures are incurred. These revenues include the recovery of facilities and administrative costs, which are recognized according to negotiated predetermined rates. Amounts received in advance in excess of incurred expenditures are recorded as deferred revenues. M. Medical Physician Organization The Medical Physician Organization provides the management structure for the practice of medicine in an academic medical center. In addition to conducting instructional and research activities, physician members generate clinical practice income from their professional services to patients. Also reflected as University revenues are Medical Physician Organization fees. Expenses of the clinical practice, including physician compensation, administrative operations, and provision for uncollectible accounts, are reflected as University expenses. Net assets resulting from the activities of the Medical Physician Organization are designated for the respective clinical departments of the Medical College. N. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting period. Management s assumptions are primarily related to the appropriate discount rate for the purposes of fair value calculations, to allowances for doubtful accounts, and to self-insured risks. Actual results may differ from those estimates. O. Comparative Financial Information The consolidated statement of activities includes prior-year information in summary form, rather than by restriction class. Such information does not include sufficient detail to constitute a presentation of prior-year data in conformity with U.S. generally accepted accounting principles. Accordingly, such information should be read in conjunction with the University s consolidated financial statements for the prior fiscal year, from which the summarized information was derived. P. Accounting Pronouncements Effective for the fiscal year-ended June 30, 2011, the University has included disclosures required by ASU : Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The new disclosures provide enhanced information about credit quality and losses, primarily of student loans receivable (see Note 2C). On September 17, 2010, New York enacted the New York Prudent Management of Institutional Funds Act (NYPMIFA), its version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). As a result, the University expanded its disclosures for fiscal year-ended June 30, 2011 under the provisions of ASC 958, Not-for-Profit Entities (formerly FASB Staff Position No ). In addition, the University reclassified unrestricted net assets related to accumulated earnings on endowment funds as of July 1, 2010 to temporarily restricted net assets in the amount of $1,090,249, reflected in the consolidated statement of activities as a cumulative effect of change in accounting principle. Q. Reclassifications Certain prior-year amounts have been reclassified to conform to the current-year presentation. R. Income Taxes The University is a not-for-profit organization as described in Section 501(c)(3) of the Internal Revenue Code and is generally exempt from income taxes on related income pursuant to the appropriate sections of the Internal Revenue Code. In accordance with the accounting standards, the University evaluates its income tax positions each fiscal year to determine whether the University s tax position is more likely than not to be sustained if examined by the applicable taxing authority. This review had no material impact on the University s consolidated financial statements. 18

53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) 2. RECEIVABLES A. Accounts Receivable The University s receivables from the sources identified in the table below are reviewed and monitored for aging and other factors that affect collectability. There is a corresponding allowance account for amounts outstanding at June 30, 2011, with the exception of the New York State receivable which is deemed fully collectible. Accounts receivable from the following sources were outstanding as of June 30: SUMMARY OF ACCOUNTS RECEIVABLE Grants and contracts $ 125,727 $ 137,902 Collateral related to interest rate swap agreements 26,461 29,048 New York Presbyterian Hospital and other affiliates 57,758 53,818 Patients (net of contractual allowances) 76,327 81,094 State of New York for capital projects 75,549 38,717 Student accounts 3,561 6,225 Other 41,916 91,458 Gross accounts receivable $ 407,299 $ 438,262 Less: allowance for doubtful accounts (53,731) (51,708) Net accounts receivable $ 353,568 $ 386,554 The patient accounts receivable for medical services was comprised of the following at June 30, 2011 and 2010, respectively: commercial third parties 61.6 percent and 56.1 percent; federal/state government 15.4 percent and 18.2 percent; and patients 23.0 percent and 25.7 percent. Other accounts receivable include receivables from other government agencies, matured bequests, and receivables from other operating activities. B. Contributions Receivable Unconditional promises to give, or pledges, are recorded in the consolidated financial statements at present value using discount rates ranging from 1.9 percent to 7 percent. Contributions are expected to be realized as follows: SUMMARY OF CONTRIBUTIONS RECEIVABLE Less than one year $ 227,267 $ 235,438 Between one and five years 339, ,494 More than five years 182, ,195 Gross contributions receivable $ 749,056 $ 740,127 Less: unamortized discount (93,110) (123,562) Less: allowance for uncollectible amounts (71,463) (58,639) Net contributions receivable $ 584,483 $ 557,926 Contributions receivable as of June 30 are intended for the following purposes: EXPECTED PURPOSE OF CONTRIBUTIONS RECEIVABLE Support of University operations $ 227,233 $ 163,662 Capital purposes 174, ,837 Endowments and similar funds 182, ,427 Net contributions receivable $ 584,483 $ 557,926 19

54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) At June 30, 2011 and 2010, conditional promises not reflected in the consolidated financial statements, which consist primarily of bequest intentions, were approximately $207,252 and $208,005, respectively. C. Student Loans Receivable In keeping with Ezra Cornell s vision, the University has a need-blind policy of admission. Many students receive financial aid that consists of scholarship/fellowship grants, work-study opportunities and, when appropriate, student loans. The University participates in various federal revolving loan programs, in addition to administering institutional loan programs. Student loan programs are funded by donor contributions, other institutional sources, and governmental programs, primarily the Federal Perkins Loan Program. The amounts received from the federal government s portion of the Perkins program are ultimately refundable to the federal government and are reported as a liability on the University s consolidated statement of financial position as government advances for student loans. Credit worthiness is not a factor when granting a student a loan from institutional or federal resources; it is based on financial need. However, once the loan is in repayment status, the University monitors, no less than quarterly, the aging of the student loans receivable. If a loan is 75 days past due, the University generally will not release a transcript and/or diploma. If the loan is 180 days past due, the University evaluates whether to assign the account to an external agency for collection. The University Bursar is required to authorize any write-off of a student loan receivable; such write-offs are based primarily on the aging report and an evaluation of any recent activity in the account. Overall default rates and an evaluation of general economic conditions are reviewed at least annually. The University, because of its close and continuing relationship with its students and graduates, seeks to work closely with the students to help ensure repayment. At June 30, 2011, the average overall default rate approximates 6 percent, with a rate of approximately 2.2 percent on the federal revolving loan portfolio. Student loans are often subject to unique restrictions and conditions and, therefore, it is not practical to determine their fair values. The allowance for doubtful accounts is for all loans, whether in repayment status or not. The two tables below provide enhanced disclosures about the student loan receivables and the allowances associated with federal and institutional loan programs. SUMMARY OF STUDENT LOANS RECEIVABLE Receivable Allowance Net receivable Receivable Allowance Net receivable Federal revolving loans $ 43,472 $ (2,156) $ 41,316 $ 44,731 $ (1,817) $ 42,914 Institutional loans 30,813 (3,036) 27,777 30,431 (3,351) 27,080 Total student loans receivable $ 74,285 $ (5,192) $ 69,093 $ 75,162 $ (5,168) $ 69,994 CHANGE IN STUDENT LOAN ALLOWANCE Federal revolving 2011 Institutional Total allowance Allowance at beginning of year $ (1,817) $ (3,351) $ (5,168) Current year provisions (339) 315 (24) Current year write-offs Current year recoveries Allowance at end of year $ (2,156) $ (3,036) $ (5,192) 20

55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) 3. INVESTMENTS A. General Information The University s investments are overseen by the Investment Committee of the Board of Trustees. The University s investment strategy incorporates a diversified asset allocation approach and maintains, within defined limits, exposure to the movements of the world equity, fixed income, commodities, real estate, and private equity markets. Based on guidelines established by the Investment Committee, the University s Investment Office directs the investment of endowment and trust assets, certain working capital, and temporarily invested expendable funds. The University has categorized its investment assets in accordance with the fair value measurement hierarchy. The following describes the hierarchy of inputs used to measure fair value; it also describes the primary valuation methodologies used by the University for investment assets measured at fair value on a recurring basis. Fair value for Level 1 is based upon quoted prices in accessible active markets for identical assets. Market price data is generally obtained from exchange or dealer markets. The University does not adjust the quoted price for such assets. Fair value for Level 2 is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data. Inputs are obtained from various sources, including market participants, dealers, and brokers. In determining fair value of financial instruments, the University considers factors such as interest rate yield curves, duration of the instrument, and counterparty credit risk. The fair value of Level 2 instruments is determined using multiple valuation techniques including the market approach, income approach or cost approach. Fair value for Level 3 is based upon valuation techniques that use significant inputs that are unobservable. Investments included in Level 3 consist primarily of the University s ownership in alternative investments (principally limited partnership interests in hedge, private equity, real estate, and other similar funds). The fair value of certain alternative investments represents the ownership interest in the net asset value (NAV) of the respective partnership. The NAV of these investments is determined by the general partner, and is based upon appraisal or other estimates that require varying degrees of judgment. If no public market exists for the investment securities, the fair value is determined by the general partner taking into consideration, among other things, the cost of the securities, prices of recent significant placements of securities of the same issuer, and subsequent developments concerning the companies to which the securities relate. The University has performed significant due diligence around these investments to ensure that NAV is an appropriate measure of fair value as of June 30. The University uses the NAV to determine the fair value of all alternative investments that do not have a readily determinable fair value and that have financial statements consistent with the measurement principles of an investment company or have the attributes of an investment company. Investments that can be redeemed at NAV by the University on the measurement date or in the near term, 90 days or less, are classified as Level 2. Investments that cannot be redeemed on the measurement date or in the near term are classified as Level 3. The methods described above may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Furthermore, while the University believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. 21

56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) The University s investment holdings as of June 30, categorized in accordance with the fair value measurement hierarchy, are summarized in the following table: INVESTMENTS AT FAIR VALUE Level 1 fair value Level 2 fair value Level 3 fair value Cash and cash equivalents $ 194,869 $ 63,481 $ - $ 258,350 $ 331,803 Derivatives (7,982) 10,702-2, Equity Domestic equity 295, , , ,694 Foreign equity 444,012 50,873 62, , ,231 Hedged equity - 320, , , ,960 Private equity - - 1,063,722 1,063, , Total 2010 Total Fixed income Asset backed fixed income - 40,399 1,750 42,149 67,832 Corporate bonds 321, , , ,513 Equity partnership - 13, , , ,095 International 159,545 96, ,369 85,983 Municipals 5,950 27,911-33,861 13,878 Mutual funds (non-equity) ,635-50,928 51,495 Preferred/convertible - - 8,415 8,415 8,390 Other fixed income ,229 US government 290, , , ,597 Marketable alternatives , , , ,077 Real assets , , ,732 Receivable for investments sold 26, ,631 2,977 Payable for investments purchased (35,933) - - (35,933) (73,539) Other ,179 $ 67,179 $ 57,921 Total investments $ 1,695,842 $ 1,356,298 $ 3,296,087 $ 6,348,227 $ 5,633,184 Securities not included in investment portfolio Cash and cash equivalents $ 78,075 $ - $ - $ 78,075 $ 58,156 Collateral for securities loaned $ - $ - $ - $ - $ 23,247 The following table is a rollforward of the investments classified by the University within Level 3 of the fair value hierarchy defined above: SUMMARY OF LEVEL 3 INVESTMENT ACTIVITY Fair value at June 30, 2010 Realized gain/(loss) Unrealized gain/(loss) Net purchases, sales, settlements Transfers in/(out) of Level 3 Fair value at June 30, 2011 Equity Domestic equity $ 1,634 $ 2,090 $ (2,335) $ (1,229) $ (16) $ 144 Foreign equity 25, ,451 29,444-62,280 Hedged equity 167,522 54,792 (22,228) 18, ,549 Private equity 860,788 83, ,830 (24,009) - 1,063,722 Fixed income Asset backed fixed income 1, ,750 Equity partnership 349,455 13,125 47,348 (101,653) - 308,275 Preferred/convertible 8, ,415 Marketable alternatives 524,654 12,358 35,180 72, ,267 Real assets 721,732 34, ,416 17, ,506 Other 57,921-9, (760) 67,179 Total level 3 investments $ 2,718,933 $ 200,025 $ 367,540 $ 10,365 $ (776) $ 3,296,087 22

57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) All net realized and unrealized gains/(losses) in the table above are reflected in the accompanying consolidated statement of activities. Net unrealized gains/(losses) relate to those financial instruments held by the University at June 30, Under the terms of certain limited partnership agreements, the University is obligated to make additional capital contributions up to contractual levels. At June 30, 2011 and 2010, the University had commitments of $681,614 and $840,144, respectively, for which capital calls had not been exercised (Note 1-E). Such commitments generally have fixed expiration dates or other termination clauses. Under terms of certain options contracts on interest rate swaps, the University is obligated to make future premium payments. At June 30, 2011 and 2010, the University had premium payment commitments of $27,440 and $27,674, respectively. The University s premium payment schedule is as follows: $7,735 annually for the years ended June 30, 2012, and 2013; $6,735 for the year-ended June 30, 2014; $3,785 for the year-ended June 30, 2015; $1,160 for the year-ended June 30, 2016 and $290 thereafter. The University maintains a number of investment pools or categories for specified purposes, the most significant of which are the Long-Term Investment Pool (LTIP), described below, and several funds established to maximize total return derived from the investment of intermediate-term cash balances. The fair values as of June 30 were as follows: INVESTMENTS POOLS/CATEGORIES AT FAIR VALUE Working capital $ - $ - Intermediate-term 653, ,794 Long-term investment pool (LTIP) 4,921,840 4,223,208 Separately invested portfolio 506, ,033 Pooled life income funds 11,817 12,048 DASNY holdings 227, ,563 Other 27,028 18,538 Total investments $ 6,348,227 $ 5,633,184 Additional information about the University s investment return for the fiscal years ended June 30 is presented in the following table: SUMMARY OF INVESTMENT RETURN Interest and dividends, net of investment fees $ 112,010 $ 92,810 Net realized gain/(loss) 360, ,096 Net unrealized gain/(loss) 440, ,951 Total investment return $ 912,524 $ 555,857 LTIP distributions for operations $ 248,445 $ 267,535 PBIF distributions for operations 2,645 3,202 Trust and other income for operations 59,350 34,012 Investment return, distributed $ 310,440 $ 304,749 Investment return, undistributed 602, ,108 Total investment return $ 912,524 $ 555,857 B. Long-Term Investment Pool The LTIP is a mutual fund-like vehicle used for investing the University s true endowment funds, funds functioning as endowment, and other funds that are not expected to be expended for at least three years. The University employs a unit method of accounting for the LTIP. Each participating fund enters into and withdraws from the pooled investment account based on monthly unit fair values. At June 30, 2011 and 2010, the fair values per unit were $53.58 and $47.38, respectively. The total return on the University s long-term investments, of which the LTIP is the major component, was 19.9 percent 23

58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) for the fiscal year-ended June 30, The changes in the fair value and cost of the LTIP and information about its participating units as of June 30, 2011 and 2010 are as follows: SUMMARY INFORMATION - LONG-TERM INVESTMENT POOL Fair value Cost Appreciation/ (depreciation) Fair value per unit Number of units End of year $ 4,921,840 $ 4,103,292 $ 818,548 $ ,861,708 Beginning of year $ 4,223,208 $ 3,865,716 $ 357,492 $ ,137,470 Unrealized net gain/(loss) for year $ 461,056 Realized net gain/(loss) for year $ 313,859 Net gain/(loss) for year $ 774,915 For the fiscal year-ended June 30, 2011, investment payout to participating funds totaled $198,751 ($2.20 per unit) of which $170,603 was paid out for the University s operations, with the balance in the amount of $28,148 either returned to principal or distributed to funds held for others. The payout for the fiscal year-ended June 30, 2011 was comprised of $30,977 in net investment income and $167,774 paid from accumulated gains. For the fiscal year-ended June 30, 2010, the investment payout was $217,152 ($2.55 per unit), and was comprised of $18,882 in net investment income and $198,270 paid from accumulated gains. C. Separately Invested Portfolio, Pooled Life Income Funds, and DASNY Holdings The University maintains a category of assets referred to as the separately invested portfolio. This category consists of assets that, for legal or other reasons, or by request of the donor, could not participate in any of the investment pools. Life income fund pools consist of donated funds, the income from which is payable to one or more beneficiaries during their lifetime. On the termination of life interests, the principal is available for University purposes, which may or may not be restricted by the donors. University funds on deposit at DASNY consist of reserves for retirement of debt and bond proceeds not yet expended. The total funds on deposit are $227,609 and $296,563 as of June 30, 2011 and 2010, respectively. The amount of bond proceeds not yet expended included in the total reserves at DASNY are $213,336 and $266,704 as of June 30, 2011 and 2010, respectively. D. Derivative Holdings The use of certain financial derivative instruments is governed by either the University s written investment policy, specific manager guidelines, or partnership/fund agreement documents. Specifically, financial derivative instruments may be used to manage foreign currency exposure, to obtain commodity exposure, to create synthetic exposures, and to obtain protection against increases in interest rates. These derivatives, based on definitions in GAAP, are not designated as hedging instruments. The University allocates a percentage of its assets to investment managers specializing in securities whose prices are denominated in foreign currencies as part of its overall diversification strategy. The investment guidelines provide discretion to these managers to adjust the foreign currency exposure of their investment portfolio by using derivative instruments. The derivatives are used for buying or selling foreign currency under a short-term contract to lock in the dollar cost of a specific pending purchase or sale of a foreign security, and selling foreign currency under a longer-term contract to hedge against a general decline in the dollar value of foreign security holdings. As part of its overall investment strategy, the University s investment managers manage a diversified portfolio of commodity futures under strict investment guidelines. These commodity futures are fully collateralized and are denominated in U.S. dollars. Some investment managers have discretion, limited by overall investment guidelines, to use derivative instruments to create investment exposures that could not be created as efficiently with other types of investments. These synthetic exposures in the University s portfolio as of June 30, 2011 are of four types: 1) forward contracts used to increase exposure to a foreign currency beyond the level of underlying security investments in that currency; 2) futures contracts used to create exposures to assets where the futures market provides a more efficient investment than the underlying securities; 3) swap contracts, also used to provide a more efficient means to gain exposure than the underlying securities; and 4) option contracts used to adjust the exposure of the fixed-income portfolio to interest rate volatility. 24

59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) The University entered into option contracts on interest rates swaps as a way to mitigate the impact of a significant rise in interest rates in the future. The following table provides detailed information on the derivatives included in the investment portfolio as of June 30. All the derivatives have been deemed Level 2 in the fair value hierarchy. FAIR VALUE OF DERIVATIVE HOLDINGS IN STATEMENT OF FINANCIAL POSITION Location Investments Derivative type Notional amount # of contracts Level 2 fair value Notional amount # of contracts Level 2 fair value Foreign currency $ - 51 $ (1,126) $ - 78 $ 6,052 Commodity 257, (7,015) 195, (3,581) Synthetic 68, , (195) Interest rate 2,067, ,746 1,937,668 4 (1,748) Total fair value $ 2,393, $ 2,720 $ 2,183, $ 528 EFFECT OF DERIVATIVE HOLDINGS ON STATEMENT OF ACTIVITIES Location Derivative Type Investment return, net of amount distributed Unrealized gain/(loss) Unrealized gain/(loss) Foreign currency $ (1,126) $ 6,052 Commodity (7,015) (3,581) Synthetic 255 (36) Interest rate (2,808) (7,567) Total unrealized gain/(loss) $ (10,694) $ (5,132) The unrealized gain/ loss from derivative holdings affects temporarily restricted net assets for LTIP shares in the permanent endowment; otherwise, the gain/loss affects unrestricted net assets. The net unrealized gain/loss is reported in the operating section of the consolidated statement of cash flow as net realized and unrealized gain/loss on investments. 25

60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) E. Alternative Investments Measured Using Net Asset Value The University uses NAV to determine the fair value of all alternative investments which do not have a readily determinable fair value, and have financial statements consistent with the measurement principles of an investment company or have the attributes of an investment company. The following tables list investments in investment companies (in partnership or equivalent format) by major category: SUMMARY OF ALTERNATIVE INVESTMENTS MEASURED USING NET ASSET VALUE Asset class Strategy NAV in funds Remaining life Unfunded commitments Timing to draw commitments Private equity Buyout $ 379,651 $ 126,964 Special situation 296, ,395 Venture capital 363,961 96,492 Total private equity $ 1,040,255 1 to 10 years $ 338,851 1 to 10 years Real assets Fixed income Foreign equity Hedged equity Marketable alternatives Real estate 638, ,080 Natural resource 264, ,699 Total real assets $ 902,431 1 to 8 years $ 255,779 1 to 8 years Distressed 142,880 7,310 Leveraged loans 21,513 - Mezzanine 74,052 61,695 Multi-strategy 83,362 9,000 Total fixed income $ 321,807 1 to 10 years $ 78,005 1 to 10 years Emerging markets 93,589 Global equity 5,380 Total foreign equity $ 98,969 Global equity long/short 174,248 U.S. equity long/short 365,295 Total hedged equity $ 539,543 Event driven 94,553 Global macro 52,479 Multi-strategy 200,743 Relative value 116,610 Special opportunity 300,484 8,979 3 years Total marketable alternatives $ 764,869 $ 8,979 Domestic equity Indexed 113,769 Total domestic equity $ 113,769 Total for alternative investments using NAV $ 3,781,643 $ 681,614 26

61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) REDEMPTION INFORMATION FOR ALTERNATIVE INVESTMENTS MEASURED USING NET ASSET VALUE Asset class Redemption terms Redemption restrictions* Private equity n/a ** n/a Real assets n/a ** n/a Fixed income Ranges between quarterly redemption with 45 days notice, to annual redemption with 90 days notice*** No lock up provisions Foreign equity Ranges between monthly redemption with 30 days notice, to triennial redemption with 30 days notice 33% of NAV has remaining lock up provisions of 27 months Hedged equity Ranges between monthly redemption with 10 days notice, to triennial redemption with 45 days notice 26% of NAV has remaining lock up provisions ranging from 3 months to 33 months Marketable alternatives Ranges between quarterly redemption with 30 days notice, to triennial redemption with 90 days notice 17% of NAV has remaining lock up provisions ranging from 6 months to 30 months Domestic equity Daily redemption with 2 days notice No lock up provisions * Represents initial investment lock up restriction. No other material redemption restrictions, such as redemption gates, were in place at June 30, **These funds are in private equity structure, with no ability to be redeemed. ***92% of NAV is in private equity structure, with no ability to be redeemed. Redemption provisions for the remaining 8% are shown above. 4. LAND, BUILDINGS, AND EQUIPMENT Land, buildings, and equipment are detailed as follows: LAND, BUILDINGS, AND EQUIPMENT Book value at Disposals and Book value at June 30, 2010 Additions closed projects June 30, 2011 Land, buildings, and equipment $ 3,389,824 $ 340,791 $ (5,384) $ 3,725,231 Furniture, equipment, books, and collections 1,072,201 82,969 (20,504) 1,134,666 Construction in progress 506, ,442 (296,763) 394,630 Total before accumulated depreciation $ 4,968,976 $ 608,202 $ (322,651) $ 5,254,527 Accumulated depreciation (1,912,343) (2,107,516) Net land, buildings, and equipment $ 3,056,633 $ 3,147,011 Certain properties to which the University does not have title are included in physical assets at net book values, as follows: (1) land, buildings, and equipment of the Contract Colleges aggregating $558,410 and $478,424 at June 30, 2011 and 2010, respectively, the acquisition cost of which was borne primarily by New York State and (2) land, buildings, and equipment for which titles rest with government and corporate agencies aggregating $13,422 and $18,100 at June 30, 2011 and 2010, respectively. The future commitments on capital projects in progress, excluding projects funded by New York State, for the fiscal years ended June 30, 2011 and 2010, is $94,441 and $172,468, respectively. 27

62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) 5. OBLIGATIONS UNDER SPLIT-INTEREST AGREEMENTS AND FUNDS HELD IN TRUST BY OTHERS The University reports its obligations under split-interest agreements at fair value. The fair value of the obligation is calculated annually and considered Level 3 in the fair value hierarchy. The discount rate is based on average return of investment grade corporate bonds, weighted using a schedule of actuarial estimates of the lives of the income beneficiaries and the relative value of the agreements. The University s interest in funds held in trust by others is considered Level 3, based on unobservable inputs, in the fair value hierarchy. Trusts in which the University has an income interest are valued annually using estimated cash flows based on average actual income over three years. Remainder interests are based on annual valuation reports received from the funds trustees. The discount rates used to estimate present value are based on the average return of investment grade corporate bonds, weighted according to a schedule of actuarial estimates. The tables below summarize the fair values and activity of funds held in trust by others and obligations under split-interest agreements. SPLIT-INTEREST AGREEMENTS AT FAIR VALUE Level 1 fair value Level 2 fair value Level 3 fair value Funds held in trust by others Remainder $ - $ - $ 70,966 $ 70,966 $ 62,735 Lead and perpetual ,069 41,069 34,535 Total funds held in trust by others $ - $ - $ 112,035 $ 112,035 $ 97, Total 2010 Total Obligations under split-interest agreements $ - $ - $ 114,077 $ 114,077 $ 108,703 SUMMARY OF LEVEL 3 SPLIT-INTEREST AGREEMENT ACTIVITY Fair value at June 30, 2010 Realized gain/(loss) Unrealized gain/(loss) Net purchases, sales, settlements Transfers in/(out) of Level 3 Fair value at June 30, 2011 Funds held in trust by others Remainder $ 62,735 $ - $ 6,609 $ 1,622 $ - $ 70,966 Lead and perpetual 34, ,455-41,069 Total funds held in trust by others $ 97,270 $ 853 $ 6,835 $ 7,077 $ - $ 112,035 Obligations under split-interest agreements $ 108,703 $ - $ 5,374 $ - $ - $ 114, DEFERRED BENEFITS A. General Information Accrued employee benefit obligations as of June 30 include: SUMMARY OF DEFERRED BENEFITS Postemployment benefits $ 24,027 $ 26,916 Pension and other postretirement benefits 231, ,038 Other deferred benefits 175, ,527 Total deferred benefits $ 431,564 $ 447,481 Other deferred benefits include primarily vacation accruals, deferred compensation, and medical benefit claims incurred but not yet reported. Accrued postemployment benefits include workers compensation and medical continuation benefits for those on long-term disability. The University also provides various benefits to former or inactive employees after employment, but before retirement, that are recognized when they are earned. 28

63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) B. Pension and Postretirement Plans The University s employee pension plan coverage is provided by two basic types of plan: one based on a predetermined level of funding (defined contribution), and the other based on a level of benefit to be provided (defined benefit). The primary defined contribution plans for Endowed Ithaca and for exempt employees (those not subject to the overtime provisions of the Fair Labor Standards Act) at the Medical College are carried by the Teachers Insurance and Annuity Association, the College Retirement Equities Fund, the Vanguard Group (Medical College only), and Fidelity Investments (Endowed Ithaca only), all of which permit employee contributions. Total pension costs of the Endowed Ithaca and Medical College plans for the fiscal years ended June 30, 2011 and 2010 amounted to $84,107 and $81,328, respectively. The Medical College maintains the University s only defined benefit plan. The participants include non-exempt employees at the Medical College who meet the eligibility requirements for participation. The plan was frozen in 1976 for exempt employees at the Medical College and the accrued benefits were merged with the active non-exempt retirement plan in In accordance with Employee Retirement Income Security Act (ERISA) requirements for the defined benefit plans, the University must fund annually with an independent trustee an actuarially determined amount that represents normal costs plus amortization of prior service costs over a forty-year period that began on July 1, The University also provides health and life insurance benefits for eligible retired employees and their dependents. Although there is no legal obligation for future benefits, the cost of postretirement benefits must be accrued during the service lives of employees. The University elected the prospective transition approach and is amortizing the transition obligation over 20 years, through fiscal year C. Obligations and Funded Status The following table sets forth the pension and postretirement plans obligations and funded status as of June 30: SUMMARY OF OBLIGATIONS AND FUNDED STATUS Pension benefits Other postretirement Change in plan assets Fair value of plan assets at beginning of year $ 42,277 $ 35,086 $ 132,237 $ 110,544 Actual return on plan assets 9,646 4,748 29,859 15,838 Employer contribution 6,052 5,320 8,632 8,027 Benefits paid (2,361) (2,877) (2,499) (2,172) Fair value of plan assets at end of year $ 55,614 $ 42,277 $ 168,229 $ 132,237 Change in benefit obligation Benefit obligation at beginning of year $ 76,100 $ 61,536 $ 357,452 $ 335,827 Service cost (benefits earned during the period) 5,151 4,660 15,698 13,469 Interest cost 4,172 4,038 20,900 19,777 Plan amendments (967) Actuarial (gain)/loss (8,183) 8,743 (20) 1,593 Gross benefits paid (2,361) (2,877) (13,657) (14,542) Less: federal subsidy on benefits paid - - 1,412 1,328 Projected benefit obligation at end of year $ 73,912 $ 76,100 $ 381,785 $ 357,452 Funded status $ (18,298) $ (33,823) $ (213,556) $ (225,215) Amounts recognized in the consolidated Statement of financial position $ (18,298) $ (33,823) $ (213,556) $ (225,215) Amounts recorded in unrestricted net assets not yet amortized as components of net periodic benefit cost Net transition obligation $ - $ - $ 7,289 $ 10,933 Prior service cost (967) - (290) (366) Net actuarial (gain)/loss 7,481 22,394 34,606 55,571 Amount recognized as reduction in unrestricted net assets $ 6,514 $ 22,394 $ 41,605 $ 66,138 29

64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) The accumulated benefit obligation for the pension plans was $56,358 and $55,988 at June 30, 2011 and 2010, respectively. The accumulated benefit obligation differs from the projected benefit obligation in the table above in that it includes no assumptions about future compensation levels. It represents the actuarial present value of future payments to plan participants using current and past compensation levels. For postretirement plans other than pensions, the accumulated benefit obligation is the same as the projected benefit obligations because the liabilities are not compensation-related. D. Net Periodic Benefit Cost Net benefit expense related to the pension and postretirement plans for the fiscal years ended June 30 includes the following components: NET PERIODIC BENEFIT COST Pension benefits Other postretirement Service cost (benefits earned during the period) $ 5,151 $ 4,660 $ 15,698 $ 13,469 Interest cost 4,172 4,038 20,901 19,777 Expected return on plan assets (3,505) (2,467) (10,580) (9,028) Amortization of initial transition obligation - - 3,644 3,644 Amortization of prior service cost - - (76) (76) Amortization of net (gain)/loss 589 1,573 1, Net periodic benefit cost $ 6,407 $ 7,804 $ 31,252 $ 28,145 The amounts of transition obligation, prior service costs, and actuarial gains/losses that will be amortized into net periodic benefit cost for the year-ended June 30, 2012 are estimated as follows: ESTIMATED COMPONENTS OF NET PERIODIC BENEFIT COST Pension benefits Other postretirement Transition obligation $ - $ 3,645 Prior service cost (92) (76) Net actuarial (gain)/loss Total $ (83) $ 4,058 E. Actuarial Assumptions Assumptions used in determining the pension and postretirement plans benefit obligations and net periodic costs are: SUMMARY OF ACTUARIAL ASSUMPTIONS Pension benefits Other postretirement Used to calculate benefit obligations at June 30 Discount rate 5.90% 5.90% 5.75% / 5.60% 5.75% / 5.60% Rate of compensation increase 6.10% 6.10% Used to calculate net periodic cost at July 1 Discount rate 5.90% 6.10% 5.75% / 5.60% 6.25% / 6.20% Expected return on plan assets 8.00% 8.00% 8.00% 8.00% Rate of compensation increase 6.10% 6.10% Assumed health care cost trend rates Health care cost trend rate assumed for next year n/a n/a 7.00% 7.50% Ultimate trend rate n/a n/a 5.00% 5.00% Years to reach ultimate trend rate n/a n/a 4 5 The health care cost trend rate assumption has a significant effect on the amounts reported for other postretirement (health care) plans. Increasing the health care cost trend rate by 1 percent in each future year would increase the benefit obligation by $75,882 and the annual service and interest cost by $8,031. Decreasing the health care cost trend rate by 1 percent in each future year would decrease the benefit obligation by $52,506 and the annual service and interest cost by $5,

65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) F. Plan Assets The University s overall investment objectives for the pension plan and postretirement medical benefit plan assets are broadly defined to include an inflation-adjusted rate of return that seeks growth commensurate with a prudent level of risk. To achieve this objective, the University has established fully discretionary trusts with JP Morgan as trustee and investment manager for the Medical College s defined benefit pension plan and the postretirement medical benefit plan for the University s endowed employees on the Ithaca campus. Under those trust agreements, JP Morgan establishes investment allocations and implements those allocations through various investment funds in order to carry out the investment objectives. JP Morgan has also been appointed as investment manager for the Medical College s postretirement medical benefit plan with full discretion as to investment allocations in specific named funds managed by JP Morgan. The University, through its Investment Office, conducts reviews of the targeted investment allocations and investment management of the assets to ensure that they are consistent with the investment objectives. Typically, those allocations include a substantial and diversified allocation to equity and equity-oriented asset classes in order to provide real growth per the objectives. The University reviews the trustee s long-term rate of return assumptions for the various asset classes for reasonableness by comparing them to assumptions generated internally for the purposes of investing the University endowment and to assumptions by other outside experts. The Investment Office reviews the trustee s success in managing assets within each targeted asset class by comparisons to standard benchmarks for those asset classes and measures the overall effectiveness of the plan investment results by comparison to benchmarks derived from the individual plan asset class allocations and to universes of plan performance maintained by its endowment custodian. In the next fiscal year, and no less than annually thereafter, the University committee that provides guidance and oversight for the University s defined contribution pension plans will, in addition, review the asset allocation and performance in the University s defined benefit pension plan and the post-retirement medical benefit plans. This committee, rather than the Investment Committee of the Board of Trustees, will offer suggestions to the trustee and investment manager regarding possible changes to the long-term strategic allocations that the committee believes would better meet the overall objectives of growth coupled with a prudent level of risk. Risk mitigation is achieved by diversifying investments across multiple asset classes, investing in high quality securities and permitting flexibility in the balance of investments in the recommended asset classes. Market risk inheres in any portfolio but the investment policies and strategies are designed to avoid concentration of risk in any one entity, industry, country or commodity. The funds in which the plan assets are invested are well diversified and managed to avoid concentration of risk. The expected rate of return assumptions are based on information provided by external experts, including but not limited to, investment managers at the trustee bank and the expertise within the University s Investment Office. The factors that impact the expected rates of return for various asset types includes assumptions about inflation, historically based real returns, anticipated value added by investment managers and expected average asset allocations. The expected return on plan assets by category for the fiscal year-ended June 30, 2011 are somewhat lower than in the prior fiscal year: 7.9 percent on equity securities, 4.5 percent on fixed income securities and 7 percent on real estate compared to 8 percent, 5 percent and 8 percent, respectively. SUMMARY OF PLAN ASSETS Target Pension benefits Other postretirement allocation Percentage of plan assets Equity securities 39-85% 66.0% 62.0% 72.0% 68.0% Fixed income securities 15-55% 30.0% 37.0% 28.0% 32.0% Real estate 0-5% 4.0% 1.0% 0.0% 0.0% Total 100.0% 100.0% 100.0% 100.0% The fair value of the pension plan assets and postretirement medical benefit plan assets as of June 30, 2011 and the rollforward for Level 3 assets are disclosed in the tables below. The relevant levels are based on the methodology for determining fair value: Level 1: valuation based on active markets for identical assets; Level 2: valuation based on significant observable inputs and Level 3: valuation based on unobservable inputs. Both the pension plan and postretirement medical benefit plans invest in funds to meet their investment objectives. The asset allocation is based on the underlying assets of the various funds. The leveling is based upon each fund as the unit of measure. 31

66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) PENSION PLAN ASSETS AT FAIR VALUE Level 1 fair value Cash and cash equivalents Level 2 fair value Level 3 fair value Cash $ 227 $ - $ - $ 227 $ 41 Money market Equity securities U.S. small cap - 4,237-4,237 1,821 U.S. large cap - 18,759-18,759 20,014 U.S. REITS - 1,389-1,389 - Emerging markets - 4,479-4,479 - International equity - 7,676-7,676 4,350 Fixed income securities U.S. high yield bonds - 3,097-3,097 - Corporate bonds - 9, ,942 13,118 Mortgage-backed securities - 1, ,461 2,252 International fixed income - 1,158-1,158 - Other types of investments Real estate - - 2,082 2, Total assets $ 334 $ 52,240 $ 3,040 $ 55,614 $ 42, Total 2010 Total SUMMARY OF LEVEL 3 PENSION PLAN ACTIVITY Fair value, June 30, 2010 Realized gain/(loss) Unrealized gain/(loss) Net purchases, sales, settlements Transfers in/(out) of Level 3 Fair value, June 30, 2011 Mortgage-backed securities $ 864 $ - $ 77 $ - $ - $ 941 Corporate bonds 31 7 (3) (18) - 17 Real estate ,212-2,082 Total Level 3 assets $ 1,447 $ 117 $ 282 $ 1,194 $ - $ 3,040 POSTRETIREMENT PLAN ASSETS AT FAIR VALUE Level 1 fair value Level 2 fair value Level 3 fair value Cash and cash equivalents Money market $ 8,182 $ 1,270 $ - $ 9,452 $ 9,584 Equity securities U.S. small cap - 15,109-15,109 12,573 U.S. large cap - 45,723-45,723 35,668 Emerging markets - 27,422-27,422 18,344 International equity - 30,114-30,114 21,448 U.S. REITS - 2,153-2,153 1,807 Fixed income securities U.S. high yield bonds - 6,494-6,494 4,946 Corporate bonds - 27,926-27,926 12,555 Emerging markets debt - 3,836-3,836 2,187 Mortgage-backed securities ,125 Total assets $ 8,182 $ 160,047 $ - $ 168,229 $ 132, Total 2010 Total 32

67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) G. Expected Contributions and Benefit Payments The expected annual contributions and benefit payments that reflect anticipated service are as follows: EXPECTED CONTRIBUTIONS AND BENEFIT PAYMENTS Other postretirement Pension benefits Employer paid Government subsidy University contributions 2012 $ 4,400 $ 10,335 n/a Future benefit payments 2012 $ 2,904 $ 16,947 $ 1, ,000 18,225 2, ,514 19,463 2, ,429 20,998 2, ,771 22,422 2, , ,716 17,439 The Medicare Prescription Drug, Improvement and Modernization Act of 2003 established a prescription drug benefit known as Medicare Part D that also established a federal subsidy to sponsors of retiree healthcare benefit plans. The estimated future government subsidy amounts are reflected in the table above. H. Contract College Employees Employees of the Contract Colleges are covered under the New York State pension plans. Contributions to the state retirement system and other employee benefit costs are paid directly by the state. The amounts of the direct payments applicable to the University as revenue and expenditures are not currently determinable and are not included in the consolidated financial statements. The University reimburses the state for employee benefit costs on certain salaries, principally those associated with externally sponsored programs. The amounts reimbursed to the state during the fiscal years ended June 30, 2011 and 2010 were $20,510 and $20,140, respectively, and were included in operating expenses. 7. FUNDS HELD IN TRUST FOR OTHERS The University, in limited instances, invests funds as a custodian for other closely related parties. Independent trustees are responsible for the funds and for the designation of income distribution. The New York Hospital-Cornell Medical Center Fund, Inc., which benefits the Weill Cornell Medical Center of the New York-Presbyterian Hospital, is the major external organization invested in the University s long-term investment portfolio with assets having market values of $160,501 and $139,233 at June 30, 2011 and 2010, respectively. Of these investments, a portion of the future income stream has been directed in perpetuity to benefit the Medical College. The present value of this income stream, calculated to be $91,766 and $85,280 at June 30, 2011 and 2010, respectively, are recorded as reductions in the funds held in trust for others liability. 33

68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) 8. BONDS AND NOTES PAYABLE A. General Information Bonds and notes payable as of June 30 are summarized as follows: SUMMARY OF BONDS AND NOTES PAYABLE Interest rates Final maturity Dormitory Authority of the State of New York (DASNY) Revenue Bond Series 1990B-fixed rate $ 47,980 $ 50, to A-variable rate/weekly 51,090 53, * B-variable rate/weekly 68,460 70, * variable rate/weekly 81,600 83, * fixed rate 196, , to B&C-fixed rate 125, , to fixed rate 305, , to fixed rate 285, , to Tax-exempt commercial paper 59,000 6, to 2.99* 2037 Industrial Development Agency 2000-fixed rate - 1, A-variable rate/weekly 41,940 42, * B-variable rate/weekly 15,390 15, to A-fixed rate 68,630 70, to Bond Series 1987B-fixed rate 3,080 5, Student Loan Marketing Association-fixed rate - 4, Urban Development Corporation 2,250 2, Taxable-fixed rate 500, , to Taxable commercial paper 78,500 97, to Other 2,676 2, to Total bonds and notes payable $1,932,136 $ 1,930,582 * Rates presented are the swap interest rates as noted in the Fair Value of Interest Rate Swaps in Statement of Financial Position table. The University s bonds and notes payable had carrying amounts of $1,932,136 and $1,930,582 at June 30, 2011 and 2010, respectively, compared to estimated fair values of approximately $2,053,009 and $2,071,298 at June 30, 2011 and 2010, respectively. Estimated fair value of bonds is based on quoted market prices for the same or similar issues. The market prices utilized reflect the amounts a third party would pay to purchase the bonds and are not considered an additional liability to the University. Interest expense during the fiscal year-ended June 30, 2011 was $70,065, of which $69,730 was related to the bonds and notes payable displayed in the table above. During the fiscal year-ended June 30, 2010, interest expense was $59,791, of which $59,198 was related to the bonds and notes payable. The University capitalized the interest on self-constructed assets, such as buildings, in the amounts of $19,313 and $7,042 for the fiscal years ended June 30, 2011 and 2010, respectively. Debt and debt service related to borrowings by New York State for the construction and renovation of facilities of the Contract Colleges are not included in the consolidated financial statements because they are not liabilities of the University. Under the agreement with DASNY, the bonds are a general obligation of the University and are secured by a pledge of revenue. During fiscal year-ended June 30, 2011, the University refinanced the SLMA loan with taxable commercial paper and terminated an interest rate swap. The University continues to issue both tax-exempt and taxable commercial paper. Taxexempt commercial paper is used to finance capital projects and equipment purchases for the Ithaca and Medical College 34

69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) campuses. Taxable commercial paper is also used for these purposes, as well as to finance short-term working capital needs. The maximum amount outstanding at any one time under each program is $200,000. Scheduled principal and interest payments on bonds and notes for the next five fiscal years and thereafter are shown below: ANNUAL DEBT SERVICE REQUIREMENTS Year Principal Interest Total 2012 $ 39,077 $ 102,710 $ 141, ,043 99, , ,040 95, , ,852 80, , ,639 76, ,892 Thereafter 1,485, ,453 2,361,938 Total $ 1,932,136 $ 1,330,554 $ 3,262,690 In estimating future interest payments, the University uses the interest rate associated with the swap agreement until the termination date. For unhedged tax-exempt debt, the University estimates the future interest payments based on the 5 year Securities Industry and Financial Markets Association rate (SIFMA). For taxable commercial paper debt, estimates are based on the 5-year average London Interbank Offered Rates (LIBOR). B. Interest Rate Swaps The University approved the use of interest rate swaps to mitigate interest rate risk for its variable rate debt portfolio. The swap agreements cover current variable rate debt as well as future debt exposure. Interest rate swaps are derivative instruments; however, their use by the University is not considered to be hedging activity, based on definitions in generally accepted accounting principles. Although the use of swap agreements mitigates interest rate risk, the University, through the use of these agreements, is exposed to the risk that counterparties will fail to meet their contractual obligations. To mitigate the counterparty credit risk, the University entered into contracts with carefully selected major financial institutions based upon their credit ratings and other factors, and maintains dollar limits for each institution. Master agreements with counterparties include master netting arrangements as further mitigation of credit exposure to counterparties. These arrangements permit the University to net amounts due to the counterparty with amounts due from the counterparty, which reduces the maximum loss from credit risk in the event of counterparty default. The University s swap agreements contain a credit-risk contingent feature in which the counterparties can request collateralization on agreements in net liability positions. At June 30, 2011, the University had collateral on deposit with counterparties in the amount of $26,461 compared to $29,048 at June 30, The University could be required to post additional collateral if the University s credit rating falls below A1/A+. The University follows accounting guidance that defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements, including derivatives. The University s interest rate swaps are valued by an external swap consultant that uses the mid-market levels, as of the close of business, to value the agreements. The valuations provided are derived from proprietary models based upon well-recognized financial principles and reasonable estimates about relevant future market conditions and the University s credit worthiness. The University s interest rate swap arrangements have inputs that can generally be corroborated by market data and are classified as Level 2 in the fair value hierarchy. At June 30, 2011, the University has eight interest rate swap agreements to exchange variable-rate debt for fixed-rate obligations without the exchange of the underlying principal amount. Net payments or receipts under the swap agreements are recorded as adjustments to interest expense and the incremental interest expense is disclosed in the table below. In all agreements in effect at June 30, 2011, the counterparty pays a variable interest rate equal to a percentage of the one month London Interbank Offered Rates (LIBOR). The following table provides detailed information on the interest rate swaps at June 30, 2011, with comparative fair values for June 30, The number of swaps is reported based on notional amount. 35

70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) FAIR VALUE OF INTEREST RATE SWAPS IN STATEMENT OF FINANCIAL POSITION Location Notional amount Interest rate Commencement Termination date Basis Level 2 Level 2 fair value fair value Accounts payable and accrued expenses $ 15, % July 1, 2010 SIFMA $ - $ (52) 104, % October 1, 2012* LIBOR (8,003) (8,824) 42, % July 1, 2030 LIBOR (8,702) (10,083) 72, % July 1, 2030 LIBOR (15,255) (17,677) 86, % July 1, 2033 LIBOR (9,648) (11,953) 200, % December 15, 2010 LIBOR - (28,555) 100, % July 1, 2011 July 1, 2038 LIBOR (16,303) (15,988) 275, % July 1, 2011 July 1, 2040 LIBOR (51,905) (54,653) 200, % July 1, 2012 July 1, 2041 LIBOR (17,272) (18,641) 200, % July 1, 2014 July 1, 2044 LIBOR (13,497) (17,857) Total fair value $ (140,585) $ (184,283) * Counterparty has the option to extend termination date to October 1, 2015 During the year-ended June 30, 2011, the University terminated an interest rate swap agreement with a notional amount of $200,000 and an interest rate of 3.45 percent, resulting in a realized loss. The following table provides the amounts of the income, expenses, gains and losses recorded for the years ended June 30. EFFECT OF INTEREST RATE SWAPS ON STATEMENT OF ACTIVITIES Location Income/(expense) Gain/(loss) Income/(expense) Gain/(loss) Operating expense Interest expense $ (12,025) $ - $ (15,872) $ - Nonoperating activity - other Realized gain/(loss) $ - $ (18,500) $ - $ (14,330) Unrealized gain/(loss) - 43,698 - (59,618) $ (12,025) $ 25,198 $ (15,872) $ (73,948) Activity related to interest rate swaps affect unrestricted net assets, and in the consolidated statement of cash flows, are presented on the change in value of interest rate swaps line in the operating activities section. C. Standby Purchase Agreements The University has standby purchase agreements with various financial institutions to purchase all of the University s variable-rate demand bonds in the event that they cannot be remarketed. In the event that the bonds covered by these standby purchase agreements are not remarketable and the agreements are not otherwise renewed, the University would be required to refund the bonds or refinance in a different interest rate mode. If all solutions failed and the University had to refund the bonds, the Annual Debt Service Requirements table would be $131,790 for fiscal year 2012 and $237,763 for fiscal year Detailed information about the standby purchase agreements is shown in the following table: SUMMARY OF STANDBY PURCHASE AGREEMENTS Series Provider Expiration 2000A JP Morgan Chase Nov B JP Morgan Chase Nov A JP Morgan Chase Nov B JP Morgan Chase Nov HSBC Apr-12 36

71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) D. Lines of Credit The University records its working capital lines of credit as other liabilities in the consolidated statement of financial position. At June 30, 2011, the interest rates for its two lines of credit were.87 percent and 1.00 percent. The two $100 million lines of credit have annual expiration dates of December 31 and April 1. As of June 30, 2011 and 2010, the University did not borrow against the lines of credit. 9. OPERATING LEASES Although the University generally purchases, rather than leases, machinery and equipment, the University does enter operating lease agreements for the use of real property. Total lease expenses were $26,249 and $24,441 for the fiscal years ended June 30, 2011 and 2010, respectively. The future annual minimum lease payments in the following table are payments under operating leases expiring at various dates through September 1, ANNUAL MINIMUM OPERATING LEASE PAYMENTS Year Payments 2012 $ 19, , , , ,279 Thereafter 104,991 Total minimum operating lease payments $ 166, FUNCTIONAL EXPENSES AND STUDENT AID Total expenses by functional categories for the fiscal years ended June 30 are as follows: FUNCTIONAL EXPENSES Instruction $ 652,651 $ 594,366 Research 593, ,142 Public service 109, ,459 Academic support 261, ,431 Student services 126, ,733 Medical services 649, ,039 Institutional support 371, ,826 Enterprises and subsidiaries 210, ,273 Total expenses $ 2,974,693 $ 2,804,269 The expenses for operations and maintenance of facilities, depreciation, and interest related to capital projects are allocated to functional categories based on square footage. The amounts allocated for operations and maintenance were approximately $163,558 and $159,265 for the fiscal years ended June 30, 2011 and 2010, respectively. Student financial assistance is shown as a component of instruction expense unless the assistance is for tuition and mandatory fees. If the assistance is for tuition and mandatory fees, the amounts are recorded as scholarship allowance which reduces tuition revenue. Total financial assistance amounts classified as instruction expense were $41,851 and $40,662 for the fiscal years ended June 30, 2011 and 2010, respectively. 37

72 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) 11. NET ASSETS A. General Information The University s net assets as of June 30 are as follows: SUMMARY OF NET ASSETS Temporarily restricted Permanently restricted Unrestricted Endowment True endowment $ (27,312) $ 1,396,968 $ 1,904,970 $ 3,274,626 $ 2,795,950 Funds functioning as endowment (FFE) 1,322, ,936-1,653,444 1,464,000 Total true endowment and FFE $ 1,295,196 $ 1,727,904 $ 1,904,970 $ 4,928,070 $ 4,259,950 Funds held by others, perpetual , , ,637 Total University endowment $ 1,295,196 $ 1,727,904 $ 2,036,306 $ 5,059,406 $ 4,378, Total 2010 Total Other net assets Operations (337,236) 163,572 - (173,664) (128,685) Student loans 11,155-38,187 49,342 47,406 Facilities and equipment 1,782,412 31,658-1,814,070 1,691,420 Split interest agreements - 64,656 40, ,892 86,391 Funds held by others, other than perpetual - 42,466 30,000 72,466 63,913 Contributions receivable, net - 402, , , ,926 Total net assets $ 2,751,527 $ 2,432,376 $ 2,327,092 $ 7,510,995 $ 6,696,958 Unrestricted net asset balances for operations are primarily affected by operating activities and strategic decisions to invest expendable balances in funds functioning as endowment and capital projects. B. Endowment Of the endowment assets held at the University, 96 percent and 95 percent were invested in the LTIP at June 30, 2011 and 2010, respectively. At June 30, 2011, 735 of 6,088 true endowment funds invested in the LTIP had a total historic dollar value of $328,811 and a fair value of $301,499, resulting in these endowments being underwater by a total of $27,312. The University holds significant appreciation on endowments to offset these temporary decreases in value. The University has maintained these true endowment funds at their historical book value. Changes in the endowment net assets, exclusive of funds held in trust by others, for the fiscal years ended June 30 are presented below: SUMMARY OF ENDOWMENT ACTIVITY Unrestricted Temporarily restricted Permanently restricted 2011 Total 2010 Total True endowment and FFE, beginning of year $ 2,152,174 $ 311,716 $ 1,796,060 $ 4,259,950 $ 3,836,289 Cumulative effect of change in accounting principle (1,090,249) 1,090, True endowment and FFE, after change 1,061,925 1,401,965 1,796,060 4,259,950 3,836,289 Investment return Net investment income 24,736 15,586 2,656 42,978 21,677 Net realized and unrealized gain/(loss) 328, ,620 5, , ,230 Total investment return $ 353,469 $ 373,206 $ 7,887 $ 734,562 $ 393,907 New gifts 8,009 14,104 89, , ,304 Net transfers to/(from) FFE (18,366) 2,616 9 (15,741) 107,650 Distribution of endowment return to other funds (108,425) (62,178) (2,511) (173,114) (195,525) Other changes 4,314 (69) 5,890 10,135 8,574 Reclassifications (5,730) (1,740) 8,490 1,020 1,751 Total true endowment and FFE, end of year $ 1,295,196 $ 1,727,904 $ 1,904,970 $ 4,928,070 $ 4,259,950 38

73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) 12. CONTINGENT LIABILITIES The University is a defendant in various legal actions, some of which are for substantial monetary amounts, that arise out of the normal course of its operations. Although the final outcome of the actions cannot be foreseen, the University s administration is of the opinion that eventual liability, if any, will not have a material effect on the University s financial position. The University retains self-insurance for property, general liability, and certain health benefits, and has an equity interest in a multi-provider captive insurance company. 13. SUBSEQUENT EVENTS The University has performed an evaluation of subsequent events through September 27, 2011, the date on which the consolidated financial statements were issued. 39

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75 APPENDIX C DEFINITIONS "Account" or "Accounts" means any Account within any Fund designated and created pursuant to the Indenture. "Act" means, collectively, Title 1 of Article 18-A of the General Municipal Law of the State enacted into law as Chapter 1030 of the Laws of 1969 of the State, as amended, together with Chapter 535 of the Laws of 1971 of the State, as amended. "Acknowledgment" means the Acknowledgment by the Company of the Assignment. "Act of Bankruptcy" when used with respect to any Person, means the filing of a petition in bankruptcy, or the commencement of another bankruptcy or similar proceeding, by or against such Person under any applicable bankruptcy, insolvency or similar law now or in effect after the date of the Indenture. "Actual Knowledge" means (i) any fact, information or data in any notice given pursuant to the terms of the Indenture, or (ii) any fact, information or data that is actually known by any corporate trust officer of the Trustee, or (iii) any fact, information or data that is actually known by an officer of the Tender Agent or any successor Tender Agent. "Additional Bonds" means any Bonds, other than the Series 2002A and Series 2002B Bonds, issued pursuant to the Indenture. "Adjustment Date" means (i) during the Weekly Interest Rate Period, any Thursday, and (ii) the Fixed Interest Rate Conversion Date. "Adjustment Period" means each period beginning on an Adjustment Date and ending on the day immediately preceding the immediately succeeding Adjustment Date, except that the first Adjustment Period shall be the period from and including the date of delivery of the Bonds to and including the day immediately preceding the first Adjustment Date. "Assignment" means the Pledge and Assignment with Acknowledgement thereof by the Company, dated as of February 1, 2002, from the Issuer to the Trustee. "Authenticating Agent" means the Trustee. "Authorized Investments" means (i) direct or indirect obligations of the State or any municipality, instrumentality or political subdivision thereof, or the United States of America or any instrumentality thereof, or (ii) obligations, the full and timely payment of the principal and interest of which are directly and unconditionally guaranteed by the State or the United States of America, or (iii) bankers' acceptances of, or certificates of deposit issued by, or time deposits or other banking arrangements or deposits with Liquidity Facility Provider or the Trustee with a rating of investment grade at all times by a Rating Agency, or (iv) commercial paper of any Person other than the Company or any Related Person which has been classified for rating purposes by a Rating Agency as Prime-1 and by Standard & Poor's as A-1, or (v) commercial C-1

76 paper of the Liquidity Facility Provider, or (vi) money market funds or other mutual funds with at least $2 billion in assets and which invest exclusively in assets described in (i) or (ii) above. "Authorized Representative" means, in the case of the Issuer, the Chair, the Vice Chair, the Administrative Director, the Secretary or any Member of the Issuer; in the case of the Company, the Administrative Vice President, the Chief Financial Officer or the Treasurer; and, in the case of both, such additional persons as, at the time, are designated to act on behalf of the Issuer or the Company, as the case may be, by written certificate furnished to the Trustee and to the Issuer or the Company, as the case may be, containing the specimen signature of each such person and signed on behalf of (i) the Issuer by the Chair, the Vice Chair, the Administrative Director, the Secretary or any Member of the Issuer, or (ii) the Company by the Administrative Vice President, the Chief Financial Officer or the Treasurer. time. "Bankruptcy Code" means the United States Bankruptcy Code, as amended from time to "Bond" or "Bonds" means, collectively, the Series 2002A Bonds and the Series 2002B Bonds and any Series of Additional Bonds issued under the Indenture. "Bond Counsel" means the law firm of Harris Beach PLLC or an attorney or other firm of attorneys whose experience in matters relating to the issuance of obligations by states and their political subdivisions is nationally recognized. "Bond Documents" means the Bond Purchase Agreements, the Indenture, the Installment Sale Agreement, the Escrow Agreement, the Assignment, the Guaranty, the Liquidity Facilities, the Remarketing Agreement, the Tax Compliance Agreement and the Official Statement. "Bond Fund" means the fund so designated which is established by the Indenture. "Bond Payment Date" means any date on which each Debt Service Payment shall be payable on any of the Bonds so long as the Bonds shall be outstanding. "Bond Proceeds" means the aggregate amount, including any accrued interest, paid to the Issuer by the Bondholders pursuant to the Indenture as the purchase price of the Bonds. "Bond Purchase Agreements" means, collectively, the Series 2002A Bond Purchase Agreement and the Series 2002B Bond Purchase Agreement. "Bond Rate" means the rate or rates of interest from time to time payable on any of the Bonds as defined therein. "Bond Registrar" means the Trustee as bond registrar with respect to the Bonds and its successors and assigns in such capacity. "Bond Resolution" means the resolution adopted by the Issuer on December 6, 2001, as amended by a resolution adopted by the Issuer on February 1, 2002, authorizing the issuance, execution, sale and delivery of the Bonds and the execution and delivery of Issuer Documents as such resolution may be amended or supplemented from time to time. C-2

77 "Business Day" means any day other than a Saturday, a Sunday, a legal holiday or a day on which banking institutions in New York, New York or any city in which the principal corporate trust office of the Trustee or any Paying Agent or the principal office of the Liquidity Facility Provider is located are authorized by law or executive order to remain closed. "Certificate of Authentication of the Authenticating Agent" and "Authenticating Agent Certificate of Authentication" means the certificate or certificates executed by an authorized signatory of the Trustee certifying the due authentication of the Series 2002A Bonds in the aggregate principal amount of $43,555,000 and the Series 2002B Bonds in the aggregate principal amount of $15,390,000. "Closing Date" means February 14, 2002, the date of sale and delivery of the Bonds. "Code" means the Internal Revenue Code of 1986, as amended together with the final, temporary and proposed regulations of the Department of the Treasury promulgated thereunder. "Company" means the Cornell University, a education corporation, organized and existing under the laws of the State of New York, and an Exempt Organization having an office at Terrace Hill, 102 Prospect Street, Suite 300, Ithaca, New York "Company Documents" means the Bond Purchase Agreements, the Remarketing Agreement, the License to Issuer, the Installment Sale Agreement, the Escrow Agreement, the Liquidity Facilities, the Tax Compliance Agreement, the Acknowledgment, the Official Statement and the Guaranty. "Condemnation" means the taking of title to, or the use of, Property under the exercise of the power of eminent domain by any governmental entity or other Person acting under governmental authority. "Conversion" means the conversion of the interest rate on either Series of the Bonds from the Weekly Interest Rate to the Fixed Interest Rate on the Fixed Interest Rate Conversion Date. "Conversion Date" means the Fixed Interest Rate Conversion Date, provided that if any such date shall not be a Business Day, such date shall be the next succeeding Business Day. "Cost of the Facility" means Project Costs. "Debt Service Payment" means, with respect to any Bond Payment Date, (i) the interest payable on such Bond Payment Date on all Bonds then Outstanding, plus (ii) the principal of, or Redemption Price of, or Sinking Fund Installment payable on such Bond Payment Date on all such Bonds. "Depository" means DTC. "Determination Date" means (i) during the Weekly Interest Rate Period, the Business Day immediately preceding each Adjustment Date, and (ii) for the Fixed Interest Rate Conversion Date, not earlier than the fifteenth (15th) Business Day nor later than the second (2nd) Business Day immediately preceding such Date. C-3

78 "DTC" means The Depository Trust Company and its successors and assigns. "DTC Letter of Representation" or "DTC Representation Letter" means the Blanket Letter of Representation, dated April 30, 1997, from the Issuer to DTC and any subsequent or additional letter of representation from the Issuer to DTC from time to time. "Electronic Notice" means any notice sent by telecopier or by any other electronic, facsimile or telecommunications means for receiving notices approved in advance by the Trustee and/or the Tender Agent. "Equipment" means all machinery, equipment, furniture, fixtures and other personal property used and to be used in connection with the Facilities and financed or refinanced in whole or in part with Bond Proceeds. "Escrow Agreement" means the Escrow Deposit Agreement, dated the Closing Date, among the Issuer, the Company and Manufacturers and Traders Trust Company, as trustee for the Series 2000 Bonds. "Event of Default" (a) when used with respect to the Indenture, means any of those events defined as an Event of Default by the Indenture, (b) when used with respect to the Installment Sale Agreement, means any of the events defined as Events of Default by the Installment Sale Agreement, (c) when used with respect to the Guaranty, means any of the events defined as Events of Default by the Guaranty. "Exempt Organization" means an organization described in Section 501(c)(3) of the Code and exempt from Federal income taxation pursuant to Section 501(a) of the Code. "Extraordinary Services" and "Extraordinary Expenses" means all services rendered and all expenses incurred by the Trustee, the Tender Agent, the Registrar or any Paying Agent under the Indenture other than Ordinary Services and Ordinary Expenses, including reasonable fees and disbursements of any such Person's counsel. "Facility" or "Facilities" means one or all, respectively of, the 1984 Facility, the 1985 Facility, the 1999 Facility and the Heat Exchange Facility. "Fixed Interest Rate" mean the interest rate on any Bonds as determined in accordance with the Indenture, from and including the Fixed Interest Rate Conversion Date, through but not including the final maturity date of the Bonds. "Fixed Interest Rate Conversion" means the conversion of the interest rate on a Series of Bonds from the Weekly Interest Rate to the Fixed Interest Rate. "Fixed Interest Rate Conversion Date" means the date on which a Series of Bonds shall commence to bear interest at the Fixed Interest Rate as provided in the Indenture. "Fixed Interest Rate Period" means that period during which a Series of Bonds shall bear interest at the Fixed Interest Rate. C-4

79 "Fund" or "Funds" means any Fund or Funds designated and created pursuant to the Indenture. "Government Obligations" means (i) direct obligations of the United States of America, or (ii) obligations, the full and timely payment of the principal and interest of which are guaranteed by the United States of America which are not subject to prepayment or call. "Guarantor" means, the Company in its capacity as guarantor under the Guaranty. "Guaranty" or "Guaranty Agreement" means the Guaranty, dated as of February 1, 2002, from the Company to the Trustee. "Hazardous Substance" means, without limitation, any flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801, et seq.), the Toxic Substances Control Act, as amended (15 U.S.C. Section 2601, et seq.), Articles 17 and 27 of the New York State Environmental Conservation Law, or any other applicable Environmental Law and the regulations promulgated thereunder. "Heat Exchange Facility" means the lake source cooling infrastructure replacement project consisting of a building to house lake water pumps and heat exchangers to be located at 983 East Shore Drive in the Town of Ithaca, which Heat Exchange Facility was constructed out of proceeds of the Series 2000 Bonds. "Holders", "Bondholder", or "Holder of Bonds" means Owner. "Indenture" means the Indenture of Trust by and between the Issuer and the Trustee, dated as of February 1, 2002, entered into in connection with the issuance, sale, delivery and payment of the Bonds and the security therefor as the same may be amended or supplemented from time to time. "Independent Counsel" means an attorney or attorneys or firm or firms of attorneys duly admitted to practice law before the highest court of any state of the United States of America or in the District of Columbia and not a full time employee of the Issuer, the Company or the Trustee. "Independent Engineer" means an engineer or engineering firm registered and qualified to practice the profession of engineering under the laws of the State selected by the Company, and not a full time employee of the Issuer, the Company or the Trustee. "Initial Interest Accrual Period" means the period commencing on the Closing Date and ending on April 1, C-5

80 "Installment Payments" means all installment payments of the purchase price of the Issuer's interest in the Facilities made by the Company pursuant to the Installment Sale Agreement. "Installment Sale Agreement" means the Installment Sale Agreement, dated as of February 1, 2002, by and between the Issuer, as seller, and the Company, as purchaser of the Issuer's interest in the Facilities, as the same may be amended from time to time. "Interest Accounts" means, collectively, the Series 2002A Interest Account and the Series 2001B Interest Account, and each is a "Interest Account". "Interest Payment Date" means during the Weekly Interest Rate Period, the first Business Day of April, 2002 and the first Business Day of each month thereafter and subsequent to the Conversion to a Fixed Interest Rate shall mean January 1 and July 1 of each year thereafter. "Issuer" means the (i) Tompkins County Industrial Development Agency, its successors and assigns, and (ii) any local governmental body resulting from or surviving any consolidation or merger to which the Issuer or its successors may be a party. "Issuer Documents" means the Bond Purchase Agreements, the Bonds, the Indenture, the Installment Sale Agreement, the Escrow Agreement, the Assignment, and the Official Statement. "License to Issuer" means the License to Issuer, dated as of February 1, 2002, from the Company to the Issuer, pursuant to which the Company grants the Issuer a license to enter the Facilities in order to undertake the Project. "Lien" means any interest in Property securing an obligation owed to a Person whether such interest is based on the common law, statute or contract, and including but not limited to, the security interest arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" includes reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other similar title exceptions and encumbrances, including but not limited to mechanics', materialmen's, warehousemen's, carriers' and other similar encumbrances, affecting real property. For the purposes of this definition, a Person shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. "Liquidity Facilities" means, with respect to each Series of Bonds, (i) initially, the Standby Bond Purchase Agreements, dated as of January 1, 2002, by and between the Company and the Liquidity Facility Provider, and (ii) thereafter, any Substitute Liquidity Facility. "Liquidity Facility Provider" means (i) The Toronto Dominion Bank, acting through its Houston Agency, with a place of business at 31 West 52nd Street, New York, New York 10019, or (ii) any other Qualified Financial Institution that is the issuer of a Substitute Liquidity Facility. "Maturity Date" means July 1, 2030 with respect to the Series 2002A Bonds and July 1, 2015 with respect to the Series 2002B Bonds. C-6

81 "Maximum Interest Rate" or "Maximum Rate" means twelve percent (12%) per annum. "Net Proceeds" means so much of the gross proceeds with respect to which that term is used as remain after payment of all expenses, costs and taxes (including attorneys' fees) incurred in obtaining such gross proceeds. "1984 DASNY Bonds" means the Dormitory Authority of the State of New York Cornell University Revenue Bonds, Series 1984, the proceeds of which were used to pay a portion of the cost of the 1984 Facility. "1984 Facility" means the following items paid for in part out of the proceeds of the 1984 DASNY Bonds: (a) the renovation of student housing facilities and Tjaden Hall, the acquisition of a computer system and the improvement of energy, utility and transportation facilities, (b) the installation of a campus wide digital telecommunications system, (c) the construction of parking facilities, (d) the acquisition and installation of a cogeneration project and (e) the maintenance and refurbishing of student housing facilities. "1985 DASNY Bonds" means the Dormitory Authority of the State of New York Cornell University Revenue Bonds, Series 1985, the proceeds of which were used to pay a portion of the cost of the 1985 Facility. "1985 Facility" means the following items paid for in part out of the proceeds of the 1985 DASNY Bonds: (a) the construction of a facility to house the Company's Biotechnology Institute, which was funded in part by an appropriation from the State of New York; (b) construction and renovation of residence halls; (c) improvements of utilities, energy conservation, campus roadways and parking facilities, library systems and research animal facilities; (d) construction of a dining facility; (e) an upgrade of the Statler Inn facilities of the School of Hotel Administration; (f) computer and other equipment; and (h) interim financing of various construction and renovation projects. "1986 DASNY Bonds" means the Dormitory Authority of the State of New York Cornell University Revenue Bonds, Series 1986, issued in the original principal amount of $152,925,000 the proceeds of which were used to advance refund a portion of the 1985 DASNY Bonds and a portion of the 1984 DASNY Bonds, a portion of which 1986 DASNY Bonds will be refunded out of proceeds of the Series 2002B Bonds. "1999 Facility" means the acquisition and installation of water pipelines from Cayuga Lake through the Heat Exchange Facility and through portions of Town of Ithaca, the City of Ithaca and Village of Cayuga Heights extending approximately two miles to the Cornell University Ithaca Campus, the acquisition of land, or rights in land, necessary therefor, and other incidental improvements in connection therewith, all as described in the Environmental Impact Statement, dated January 7, 1998, which 1999 Facility was constructed out of proceeds of the Series 2000 Bonds. "Notice Parties" means the Issuer, the Company, the Tender Agent, the Remarketing Agent, the Liquidity Facility Provider, if any, the Paying Agent, the Rating Agency, if any, the Registrar, the Authenticating Agent, if any, and the Trustee; provided, however, that after the C-7

82 Fixed Interest Rate Conversion Date, the Tender Agent, the Liquidity Facility Provider, and the Remarketing Agent shall no longer be Notice Parties. "Office of the Trustee" means a corporate trust office of the Trustee, as specified in the Indenture or at such other address as Trustee shall designate. "Official Statement" means, as applicable, the Official Statement, dated February 1, 2001, and distributed by the Underwriter in connection with the offer and sale of the Bonds and the Reoffering Circular. "Ordinary Services" and "Ordinary Expenses" means those services normally rendered and those expenses normally incurred by a trustee, tender agent, registrar or paying agent, as the case may be, under instruments similar to the Indenture, including reasonable fees and disbursements of counsel for any such Person. "Outstanding" or "Bonds Outstanding" or "Outstanding Bonds" means all bonds which have been authenticated by the Trustee and delivered by the Issuer under the Indenture, or any supplement thereto, except: (a) any Bond cancelled by the Trustee because of payment or redemption prior to maturity; (b) any bond deemed paid in accordance with the provisions of the Indenture, except that any such Bond shall be considered Outstanding until the maturity date thereof only for the purposes of being exchanged or registered; and (c) any Bond paid or in lieu of or in substitution for which another Bond shall have been authenticated and delivered pursuant to the Indenture, unless proof satisfactory to the Trustee is presented that any Bond, for which a Bond in lieu of or in substitution therefor shall have been authenticated and delivered, is held by a bona fide purchaser, as that term is defined in Article 8 of the Uniform Commercial Code of the State, as amended, in which case both the Bond so substituted and replaced and the Bond or Bonds so authenticated and delivered in lieu thereof or in substitution therefor shall be deemed Outstanding. "Owner", except as otherwise provided in the Indenture, means the registered owner of any Bond as shown on the registration books maintained by the Bond Registrar pursuant to the Indenture. For so long as the Bonds are held by DTC, the registered owner shall be Cede & Co., as nominee for DTC. "Paying Agent" means any paying agent for the Bonds (including the Trustee), acting as such, and any additional paying agent for the Bonds appointed pursuant to the Indenture, their respective successors and any other Person which may at any time be substituted in their respective places pursuant to the Indenture. "Person" or "Persons" means an individual, partnership, corporation, limited liability company, trust or unincorporated organization, and a government or agency or political subdivision or branch thereof. "Principal Account" or "Principal Accounts" means, one or both, respectively, of the Series 2002A Principal Account and the Series 2002B Principal Account. "Project Costs" means, collectively the Series 2002A Project Costs and the Series 2002B Project Costs. C-8

83 "Project Fund" or "Project Funds" means, one or both, respectively, of the Series 2002A Project Fund and the Series 2002B Project Fund. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Public Purposes" means the State's objective to create industrial development agencies for the benefit of the several counties, cities, villages and towns in the State and to empower such agencies, among other things, to acquire, renovate, reconstruct, lease, improve, maintain, equip and sell land and any building or other improvement, and all real and personal properties, including, but not limited to, machinery and equipment deemed necessary in connection therewith, whether or not now in existence or under construction, which shall be suitable for manufacturing, warehousing, research, commercial, recreation or industrial facilities, including industrial pollution control facilities, in order to advance job opportunities, health, general prosperity and the economic welfare of the people of the State and to improve their standard of living. "Purchase Date" means (i) during the Weekly Interest Rate Period, any date on or prior to the Fixed Interest Rate Conversion Date, (ii) the Fixed Interest Rate Conversion Date, (iii) a date set as a Purchase Date by the Trustee pursuant to the Indenture in connection with any mandatory purchase of the Bonds, or (iv) any other day on which Bonds are tendered or deemed tendered for purchase to the Tender Agent are to be purchased at the Purchase Price pursuant to the Indenture; provided, however, that if any such date shall not be a Business Day, such Purchase Date shall be the next succeeding Business Day. "Purchase Fund" or "Purchase Funds" means, one or both, respectively, of the Series 2002A Purchase Fund and the Series 2002B Purchase Fund. "Purchase Price" means an amount equal to one hundred percent (100%) of the principal amount of any Bonds tendered or deemed tendered for purchase pursuant to the Indenture, plus accrued interest thereon, if any, to the Purchase Date. "Purchased Bonds" means any Bonds of a Series the Purchase Price of which was paid from the proceeds of the applicable Liquidity Facility and which were not remarketed but are registered in the name of the Liquidity Facility Provider as security for the repayment of monies advanced under such Liquidity Facility. "Qualified Financial Institution" means (i) a securities dealer, the liquidation of which is subject to the Securities Investors Protection Corporation or other similar corporation, (ii) a bank, a trust company, a national banking association, a corporation subject to registration with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956 or any successor provisions of law, a federal branch pursuant to the International Banking Act of 1978 or any successor provisions of law, a domestic branch or agency of a foreign bank which branch or agency is duly licensed or authorized to do business under the laws of any state or territory of the United States of America, a savings bank, a savings and loan association, an insurance company or association chartered or organized under the laws of any state of the United States of America, (iii) a corporation affiliated with or which is a subsidiary of any entity C-9

84 described in (ii) above or which is affiliated with or a subsidiary of a corporation which controls or wholly owns any such entity or (iv) the Government National Mortgage Association or any successor thereto, the Federal National Mortgage Association or any successor thereto, or any other federal agency or instrumentality approved by the Issuer; provided, however, that in the case of any entity described in (i), (ii) or (iii) above, the unsecured or uncollateralized long-term debt obligations of which, or obligations secured or supported by a letter of credit, contract, agreement or surety bond issued by any such organization, at the time an investment agreement is entered into by the Issuer are rated, without regard to qualification of such rating by symbols such as "+" or "-" or numerical notation, "A" or better by each Rating Service, or, if such obligations are not rated by a Rating Service, have been assigned a comparable rating by another nationally recognized rating service; provided, however, in no event shall such obligations be rated lower than the lowest rating assigned by a Rating Service to any Outstanding Bonds. "Rating Agency" means a nationally recognized rating agency which is then rating the Bonds, if any. "Rebate Fund" or "Rebate Funds" means, one or both, respectively, of the Series 2002A Rebate Fund and the Series 2002B Rebate Fund. "Record Date" means, (i) during the Weekly Interest Rate period, the close of business on the Business Day immediately preceding an Interest Payment Date and, (ii) during the Fixed Interest Rate Period, the close of business on the fifteenth day of the calendar month next preceding an Interest Payment Date; provided, that, if any such day is not a Business Day, the next preceding Business Day. "Redemption Account" or "Redemption Accounts" means, one or both, respectively, of the Series 2002A Redemption Account and the Series 2002B Redemption. "Redemption Date" means, when used with respect to a Bond, the date on which the principal amount thereof shall be payable pursuant to the Indenture. "Redemption Price" means, when used with respect to a Bond, the principal amount thereof plus the applicable premium, if any, payable upon the prior redemption thereof pursuant to the Indenture. "Registrar" means Bond Registrar. "Reimbursement Account" or "Reimbursement Accounts" means, one or both, respectively, of the Series 2002A Reimbursement Account and the Series 2002B Reimbursement Account. "Remarketing Agent" means Morgan Stanley & Co. Incorporated, its successors and assigns and any substitute Remarketing Agent. "Remarketing Agreement" means the Remarketing Agreement, dated as of February 1, 2002, by and between the Company and the Remarketing Agent, as the same may be amended from time to time. C-10

85 "Renewal Fund" or "Renewal Funds" means, one or both, respectively, of the Series 2002A Renewal Fund and the Series 2002B Renewal Fund. "Reoffering Circular" means the Reoffering Circular, dated May 22, 2012, and distributed by Citigroup Global Markets Inc., as remarketing agent. in connection with the reoffering and sale of the Bonds. "Required Payment Deficiency" shall have the meaning assigned thereto in the Indenture. "Sale Term" means the duration of the sale term created in the Installment Sale Agreement as specified therein. "Schedule of Definitions" means the words and terms set forth in this Schedule of Definitions attached to the Indenture as the same may be amended from time to time. "SEQR Act" means the State Environmental Quality Review Act and the regulations thereunder. "Series of Bonds" means any of the Series 2002A Bonds, the Series 2002B Bonds or any Series of Additional Bonds. "Series 2000 Bonds" means the Issuer's Civic Facility Revenue Bonds (Cornell University Project), Series 2000 in the original principal amount of $50,000,000 the proceeds of which were used for the acquisition, construction and equipping of the Heat Exchange Facility and the 1999 Facility, a portion of which Series 2000 Bonds is being advanced refunded out of proceeds of the Series 2002A Bonds. "Series 2002A Bonds" means the Issuer's Variable Rate Demand Civic Facility Revenue Bonds, Series 2002A (Cornell University Project) issued in the aggregate principal amount of $43,555,000 authorized to be issued pursuant to the Bond Resolution and delivered to the Trustee pursuant to the Indenture to provide funds for the Series 2002A Project. "Series 2002A Bond Purchase Agreement" means the Bond Purchase Agreement, dated January 28, 2002, by and among the Company, the Issuer and the Underwriter for the purchase and sale of the Series 2002A Bonds. "Series 2002A Interest Account" means the account so designated and created within the Bond Fund pursuant to the Indenture. "Series 2002A Liquidity Facility" means (i) initially, the Series 2002A Standby Bond Purchase Agreement, dated as of February 1, 2002, relating to the Series 2002A Bonds, by and among the Company, the Liquidity Facility Provider and the Trustee, and (ii) thereafter, any Substitute Liquidity Facility for the Series 2002A Bonds. "Series 2002A Principal Account" means the account so designated and created within the Bond Fund pursuant to the Indenture. C-11

86 "Series 2002A Project" means (A) the advance refunding of a portion of the Series 2000 Bonds, and (B) the payment of certain costs incidental to the issuance of the Series 2002A Bonds. "Series 2002A Project Costs" means the costs and items of expense relative to the Series 2002A Project described in the Installment Sale Agreement. "Series 2002A Project Fund" means the fund so designated which is created by the Indenture. "Series 2002A Purchase Fund" means the fund so designated and created pursuant to the Indenture. "Series 2002A Rebate Fund" means the fund so designated and created pursuant to the Indenture. "Series 2002A Redemption Account" means the account so designated and created within the Bond Fund pursuant to the Indenture. Series 2002A Repurchase Account means the account so designated and created within the Series 2002A Purchase Fund pursuant to the Indenture. "Series 2002A Reimbursement Account" means the account so designated and created within the Series 2002A Purchase Fund pursuant to the Indenture. "Series 2002A Renewal Fund" means the fund so designated and created pursuant to the Indenture. "Series 2002A Sinking Fund Installments Account" means the account so designated and created within the Bond Fund pursuant to the Indenture. "Series 2002B Bond Purchase Agreement" means the Bond Purchase Agreement, dated February 13, 2002, by and among the Company, the Issuer and the Underwriter for the purchase and sale of the Series 2002B Bonds. "Series 2002B Bonds" means the Issuer's Variable Rate Demand Civic Facility Revenue Bonds, Series 2002B (Cornell University Project) issued in the aggregate principal amount of $15,390,000 authorized to be issued pursuant to the Bond Resolution and delivered to the Trustee pursuant to the Indenture to provide funds for the Series 2002B Project. "Series 2002B Interest Account" means the account so designated and created within the Bond Fund pursuant to the Indenture. "Series 2002B Liquidity Facility" means (i) initially, the Series 2002A Standby Bond Purchase Agreement, dated as of February 1, 2002, relating to the Series 2002B Bonds, by and among the Company, the Liquidity Facility Provider and the Trustee, and (ii) thereafter, any Substitute Liquidity Facility for the Series 2002B Bonds. C-12

87 "Series 2002B Principal Account" means the account so designated and created within the Bond Fund pursuant to the Indenture. "Series 2002B Project" means (A) the refunding of the 1986 DASNY Bonds, and (B) the payment of certain costs incidental to the issuance of the Series 2002B Bonds. "Series 2002B Project Costs" means the costs and items of expense relative to the Series 2002B Project described in the Installment Sale Agreement. "Series 2002B Project Fund" means the fund so designated which is created by the Indenture. "Series 2002B Purchase Fund" means the fund so designated and created pursuant to the Indenture. "Series 2002B Rebate Fund" means the fund so designated and created pursuant to the Indenture. "Series 2002B Redemption Account" means the account so designated and created within the Bond Fund pursuant to the Indenture. Series 2002B Repurchase Account means the account so designated and created in the Series 2002B Purchase Fund pursuant to the Indenture. "Series 2002B Reimbursement Account" means the account so designated and created within the 2002B Purchase Fund pursuant to the Indenture. "Series 2002B Renewal Fund" means the fund so designated and created pursuant to the Indenture. "Sinking Fund Installments" means, with respect to the Series 2002A Bonds, the mandatory sinking fund installments payable pursuant to the Indenture. "State" means the State of New York. "Substitute Liquidity Facility" means an irrevocable letter of credit, surety bond, loan agreement, standby purchase agreement, or other agreement, facility or insurance or guaranty arrangement issued or extended by a Qualified Financial Institution and which is issued in compliance with the Indenture in substitution of an existing Liquidity Facility, and pursuant to which the Trustee or the Tender Agent is entitled to obtain moneys to pay the Purchase Price of the applicable Series of Bonds due in accordance with their terms, plus accrued interest thereon to the Purchase Date. "Supplemental Indenture" means any indenture supplemental to or amendatory of the Indenture adopted by the Issuer in accordance with the Indenture. "Tender Agent" means Manufacturers and Traders Trust Company or its successors or assigns. C-13

88 "Tender Notice" means (i) in the case of a purchase of Bonds at the demand of the Holder thereof pursuant to the Indenture, the notice that such Holder tendering Bonds is required to give to the Tender Agent and/or the Trustee pursuant to the Indenture, informing the Tender Agent and/or the Trustee that such Holder has exercised its option to tender its Bonds for purchase pursuant to the Indenture, and (ii) in the case of a mandatory purchase of Bonds pursuant to the Indenture, any notice received by the Tender Agent and/or the Trustee informing the Tender Agent and/or the Trustee that the Bonds are subject to mandatory purchase. "Tender Notice Date" means the Business Day that the Trustee and/or the Tender Agent receives a Tender Notice before 5:00 p.m. New York City time; provided, however, if the Trustee and/or Tender Agent receives a Tender Notice after 5:00 p.m. New York City time, the Tender Notice Date shall be the next succeeding Business Day. "Trust Estate" means the rights assigned pursuant to the Indenture, the Assignment, the Liquidity Facility, if any, with respect to each Series of Bonds and all Property which may from time to time be subject to the Lien of the Indenture. "Trustee" means Manufacturers and Traders Trust Company, a New York banking corporation and its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor trustee at the time serving as successor trustee under the Indenture. "Unassigned Rights" means the rights of the Issuer and moneys payable pursuant to and under certain portions of the Installment Sale Agreement. "Underwriter" means Morgan Stanley & Co. Incorporated, as Underwriter under the Bond Purchase Agreement, or its successors and assigns. "Weekly Interest Rate" means the interest rate on a Series of Bonds as determined in accordance with the Indenture, from and including the original date of issuance of such Series of Bonds through but not including the Fixed Interest Rate Conversion Date for such Series of Bonds. "Weekly Interest Rate Period" means that period during which a Series of Bonds shall bear interest at the Weekly Interest Rate. C-14

89 APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE The following is a brief summary of certain provisions of the Indenture only. Such summary does not purport to be complete and reference is made to the Indenture for the complete details of the terms thereof. Application of Proceeds of Bonds Upon the receipt by the Trustee of the original proceeds of the sale and delivery of the Series 2002A Bonds, including the amount received as accrued interest, if any, thereon, the Trustee shall apply such proceeds as follows: (i) the amount received as accrued interest on the Series 2002A Bonds, if any, shall be deposited in the Series 2002A Interest Account of the Bond Fund; and (ii) the balance of the proceeds of the Series 2002A Bonds shall be deposited in the Series 2002A Project Fund and used as set forth therein or in the Installment Sale Agreement. Upon the receipt by the Trustee of the original proceeds of the sale and delivery of the Series 2002B Bonds, including the amount received as accrued interest, if any, thereon, the Trustee shall apply such proceeds as follows: (i) the amount received as accrued interest on the Series 2002B Bonds, if any, shall be deposited in the Series 2002B Interest Account Bond Fund; and (ii) the balance of the proceeds of the Series 2002B Bonds shall be deposited in the Series 2002B Project Fund and used as set forth therein or in the Installment Sale Agreement. (Section 4.01) Creation of Funds and Accounts The Issuer establishes and creates, by the Indenture, the following special trust Funds and Accounts comprising such Funds: (i) Bond Fund (A) Series 2002A Principal Account (B) Series 2002A Interest Account (C) Series 2002A Redemption Account (D) Series 2002A Sinking Fund Installment Account (E) Series 2002B Principal Account (F) Series 2002B Interest Account (G) Series 2002B Redemption Account (ii) Series 2002A Project Fund (A) Series 2002A Cost of Issuance Account (B) Series 2002A Project Account (iii) Series 2002A Renewal Fund (iv) Series 2002A Purchase Fund (A) Series 2002A Repurchase Account (B) Series 2002A Reimbursement Account (v) Series 2002A Rebate Fund (vi) Series 2002B Project Fund (A) Series 2002B Cost of Issuance Account (B) Series 2002B Project Account (vii) Series 2002B Renewal Fund (viii) Series 2002B Purchase Fund (A) Series 2002B Repurchase Account (B) Series 2002B Reimbursement Account (ix) Series 2002B Rebate Fund. (Section 5.01) Project Funds There shall be deposited in the Series 2002A Project Fund any and all amounts required to be deposited therein pursuant to the Indenture or otherwise required to be deposited therein pursuant to the Installment Sale Agreement or the Indenture. The amounts in the Series 2002A D-1

90 Project 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 amounts in the Series 2002A Project Fund to the payment, or reimbursement to the extent the same have been paid by or on behalf of the Company or the Issuer, of Series 2002A Project Costs. There shall be deposited in the Series 2002B Project Fund any and all amounts required to be deposited therein pursuant to the Indenture or otherwise required to be deposited therein pursuant to the Installment Sale Agreement or the Indenture. The amounts in the Series 2002B Project 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 amounts in the Series 2002B Project Fund to the payment, or reimbursement to the extent the same have been paid by or on behalf of the Company or the Issuer, of Series 2002B Project Costs. The Trustee is authorized by the Indenture to disburse from the applicable Project Fund the amount required for the payment of applicable Project Costs upon being furnished with a written requisition therefor certified by an Authorized Representative of the Company. (Section 5.02) Renewal Funds The Net Proceeds resulting from any casualty insurance proceeds or Condemnation award with respect to the 1999 Facility or the Heat Exchange Facility deposited or delivered to the Trustee pursuant to the Installment Sale Agreement shall be deposited in the Series 2002A Renewal Fund. The Net Proceeds resulting from any casualty insurance proceeds or Condemnation award with respect to the 1984 Facility or 1985 Facility shall be deposited or delivered to the Trustee pursuant to the Installment Sale Agreement shall be deposited in the Series 2002B Renewal Fund. The amounts in the Renewal Funds shall be subject to a security interest, lien and charge in favor of the Trustee until disbursed as provided in the Indenture. The Trustee is authorized by the Indenture to apply the amounts in each Renewal Fund to the payment (or reimbursement to the extent the same have been paid by or on behalf of the Company or the Issuer) of the costs required for the rebuilding, replacement, repair and restoration of the applicable Facility upon written instructions from the Company. The Trustee is further authorized and directed to issue its checks for each disbursement from a Renewal Fund upon a requisition submitted to the Trustee, signed by an Authorized Representative of the Company. All earnings on amounts on deposit in a Renewal Fund shall be retained in such Renewal Fund and shall be disbursed in accordance with the provisions of the Indenture. Any surplus remaining in a Renewal Fund after the completion of the rebuilding, replacement, repair and restoration of a Facility shall be transferred by the Trustee to the applicable Redemption Account of the Bond Fund for redemption of the applicable Series of Bonds in accordance with the Indenture. (Section 5.03) D-2

91 Payments into Bond Fund There shall be deposited by the Trustee into the Bond Fund, when and as received, the following: (i) accrued interest and premium, if any, received upon the issuance of each Series of Bonds, (ii) any and all payments received by the Trustee under the Installment Sale Agreement, (iii) the balance in the Series 2002A Project Fund, the Series 2002A Renewal Fund and the Series 2002A Rebate Fund, the Series 2002B Project Fund, the Series 2002B Renewal Fund and the Series 2002B Rebate Fund, (iv) the amount of net income or gain received from the investments of moneys in the Bond Fund, and (v) all other moneys received by the Trustee under and pursuant to any of the provisions of the Installment Sale Agreement or the Indenture which by the terms thereof are required to be or which are accompanied by directions that such moneys are to be paid into the Bond Fund. Moneys deposited in the Bond Fund for the payment of principal of a Series of Bonds, which shall be credited to the applicable Principal Account of the Bond Fund and not commingled with any other moneys held by the Trustee and applied, subject to the Indenture, together with amounts available in the applicable Principal Account, to the payment of principal of the such Series of Bonds. Moneys deposited in the Bond Fund for the payment of Sinking Fund Installments on the Series 2002A Bonds, which shall be credited to the Series 2002A Sinking Fund Installment Account of the Bond Fund and not commingled with any other moneys held by the Trustee and applied, subject to the Indenture, together with amounts available in the Series 2002A Sinking Fund Installment Account, to the payment of the Sinking Fund Installments on the Series 2002A Bonds. Moneys deposited in the Bond Fund for the payment of interest on a Series of Bonds, which shall be credited to the applicable Interest Account of the Bond Fund and not commingled with any other moneys held by the Trustee and applied, subject to the Indenture, together with amounts available in the applicable Interest Account, to the payment of interest on such Series of Bonds. The excess amounts referred to above shall be transferred to the Series 2002A Sinking Fund Installment Account of the Bond Fund. Moneys deposited in the Bond Fund for the payment of the Redemption Price of a Series of Bonds to be redeemed (other than by operation of Sinking Fund Installments) in whole or in part, together with interest accrued thereon to the date of redemption, which shall be credited to the applicable Redemption Account in the manner set forth in the Indenture and the Installment Sale Agreement and not commingled with any other moneys held by the Trustee and applied, together with amounts available in the applicable Redemption Account, to pay the Redemption Price of such Series of Bonds to be redeemed, together with interest accrued thereon to the date of redemption. Any amounts transferred from a Redemption Account pursuant to the Indenture, which shall be deposited to the applicable Interest Account, the applicable Principal Account and the applicable Sinking Fund Installment Account of the Bond Fund, as the case may be and in such order of priority, and applied solely to such purposes. D-3

92 (Section 5.05) Application of Bond Fund The Trustee shall (i) on each Interest Payment Date, pay or cause to be paid out of the Series 2002A Interest Account in the Bond Fund the interest due on the Series 2002A Bonds, and (ii) further pay out of the Series 2002A Interest Account of the Bond Fund any amounts required for the payment of accrued interest upon any purchase or redemption (including any mandatory Sinking Fund Installment redemption) of Series 2002A Bonds. The Trustee shall (i) on each Interest Payment Date, pay or cause to be paid out of the Series 2002B Interest Account in the Bond Fund the interest due on the Series 2002B Bonds, and (ii) further pay out of the Series 2002B Interest Account of the Series 2002B Bond Fund any amounts required for the payment of accrued interest upon any purchase or redemption of Series 2002B Bonds. The Trustee shall on each principal payment date for the Series 2002A Bonds pay or cause to be paid to the respective Paying Agent therefor out of the Series 2002A Principal Account of the Bond Fund, the principal amount, if any, due on the Series 2002A Bonds (other than such as shall be due by mandatory Sinking Fund Installment redemption), upon the presentation and surrender of the requisite Series 2002A Bonds. The Trustee shall on each principal payment date for the Series 2002B Bonds pay or cause to be paid to the respective Paying Agent therefor out of the Series 2002B Principal Account of the Bond Fund, the principal amount, if any, due on the Series 2002B Bonds, upon the presentation and surrender of the requisite Series 2002B Bonds. There shall be paid from the Series 2002A Sinking Fund Installment Account of the Bond Fund to the Paying Agent on each Sinking Fund Installment payment date in immediately available funds the amounts required for the Sinking Fund Installment due and payable with respect to the Series 2002A Bonds which are to be redeemed from Sinking Fund Installments on such date (accrued interest on such Series 2002A Bonds being payable from the Series 2002A Interest Account of the Bond Fund). Amounts in each Redemption Account of the Bond Fund shall be applied, at the written direction of the Company, as promptly as practicable, to the purchase of the applicable Series of Bonds at prices not exceeding the Redemption Price thereof applicable on the earliest date upon which such Series of Bonds are next subject to redemption pursuant to the Indenture, plus in each case accrued interest to the date of redemption; provided that any Purchased Bonds of such Series shall be purchased before any other Bonds are purchased. Any amount in a Redemption Account not so applied to the purchase of the applicable Series of Bonds by forty-five (45) days prior to the next date on which such Series of Bonds are so redeemable shall be applied to the redemption of such Series of Bonds on such Redemption Date; provided that if such amount aggregates less than $100,000, it need not be then applied to such redemption. Any amounts deposited in the Series 2002A Redemption Account of the Bond Fund and not applied within twelve (12) months of their date of deposit to the purchase or redemption of the Series 2002A Bonds (except if held in accordance with the Indenture) shall be transferred to the Series 2002A D-4

93 Sinking Fund Installment Account. Upon the purchase of any Series 2002A Bonds out of advance Installment Payments as provided in this paragraph, or upon the redemption of any Series 2002A Bonds, an amount equal to the principal of such Series 2002A Bonds so purchased or redeemed shall be credited against the next ensuing and future Sinking Fund Installments for such Series 2002A Bonds in chronological order of the due dates of such Sinking Fund Installments until the full principal amount of such Series 2002A Bonds so purchased or redeemed shall have been so credited. The portion of any such Sinking Fund Installment remaining after the deduction of such amounts so credited shall constitute and be deemed to be the amount of such Sinking Fund Installment for the purposes of any calculation thereof under the Indenture. The Bonds of a Series to be purchased or redeemed shall be selected by the Trustee in the manner provided in the Indenture. Amounts in each Redemption Account to be applied to the redemption of the applicable Series of Bonds shall be paid to the respective Paying Agents on or before the Redemption Date and applied by them on such Redemption Date to the payment of the Redemption Price of such Series of Bonds being redeemed plus interest on such Series of Bonds accrued to the Redemption Date (accrued interest on such Bonds being payable from the applicable Interest Account of the Bond Fund). In connection with purchases of any Series of Bonds out of the Bond Fund as provided in the Indenture, upon the presentation by the Company to the Trustee of such Series of Bonds to be purchased accompanied by a written direction of an Authorized Representative of the Company to the Trustee, the Trustee will provide funds for the payment of the purchase price thereof out of the moneys deposited in the applicable Redemption Account of the Bond Fund. The Issuer shall receive a credit in respect of Sinking Fund Installments for any Series 2002A Bonds which are subject to mandatory Sinking Fund Installment redemption and which are delivered by the Issuer or the Company to the Trustee on or before the forty-fifth (45th) day next preceding any Sinking Fund Installment payment date and for any Series 2002A Bonds which prior to said date have been purchased or redeemed (otherwise than through the operation of the Series 2002A Sinking Fund Installment Account) and canceled by the Trustee and not theretofore applied as a credit against any Sinking Fund Installment (whether pursuant to the Indenture or otherwise). Each Series 2002A Bond so delivered, canceled or previously purchased or redeemed shall be credited by the Trustee at one hundred percent (100%) of the principal amount thereof against the obligation of the Issuer on such Sinking Fund Installment payment date with respect to Series 2002A Bonds of such Series and maturity and the principal amount of such Series 2002A Bonds to be redeemed by operation of the Series 2002A Sinking Fund Installment Account of the Bond Fund on the due date of such Sinking Fund Installment shall be reduced accordingly, and any excess over such principal amount shall be credited on future Sinking Fund Installments in direct chronological order, and the principal amount of such Series 2002A Bonds to be redeemed by application of Sinking Fund Installment payments shall be accordingly reduced. With respect to the Series 2002A Bonds, the Company shall on or before the forty-fifth (45th) day next preceding each Sinking Fund Installment payment date furnish the Trustee with the certificate of an Authorized Representative of the Company indicating whether or not and to what extent the provisions of the Indenture are to be availed of with respect to such Sinking Fund Installment payment, stating, in the case of the credit provided for, that such credit has not theretofore been applied against any Sinking Fund Installment and confirming that immediately D-5

94 available cash funds for the balance of the next succeeding prescribed Sinking Fund Installment payment will be paid on or prior to the next succeeding Sinking Fund Installment payment date. Moneys in each of the Redemption Accounts of the Bond Fund which are not set aside or deposited for the redemption or purchase of the applicable Series of Bonds shall be transferred by the Trustee to the applicable Interest Account, to the applicable Principal Account or, in the case of moneys in the Series 2002A Redemption Account only, to the Series 2002A Sinking Fund Installment Account of the Bond Fund. (Section 5.07) Rebate Funds Each Rebate Fund and the amounts deposited therein shall not be subject to a security interest, pledge, assignment, lien or charge in favor of the Trustee, the Liquidity Facility Provider or any Bondholder or any other Person. The Trustee, upon the receipt of a certification of the Rebate Amount from an Authorized Representative of the Company, shall deposit in the applicable Rebate Fund on the first Business Day following each Computation Date (as defined in the Tax Compliance Agreement) an amount such that the amount held in the applicable Rebate Fund after such deposit is equal to the applicable Rebate Amount calculated as of such Computation Date. The amount deposited in the Rebate Funds pursuant to the previous sentences shall be paid by the Company. In the event that on the second Business Day following each Computation Date, the amount on deposit in either Rebate Fund exceeds the applicable Rebate Amount, the Trustee, upon the receipt of written instructions from an Authorized Representative of the Company, shall withdraw such excess amount and deposit it in the applicable Principal Account, Redemption Account or Sinking Fund Installment Account of the Bond Fund, as directed by the Company. The Trustee, upon the receipt of written instructions from an Authorized Representative of the Company, shall pay to the United States, out of amounts in the Rebate Funds, (i) not less frequently than once each five (5) years after the date of original issuance of the applicable Series of Bonds, by the sixtieth (60th) day following such anniversary date an amount such that, together with prior amounts paid to the United States, the total paid to the United States is equal to ninety percent (90%) of the Rebate Amount with respect to the applicable Series of Bonds as of the date of such payment and (ii) notwithstanding the provisions of the Indenture, not later than sixty (60) days after the date on which all Bonds have been paid in full, one hundred percent (100%) of the Rebate Amount as of the date of payment. (Section 5.10) Investment of Funds and Accounts Upon the written direction by an authorized Representative of the Company, amounts in the Bond Fund, the Project Funds, and the Renewal Funds may be invested only in Authorized Investments. Any moneys received under any Liquidity Facility and any monies derived from a remarketing of any Series of Bonds (including any amounts held in the applicable Purchase D-6

95 Fund) shall be held uninvested. Moneys held by the Trustee to pay for Bonds which have matured, been accelerated, called for redemption and the Redemption Date has occurred or subject to mandatory purchase and the Purchase Date has occurred, but not yet been presented for payment shall be held uninvested. (Section 5.12) Moneys to be Held in Trust All moneys required to be deposited with or paid to the Trustee for the credit of any Fund or Account under any provision of the Indenture (except the Rebate Funds) and all investments made therewith shall be held by the Trustee in trust for the benefit of the Holders of the Bonds, and while held by the Trustee constitute part of the trust estate, other than the Purchase Funds, and be subject to the lien of the Indenture. (Section 5.13) Repayment to the Company from the Funds After payment in full of the Bonds (in accordance with the Indenture) and the payment of all fees, charges and expenses of the Issuer, the Trustee, the Registrar, the Authenticating Agent, the Tender Agent, the Remarketing Agent, the Liquidity Facility Provider and the Paying Agent and all other amounts required to be paid under the Indenture and under each of the Bond Documents, all amounts remaining in the Project Funds, the Bond Fund or the Renewal Funds shall be paid to the Company upon the expiration or sooner or later termination of the term of the Installment Sale Agreement as provided therein. (Section 5.14) Purchase Funds The Tender Agent shall promptly deposit the following receipts into the Repurchase Account of the Series 2002A Purchase Fund: (i) amounts received from the Remarketing Agent pursuant to the Indenture from the remarketing of any Series 2002A Bonds tendered for purchase, (ii) amounts realized under any Liquidity Facility securing the Series 2002A Bonds, pursuant to the Indenture, and (iii) amounts received from the Company under the Installment Sale Agreement with respect to the Purchase Price of Series 2002A Bonds, upon the circumstances set forth in the Indenture. The Tender Agent shall promptly deposit the following receipts into the Repurchase Account of the Series 2002B Purchase Fund: (i) amounts received from the Remarketing Agent pursuant to the Indenture from the remarketing of any Series 2002B Bonds tendered for purchase, (ii) amounts realized under any Liquidity Facility securing the Series 2002B Bonds, pursuant to the Indenture, and (iii) amounts received from the Company under the Installment Sale Agreement with respect to the Purchase Price of Series 2002B Bonds, upon the circumstances set forth in the Indenture. D-7

96 The Tender Agent shall promptly deposit into the Reimbursement Account of the Series 2002A Purchase Fund amounts received from the Remarketing Agent from the sale of Series 2002A Bonds that are Purchased Bonds pursuant to the Indenture. The Tender Agent shall promptly deposit into the Repurchase Account of the Series 2002B Purchase Fund amounts received from the Remarketing Agent from the sale of Series 2002B Bonds that are tendered for purchase, (ii) amounts realized under any Liquidity Facility securing the 2002B Bonds pursuant to the Indenture, and (iii) amount received from the Company under the Installment Sale Agreement with respect to the Purchase Price of Series 2002B Bonds, upon the circumstances set forth in the Indenture. In the event that by 10:30 A.M., New York City time on each Purchase Date, the amount of funds received by the Tender Agent from the Remarketing Agent pursuant to certain provisions of the Indenture to pay the Purchase Price of Bonds of any Series tendered or deemed tendered for purchase pursuant to the Indenture on such Purchase Date (other than Purchased Bonds or Bonds registered to the Company or known by the Trustee to be an Affiliate of the Company) is not sufficient for such purpose (such deficiency being the "Required Amount") the Tender Agent shall immediately notify the Company by telephonic communication and realize upon the applicable Liquidity Facility, if any, in accordance with the terms thereof, in an amount equal to the Required Payment. In the event the Liquidity Facility Provider shall fail to pay all or any portion of the Required Payment (such failure being the "Required Payment Deficiency") to the Tender Agent by 1:00 P.M., New York City time on the Purchase Date, or in the event that there is no Liquidity Facility then in effect with respect to such Series of Bonds, the Tender Agent shall immediately by telecommunication make demand upon the Company for payment in an amount equal to the Required Payment Deficiency (or, if no Liquidity Facility is then in effect with respect to such Series of Bonds, in the amount of the Required Amount) as provided in the Installment Sale Agreement. The Company shall deposit an amount equal to such Required Payment Deficiency (or, if no Liquidity Facility is then in effect with respect to such Series of Bonds, in the amount of the Required Amount) with the Tender Agent in immediately available funds by 2:00 P.M., New York City time, on such Purchase Date. Immediately upon receipt thereof, the Tender Agent shall deposit the Required Payment and/or the Required Payment Deficiency in the Repurchase Account of the applicable Purchase Fund. With respect to each Purchase Date, the amount, if any, paid under any Liquidity Facility is referred to as a "Reimbursement Obligation" in the Indenture. In the event the Tender Agent shall have been paid under any Liquidity Facility to pay the Purchase Price of Bonds of a Series on a Purchase Date, and amounts in excess of that amount necessary to pay the Purchase Price on the Purchase Date shall be on deposit in the Repurchase Account of the applicable Purchase Fund, such excess shall be transferred to the Reimbursement Account of the applicable Purchase Fund for prompt payment to the Liquidity Facility Provider. With respect to each Purchase Date on which a Reimbursement Obligation was incurred, if there are amounts on deposit in the Reimbursement Account of the applicable Purchase Fund, the Tender Agent shall promptly withdraw an amount up to the Reimbursement Obligation from the such Reimbursement Account of the applicable Purchase Fund and remit the amount so withdrawn to the Liquidity Facility Provider. D-8

97 With respect to each Purchase Date, except as otherwise provided in the Indenture, moneys in the Repurchase Accounts of the Purchase Funds shall be used solely for the payment of the Purchase Price of the applicable Series of Bonds tendered or deemed tendered for purchase pursuant to the Indenture on such Purchase Date. Amounts deposited in the Repurchase Accounts of the Purchase Funds shall not be subject to a security interest, pledge, assignment, lien or charge in favor of the Trustee, the Liquidity Facility Provider, if any, any Holder or any other Person (except that the Purchase Price for Bonds shall be held in trust for the benefit of the tendering Holders entitled thereto). (Section 5.16) Covenants of the Issuer The Issuer shall make certain representations and covenants in the Indenture, including the following: (i) to promptly pay or cause to be paid the principal of, Sinking Fund Installments on, Redemption Price of, Purchase Price of and interest on the Bonds, at the place, on the dates and in the manner provided in the Indenture and in the Bonds, (ii) to faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in the Indenture, in any and every Bond executed, authenticated and delivered thereunder and in all proceedings pertaining thereto, (iii) that the Issuer is duly authorized under the Constitution and laws of the State, including particularly and without limitation the Act, to issue the Bonds authorized by the Indenture, (iv) to execute the Indenture, to sell its interest in the Facilities to the Company pursuant to the Installment Sale Agreement, to assign the Installment Sale Agreement and to pledge the Installment Payments, revenues and receipts pledged by the Indenture in the manner and to the extent set forth in the Indenture, (v) that all action on its part for the issuance of the Bonds and the execution and delivery of the Indenture has been duly and effectively taken; and that the Bonds in the hands of the Holders thereof are and will be the valid and enforceable special obligations of the Issuer according to the import thereof, (vi) that so long as any of the Bonds remain Outstanding that proper books of record and account will be kept showing complete and correct entries of all transactions made by them relating to the Facilities, and that the Holders of any of the Bonds shall have the right at all reasonable times and upon reasonable notice to inspect all records, accounts and data relating thereto, (vii) that the Issuer has sold its interest in the Facilities to the Company pursuant to the Installment Sale Agreement, (viii) that the Installment Sale Agreement, or a memorandum thereof, will be recorded in the office of the Clerk of Tompkins County, New York, and an executed copy will be on file in the office of the Issuer and in the principal corporate trust office of the Trustee, (ix) that the Indenture is a first lien, subject only to Permitted Encumbrances, upon the Trust Estate and the Issuer agrees not to create any Lien having priority or preference over the Lien of the Indenture upon the Trust Estate, (x) that the Issuer will not create or suffer to be created, or incur or issue any evidences of indebtedness secured by, any lien or charge upon or pledge of the revenues and income derived from or in connection with the Facilities and assigned to the Trustee under the Indenture, except the lien, charge and pledge created by the Indenture, the Installment Sale Agreement and Permitted Encumbrances, and (xi) that the Issuer agrees not to sell, convey, transfer, lease, mortgage or encumber its interest in the Facilities or any part thereof except as specifically permitted under the Indenture or the Installment Sale Agreement, so long as any of the Bonds are Outstanding. D-9

98 (Sections 7.02, 7.03, 7.04, 7.05 and 7.06) Events of Default; Acceleration of Due Date Each of the following events is defined as and shall constitute an "Event of Default" under the Indenture: (1) Failure in the payment of the interest on any Bond when the same shall become due and payable; (2) Failure in the payment of the principal of, Sinking Fund Installments on, or Redemption Price of any Bonds, when the same shall become due and payable, whether at the stated maturity thereof or upon proceedings for redemption thereof or otherwise, or interest accrued thereon to the date of redemption after notice of redemption therefor or otherwise; (3) Failure to duly and punctually pay the Purchase Price of any Bond on the Purchase Date with respect to such Bond, tendered or deemed tendered for purchase pursuant to the Indenture; (4) Failure of the Issuer to observe or perform any covenant, condition or agreement in the Bonds or the Indenture on its part to be performed (except as set forth in paragraphs (1), (2) or (3) above) and (A) continuance of such failure for a period of thirty (30) days after receipt by the Issuer and the Company of written notice specifying the nature of such default from the Trustee or the Holders of more than twenty-five percentum (25%) in aggregate principal amount of the Bonds Outstanding, or (B) if by reason of the nature of such default the same can be remedied, but not within the said thirty (30) days, the Issuer or the Company fails to proceed with reasonable diligence after receipt of said notice to cure the same or fails to continue with reasonable diligence its efforts to cure the same; or (5) The occurrence of an "Event of Default" under the Installment Sale Agreement or any other Bond Document; Upon the happening and continuance of an Event of Default, unless the principal of all the Bonds shall have already become due and payable, the Trustee may, and upon the written request of the Owners of not less than fifty-one percent (51%) of the aggregate principal amount of the Bonds Outstanding shall, by written notice delivered to the Issuer and the Company, declare the principal or Redemption Price, if any, of all the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon such declaration the same shall become and be immediately due and payable (and interest shall cease to accrue), anything in the Indenture or in any of the Bonds contained to the contrary notwithstanding. Upon the acceleration, by declaration or otherwise, of the Bonds, the Trustee shall exercise its option under the Installment Sale Agreement to declare all unpaid Installment Payments payable by the Company under the Installment Sale Agreement to be immediately due and payable. The right of the Trustee or the Owners of fifty-one percent (51%) in aggregate principal amount of the Bonds Outstanding to make any such declaration as aforesaid, however, is subject D-10

99 to the condition that if, at any time before such declaration, all overdue installments of principal of and interest on all of the Bonds which shall have matured by their terms and the unpaid Redemption Price of the Bonds or principal portions thereof to be redeemed has been paid by or for the account of the Issuer, and, all other Events of Default have been otherwise remedied, and the reasonable and proper charges, expenses and liabilities of the Trustee, shall either be paid by or for the account of the Issuer or provision satisfactory to the Trustee shall be made for such payment and the Facilities shall not have been sold or relet or otherwise encumbered, and all defaults have been otherwise remedied as provided in the Indenture, then and in every such case any such default and its consequences shall ipso facto be deemed to be annulled, but no such annulment shall extend to or affect any subsequent default or impair or exhaust any right or power consequent thereon. Upon the occurrence of any Event of Default pursuant to the Indenture, the rights of the Holders of said Bonds pursuant to the Indenture shall be suspended for the period during which the Event of Default has occurred and is continuing. (Section 8.01) Enforcement of Remedies Upon the occurrence and continuance of any Event of Default, then and in every case the Trustee shall proceed, subject to the Indenture, to protect and enforce its rights and the rights the Bondholders under the Act, the Bonds, the Installment Sale Agreement, the Indenture and under any other Bond Document forthwith by such suits, actions or special proceedings in equity or at law, or by proceedings in the office of any board or officer having jurisdiction, whether for the specific performance of any covenant or agreement contained in the Indenture or in any other Bond Document or in aid of the execution of any power granted in the Indenture or in any other Bond Document or in the Act or for the enforcement of any legal or equitable rights or remedies as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights or to perform any of its duties under the Indenture or under any other Bond Document. In the enforcement of any right or remedy under the Indenture, under any other Bond Document or under the Act, the Trustee shall be entitled to sue for, enforce payment on and receive any or all amounts then or during any default becoming, and any time remaining, due from the Issuer, for principal, interest, Sinking Fund Installments, Redemption Price, or otherwise, under any of the provisions of the Indenture, of any other Bond Document or of the Bonds, and unpaid, with interest on overdue payments at the rate or rates of interest specified in the Bonds, together with any and all costs and expenses of collection and of all proceedings under the Indenture, under any such other Bond Document and under the Bonds, without prejudice to any other right or remedy of the Trustee or the Bondholders, and to recover and enforce judgment or decree against the Issuer, but solely as provided in the Indenture and in the Bonds, for any portion of such amounts remaining unpaid, with interest, costs and expenses, and to collect (but solely from the moneys in the Bond Fund and other moneys available therefor to the extent provided in the Indenture) in any manner provided by law, the moneys adjudged or decreed to be payable. Regardless of the occurrence of an Event of Default, the Trustee, if furnished with reasonable security and indemnity, shall institute and maintain such suits and proceedings as it D-11

100 may be advised shall be necessary or expedient to prevent any impairment of the security under the Indenture or under any other Bond Document by any acts which may be unlawful or in violation of the Indenture or of such other Bond Document or of any resolution authorizing any Bonds, and such suits and proceedings as the Trustee may be advised shall be necessary or expedient to preserve or protect its interests and the interests of the Bondholders. (Section 8.02) Application of Revenues and Other Moneys After Default All moneys received by the Trustee pursuant to any right given or action taken under the Indenture or under any other Bond Document shall, after payment of the costs and expenses of the proceedings resulting in the collection of such moneys and of the expenses, liabilities and advances incurred or made by the Trustee, and after payment of any other amounts due and owing under the Installment Sale Agreement, be deposited in the Bond Fund and all moneys so deposited and available for payment of the Bonds shall be applied, subject to the Indenture, as follows: (1) FIRST: (A) Unless the principal of all of the Bonds shall have become or have been declared due and payable, First - To the payment to the Persons entitled thereto of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or privilege; and Second - To the payment to the persons entitled thereto of the unpaid principal, Sinking Fund Installments, or Redemption Price, if any, of any of the Bonds or principal installments which shall have become due (other than Bonds or principal installments called for redemption for the payment of which moneys are held pursuant to the provisions of the Indenture), in the order of their due dates, with interest on such Bonds, at the rate or rates expressed thereon, from the respective dates upon which they become due and, if the amount available shall not be sufficient to pay in full Bonds or principal installments due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the persons entitled thereto without any discrimination or privilege. (B) If the principal of all the Bonds shall have become or have been declared due and payable, to the payment to the Bondholders of the principal and interest (at the rate or rates expressed in the Bonds) then due and unpaid upon the Bonds and if applicable to the Redemption Price of the Bonds without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or preference. (C) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the Indenture, D-12

101 then, subject to the provisions of the Indenture, which shall be applicable in the event that the principal of all the Bonds shall later become due and payable, the moneys shall be applied in accordance with the paragraphs above. (2) SECOND: To the payment of all amounts due and owing to any Liquidity Facility Provider by reason of unreimbursed advances under any Liquidity Facility. (Section 8.04) Individual Bondholder Action Restricted No Holder of any Bond shall have any right to institute any suit, action or proceeding at law or in equity for the enforcement of any provisions of the Indenture or of any other Bond Document or the execution of any trust under the Indenture or for any remedy under the Indenture or under any other Bond Document, unless such Holder shall have previously given to the Trustee written notice of the occurrence of an Event of Default as provided in the Indenture, and the Holders of over twenty-five per centum (25%) in aggregate principal amount of the Bonds then Outstanding shall have filed a written request with the Trustee, and shall have offered it reasonable opportunity either to exercise the powers granted in the Indenture or in such other Bond Document or by the Act or by the laws of the State or to institute such action, suit or proceeding in its own name, and unless such Holders shall have offered to the Trustee adequate security and indemnity against the costs, expenses and liabilities to be incurred therein or thereby and the Trustee shall have refused to comply with such request for a period of sixty (60) days after receipt by it of such notice, request and offer of indemnity, it being understood and intended that no one or more Holders of Bonds shall have any right in any manner whatever by his, its or their action to affect, disturb or prejudice the pledge created by the Indenture or the Installment Sale Agreement, or to enforce any right under the Indenture or the Installment Sale Agreement, except in the manner provided in the Indenture; and that all proceedings at law or in equity to enforce any provision of the Indenture shall be instituted, had and maintained in the manner provided in the Indenture and, subject to the provisions of the Indenture, be for the equal benefit of all Holders of the Outstanding Bonds. Defeasance (Section 8.07) If the Issuer shall pay or cause to be paid, or there shall otherwise be paid, to the Holders of all Bonds the principal of, Sinking Fund, Redemption Price, interest and all other amounts due or to become due thereon or in respect thereof, at the times and in the manner stipulated therein and in the Indenture, and all fees and expenses and other amounts due and payable under the Indenture and the Installment Sale Agreement, shall be paid in full, then the pledge of any Installment Payments, revenues or receipts from or in connection with the Bond Documents or the Facilities under the Indenture and the estate and rights granted by the Indenture, and all covenants, agreements and other obligations of the Issuer to the Bondholders under the Indenture shall thereupon cease, terminate and become void and be discharged and satisfied and the Bonds shall thereupon cease to be entitled to any lien, benefit or Bond under the Indenture, except as to moneys or securities held by the Trustee or the Paying Agents as provided below in this D-13

102 paragraph. At the time of such cessation, termination, discharge and satisfaction, the Trustee and the Paying Agents shall pay over or deliver to the Company or on its written request all moneys or securities held by them pursuant to the Indenture or any other Bond Document which are not required for the payment of principal of, Redemption Price of, Sinking Fund Installments on, or interest on Bonds not theretofore surrendered for such payment or redemption. Bonds or interest installments for the payment or redemption of which moneys or Government Obligations the full and timely payment of the principal of and interest on which when due, together with the moneys, if any, set aside at the same time, will provide funds sufficient for such payment or redemption, shall then be set aside and held in trust by the Trustee or Paying Agents, whether at or prior to the maturity or the Redemption Date of such Bonds, shall be deemed to have been paid within the meaning and with the effect expressed in the paragraph above, if (i) in case any such Bonds are to be redeemed prior to the maturity thereof, all action necessary to redeem such Bonds shall have been taken and written notice of such redemption shall have been duly given or provision satisfactory under the requirements of the Indenture to the Trustee shall have been made for the giving of such notice, (ii) if the maturity or Redemption Date of any such Bond shall not then have arrived, provision shall have been made by deposit with the Trustee or other methods satisfactory to the Trustee for the payment to the Holders of any such Bonds upon surrender thereof or at the earliest possible Redemption Date thereof, of the full amount to which they would be entitled by way of principal or Redemption Price and interest and all other amounts then due under the Bond Documents to the date of such maturity or redemption, and provision satisfactory to the Trustee shall have been made for the mailing of a notice to the Holders of such Bonds that such moneys are so available for such payment, and (iii) a report or opinion of an independent certified public accountant or firm of independent certified public accountants shall be delivered to the Trustee by the Company to the effect that sufficient moneys and/or Government Obligations have been deposited to effect such redemption or retirement without giving effect to any interest or earnings (other than interest or earnings due in respect of such Government Obligations) on such deposits. No defeasance shall be effected with respect to Bonds bearing Interest at the Weekly Interest Rate. (Section 10.01) Supplemental Indentures Without Bondholders Consent The Issuer and the Trustee may, from time to time and at any time, enter into Supplemental Indentures with the consent of the Company, but without consent of the Bondholders for any of the following purposes: (l) To cure any formal defect, omission or ambiguity in the Indenture or in any description of property subject to the lien of the Indenture, if such action is not materially adverse to the interests of the Bondholders. (2) To grant to or confer upon the Trustee for the benefit of the Bondholders any additional rights, remedies, powers, authority or Bond which may lawfully be granted or D-14

103 conferred and which are not contrary to or inconsistent with the Indenture as theretofore in effect. (3) To add to the covenants and agreements of the Issuer in the Indenture other covenants and agreements to be observed by the Issuer which are not contrary to or inconsistent with the Indenture as theretofore in effect. (4) To add to the limitations and restrictions in the Indenture other limitations and restrictions to be observed by the Issuer which are not contrary to or inconsistent with the Indenture as theretofore in effect. (5) To confirm, as further assurance, any pledge under, and the subjection to any lien or pledge created or to be created by, the Indenture, of the properties of the Facilities, or revenues or other income from or in connection with the Facilities or of any other moneys, securities or funds, or to subject to the lien or pledge of the Indenture additional revenues, properties or collateral. (6) To modify or amend such provisions of the Indenture as shall, in the opinion of Bond Counsel to the Issuer, be necessary or desirable to assure the continued exclusion from gross income for federal income tax purposes of the interest on the Bonds. (7) To authorize the issuance of Additional Bonds and prescribe the terms, forms and details thereof not inconsistent with the Indenture. (8) To effect any other change in the Indenture which, in the judgment of the Trustee (and which judgment may be based upon an opinion of counsel), is not to the material prejudice of the Trustee or the Bondholders. (9) To give effect to the Conversion of the interest rate on Bonds of a Series to the Fixed Interest Rate. (10) To modify, amend or supplement the Indenture or any indenture supplemental thereto in such manner as to permit the qualification of the Indenture and thereof under the Trust Indenture Act of 1939 or any similar federal statute in effect after the date of the Indenture or to permit the qualification of the Bonds for sale under the securities laws of the United States of America or of any of the states of the United States of America, and, if the Issuer and the Trustee so determine, to add to the Indenture or any indenture supplemental to the Indenture such other terms, conditions and provisions as may be permitted by said Trust Indenture Act of 1939 or similar federal statute. (11) To modify the purchase option of the Bonds as provided in the Indenture. (12) To give effect to any revisions required by the Rating Agency with respect to the credit rating of the Bonds, provided that such revisions in the judgment of the Trustee (and which judgment may be based upon an opinion of counsel) are not materially adverse to the interests of the Trustee or the Bondholders. D-15

104 (13) To modify, amend or supplement any of the times, dates or other mechanical procedures for the tender and remarketing of Bonds set forth in the Indenture, provided that such change is not to the material prejudice of the Bondholders. Before the Issuer and the Trustee shall enter into any Supplemental Indenture pursuant to the Indenture, there shall have been filed with the Trustee an opinion of Bond Counsel stating that such Supplemental Indenture is authorized or permitted by the Indenture and complies with its terms, and that upon execution it will be valid and binding upon the Issuer in accordance with its terms. (Section 11.02) Supplemental Indentures With Bondholders Consent The Holders of not less than sixty-six and two-thirds percent (66-2/3%) in aggregate principal amount of the Bonds then Outstanding shall have the right from time to time, to consent to and approve the entering into by the Issuer and the Trustee of any Supplemental Indenture as shall be deemed necessary or desirable by the Issuer for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Indenture. Nothing contained in the Indenture shall permit, or be construed as permitting, (i) a change in the times, amounts or currency of payment of the principal of, Sinking Fund Installments for, Purchase Price or redemption premium, if any, or interest (except upon Conversion to a Fixed Interest Rate) on any Outstanding Bonds, a change in the terms of redemption or maturity of the principal of or the interest on any Outstanding Bonds, or a reduction in the principal amount of or the Redemption Price of any Outstanding Bond or the rate of interest thereon, or any extension of the time of payment thereof, without the consent of the Holder of such Bond, a change in the method of determining the rate of interest on any Bond, or a change in the terms of the purchase thereof by the Tender Agent; (ii) the creation of a lien upon or pledge of revenues or income from or in connection with the Facilities superior to the lien or pledge created by the Indenture, the Installment Sale Agreement and the Assignment, except as provided in the Indenture with respect to Additional Bonds and except for Permitted Encumbrances, (iii) a preference or priority of any Bond or Bonds over any other Bond or Bonds, or (iv) a reduction in the aggregate principal amount of Bonds required for consent to such Supplemental Indenture, or (v) a modification, amendment or deletion with respect to any of the terms set forth in this paragraph, without, in the case of items (ii) through and including (v) of this paragraph, the written consent of one hundred percentum (100%) of the Holders of the Outstanding Bonds. If at any time the Issuer shall determine to enter into any Supplemental Indenture for any of the purposes of the Indenture, it shall cause notice of the proposed Supplemental Indenture to be mailed, postage prepaid, to all Bondholders. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture, and shall state that a copy thereof is on file at the offices of the Trustee for inspection by all Bondholders. Within one year after the date of such notice, the Issuer and the Trustee may enter into such Supplemental Indenture in substantially the form described in such notice only if there shall have first been filed with the Trustee (i) the written consents of Holders of not less than sixty-six D-16

105 and two-thirds percent (66-2/3%) or one hundred percent (100%), as the case may be, in aggregate principal amount of the Bonds then Outstanding, and (ii) an Opinion of Bond Counsel stating that such Supplemental Indenture is authorized or permitted by the Indenture and complies with its terms, and that upon execution it will be valid and binding upon the Issuer in accordance with its terms. Each valid consent shall be effective only if accompanied by proof of the holding, at the date of such consent, of the Bonds with respect to which such consent is given. Any such consent shall be binding upon the Holder of the Bonds giving such consent and upon any subsequent Holder of such Bonds and of any Bonds issued in exchange therefor (whether or not such subsequent Holder thereof has notice thereof), unless such consent is revoked in writing by the Holder of such Bonds giving such consent or a subsequent Holder thereof by filing such revocation with the Trustee prior to the execution of such Supplemental Indenture. If the Holders of not less than the percentage of Bonds required by the Indenture shall have consented to and approved the execution thereof as provided in the Indenture, no Holder of any Bond shall have any right to object to the execution of such Supplemental Indenture, or 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 Issuer from executing the same or from taking any action pursuant to the provisions thereof. Notwithstanding anything contained in the Indenture or any other Bond Document to the contrary, the consent of the Holders of a Series of Bonds required by the Indenture shall not be required with respect to a Supplemental Indenture during any period that all the Bonds of such Series bear interest at the Weekly Interest Rate and such Supplemental Indenture is deemed necessary or desirable by the Issuer, the Company or the Trustee, if, not less than thirty (30) days prior to the effective date of the changes to be made by the Supplemental Indenture, the Trustee sends notice of the proposed Supplemental Indenture to the applicable Bondholders and such Bondholders shall have been provided the right to tender their Bonds for purchase in accordance with the Indenture prior to such effective date. (Section 11.03) Supplemental Indenture Part of the Indenture Any Supplemental Indenture executed in accordance with the provisions of the Indenture shall thereafter form a part of the Indenture and all the terms and conditions contained in any such Supplemental Indenture as to any provisions authorized to be contained there in shall be deemed to be part of the terms and conditions of the Indenture for any and all purposes. The Trustee shall execute any Supplemental Indenture entered into in accordance with the provisions of the Indenture which does not materially adversely affect the Trustee. (Section 11.04) Rights of Company Pursuant to the Indenture, any Supplemental Indenture which affects any rights, powers and authority of the Company under the Installment Sale Agreement or requires a revision of the Installment Sale Agreement or provides for or requires the granting or substitution of collateral D-17

106 or additional collateral to secure the Bonds shall not become effective unless and until the Company shall have given its written consent to such Supplemental Indenture signed by an Authorized Representative of the Company. (Section 12.01) Amendments of Bond Documents Not Requiring Consent of Bondholders The Issuer, the Trustee, the Tender Agent, the Company and the Remarketing Agent, as the case may be, may, without the consent of or notice to the Bondholders consent to or make any amendment, change or modification of any of the Bond Documents for any of the following purposes: (1) To cure any formal defect, omission or ambiguity in any Bond Document or in any description of property subject to the lien of any Bond Document, if such action is not materially adverse to the interests of the Bondholders. (2) To grant to or confer upon the Trustee for the benefit of the Bondholders any additional rights, remedies, powers, authority or Bond which may lawfully be granted or conferred and which are not contrary to or inconsistent with the Indenture or any Bond Document as theretofore in effect. (3) To add to the covenants and agreements of the Issuer, the Trustee, any Liquidity Facility Provider, the Company and the Guarantor in the Bond Documents other covenants and agreements to be observed by the Issuer, the Trustee, any Liquidity Facility Provider, the Company and the Guarantor which are not contrary to or inconsistent with the Bond Documents as theretofore in effect. (4) To add to the limitations and restrictions in the Bond Documents other limitations and restrictions to be observed by the Issuer or the Company which are not contrary to or inconsistent with the Bond Documents as theretofore in effect. (5) To confirm, as further assurance, any pledge under, and the subjection to any lien or pledge created or to be created by, the Bond Documents, of the properties of the Facilities, or revenues or other income from or in connection with the Facilities or of any other moneys, securities or funds, or to subject to the lien or pledge of the Indenture additional revenues, properties or collateral. (6) To modify or amend such provisions of the Bond Documents as shall, in the opinion of Bond Counsel to the Issuer, be necessary or desirable to assure the continued exclusion from gross income for federal income tax purposes of the interest on the Bonds. (7) To facilitate the issuance of Additional Bonds. (8) To effect any other change to any Bond Document which, in the judgment of the Trustee (and which judgment may be based upon an opinion of counsel), is not to the material prejudice of the Trustee or the Bondholders. D-18

107 (9) To give effect to the Conversion of the interest rate on any Series of Bonds to the Fixed Interest Rate. (10) To modify, amend or supplement the Bond Documents in such manner as to permit the qualification of any Bond Documents under the Trust Indenture Act of 1939 or any similar federal statute in effect after the date of the Indenture or to permit the qualification of the Bonds for sale under the securities laws of the United States of America or of any of the states of the United States of America, and, if they so determine, to add to the Bond Documents such other terms, conditions and provisions as may be permitted by said Trust Indenture Act of 1939 or similar federal statute. (11) To modify the purchase option of the Bonds as provided in the Indenture. (12) To give effect to any revisions required by the Rating Agency with respect to the credit rating of the Bonds, provided that such revisions in the judgment of the Trustee (and which judgment may be based upon an opinion of counsel) are not materially adverse to the interests of the Trustee or the Bondholders. (13) To modify, amend or supplement any of the times, dates or other mechanical procedures for the tender and remarketing of Bonds set forth in the Indenture, provided that such change is not to the material prejudice of the Bondholders. (14) During any period that all the Bonds of a Series bear interest at the Weekly Interest Rate and such amendment or supplement is deemed necessary or desirable by the Issuer, the Company or the Trustee, if, not less than thirty (30) days prior to the effective date of such amendment or supplement, the Trustee sends notice of such proposed amendment or supplement to the applicable Bondholders and the Bondholders shall have been provided the right to tender their Bonds for purchase pursuant to the Indenture prior to such effective date. The Trustee shall have no liability to any Bondholder or any other person for any action taken by it in good faith pursuant to the paragraph above. (Section 12.02) Amendments of Bond Documents Requiring Consent of Bondholders Except as provided in the Indenture, the Issuer and the Trustee shall not consent to any amendment, change or modification of any of the Bond Documents, without mailing of notice and the written approval or consent of the Holders of not less than 66-2/3% in aggregate principal amount of the Bonds at the time Outstanding given and procured as in the Indenture; provided, however, there shall be no amendment, change or modification to the obligation of the Company to make Installment Payments under the Installment Sale Agreement with respect to the Bonds. If at any time an obligor to a related Bond Document shall request the consent of the Trustee to any such proposed amendment, change or modification, the Trustee shall cause notice of such proposed amendment, change or modification to be mailed in the same manner as is provided in the Indenture with respect to Supplemental Indentures. Such notice shall briefly set forth the nature of such proposed amendment, change or modification and shall state that copies D-19

108 of the instrument embodying the same are on file at the principal office of the Trustee for inspection by all Bondholders. (Section 12.03) D-20

109 APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE INSTALLMENT SALE AGREEMENT The following is a summary of certain provisions of the Installment Sale Agreement. Such summary does not purport to be complete and reference is made to the Installment Sale Agreement for the complete details of the terms thereof. Conveyance to Issuer The Company conveyed or caused to be conveyed to the Issuer an interest in the Facilities pursuant to the License to Issuer. The Company has acquired, constructed and equipped the Facilities and the Issuer shall issue the Bonds to assist in refinancing the costs incurred by the Company in its acquisition, construction and equipping of the Facilities. The Issuer agrees to use its best efforts to authorize, issue, sell and deliver the Bonds. The proceeds of the Bonds, together with certain amounts that may be contributed by the Company, shall be applied as provided in the Indenture and the Installment Sale Agreement. (Sections 3.1, 4.1 and 4.2) Application of Bond Proceeds Upon the written direction of an Authorized Representative of the Company and on conditions provided for in the Indenture, amounts credited to the Series 2002A Project Fund shall be applied to pay the following: (i) refinancing of the costs of acquiring, constructing and equipping the 1999 Facility and the Heat Exchange Facility by refunding a portion of the Series 2000 Bonds, (ii) all fees, taxes, charges and other expenses for recording or filing, as the case may be, the Installment Sale Agreement, any other agreement contemplated by the Installment Sale Agreement, any financing statements and any title curative documents that the Issuer or the Trustee may deem desirable in order to perfect or protect the Issuer s interest in the 1999 Facility and the Heat Exchange Facility, and any security interest contemplated by the Indenture and the Installment Sale Agreement, (iii) all legal, accounting, financial advisory, investment banking, rating agency, blue sky, legal investment and any other fees, discounts, costs and expenses incurred by the Issuer, the Company and the Trustee in connection with the preparation, printing, reproduction, authorization, issuance, execution, sale and distribution of the Series 2002A Bonds, the Indenture, the Installment Sale Agreement and all other documents in connection therewith, with the acquisition of the Issuer's interest in, and refinancing of, the 1999 Facility and the Heat Exchange Facility and with any other transaction contemplated by the Installment Sale Agreement or the Indenture, E-1

110 (iv) all legal, accounting, underwriting and any other fees, costs and expenses incurred in connection with the preparation, printing, reproduction, authorization, issuance, execution, sale and distribution of the Series 2002A Bonds and Bond Documents and all other documents in connection therewith, with the acquisition of an interest in the 1999 Facility and the Heat Exchange Facility and with any other transaction contemplated by the Installment Sale Agreement or the Indenture, (v) fees paid to the Liquidity Facility Provider in connection with the issuance of the Series 2002A Liquidity Facility, if any expenses. (vi) (vii) any administrative fee and fee for services of the Issuer, and reimbursement to the Company for any of the above-enumerated costs and Upon the written direction of an Authorized Representative of the Company and on conditions provided for in the Indenture, amounts credited to the Series 2002B Project Fund shall be applied to pay the following: (i) refinancing of the costs of acquiring, constructing and equipping the 1985 Facility and the 1984 Facility by refunding a portion of the 1986 DASNY Bonds, (ii) all fees, taxes, charges and other expenses for recording or filing, as the case may be, the Installment Sale Agreement, any other agreement contemplated by the Installment Sale Agreement, any financing statements and any title curative documents that the Issuer or the Trustee may deem desirable in order to perfect or protect the Issuer s interest in the 1985 Facility and the 1984 Facility, and any security interest contemplated by the Indenture and the Installment Sale Agreement, (iii) all legal, accounting, financial advisory, investment banking, rating agency, blue sky, legal investment and any other fees, discounts, costs and expenses incurred by the Issuer, the Company and the Trustee in connection with the preparation, printing, reproduction, authorization, issuance, execution, sale and distribution of the Series 2002B Bonds, the Indenture, the Installment Sale Agreement and all other documents in connection therewith, with the acquisition of the Issuer's interest in, and refinancing of the 1985 Facility and the 1984 Facility and with any other transaction contemplated by the Installment Sale Agreement or the Indenture, (iv) all legal, accounting, underwriting and any other fees, costs and expenses incurred in connection with the preparation, printing, reproduction, authorization, issuance, execution, sale and distribution of the Series 2002B Bonds and Bond Documents and all other documents in connection therewith, with the acquisition of an interest in the 1985 Facility and the 1984 Facility and with any other transaction contemplated by the Installment Sale Agreement or the Indenture, E-2

111 (v) fees paid to the Liquidity Facility Provider in connection with the issuance of the Series 2002B Liquidity Facility, if any expenses. (vi) (vii) any administrative fee and fee for services of the Issuer, and reimbursement to the Company for any of the above-enumerated costs and (Section 4.3) Completion by Company In the event that the Net Proceeds of the Bonds are not sufficient to pay in full all Costs of the Facility the Company agrees, for the benefit of the Issuer, to pay all such sums necessary in excess of the Net Proceeds to complete the Project. The Company shall not be entitled to any reimbursement, for such excess expense from the Issuer or the Trustee or the holders of the Bonds nor shall it be entitled to any diminution or abatement of any other amounts payable by the Company under the Installment Sale Agreement. (Section 4.6) Installment Purchase Payments and Other Amounts Payable Subject to the credits provided for in the Installment Sale Agreement, the Company shall pay installment purchase payments as follows: on or before the third (3rd) Business Day immediately prior to each Bond Payment Date on the Bonds, and any other day on which principal of, or interest or premium on, the Bonds is due and payable, the Company shall pay to the Trustee in immediately available funds in an amount equal to the payments required under the Indenture on such Bond Payment Date. So long as the Bonds, or either Series of the Bonds, bears interest at the Weekly Interest Rate, in the event that there is a change in the Weekly Interest Rate between the third (3rd) Business Day prior to a Bond Payment Date and such Bond Payment Date, the installment purchase payment payable pursuant to the Installment Sale Agreement shall be calculated by assuming the Weekly Interest Rate, as so adjusted, shall be equal to the Weekly Interest Rate in effect for the immediate prior Adjustment Period, plus one percent (1%) per annum. In addition to the payments of installment purchase payments pursuant to the paragraph above, so long as any of the Bonds are outstanding, the Company shall pay to or upon the order of the Issuer as additional payments, within fifteen (15) days of the receipt of written demand therefor, an amount equal to the sum of the expenses of the Issuer and the members thereof reasonably incurred (i) by reason of the Issuer's ownership, financing or conveyance of or interest in the Facilities and (ii) in connection with the carrying out of the Issuer's and the Trustee's duties and obligations under the Installment Sale Agreement or the Indenture, the payment of which is not otherwise provided for under the Installment Sale Agreement. E-3

112 The Company, pursuant to the Installment Sale Agreement, agrees to make such payments without any further notice in lawful money of the United States of America as, at the time of payment, shall be legal tender for the payment of public and private debts. In the event the Company shall fail to timely make any payment required in the Installment Sale Agreement, the Company shall pay the same together with interest on such Installment Payment at a rate equal to the maximum lawful prevailing rate, from the date on which such payment was due until the date on which such payment is made. If at any time and for any reason amounts received by the Trustee on account of the Installment Payments made under the Installment Sale Agreement, together with all other moneys held by the Trustee and then available under the terms of the Indenture for application by the Trustee or any Paying Agent on the payment date, are not sufficient to pay when due interest on the Bonds Outstanding, the Redemption Price of any Bonds called for redemption and the principal amount of the Bonds when due at maturity or by acceleration, the Company will pay to the Trustee, in immediately available funds on demand, the amounts required to make up any such deficiencies as to such amounts in funds available for application by the Trustee or any Paying Agent on the payment date. The Company shall pay promptly to the Trustee the difference between the amount on deposit in the Rebate Fund available to be rebated in connection with the Bonds or otherwise available therefor under the Indenture 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 Bonds. (Section 5.3) Credit Toward Installment Payments 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 that portion of the Installment Payments required under the Installment Sale Agreement, and such Installment Payment shall be accordingly reduced to the extent of any such credits: (i) To the extent applied to the payment thereof in accordance with the Indenture, the amount by which the Net Insurance Proceeds of casualty insurance maintained pursuant to the Installment Sale Agreement exceeds the cost of replacing, repairing, rebuilding, renovating or restoring a Facility, and as provided therein; (ii) 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 a Facility, and is provided in the Installment Sale Agreement; and (iii) The amount of moneys paid to the Trustee as the prepayment of Installment Payments pursuant to the Installment Sale Agreement. (Section 5.4) E-4

113 Maintenance of Facilities by Company The Company agrees that it will (i) keep the Facilities in as reasonably safe condition as its operations shall permit; (ii) make all necessary repairs and replacements to the Facilities (whether ordinary or extraordinary, structural or nonstructural, foreseen or unforeseen); (iii) operate the Facilities in a sound and prudent manner; and (iv) indemnify and hold the Issuer harmless from any liability or expenses from the failure by the Company to comply with (i), (ii) or (iii) above. (Section 6.1) Taxes, Assessments and Utility Charges The Company agrees to pay, as the same respectively become due, (i) all taxes and governmental charges of any kind whatsoever which may at any time be lawfully assessed or levied against or with respect to the Facilities and any machinery, equipment or other Property installed or brought by the Company therein or thereon, including, without limiting the generality of the foregoing, any sales or use taxes imposed with respect to the Facilities or any part or component thereof, or the rental of the Facilities or any part thereof, and any taxes levied upon or with respect to the income or revenues of the Issuer from the Facilities, (ii) all utility and other charges, including "service charges," incurred or imposed for or with respect to the operation, maintenance, use, occupancy, upkeep and improvement of the Facilities, and (iii) all assessments and charges of any kind whatsoever lawfully made by any governmental body for public improvements; provided that, with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the Company shall be obligated under the Installment Sale Agreement to pay only such installments as are required to be paid while the Bonds are outstanding. The Company may in good faith contest any such taxes, assessments and other charges. In the event of any such contest, the Company may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom, provided that during such period enforcement of any contested items is effectively stayed so that no part of the Facilities is subject to loss or forfeiture. Any proceeds received as a result of any such contest shall be the exclusive property of the Company. The Company shall defend, indemnify and hold the Issuer harmless from any liability or expenses resulting from any failure by the Company to comply with the provisions of the Installment Sale Agreement. (Section 6.3) Insurance Required The Company shall procure and maintain, or cause to be procured and maintained, to the extent reasonably obtainable, from responsible insurers, insurance of the type and in the amounts E-5

114 customarily maintained by institutions for higher education providing programs substantially similar to those of the Company. In addition to any insurance maintained in accordance with the paragraph above, the Company shall, at the times specified in the following paragraphs, procure and maintain, or cause to be procured and maintained, to the extent reasonably obtainable, from insurers with an A.M. Best & Company rating not less than A-12 or responsible insurers reasonably acceptable to an Authorized Officer of the Issuer, the following insurance: (1) during any construction or improvement of any building and improvement comprising any portion of the Facilities and until the completion thereof, builders' risk insurance against direct physical loss or damage thereto by fire, lightning, the extended coverage perils and vandalism and malicious mischief. The amount of such insurance shall be on a one hundred per centum (100%) completed value basis on the insurable portion; (2) at all times, workers' compensation insurance, disability benefits insurance and each other form if insurance which the Company is required by law to provide, covering loss resulting from injury, sickness, disability or death of employees; (3) at all times, insurance protecting the Issuer and the Company against loss or losses from liabilities arising from bodily injury of persons or damage to the property of others caused by accident or occurrence, with limits of not less than $1,000,000 per accident or occurrence on account of injury to persons, and $500,000 per accident or occurrence on account of injury to the property of others, excluding liability imposed upon the Issuer or the Company by any applicable workers' compensation law; and (4) such other kinds of insurance relating to the Facilities in such amounts as from time to time may be reasonably required by an Authorized Officer of the Issuer. Any insurance procured and maintained by the Issuer or the Company pursuant to the Installment Sale Agreement, including any blanket insurance policy, may include reasonable deductible provisions satisfactory to an Authorized Officer of the Issuer and the Company. In determining whether or not any insurance required by the Installment Sale Agreement is reasonably obtainable or if the deductible on any such insurance is a reasonable deductible, the Issuer may rely solely and exclusively upon the advice and judgment of an insurance consultant chosen by or reasonably acceptable to an Authorized Officer of the Issuer and any such decision by the Issuer based upon such advice and judgment, shall be conclusive. (Section 6.4) Right of Issuer to Pay Taxes, Insurance Premiums and Other Charges If the Company fails (i) to pay any tax, assessment or other governmental charge required to be paid by the Installment Sale Agreement or (ii) to maintain any insurance required to be maintained by the Installment Sale Agreement, the Issuer may pay or cause to be paid such tax, assessment or other governmental charge or the premium for such insurance. No such payment E-6

115 shall be made by or on behalf of the Issuer until at least fifteen (15) days shall have elapsed since the notice of intention to make such payment shall have been given by the Issuer to the Company; and in the case of any tax, assessment or governmental charge, no such payment shall be made in any event if the Company is contesting the same in good faith to the extent and as permitted by the Installment Sale Agreement unless an Event of Default under the Installment Sale Agreement shall have occurred and be continuing. No such payment by or on behalf of the Issuer shall affect or impair any rights of the Issuer under the Installment Sale Agreement or of the Trustee under the Indenture arising in consequence of such failure by the Company. The Company shall reimburse the Issuer for any amount so paid by or on behalf of the Issuer pursuant to this paragraph, together with interest thereon from the date of payment by or on behalf of the Issuer at the highest rate of interest permitted by law. (Section 6.7) Application of Proceeds of Hazard Insurance Amounts paid by an insurance company under a contract of hazard insurance if in excess of the Threshold Amount (as defined in the immediately succeeding paragraph) shall, in accordance with the Installment Sale Agreement, be applied to the prepayment of the Installment Payments due under the Installment Sale Agreement and redemption of Bonds pursuant to the Indenture or released for the repairing or rebuilding of any portion of the Facilities. In the event of any damage to any property that is part of the Facilities and covered by insurance as required by the Installment Sale Agreement, the Company shall immediately notify the Issuer and the Trustee, 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 instance proceeds exceed $1,000,000 (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. If the proceeds of such damage or destruction exceed the Threshold Amount, such proceeds shall be transferred directly to the Trustee for deposit into the Series 2002A Renewal Fund with respect to proceeds derived from the damage or destruction of the 1999 Facility or the Heat Exchange Facility and into the Series 2002B Renewal Fund with respect to proceeds derived from the damage or destruction of the 1985 Facility or the 1984 Facility. The Trustee shall, within ninety (90) days after receipt of such proceeds, at the written direction of the Company, either (after deducting any reasonable expenses incurred by the Trustee or the Company in collecting the same); (i) apply such proceeds and any investment proceeds thereon (collectively the "Net Insurance Proceeds") to the repair or replacement of the property damaged or destroyed or (ii) transfer such Net Insurance Proceeds to the Bond Fund for application to the Extraordinary Redemption of the applicable Series of Bonds pursuant to the Indenture. If the Trustee applies the Net Insurance Proceeds pursuant to clause (i) of this paragraph, any Net Insurance Proceeds remaining after repairing or replacing the property damaged or destroyed, shall be transferred to the Bond Fund for application to the Mandatory Redemption of the applicable Series of Bonds pursuant to the Indenture. E-7

116 If the Net Insurance Proceeds do not exceed the Threshold Amount such proceeds shall be transferred directly to the Company. The Company shall be authorized to use such Net Insurance Proceeds for any purpose, provided, that prior to such application of the Net Insurance Proceeds, the Trustee is furnished with an opinion of Bond Counsel to the effect that such use is lawful under the Act and will not cause interest paid on the Bonds to be included in gross income for federal income tax purposes. Notwithstanding anything in the Installment Sale Agreement or any other Bond Document to the contrary, the Net Proceeds of the Insurance received with respect to any damage or destruction of the 1999 Facility or the Heat Exchange Facility shall be applied first in accordance with the terms of a certain Installment Sale Agreement, dated as of March 1, 2000, by and between the Company and the Issuer. After such application and to the extent that there are remaining Net Proceeds of insurance with respect to any damage or destruction of the 1999 Facility or the Heat Exchange Facility, such excess Net Proceeds shall be applied in accordance with the terms of the Installment Sale Agreement. Notwithstanding anything in the Installment Sale Agreement or any other Bond Document to the contrary, the Net Proceeds of the Insurance received with respect to any damage or destruction of the 1984 Facility or the 1985 Facility shall be applied first in accordance with the terms of a certain Loan Agreement, dated as of October 29, 1986, as amended to date and as the same may be amended after the date of the Installment Sale Agreement, by and between the Dormitory Authority of the State of New York and the Company. After such application and to the extent that there are remaining Net Proceeds of insurance with respect to any damage or destruction of the 1984 Facility or the 1985 Facility, such excess Net Proceeds shall be applied in accordance with the terms of the Installment Sale Agreement (Section 7.1) Application of Proceeds of Condemnation If title to or use of the Facilities or any part thereof shall be taken by eminent domain or condemnation, proceeds of condemnation in excess of the Threshold Amount (as defined below) shall, in accordance with the Installment Sale Agreement, be applied to the prepayment or the Installment Payments due under the Installment Sale Agreement and redemption of Bonds pursuant to the Indenture or released for the restoration or replacement of the Facilities or the applicable portion thereof. Upon the institution of any condemnation proceedings with respect to the Facilities, or any portion thereof, the Company shall immediately notify the Issuer and the Trustee. If such condemnation proceeds exceed $1,000,000 (the "Threshold Amount"), such proceeds (after deducting any reasonable expenses incurred by the Company or the Trustee in collecting the same), together with any investment earnings on such proceeds (collectively, the "Net Condemnation Proceeds") received by or allocable to the Trustee from a taking of substantially all of the Facilities shall be transferred directly to the Trustee for deposit into the E-8

117 Series 2002A Renewal Fund with respect to proceeds derived from the damage or destruction of the 1999 Facility or the Heat Exchange Facility and the Series 2002B Renewal Fund with respect to proceeds derived from the damage or destruction of the 1985 Facility or the 1984 Facility. The Trustee shall, within ninety (90) days of receipt of such proceeds, at the direction of the Company, either: (i) apply such Net Condemnation Proceeds to the restoration or replacement of the property condemned or taken or (ii) transfer such Net Condemnation Proceeds to the Bond Fund for application to the Extraordinary Redemption of the applicable Series of Bonds pursuant to the Indenture. If the Trustee applies the Net Condemnation Proceeds pursuant to clause (i) of this paragraph, any Net Condemnation Proceeds remaining after replacing the property condemned or taken, shall be transferred to the Bond Fund for application to the Mandatory Redemption of the applicable Series of Bonds pursuant to the Indenture. If the Net Condemnation Proceeds do not exceed the Threshold Amount, such proceeds shall be transferred directly to the Company. The Company shall be authorized to use such Net Condemnation Proceeds for any purpose, provided, that prior to such application of such Net Condemnation Proceeds, the Trustee is furnished with an opinion of Bond Counsel to the effect that such use is lawful under the Act and will not cause interest paid on the Bonds to be included in gross income for federal income tax purposes. Notwithstanding anything in the Installment Sale Agreement or any other Bond Document to the contrary, the Net Proceeds of any Condemnation award with respect to the 1999 Facility or the Heat Exchange Facility shall be applied first in accordance with the terms of a certain Installment Sale Agreement, dated as of March 1, 2000, by and between the Company and the Issuer. After such application and to the extent that there are remaining Net Proceeds of a condemnation award with respect to the 1999 Facility or the Heat Exchange Facility, such excess Net Proceeds shall be applied in accordance with the terms of the Installment Sale Agreement. Notwithstanding anything in the Installment Sale Agreement or any other Bond Document to the contrary, the Net Proceeds of any Condemnation award with respect to the 1984 Facility or the 1985 Facility shall be applied first in accordance with the terms of a certain Loan Agreement, dated as of October 19, 1986, as amended to date and as the same may be amended after the date of the Installment Sale Agreement, by and between the Dormitory Authority of the State of New York and the Company. After such application and to the extent that there are remaining Net Proceeds of a condemnation award with respect to the 1984 Facility or the 1985 Facility, such excess Net Proceeds shall be applied in accordance with the terms of the Installment Sale Agreement. Whenever applicable under the Installment Sale Agreement, the Company shall commence and diligently prosecute, or cause to be commenced and diligently prosecuted, such repair, rebuilding, restoration or rearrangement of the Facilities, and shall pay any amounts required for the completion thereof if the Net Insurance Proceeds or the Net Condemnation Proceeds, as the case may be, are sufficient therefor. (Section 7.2) E-9

118 Hold Harmless Provisions The Company releases the Issuer from, agrees that the Issuer shall not be liable for and agrees to defend, indemnify and hold the Issuer harmless from and against any and all (i) liability for loss or damage to Property or injury to or death of any and all Persons that may be occasioned by, directly or indirectly, any cause whatsoever pertaining to the Facilities or arising by reason of or in connection with the occupation or the use thereof or the presence of any person or property on, in or about the Facilities or (ii) liability arising from or expense incurred by the Issuer's financing, construction, reconstruction, renovation, equipping, owning and leasing of the Facilities, including without limiting the generality of the foregoing, all claims arising from the exercise by the Company of the authority conferred upon it pursuant to the Installment Sale Agreement and all causes of action and attorneys' fees and any other expenses incurred in defending any suits or actions which may arise as a result of any of the foregoing, provided that any such losses, damages, liabilities or expenses of the Issuer are not incurred or do not result from the gross negligence or intentional or willful wrongdoing of the Issuer or any of its members, agents or employees. The foregoing indemnities shall apply irrespective of the breach of a statutory obligation or the application of any rule of comparative or apportioned liability. In case any action shall be brought against any person indemnified pursuant to the Installment Sale Agreement and in respect of which indemnity may be sought against the Company, such person shall promptly notify the Company in writing, and the Company shall promptly assume the defense thereof, including the employment of counsel, and the payment of all expenses, provided that the Company shall have the right to negotiate and consent to settlement and such person shall cooperate with the Company in such defense. Such person shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such person unless the employment of such counsel has been specifically authorized by the Company. The Company shall not be liable for any settlement of any such action effected without its consent, but if settled with the consent of the Company of if there be a final judgment for the plaintiff in any such action, with or without consent, the Company shall indemnify and hold harmless such party from and against any loss or liability by reason of such settlement or judgment. (Section 8.2) Restriction on Sale of Facilities; Release of Certain Property Except as otherwise specifically provided in the Installment Sale Agreement, the Issuer shall not sell, convey, transfer, encumber or otherwise dispose of the Facilities or any part thereof or any of its rights under the Installment Sale Agreement without the prior written consent of the Company. In the event of the sale, conveyance, transfer, encumbrance or other disposition of the Facilities, the Issuer will execute any necessary documents to effectuate the transaction. (Section 9.1) E-10

119 Assignment of Installment Sale Agreement or Leasing The Installment Sale Agreement may be assigned and the Facilities may not be let, in whole or in part, without the written consent of the Issuer, subject to certain conditions set forth in the Installment Sale Agreement. (Section 9.3) Events of Default Defined The following shall be "Events of Default" under the Installment Sale Agreement: (1) The failure by the Company to pay or cause to be paid (i) within three (3) Business Days of each due date, any amount specified to be paid as a installment purchase payment pursuant to the Installment Sale Agreement or (ii) when due, any amount specified to be paid as the Purchase Price of Bonds for which there are no remarketing proceeds available, pursuant to the Installment Sale Agreement; (2) Any representation or warranty of the Company in the Installment Sale Agreement is false or misleading in any material respect when made; (3) The failure by the Company to observe and perform any material covenant, condition or agreement under the Installment Sale Agreement on its part to be observed or performed (except obligations referred to in certain provisions of the Installment Sale Agreement) for a period of thirty (30) days after written notice, specifying such failure and requesting that it be remedied, given to the Company by the Issuer or the Trustee unless the Issuer and the Trustee shall agree in writing to an extension of such time prior to its expiration; (4) The dissolution or liquidation of the Company; or the Company makes an assignment for the benefit of creditors, commences (as the debtor) a case in bankruptcy, or commences (as the debtor) any proceeding under any other insolvency law; or a case in bankruptcy or any proceeding under any other insolvency law is commenced against the Company (as the debtor) and a court having jurisdiction in the premises enters a decree or order for relief against the Company as the debtor in such case or proceeding, or such case or proceeding is consented to by the Company or remains undismissed for forty (40) days, or the Company consents to or admits the material allegations against it in any such case or proceeding; or a trustee, receiver or agent (however named) is appointed or authorized to take charge of substantially all of the property of the Company for the purpose of enforcing a Lien against such property or for the purpose of general administration of such property for the benefit of the creditors. The term "dissolution or liquidation of the Company" as used in this paragraph shall not be construed to include any transaction permitted by the Installment Sale Agreement; Guaranty. (5) The occurrence of an "event of default" under the Indenture or the E-11

120 Under the terms of the Installment Sale Agreement, certain of the Company s obligations, other than the obligation to make payments required thereunder or to insure the Facility, may be suspended if by reasons of force majeure, as defined therein, the Company is unable to carry out such obligations. (Section 10.1) Remedies on Default Upon the occurrence of an Event of Default under the Installment Sale Agreement, in addition to any other rights which the Issuer or the Trustee may have under law, the Issuer or the Trustee may take, to the extent permitted by law, any one or more of the following remedial steps: (i) declare, by written notice to the Company, to be immediately due and payable, whereupon the same shall become immediately due and payable: (A) all unpaid Installment Payments payable pursuant to the Installment Sale Agreement in amount equal to the aggregate unpaid principal balance of all Bonds together with all interest that has accrued and will accrue thereon to the date of payment, and (B) all other payments due under the Installment Sale Agreement; provided, however, that if an Event of Default under the Installment Sale Agreement, such as dissolution or liquidation of the Company, shall have occurred, such Installment Payments and other payments due under the Installment Sale Agreement shall become immediately due and payable without notice to the Company or the taking of any other action by the Issuer, the Trustee; (ii) apply any undisbursed monies in the Project Funds, the Renewal Funds, and any other Fund or Account under the Indenture (other than those sums attributable to Unassigned Rights and except for the monies and investments from time to time in the Purchase Funds and in the Rebate Funds) to the payment of the outstanding principal amount of the Bonds and premium, if any, and accrued and unpaid interest on the Bonds; or (iii) take any other action at law or in equity that may appear necessary or desirable to collect the payments then due or thereafter to become due under the Installment Sale Agreement and to enforce the obligations, agreements or covenants of the Company under the Installment Sale Agreement. Any sums payable to the Issuer as a consequence of any acts taken pursuant to the paragraphs above (other than those sums attributable to the Unassigned Rights and except for monies in the Purchase Funds or the Rebate Funds) shall be paid to the Trustee an applied to the payment of the Bonds. No action taken pursuant to the paragraphs above shall relieve the Company from its obligation to make all payments required the Installment Sale Agreement. Notwithstanding the paragraphs above, the Company may pay all accrued unpaid amounts (exclusive of any amounts accrued solely by virtue of acceleration thereof as provided E-12

121 in the Installment Sale Agreement) and otherwise fully cure all Events of Default. In such event, the Installment Sale Agreement shall be fully reinstated as if a Default had not occurred, and the Company shall be restored to the full use, occupancy and possession of the Facilities on the terms and conditions of the Installment Sale Agreement. (Section 10.2) Early Termination of the Installment Sale Agreement The Company shall have the option at any time that the Bonds are subject to redemption to terminate the Installment Sale Agreement upon filing with the Issuer and the Trustee a certificate signed by an Authorized Representative of the Company stating the Company's intention to do so and upon compliance with the following requirements: (a) The following payments shall be made: (i) To the Trustee for the account of the Issuer: an amount which, when added to the total amount on deposit with the Trustee for the account of the Issuer and the Company and available for such purpose, is or will be in accordance with the Indenture sufficient to pay in full the principal of, interest on and redemption premium, if any, on the Bonds then outstanding at, or prior to, their maturity. (ii) To the Issuer: an amount certified by the Issuer sufficient to pay all unpaid fees and expenses of the Issuer incurred under the Installment Sale Agreement. (iii) To the appropriate Person: an amount sufficient to pay all other fees, expenses or charges, if any, due and payable or to become due and payable under the Installment Sale Agreement and not otherwise paid or provided for, including, without limitation, the fees and expenses of the Trustee. (b) The certificate required to be filed pursuant to the Installment Sale Agreement permitting early termination of the Installment Sale Agreement shall also specify the date upon which the payments pursuant to the paragraph above shall be made, which date shall be not less than forty-five (45) nor more than ninety (90) days from the date such certificate is filed with the Issuer and the Trustee. (Sections 11.1 and 11.2) No Recourse; Special Obligation All covenants, stipulations, promises, agreements and obligations of the Issuer contained in the Indenture, in the Bonds, in the Installment Sale Agreement and in the other documents executed and delivered in connection therewith shall be deemed to be the covenants, stipulations, promises, agreements and obligations of the Issuer and not of any member, officer, agent (other than the Company), servant or employee of the Issuer in his individual capacity, and no recourse under or upon any obligation, covenant or agreements in the Installment Sale Agreement, the E-13

122 Indenture, or in such other documents, contained or otherwise based upon or in respect to the Installment Sale Agreement, the Indenture, or in such other documents or any documents supplemental to such documents, or for the Bonds or such documents or for any claim based thereon or otherwise in respect thereof, shall be had against any past, present or future member, officer, agent (other than the Company), servant or employee, as such, of the Issuer, or any successor public benefit corporation or political subdivision or any Person executing the Bonds, the Installment Sale Agreement, the Indenture, or such other documents, either directly or through the Issuer or any successor public benefit corporation or political subdivision or any Person executing the Bonds, it being expressly understood that the Installment Sale Agreement, the Indenture, the such documents and the Bonds are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, any such member, officer, agent, servant, or employee of the Issuer or of any successor public benefit corporation or political subdivision or any Person executing the Bonds because of the creation of the indebtedness thereby authorized, or under or by reason of the obligations, covenants or agreements contained in the Installment Sale Agreement, the Indenture, such other documents or in the Bonds or implied therefrom; and that any and all such personal liability of, and any and all such rights and claims against, every such member, officer, servant, agent or employee because of the indebtedness authorized by the Installment Sale Agreement, or under or by reason of the obligations, covenants or agreements contained in the Installment Sale Agreement, the Indenture, such other documents or in the Bonds or implied therefrom are, to the extent permitted by law, expressly waived and released as a condition of, and as a consideration for, the execution of the Installment Sale Agreement, the Indenture, such other documents and the issuance of the Bonds. The obligations and agreements of the Issuer contained in the Installment Sale Agreement shall not constitute or give rise to an obligation of the State of New York or Tompkins County, and neither the State of New York nor Tompkins County shall be liable thereon, and such obligations of the Issuer shall be limited, special obligations of the Issuer payable solely from the revenues of the Issuer derived and to be derived from the lease, sale or other disposition of the Facilities. (Section 12.9) E-14

123 APPENDIX F OPINIONS OF BOND COUNSEL HARRIS BEACH j ATTORNEYS AT LAW February 14, GARNSEY ROAD PITTSFORD, NEW YORK (585) Tompkins County Industrial Development Agency 200 East Buffalo Street Suite 102A Ithaca, New York Re: $43,555,000 Tompkins County Industrial Development Agency Variable Rate Demand Civic Facility Revenue Bonds (Cornell University Project), Series 2002A Ladies and Gentlemen: We have examined the record of proceedings in connection with the issuance by the Tompkins County Industrial Development Agency (the "Issuer") of its Variable Rate Demand Civic Facility Revenue Bonds (Cornell University Project), Series 2002A, in the aggregate principal amount of Forty Three Million Five Hundred Fifty Five Thousand Dollars ($43,555,000) (the "Series 2002A Bonds"). The Series 2002A Bonds are authorized to be issued pursuant to (i) Article 18-A of the General Municipal Law of the State of New York and Chapter 535 of the Laws of 1971 of the State of New York (collectively, the "Act"), and (ii) a bond resolution adopted by the members of the Issuer on December 6, 2002, as amended by a resolution adopted by the members of the Issuer on February 1, 2002 (as amended, the "Bond Resolution". The Series 2002A Bonds are being issued for the benefit of Cornell University, a New York not-for-profit corporation (the "Company") for the purpose of financing a certain project (the "Series 2002A Project") consisting of: (A) the advance refunding of a portion of the Issuer's Civic Facility Revenue Bonds (Cornell University Project), Series 2000 issued in the original aggregate principal amount of $50,000,000 (the "Series 2000 Bonds") the proceeds of which were used for the acquisition, construction and equipping of a lake source cooling infrastructure replacement project consisting of the construction of a new building to house lake water pumps and heat exchangers to be located at 983 East Shore Drive in the town of Ithaca (the "Heat Exchange Facility"), the acquisition and installation of water pipelines from Cayuga Lake through the Heat Exchange Facility and through portions of Town of Ithaca, the City of Ithaca and Village of Cayuga Heights extending approximately two miles to the Cornell University Ithaca Campus, the acquisition of land, or rights in land, necessary therefor, and other incidental improvements in connection therewith, all as described in the Environmental Impact Statement, dated January 7, 1998 (collectively, the "1999 Facility"); and (B) paying certain costs incidental to the issuance of the Series 2002A Bonds. Contemporaneously with the issuance of the Series 2002A Bonds, the Issuer and the Company have entered into a certain Installment Sale Agreement, dated as of February 1,' 2002 F-1

124 Tompkins County Industrial Development Agency February 14, 2002 Page 2 HARRIS BEACH j ATTORNEYS AT LAW (the "Sale Agreement"), for the purpose of specifying the tem1s and conditions pursuant to which the Issuer agrees to sell and the Company agrees to purchase the Issuer's interest in the 1999 Facility and the Heat Exchange Facility. The Bonds are being issued pursuant to a certain Indenture of Trust (the "Indenture"), dated as of February 1, 2002, by and between the Issuer and Manufacturers and Traders Trust Company, as trustee (the "Trustee"). The Bonds are being purchased by Morgan Stanley & Co. Incorporated (the "Underwriter") pursuant to a certain bond purchase agreement, dated January 28, 2002 (the "Bond Purchase Agreement"), from the Underwriter and accepted by the Issuer and the Company. The Bonds are secured by a (i) certain Guaranty, dated as of February 1, 2002, from the Company to the Trustee, pursuant to which the Company guarantees to the Trustee for the benefit of the Holders of the Series 2002A Bonds (a) the performance of the Company's obligations under the Sale Agreement, and (b) payment in full of the principal of, premium, if any, and interest on the Series 2002A Bonds, and all other amounts payable under the Financing Documents (the "Guaranty") and (ii) a certain Pledge and Assignment, dated as of February 1, 2002 from the Issuer to the Trustee pursuant to which the Issuer assigns to the Trustee the Issuer's rights (except the Unassigned Rights) under the Sale Agreement (the "Pledge and Assignment"). The Issuer and the Company have entered into a certain Tax compliance Agreement, dated the date of issuance of the Series 2002A Bonds (the "Tax Compliance Agreement"), in which the Issuer and the Company have made certain representations and covenants, established certain conditions and limitations and created certain expectations, relating to compliance with the requirements imposed by the Internal Revenue Code of 1986, as amended, and regulations and rulings of the United States Treasury Department promulgated thereunder (collectively, the "Code"). The Series 2002A Bonds are dated as of the date of their issuance, and bear interest from that date on the unpaid principal amount at the rates set forth therein and in the Indenture. The Series 2002A Bonds are subject to redemption prior to maturity, in the manner and upon the terms and conditions set forth in the Indenture and the Series 2002A Bonds. As Bond Counsel, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such instruments, certificates and documents as we have deemed necessary or appropriate for the purposes of the opinions rendered below. In such examination, we have assumed the genuineness of all signatures, the authenticity and due execution of all documents submitted to us as originals and the conformity to the original documents of all doctjments submitted to us as copies. As to any facts material to our opinion, we have relied upon, and F-2

125 Tompkins County Industrial Development Agency February 14, 2002 Page 3 HARRIS BEACH j ATTORNEYS AT LAW assumed the accuracy and truthfulness of, the aforesaid instruments, certificates and documents, without having conducted any independent investigation. In rendering the opinions set forth below, we have relied upon the opinions of counsel to the Issuer, Marriette Geldenhuys, Esq., counsel to the Company, James J. Mingle, Esq. and counsel to the Trustee, Hodgson Russ LLP, all of even date herewith, as to certain matters set forth in each of such opinions, without making any independent investigation of the factual basis therefor or the legal conclusions set forth therein. All capitalized terms, not otherwise defined herein, shall have the meaning given such terms in Article I of the Indenture. Based upon and in reliance upon the foregoing, it is our opinion that: (a) (b) (c) (d) (e) (f) (g) The Issuer is a duly organized and existing corporate governmental agency constituting a public benefit corporation of the State. The Issuer is duly authorized and entitled by law to issue, execute, sell and deliver the Series 2002A Bonds for the purposes of (i) advance refunding a portion of the Series 2000 Bonds and (ii) paying certain costs incidental to the issuance of the Series 2002A Bonds. The Bond Resolution has been duly and lawfully adopted by the Issuer, is in full force and effect, and is valid and binding upon the Issuer in accordance with its terms. The Bond Purchase Agreement, the Indenture, the Sale Agreement, the Pledge and Assignment and the Tax Compliance Agreement have each been duly authorized, executed and delivered by the Issuer and each is a valid and legally binding obligation of the Issuer enforceable in accordance with its terms. The Series 2002A Bonds have been duly authorized, executed and delivered, have been duly issued for value by the Issuer and are the valid and legally binding special obligations of the Issuer payable in accordance with their tem1s and are entitled to the benefit and security of the Indenture in accordance with its terms. The Series 2002A Bonds do not constitute a debt of Tompkins County, New York, or the State of New York, and neither Tompkins County, New York, nor the State ofnew York, will be liable thereon. Under statutes, regulations and court decisions as of the date hereof, interest on the Series 2002A Bonds is excluded from gross income for Federal income tax F-3

126 Tompkins County Industrial Development Agency February 14, 2002 Page4 HARRIS BEACH j ATTORNEYS AT LAW purposes. Furthermore, interest on the Series 2001A Bonds is not an item of tax preference under statutes existing as of the date hereof, for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. However, interest on the Series 2002A Bonds held by a corporate taxpayer is included in the computation of adjusted current earnings for purposes of calculating the Federal alternative minimum tax imposed on corporations. Corporate purchasers of the Series 2002A Bonds should consult their tax advisors regarding the computation of any alternative minimum tax. (h) (i) Interest on the Series 2002A Bonds is exempt from personal income taxes imposed by the State of New York and any political subdivision thereof (including The City ofnew York). The Series 2002A Bonds are exempt securities within the meaning of the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended, and no registration of the Series 2002A Bonds, the Sale Agreement or the Guaranty under the Securities Act of 1933, as amended, or of the Indenture under the Trust Indenture Act of 1939, as amended, is required in connection with the offer and sale of the Series 2002A Bonds. In rendering the opinion set forth in paragraph (g) above that interest on the Series 2002A Bonds is excluded from gross income for Federal income tax purposes, we have relied upon, among other things, certain representations and covenants of the parties to this transaction, including: (A) the Company in (1) the Sale Agreement, (2) the Tax Compliance Agreement and (3) the General Certificate of the Company, dated the date hereof, and (B) the Issuer in (1) the Indenture, (2) the Sale Agreement, (3) the Tax Compliance Agreement and (4) the General Certificate of the Issuer, dated the date hereof. We call your attention to the fact that there are certain requirements contained in the Code with which the Issuer and the Company must comply after the date of issuance of the Series 2002A Bonds in order for interest on the Series 2002A Bonds to be and remain excluded from gross income for Federal income tax purposes. The Issuer, the Company or any other Person, by failing to comply with such requirements, may cause interest on the Series 2002A Bonds to become includable in gross income for Federal income tax purposes, retroactive to the date of issue of the Series 2002A Bonds. We render no opinion as to the exclusion from gross income of interest on the Series 2002A Bonds for federal income tax purposes on or after the date on which any change occurs or action is taken or omitted under the Indenture, the Sale Agreement, or the Tax Compliance Agreement by the Issuer or the Company, or under any other relevant documents without the advice or approval of, or upon the advice or approval of any bond counsel other than, Harris Beach LLP. Except for the opinion as set forth in paragraphs (g) and (h) above, we express no opinion regarding any Federal, state or local income tax consequences arising with respect to the Series 2002A Bonds. Purchasers of the Series 2002A Bonds, including without limitation, purchasers F-4