GOLDMAN, SACHS & CO.

NEW ISSUE BOOK-ENTRY ONLY Fitch: A+ Moody s: A1 Standard & Poor s: AA- See RATINGS herein $152,925,000 NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY STATE CONTRACT BONDS (Hospital Asset Transformation Program) Series 2009A Dated: Date of Delivery Due: October 1, as shown on the inside cover This Official Statement has been prepared by the New Jersey Health Care Facilities Financing Authority (the Authority ) to provide information relating to its State Contract Bonds (Hospital Asset Transformation Program) Series 2009A (the Series 2009A Bonds ). Tax Exemption: In the opinion of McManimon & Scotland, L.L.C., Bond Counsel to the Authority, under existing law and assuming compliance by the Authority and the Borrower with the requirements of the Internal Revenue Code of 1986, as amended, and the regulations thereunder, interest on the Series 2009A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. Bond Counsel is also of the opinion that interest on the Series 2009A Bonds held by corporate taxpayers is not included in adjusted current earnings in calculating alternative minimum taxable income for purposes of the federal alternative minimum tax imposed on corporations. No opinion is expressed regarding other federal tax consequences arising with respect to the Series 2009A Bonds. Bond Counsel is also of the opinion that, under existing law, interest on the Series 2009A Bonds is not includable in gross income under the New Jersey Gross Income Tax Act. See TAX EXEMPTION herein. Redemption: The Series 2009A Bonds are subject to redemption prior to maturity as described herein. See THE SERIES 2009A BONDS Redemption Prior to Maturity herein. Security: The Series 2009A Bonds are special obligations of the Authority, payable solely from, and secured by payments received by the Authority from the Treasurer of the State (the State Treasurer ) pursuant to the Contract Implementing Funding Provisions of the New Jersey Health Care Facilities Financing Authority Law, dated the date of delivery of the Series 2009A Bonds (the State Contract ), by and between the State Treasurer and the Authority, and amounts held under the Resolution (as defined herein). All amounts paid to the Authority under the State Contract are subject to and dependent upon appropriations being made from time to time by the New Jersey State Legislature (the State Legislature ) for such purpose. The State Legislature has no legal obligation to make any such appropriations. THE STATE OF NEW JERSEY (THE STATE ) IS NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE STATE IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL OR REDEMPTION PRICE, IF ANY, OF OR INTEREST ON THE SERIES 2009A BONDS. THE SERIES 2009A BONDS ARE A SPECIAL, LIMITED OBLIGATION OF THE AUTHORITY, PAY- ABLE SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE AUTHORITY PLEDGED UNDER THE RESOLUTION AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THE RESOLUTION FOR THE PAYMENT OF THE SERIES 2009A BONDS. THE SERIES 2009A BONDS DO NOT NOW AND SHALL NEVER CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY. THE AUTHORITY HAS NO TAXING POWER. THE SERIES 2009A BONDS SHALL NOT BE A DEBT OR LIABILITY OF THE STATE OR ANYAGENCY OR INSTRUMENTALITY THEREOF (OTHER THAN THE AUTHORITY TO THE LIMITED EXTENT SET FORTH IN THE RESOLUTION), EITHER LEGAL, MORAL OR OTHERWISE, AND NOTHING IN THE ACT SHALL BE CONSTRUED TO AUTHORIZE THE AUTHORITY TO INCUR ANY INDEBTEDNESS ON BEHALF OF OR IN ANY WAY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. Purpose: The Series 2009A Bonds are being issued for the purpose of (i) providing funds under the Hospital Asset Transformation Program (as defined herein) for the costs of an eligible project or projects, and (ii) paying the costs of issuing the Series 2009A Bonds. See PURPOSE OF ISSUANCE OF SERIES 2009A BONDS herein. Interest: Interest will be payable semiannually on October 1 and April 1 of each year until maturity or prior redemption (each an Interest Payment Date ), commencing on October 1, 2009. Denominations: $5,000 or any integral multiple thereof. Trustee: The Bank of New York Mellon, Woodland Park, New Jersey. Issuer Contact: New Jersey Health Care Facilities Financing Authority, Trenton, New Jersey (609) 292-8585. Book-Entry Only: The Depository Trust Company, New York, New York ( DTC ). This cover page contains certain information for quick reference only. Investors must read the entire Official Statement, including all Appendices, to obtain information essential to making an informed investment decision. The Series 2009A Bonds are offered when, as and if issued by the Authority, and delivered and received by the Underwriters, subject to prior sale, or withdrawal or modification of the offer without notice, and to the approval of their legality and certain other matters by McManimon & Scotland, L.L.C., Newark, New Jersey, Bond Counsel. Certain legal matters will be passed upon for the Authority and the State by the Attorney General of the State of New Jersey. Certain legal matters will be passed upon for the Underwriters by their counsel, Cozen O Connor, Trenton and Newark, New Jersey. The Series 2009A Bonds are expected to be available for delivery through the facilities of DTC in New York, New York on or about June 18, 2009. GOLDMAN, SACHS & CO. NW Capital Markets Inc. PNC Capital Markets LLC Ramirez & Co., Inc. Dated: June 11, 2009

NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY STATE CONTRACT BONDS (Hospital Asset Transformation Program) Series 2009A AMOUNTS, MATURITIES, INTEREST RATES, PRICE OR YIELDS AND CUSIP NUMBERS $5,930,000 Series 2009A Bonds Maturity Date Principal Amount Interest Rate Yield Price CUSIP* October 1, 2013 $2,405,000 4.000% 3.875% 100.484 64580AAP6 October 1, 2014 $3,525,000 4.000% 4.000% 100.000 64580AAQ4 $30,540,000 5.00% Term Bond due October 1, 2019, Price 100%, Yield 5.00%, CUSIP* 64580AAR2 $40,735,000 5.25% Term Bond due October 1, 2024, Price 97.429, Yield 5.50%, CUSIP* 64580AAS0 $75,720,000 5.75% Term Bond due October 1, 2031, Price 97.779, Yield 5.93%, CUSIP* 64580AAT8 * Registered trademark of American Bankers Association. CUSIP numbers are provided by Standard & Poor s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP number listed above is being provided solely for the convenience of Bondholders only at the time of issuance of the Series 2009A Bonds and the Authority does not make any representation with respect to such number or undertake any responsibility for its accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Series 2009A Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Series 2009A Bonds.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS WHICH MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES 2009A BONDS. SUCH ACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME WITHOUT PRIOR NOTICE. No dealer, broker, salesman or other person has been authorized by the New Jersey Health Care Facilities Financing Authority (the Authority ) or the State of New Jersey (the State ) to give any information or to make representations with respect to the Series 2009A Bonds, other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2009A Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. Certain information contained herein has been obtained from the State and from other sources, including DTC, which are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation of the Authority. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the parties referred to above since the date hereof. THE SERIES 2009A BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THE RESOLUTION BEEN QUALIFIED UNDER THE FEDERAL TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE SERIES 2009A BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF THE SECURITIES LAWS OF THE STATES, IF ANY, IN WHICH THE SERIES 2009A BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN CERTAIN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE SERIES 2009A BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. The following Official Statement (including the Appendices attached hereto) contains a general description of the Series 2009A Bonds, the Authority, the Borrowers and the 2009 Project (each as defined herein), and sets forth summaries of certain provisions of the Act, and forms of the Resolution, the State Contract and the Continuing Disclosure Agreement (as such terms are defined herein). The descriptions and summaries herein do not purport to be complete and are not to be construed to be a representation of the Authority. Persons interested in purchasing the Series 2009A Bonds should carefully review this Official Statement (including the Appendices attached hereto) as well as copies of such documents in their entireties, which are held by the Trustee at its principal corporate trust office. References in this Official Statement to statutes, laws, rules, regulations, resolutions, agreements, reports and documents do not purport to be comprehensive or definitive, and all such references are qualified in their entirety by reference to the particular document, the full text of which may contain qualifications of and exceptions to statements made herein. This Official Statement is distributed in connection with the sale of the Series 2009A Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. The order and placement of materials in this Official Statement, including the Appendices, are not to be deemed to be a determination of relevance, materiality or importance, and this Official Statement, including the Appendices, must be considered in its entirety. The offering of the Series 2009A Bonds is made only by means of this entire Official Statement.

TABLE OF CONTENTS Page INTRODUCTION... 1 The Authority... 1 The Hospital Asset Transformation Program... 1 Use of Series 2009A Bond Proceeds... 2 The Series 2009A Bonds... 3 Security for the Series 2009A Bonds... 3 Limited Obligations of Authority... 4 Continuing Disclosure... 4 Miscellaneous... 5 THE AUTHORITY... 5 Authority Membership and Organization... 5 Powers of the Authority... 6 Hospital Asset Transformation Program... 7 PURPOSE OF ISSUANCE OF SERIES 2009A BONDS... 7 ESTIMATED SOURCES AND USES OF FUNDS... 9 ANNUAL DEBT SERVICE REQUIREMENTS... 10 THE SERIES 2009A BONDS... 11 Description of the Series 2009A Bonds... 11 Redemption Prior to Maturity... 11 Notice of Redemption... 13 Payment of Redeemed Bonds... 13 Book-Entry Only System... 14 SOURCES OF PAYMENT FOR THE SERIES 2009A BONDS... 17 General... 17 Pledged Property... 17 State Contract... 17 Event of Non-Appropriation... 18 Refunding Bonds... 19 TAX EXEMPTION... 19 Federal Tax Exemption... 19 New Jersey Gross Income Tax... 21 Future Events... 21 LEGALITY OF SERIES 2009A BONDS FOR INVESTMENT AND DEPOSIT... 21 LEGAL MATTERS... 22 LITIGATION... 22 UNDERWRITING... 22 RATINGS... 22 CONTINUING DISCLOSURE... 23 MISCELLANEOUS... 23 APPENDIX I-CS1 CUMULATIVE SUPPLEMENT DATED MAY 20, 2009, TO APPENDIX I... I-CS1 APPENDIX I FINANCIAL AND OTHER INFORMATION RELATING TO THE STATE OF NEW JERSEY... I-1 APPENDIX II COPY OF BOND RESOLUTION... II-1 APPENDIX III FORM OF STATE CONTRACT... III-1 APPENDIX IV FORM OF CONTINUING DISCLOSURE AGREEMENT... IV-1 APPENDIX V FORM OF BOND COUNSEL OPINION... V-1

OFFICIAL STATEMENT Relating to $152,925,000 NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY STATE CONTRACT BONDS (Hospital Asset Transformation Program) Series 2009A INTRODUCTION This Official Statement, including the cover page, inside cover page and Appendices, sets forth certain information concerning the offering by the New Jersey Health Care Facilities Financing Authority (the Authority ) of its $152,925,000 State Contract Bonds (Hospital Asset Transformation Program), Series 2009A (the Series 2009A Bonds ). Certain capitalized terms used in this Official Statement and not otherwise defined herein shall have the meaning given to such terms in Appendix II hereto. This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to the entire Official Statement of which a full review should be made by potential investors. The Authority The Authority is a public body corporate and politic, a political subdivision of the State of New Jersey (the State ) and a public instrumentality organized and existing under and by virtue of the New Jersey Health Care Facilities Financing Authority Law, P.L. 1972, c. 29, N.J.S.A. 26:2I-1, et seq. (the Act ). See THE AUTHORITY. The Hospital Asset Transformation Program The Hospital Asset Transformation Act (P.L. 2000, c. 98, as amended) amended the Act and established a Hospital Asset Transformation Program (the Hospital Asset Transformation Program ) within the Authority for the purpose of providing financial assistance by the Authority to nonprofit hospitals in the State, in connection with the termination of the provision of hospital acute care services at a specific location that may no longer be necessary or useful for the provision of such care. Under the Hospital Asset Transformation Program, the Authority, subject to the prior written approval of the Treasurer of the State of New Jersey (the State Treasurer ), may issue bonds in order to provide, in connection with the Hospital Asset Transformation Program, any nonprofit health care organization in the State with the funds to satisfy the outstanding bonded indebtedness or any other outstanding indebtedness of any hospital in the State; pay the costs of transitioning a general hospital to a nonprofit, non-acute care health care-related facility, including, but not limited to, construction, renovation, equipment, information technology and working capital; pay the costs related to transitioning acute care and related services from the hospital at which inpatient acute care services are to be terminated to an existing nonprofit general hospital, including, but not limited to, construction, renovation, equipment, information technology and working capital; pay the costs associated with the closure of a general hospital; pay the costs of the acquisition of a general hospital in the State for the purpose of either (i) moving an existing general hospital s services into the acquired hospital and closing the acquirer s inpatient acute care services, or (ii) closing its inpatient acute care services; pay capitalized interest; fund a debt service reserve fund; pay the costs associated with the issuance of any bonds for any of the aforementioned purposes; or pay other

costs specifically related to the closure or transition of inpatient acute care services as identified in the contract with the Treasurer. To secure such bonds, the State Treasurer and the Authority are permitted to enter into one or more contracts providing for the payment by the State Treasurer to the Authority in each State fiscal year, from the State s General Fund, of an amount equivalent to the amount due to be paid in that fiscal year for the debt service on such bonds and any additional costs as authorized pursuant to such contract, subject to and dependent upon appropriations being made by the State Legislature for such purpose. The Series 2009A Bonds are the third issuance of bonds under the Hospital Asset Transformation Act. The Authority may issue additional bonds under the Hospital Asset Transformation Act. Such bonds would be secured by a separate contract with the State Treasurer. Use of Series 2009A Bond Proceeds The proceeds of the Series 2009A Bonds will be loaned by the Authority to The Community Hospital Group, Inc., t/a JFK Medical Center, a New Jersey nonprofit corporation, Hartwyck at Oak Tree, Inc., a New Jersey nonprofit corporation and Muhlenberg Regional Medical Center, a New Jersey nonprofit corporation (each a Borrower and, collectively, the Borrowers ), pursuant to a Loan Agreement dated as of June 1, 2009, (the Loan Agreement ) by and between the Authority and the Borrowers. The Loan Agreement does not secure the Series 2009A Bonds, and the Series 2009A Bonds are not payable from payments made by the Borrowers under the Loan Agreement. Such loan will be used to provide funds in an amount sufficient, together with other available moneys, if any, to fund a project consisting of: (i)(a) various capital improvements to the JFK Medical Center Facilities, including, but not limited to, expansion of inpatient bed capacity and unit renovations, emergency room expansion, operating room renovations and expansion, and other necessary expansions, renovations and improvements, (b) the payment of capitalized interest on a portion of the Series 2009A Bonds, and (c) the refinancing of various series of bonds issued on behalf of, and other indebtedness of, JFK Medical Center, Hartwyck at Oak Tree and Muhlenberg Regional Medical Center, all in connection with the termination of the provision of hospital acute care services at the Muhlenberg Regional Medical Center Hospital Facilities and pursuant to the State s Hospital Asset Transformation Program (collectively, the 2009 Project ) and (ii) paying the costs of issuing the Series 2009A State Contract Bonds. See PURPOSE OF THE ISSUANCE OF THE SERIES 2009A BONDS herein. The Series 2009A Bonds are being issued by the Authority, and the State Contract (as hereinafter defined) is being entered into by the State Treasurer, to provide financial assistance to the Borrowers in connection with the transitioning of inpatient acute care services at Muhlenberg Regional Medical Center to JFK Medical Center. Last year, all hospital acute care services operated at the hospital facilities of the Muhlenberg Regional Medical Center (the Muhlenberg Regional Medical Center Hospital Facilities ) ceased, the Muhlenberg Regional Medical Center Hospital Facilities was closed as an inpatient acute care service provider, and Muhlenberg Regional Medical Center surrendered its license to operate said hospital as a hospital acute care service provider to the New Jersey Department of Health. Upon issuance of the Series 2009A Bonds, the Borrowers will have begun the process of consolidating operations at the site of JFK Medical Center ( JFK Medical Center s Site ). 2

The Series 2009A Bonds The Series 2009A Bonds will be dated their date of delivery, and will bear interest from such date, payable semiannually on October 1 and April 1 in each year until maturity, commencing on October 1, 2009. The Series 2009A Bonds will bear interest and mature on the dates and in the amounts set forth on the inside front cover page hereof. The Series 2009A Bonds are issuable as fully registered bonds in denominations of $5,000 each or any integral multiple thereof, and, when issued, will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ( DTC ). See THE SERIES 2009A BONDS Book-Entry Only System herein. The Series 2009A Bonds are authorized by and issued under, and in accordance with the provisions of, the Act and the Hospital Asset Transformation Program State Contract Bond Resolution (JFK Medical Center Obligated Group Issue), adopted by Authority on October 23, 2008 (the Bond Resolution ), as supplemented by a Series Certificate dated as of the date of sale of the Series 2009A Bonds (the Series Certificate and, together with the Bond Resolution, the Resolution ). Pursuant to the Resolution, the Authority may, with the approval of the State Treasurer, issue Refunding Bonds, in accordance with the requirements of the Resolution, to refund the Series 2009A Bonds in whole or in part (any bonds issued pursuant to the Resolution, the Bonds ). The Bank of New York Mellon, Woodland Park, New Jersey, is serving as the trustee, paying agent and bond registrar under the Resolution for the Series 2009A Bonds (the Trustee, Paying Agent and Bond Registrar ). See THE SERIES 2009A BONDS herein. Security for the Series 2009A Bonds The Series 2009A Bonds are special, limited obligations of the Authority payable solely from payments received by the Authority from the State Treasurer pursuant to the Contract Implementing Funding Provisions of the New Jersey Health Care Facilities Financing Authority Law, dated the date of delivery of the Series 2009A Bonds (the State Contract ), by and between the State Treasurer and the Authority, and amounts held under the Resolution. THE PAYMENT OF THE PRINCIPAL OR REDEMPTION PRICE OF AND INTEREST ON THE SERIES 2009A BONDS IS TO BE DERIVED FROM PAYMENTS MADE BY THE STATE TREASURER TO THE AUTHORITY UNDER THE STATE CONTRACT AND CERTAIN AMOUNTS HELD UNDER THE RESOLUTION. THE OBLIGATION OF THE STATE TREASURER TO MAKE SUCH PAYMENTS UNDER THE STATE CONTRACT IS SUBJECT TO AND DEPENDENT UPON APPROPRIATIONS BEING MADE FROM TIME TO TIME BY THE NEW JERSEY STATE LEGISLATURE (THE STATE LEGISLATURE ) FOR SUCH PURPOSE. THE STATE LEGISLATURE HAS NO LEGAL OBLIGATION TO MAKE ANY SUCH APPROPRIATIONS. See APPENDIX I - FINANCIAL AND OTHER INFORMATION RELATING TO THE STATE OF NEW JERSEY and the Cumulative Supplement thereto. The Authority shall collect and forthwith cause to be deposited with the Trustee all amounts payable to it pursuant to the State Contract. The Authority shall enforce the provisions of the State Contract and agreements thereunder. The Authority will not consent or agree to or permit any amendment, change or modification to any State Contract which would reduce the amounts payable to the Authority or extend the times when such payments are to be made thereunder. 3

THE LOAN AGREEMENT DOES NOT SECURE THE SERIES 2009A BONDS AND THE SERIES 2009A BONDS ARE NOT PAYABLE FROM THE BORROWERS PAYMENTS UNDER THE LOAN AGREEMENT. There are no remedies available to the Bondholders in the event that the State Legislature does not appropriate sufficient funds or any funds to make payments when due under the State Contract nor is there any other source of monies from which payment on the Series 2009A Bonds could be made. While the State Legislature has the legal authority to make appropriations, it has no obligation to do so. Neither the failure of the State Legislature to make such appropriation nor non-payment of the Series 2009A Bonds as a result of such failure to appropriate, is an Event of Default under the Resolution or the Series 2009A Bonds and will not give rise to any rights or remedies against the State or the Authority. See SOURCES OF PAYMENT FOR THE SERIES 2009A BONDS Event of Non-Appropriation. See APPENDIX I - FINANCIAL AND OTHER INFORMATION RELATING TO THE STATE OF NEW JERSEY and the Cumulative Supplement thereto attached hereto for certain financial and other information concerning the State. See SOURCES OF PAYMENT FOR THE SERIES 2009A BONDS herein for a complete description of the security for the Series 2009A Bonds. Limited Obligations of Authority THE STATE IS NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE STATE IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL OR REDEMPTION PRICE, IF ANY, OF OR INTEREST ON THE SERIES 2009A BONDS. THE SERIES 2009A BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE AUTHORITY PLEDGED UNDER THE RESOLUTION AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THE RESOLUTION FOR THE PAYMENT OF THE SERIES 2009A BONDS. THE SERIES 2009A BONDS DO NOT NOW AND SHALL NEVER CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY. THE AUTHORITY HAS NO TAXING POWER. THE SERIES 2009A BONDS SHALL NOT BE A DEBT OR LIABILITY OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF (OTHER THAN THE AUTHORITY TO THE LIMITED EXTENT SET FORTH IN THE RESOLUTION), EITHER LEGAL, MORAL OR OTHERWISE, AND NOTHING IN THE ACT SHALL BE CONSTRUED TO AUTHORIZE THE AUTHORITY TO INCUR ANY INDEBTEDNESS ON BEHALF OF OR IN ANY WAY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. Continuing Disclosure The Authority, the State Treasurer and the Trustee, as Dissemination Agent, will enter into a Continuing Disclosure Agreement (the Continuing Disclosure Agreement ), dated the date of issuance and delivery of the Series 2009A Bonds, in order to provide certain information on an ongoing basis regarding the State and its finances as well as certain events, if material, affecting the Series 2009A Bonds. The form of the Continuing Disclosure Agreement is attached as FORM OF CONTINUING DISCLOSURE AGREEMENT in Appendix IV hereto. 4

Miscellaneous Certain provisions of the Act, the Resolution, the State Contract and certain provisions of law are summarized, quoted or described in this Official Statement. Such summaries, quotations and descriptions do not purport to be comprehensive or definitive and reference is made to the full text of such documents for a full and complete statement of their respective provisions. Copies of the Resolution, the State Contract and the Continuing Disclosure Agreement are available for inspection at the principal corporate trust office of the Trustee. All inquiries should be directed to the Corporate Trust Department in Woodland Park, New Jersey. THE AUTHORITY The Authority is a public body corporate and politic, a political subdivision of the State and a public instrumentality organized and existing under and by virtue of the Act. The purpose of the Act is to ensure that all health care organizations have access to financial resources to improve the health and welfare of the citizens of the State. Authority Membership and Organization The Act provides that the Authority shall consist of seven (7) members: the State Commissioner of Health and Senior Services, who shall be Chairman; the State Commissioner of Banking and Insurance; the State Commissioner of Human Services; and four public members who are citizens of the State appointed for terms of four years by the Governor with the advice and consent of the State Senate. Each member holds office for the term of his or her appointment and until his or her successor is appointed and qualified. All Authority members serve without compensation but may be reimbursed for their necessary expenses incurred in their official duties. On or about May 30 of each year, the Authority shall elect from its members a Vice Chairman and may appoint other officers. The members of the Authority are as follows: HEATHER HOWARD, J.D., Chairman (serves during her tenure as Commissioner of Health and Senior Services). JENNIFER VELEZ, ESQ., Member (serves during her tenure as Commissioner of the Department of Human Services). STEVEN M. GOLDMAN, Member (serves during his tenure as Commissioner of the Department of Banking and Insurance). GUSTAV E. ESCHER, III, Vice Chairman (term of office expires April 30, 2010). ULYSSES LEE (term of office expired April 30, 2008; continues to serve until a successor is appointed and qualified). The Authority currently has two public member vacancies. Mark E. Hopkins was appointed as Executive Director of the Authority on August 2, 2004. 5

Powers of the Authority Under the terms of the Act, as amended, the powers of the Authority are vested in its members. The Authority has, among others, the following powers: to issue bonds as provided in the Act for the several purposes therein specified, including refunding bonds of the Authority already outstanding; to acquire, lease as lessee or lessor, hold and dispose of real and personal property or any interest therein in the exercise of its powers and the performance of its duties under the Act; by contracts with and for health care organizations (organizations located in the State authorized or permitted by law, whether directly or indirectly through a holding company, partnership or other entity, to provide health care related services or entities affiliated with health care organizations or a group of legally affiliated health care organizations), and pursuant to public bidding requirements of the Act as applicable, to construct, acquire, reconstruct, rehabilitate and improve, and furnish and equip health care organization projects; to enter into contracts for the management and operation of projects in the event of default as described in the Act using, however, its best efforts to conclude its position as an operator as soon as practicable; generally to fix and revise from time to time and to charge and collect rates, rents, fees and other charges for the use of and for the services furnished or to be furnished by a project or any portion thereof and to contract with holders of its bonds and with any other person, partnership, association, corporation or other body, public or private, with respect thereto; to make loans to health care organizations for the construction or acquisition of projects in accordance with loan agreements (such loans may not exceed the total cost of the project); to make loans to health care organizations to refund existing bonds, mortgages or advances given or made by the health care organization for the construction of projects to the extent that this will enable the health care organization to offer greater security for loans for new project construction; to enter into agreements, credit agreements or contracts, execute any and all instruments, and do and perform any and all acts or other things necessary, convenient or desirable for the purposes of the Authority or to carry out any power expressly given to the Authority in the Act; and to invest any moneys held in reserve or sinking funds, or any moneys not required for immediate use for disbursement, at the discretion of the Authority, in such obligations as are authorized by Bond Resolution of the Authority. The Act defines a project or health care organization project as the acquisition, construction, improvement, renovation or rehabilitation of lands, buildings, fixtures, equipment and articles of personal property, or other tangible or intangible assets that are necessary or useful in the development, establishment or operation of a health care organization pursuant to the Act. Projects or health care organization projects may include: (i) the financing, refinancing or consolidation of secured or unsecured debt, borrowings or obligations; (ii) the provision of financing for any other expense incurred in the ordinary course of business, all of which lands, buildings, fixtures, equipment and articles of personal property are to be used or occupied by any person in the health care organization; (iii) the acquisition of an entity interest, including capital stock, in a corporation; and (iv) any combination of (i), (ii) and (iii) above which may include any combination of the foregoing undertaken jointly by any health care organization with one or more other health care organizations. Nothing in the Act is to be construed to provide the Authority with greater authority to finance a project for a for-profit health care organization than the New Jersey Economic Development Authority has under its enabling legislation (P.L. 1974, c. 80). 6

Hospital Asset Transformation Program The Hospital Asset Transformation Act (P.L. 2000, c. 98, as amended) amended the Act and established a Hospital Asset Transformation Program within the Authority for the purpose of providing financial assistance by the Authority to nonprofit hospitals in the State, in connection with the termination of the provision of hospital acute care services at a specific location that may no longer be necessary or useful for the provision of such care. The New Jersey Advisory Commission on Hospitals (the Advisory Commission ), convened in 1999, had recommended that the closure of entire hospitals (as opposed to across-the-board downsizing) was the most effective way to deal with the oversupply of hospital beds a root cause of the weak financial condition of the New Jersey hospital industry. The recommendation of the Advisory Commission was a consideration in the creation of the Hospital Asset Transformation Program. Under the Hospital Asset Transformation Act, the Authority, subject to the prior written approval of the State Treasurer, may issue bonds in order to provide, in connection with the Hospital Asset Transformation Program, any nonprofit health care organization in the State with the funds to satisfy the outstanding bonded indebtedness or any other outstanding indebtedness of any hospital in the State; pay the costs of transitioning a general hospital to a nonprofit, non-acute care health care-related facility, including, but not limited to, construction, renovation, equipment, information technology and working capital; pay the costs related to transitioning acute care and related services from the hospital at which inpatient acute care services are to be terminated to an existing nonprofit general hospital, including, but not limited to, construction, renovation, equipment, information technology and working capital; pay the costs associated with the closure of a general hospital; pay the costs of the acquisition of a general hospital in the State for the purpose of either (i) moving an existing general hospital s services into the acquired hospital and closing the acquirer s inpatient acute care services, or (ii) closing its inpatient acute care services; pay capitalized interest; fund a debt service reserve fund; pay the costs associated with the issuance of any bonds for any of the aforementioned purposes; or pay other costs specifically related to the closure or transition of inpatient acute care services as identified in the contract with the Treasurer. To secure such bonds, the State Treasurer and the Authority are permitted to enter into one or more contracts providing for the payment by the State Treasurer to the Authority in each State fiscal year, from the State s General Fund, of an amount equivalent to the amount due to be paid in that fiscal year for the debt service on such bonds and any additional costs as authorized pursuant to such contract, subject to and dependent upon appropriation being made by the State Legislature for such purpose. See SOURCES OF PAYMENT FOR THE SERIES 2009A BONDS State Contract herein for a complete description of the obligations of the State with respect to the Series 2009A Bonds. PURPOSE OF ISSUANCE OF SERIES 2009A BONDS The proceeds of the Series 2009A Bonds will be loaned by the Authority to the Borrowers pursuant to the Loan Agreement. The Loan Agreement does not secure the Series 2009A Bonds, and the Series 2009A Bonds are not payable from payments made by the Borrowers under the Loan Agreement. Such loan will be used by the Borrowers to provide funds in an amount sufficient, together with other available moneys, if any, to fund a project consisting of: (i)(a) various capital improvements to the JFK Medical Center Facilities, including, but not limited to, expansion of inpatient bed capacity and unit renovations, emergency room expansion, operating room renovations and expansion, and other necessary expansions, renovations and improvements, (b) the payment of capitalized interest on a portion of the Series 2009A Bonds and (c) the refinancing of various series of bonds issued on behalf of, and other indebtedness of, JFK Medical Center, Hartwyck at Oak Tree and Muhlenberg Regional Medical Center, all in connection with the termination of the provision of hospital acute care services at the Muhlenberg Regional Medical Center Hospital Facilities and pursuant to the State s Hospital Asset Transformation 7

Program, and (ii) paying the costs of issuing the Series 2009A Bonds. (all such uses of proceeds are collectively referred to herein as the 2009 Project ). Upon issuance and delivery of the Series 2009A Bonds, a portion of the purchase price of the Series 2009A Bonds, together with approximately $10,188,560 on deposit in the following funds: (a) the Debt Service Fund and the Debt Service Reserve Fund established in connection with the 1993 Bonds (as hereinafter defined), (b) the Debt Service Fund and the Debt Service Reserve Fund established in connection with the 1995 Bonds (as hereinafter defined), (c) the Debt Service Fund established in connection with the 1998 Bonds (as hereinafter defined), (d) the Debt Service Fund established in connection with the 2000 Bonds (as hereinafter defined) and (e) the Bond Fund in connection with the 2003 Bonds (as hereinafter defined) will be applied to defease the following bonds: (i) the Authority s Revenue Bonds, JFK Health Systems Obligated Group Issue, Series 1993, originally issued on March 18, 1993 in the aggregate principal amount of $22,200,000 and currently Outstanding in the aggregate principal amount of $11,720,000 (the 1993 Bonds ); (ii) the Authority s Revenue Bonds, JFK Health Systems Obligated Group Issue, Series 1995, originally issued on June 14, 1995 in the aggregate principal amount of $30,100,000 and currently Outstanding in the aggregate principal amount of $20,615,000 (the 1995 Bonds ); (iii) the Authority s Revenue and Refunding Bonds, JFK Medical Center/Hartwyck at Oak Tree Obligated Group Issue, Series 1998 originally issued on August 6, 1998 in the aggregate principal amount of $53,205,000 and currently Outstanding in the aggregate principal amount of $41,565,000 (the 1998 Bonds); (iv) the Authority s Revenue and Refunding Bonds, Muhlenberg Regional Medical Center Issue, Series 2000, originally issued on October 12, 2000, in the aggregate principal amount of $25,990,000 and currently Outstanding in the aggregate principal amount of $17,275,000 (the 2000 Bonds ) (v) the Authority s Revenue Bond, Variable Rate Composite Program- The Community Hospital Group, Inc. Project, Series 2003 A-1, originally issued on June 20, 2003 in the aggregate principal amount of $20,000,000 and currently Outstanding in the aggregate principal amount of $15,200,000 (the 2003 Bonds ); and (vi) the Authority s Revenue Bond, Variable Rate Composite Program-JFK Medical Center Project, Series 2005 A-3, originally issued on December 20, 2005 in the aggregate principal amount of $18,000,000 and currently Outstanding in the aggregate principal amount of $17,935,000 (the 2005 Bonds, and together with the 1993 Bonds, the 1995 Bonds, the 1998 Bonds, the 2000 Bonds and the 2003 Bonds, the Outstanding Bonded Indebtedness ). In addition, approximately $6.57 million of the proceeds of the Series 2009A Bonds are being used to pay the Borrowers outstanding line of credit with Wachovia Bank, N.A., the proceeds of which were applied to fund various capital expenditures at the JFK Medical Center Facilities. See ESTIMATED SOURCES AND USES OF FUNDS herein. In addition, approximately $23 million of the proceeds of the Series 2009A Bonds are being used to fund various capital projects at JFK Medical Center in connection with the termination of acute care services at the Muhlenberg Regional Medical Center Hospital Facilities. The Borrowers have certified to the Authority that the capital projects are costs which are financeable under the Hospital Asset Transformation Program because they arise from the closure of the Muhlenberg Regional Medical Center Hospital Facilities and the transitioning of inpatient acute care services to JFK Medical Center. 8

ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Series 2009A Bonds are expected to be used as follows: Sources of Funds: Par Amount of Series 2009A Bonds $152,925,000 Less Original Issue Discount... (2,717,398) Transfer of Existing Funds... 10,188,561 Total Sources of Funds $160,396,163 Uses of Funds: Deposit to Escrow Funds to pay Outstanding Bonded Indebtedness... $127,695,722 Repayment of Wachovia Line of Credit... 6,571,000 Funding of Capital Projects at JFK Medical Center... 23,029,514 Deposit to Debt Service Fund to pay Capitalized Interest... 1,761,145 Costs of Issuance (1)... 470,462 Underwriters Discount... 868,320 Total Uses of Funds $160,396,163 (1) Includes fees and expenses of Bond Counsel, the Trustee, rating agencies, and other associated bond issuance costs. 9

ANNUAL DEBT SERVICE REQUIREMENTS The following table sets forth the annual debt service requirements on the Series 2009A Bonds. Fiscal Year Ending June 30 Principal Interest Total 2010 - $6,490,674 $6,490,674 2011-8,256,688 8,256,688 2012-8,256,688 8,256,688 2013-8,256,688 8,256,688 2014 $2,405,000 8,208,588 10,613,588 2015 3,525,000 8,089,988 11,614,988 2016 4,715,000 7,901,613 12,616,613 2017 5,980,000 7,634,238 13,614,238 2018 6,285,000 7,327,613 13,612,613 2019 6,610,000 7,005,238 13,615,238 2020 6,950,000 6,666,238 13,616,238 2021 7,315,000 6,300,469 13,615,469 2022 7,710,000 5,906,063 13,616,063 2023 8,125,000 5,490,394 13,615,394 2024 8,560,000 5,052,413 13,612,413 2025 9,025,000 4,590,806 13,615,806 2026 9,535,000 4,079,769 13,614,769 2027 10,100,000 3,515,263 13,615,263 2028 10,700,000 2,917,263 13,617,263 2029 11,330,000 2,283,900 13,613,900 2030 12,000,000 1,613,163 13,613,163 2031 12,710,000 902,750 13,612,750 2032 9,345,000 268,669 9,613,669 Total $152,925,000 $127,015,168* $279,940,168* *Totals do not add due to rounding. 10

Description of the Series 2009A Bonds THE SERIES 2009A BONDS The Series 2009A Bonds are being issued by the Authority under the Act and pursuant to the Resolution, will be dated their date of delivery and will bear interest from such date, payable semiannually on October 1 and April 1 in each year until maturity (each an Interest Payment Date ), commencing on October 1, 2009. The Series 2009A Bonds will bear interest and mature on the dates and in the amounts set forth on the inside front cover page hereof, and will be subject to the redemption provisions set forth below. The Series 2009A Bonds are issuable as fully registered bonds in the denomination of $5,000 each or any integral multiple thereof and, when issued, will be registered in the name of Cede & Co., as nominee for DTC. DTC will act as a securities depository for the Series 2009A Bonds. Purchases of the Series 2009A Bonds will be made in book-entry form, in the denomination of $5,000 or any integral multiple thereof. See THE SERIES 2009A BONDS Book Entry Only System herein. As long as DTC or its nominee, Cede & Co., is the registered owner of the Series 2009A Bonds, payments of principal, redemption price and interest on the Series 2009A Bonds will be made directly to Cede & Co. Interest on the Series 2009A Bonds which is payable and is punctually paid or provided for on any Interest Payment Date will be paid to the registered owner at the close of business on the 15th day (whether or not a Business Day) of the calendar month next preceding each Interest Payment Date (a Record Date ). Interest on each Interest Payment Date is payable by check mailed by the Trustee in its capacity as Paying Agent for the Series 2009A Bonds to the registered holder thereof at its registered address. Any interest on or principal of any Series 2009A Bonds that is payable, but is not punctually paid or provided for, on any Interest Payment Date shall forthwith cease to be payable to the registered owner on the relevant Record Date. Such interest and/or principal shall be paid to the owner in whose name the Series 2009A Bond is registered at the close of business on a special record date to be fixed by the Trustee, such date to be not less than fifteen (15) days prior to the date of proposed payment (a Special Record Date ). The Trustee shall, at the expense of the Authority, cause notice of the proposed payment of such interest and/or principal and Special Record Date therefor to be mailed, first class postage prepaid, to each registered owner at the address as it appears in the Bond Register not less than fifteen (15) days prior to such Special Record Date. For every transfer and exchange of the Series 2009A Bonds, the Beneficial Owner may be charged a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. Redemption Prior to Maturity Optional Redemption. The Series 2009A Bonds maturing on and after October 1, 2020 shall be subject to optional redemption prior to maturity, as a whole or in part at any time, at the option of the Authority, upon the terms set forth in the Resolution, on and after October 1, 2019, at a Redemption Price equal to 100% of the principal amount to be redeemed, plus interest accrued thereon to the Redemption Date. The Series 2009A Bonds or portions thereof to be redeemed shall be selected by the Trustee in 11

such order as the Authority shall direct, and within a maturity by lot or in any other manner of selection as determined by the Trustee. Mandatory Sinking Fund Redemption. The Series 2009A Bonds maturing on October 1, 2019 shall be subject to redemption prior to maturity by operation of the Debt Service Fund, at a Redemption Price of 100% of the principal amount to be redeemed, plus accrued interest thereon to the date of redemption, on October 1 of the years and in the amounts set forth below. The Series 2009A Bonds or portions thereof to be redeemed shall be selected by the Trustee in direct order of maturity, and if less than all of the Series 2009A Bonds of like maturity shall be called for prior redemption, the particular Series 2009A Bonds or portions of Series 2009A Bonds to be redeemed shall be selected pro rata by the Trustee. Final maturity. Year Amount 2015 $4,715,000 2016 5,980,000 2017 6,285,000 2018 6,610,000 2019 6,950,000 The Series 2009A Bonds maturing on October 1, 2024 shall be subject to redemption prior to maturity by operation of the Debt Service Fund, at a Redemption Price of 100% of the principal amount to be redeemed, plus accrued interest thereon to the date of redemption, on October 1 of the years and in the amounts set forth below. The Series 2009A Bonds or portions thereof to be redeemed shall be selected by the Trustee in direct order of maturity, and if less than all of the Series 2009A Bonds of like maturity shall be called for prior redemption, the particular Series 2009A Bonds or portions of Series 2009A Bonds to be redeemed shall be selected pro rata by the Trustee. Final maturity. Year Amount 2020 $7,315,000 2021 7,710,000 2022 8,125,000 2023 8,560,000 2024 9,025,000 The Series 2009A Bonds maturing on October 1, 2031 shall be subject to redemption prior to maturity by operation of the Debt Service Fund, at a Redemption Price of 100% of the principal amount to be redeemed, plus accrued interest thereon to the date of redemption, on October 1 of the years and in the amounts set forth below. The Series 2009A Bonds or portions thereof to be redeemed shall be selected by the Trustee in direct order of maturity, and if less than all of the Series 2009A Bonds of like maturity shall be called for prior redemption, the particular Series 2009A Bonds or portions of Series 2009A Bonds to be redeemed shall be selected pro rata by the Trustee. 12

Final maturity. Year Amount 2025 $9,535,000 2026 10,100,000 2027 10,700,000 2028 11,330,000 2029 12,000,000 2030 12,710,000 2031 9,345,000 Notice of Redemption So long as DTC or its nominee is the registered owner of the Series 2009A Bonds, the Trustee, the Bond Registrar and the Paying Agent will recognize DTC or its nominee as the Bondholder for all purposes, including notices and voting. Conveyance of notices and other communications by DTC to DTC Participants, by DTC Participants to Indirect Participants, and by DTC Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory and regulatory requirements as may be in effect from time to time. The Trustee shall give notice of redemption to the Bondholders by mail, postage prepaid, mailed not less than thirty (30) days nor more than sixty (60) days prior to the date fixed for redemption. If at the time of mailing of any notice of optional redemption the Authority has not deposited with the Trustee moneys sufficient to redeem all Series 2009A Bonds then to be called for redemption, such notice must state that it is conditional and is subject to the deposit with the Trustee of moneys sufficient to effect such redemption. Such notice of redemption will be of no effect unless the moneys described in the preceding sentence are so deposited. So long as DTC or its nominee is the Bondholder, any failure on the part of DTC or failure on the part of a nominee of a Beneficial Owner (having received notice from a DTC Participant or otherwise) to notify the Beneficial Owner so affected, shall not affect the validity of the redemption. So long as DTC or its nominee is the Bondholder, if less than all of the Series 2009A Bonds of any one maturity shall be called for redemption, the particular Series 2009A Bonds or portions of Series 2009A Bonds of such maturity to be redeemed shall be selected by lot by DTC and the DTC Participants in such manner as DTC and the DTC Participants may determine. Payment of Redeemed Bonds Notice having been given in the manner provided above, Series 2009A Bonds or portions thereof so called for redemption shall become due and payable on the redemption date so designated at the Redemption Price, plus interest accrued and unpaid to the redemption date, and, upon presentation and surrender thereof at the office specified in such notice, such Series 2009A Bonds, or portions thereof, shall be paid at the Redemption Price, plus interest accrued and unpaid to the redemption date, provided that interest shall be payable to the Bondholder in whose name such Series 2009A Bond is registered as of the applicable Record Date. If, on the redemption date, moneys for the redemption together with interest to the redemption date, shall be held by the Trustee so as to be available therefor on said date and if notice of redemption shall have been mailed as aforesaid, then, from and after the redemption date, the 13

Series 2009A Bonds so called for redemption shall cease to bear interest and such Series 2009A Bonds shall no longer be considered to be Outstanding under the Resolution. If said moneys shall not be so available on the redemption date, the principal of such Series 2009A Bonds or portions thereof shall continue to bear interest until paid at the same rate as they would have borne had they not been called for redemption. Book-Entry Only System The following description of The Depository Trust Company ( DTC ) New York, New York, and the procedures and record keeping with respect to beneficial ownership interests in the Series 2009A Bonds, payment of principal, interest and other payments on the Series 2009A Bonds to Direct Participants, Indirect Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in such Series 2009A Bonds and other related transactions by and between DTC, the Direct Participants, the Indirect Participants and the Beneficial Owners is based solely on information provided by DTC, and the Authority and the State assume no responsibility therefor. Accordingly, no representations can be made concerning these matters and neither the Direct Participants, the Indirect Participants nor the Beneficial Owners should rely on the following information with respect to such matters but should instead confirm the same with DTC or the Direct Participants or the Indirect Participants, as the case may be. Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation of the Authority or the State. General. The Depository Trust Company ( DTC ), New York, New York will act as securities depository for the Series 2009A Bonds. The Series 2009A Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2009A Bond certificate will be issued for each maturity of the Series 2009A Bonds of each Series each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of the Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. 14

Purchases of Series 2009A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2009A Bonds on DTC s records. The ownership interest of each actual purchaser of each 2009 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. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2009A Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2009A Bonds, except in the event that use of the book-entry system for the Series 2009A Bonds is discontinued. To facilitate subsequent transfers, all Series 2009A Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Series 2009A Bonds with DTC and their registration in the name of Cede & Co. do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2009A Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2009A Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the Series 2009A Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to any matter related to the Series 2009A Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority 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 2009A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, redemption premium, if any, and interest payments on the Series 2009A Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts, upon DTC s receipt of funds and corresponding detail information from the Authority or the Trustee on payable dates in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Authority or its Paying Agent, if any, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption premium, if any, and interest to Cede & Co., (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or its Paying Agent, if any, disbursement of such payments 15

to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of the Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 2009A Bonds at any time by giving reasonable notice to the Authority or its Paying Agent, if any. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2009A Bond certificates are required to be printed and delivered. The Authority may decide to discontinue use of the, system of book-entry-only transfers through DTC (or a successor securities depository). In such event, Series 2009A Bond certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the Authority believes to be reliable, but neither the Authority nor State take any responsibility for the accuracy thereof. THE AUTHORITY, THE STATE, THE PAYING AGENT AND THE TRUSTEE CANNOT AND DO NOT GIVE ANY ASSURANCES THAT DTC WILL DISTRIBUTE TO THE DIRECT PARTICIPANTS OR THAT THE DIRECT PARTICIPANTS OR THE INDIRECT PARTICIPANTS WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE SERIES 2009A BONDS (I) PAYMENTS OF PRINCIPAL OF, REDEMPTION PRICE OR PURCHASE PRICE OR INTEREST, IF ANY, ON THE SERIES 2009A BONDS, (II) CERTIFICATES REPRESENTING AN OWNERSHIP INTEREST OR OTHER CONFIRMATION OF BENEFICIAL OWNERSHIP INTEREST IN SERIES 2009A BONDS OR (III) REDEMPTION OR OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS NOMINEE, AS THE HOLDER OF THE SERIES 2009A BONDS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS WILL SERVE AND ACT ON THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. NEITHER THE AUTHORITY, THE STATE, NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO ANY DIRECT PARTICIPANTS, ANY PERSON CLAIMING A BENEFICIAL OWNERSHIP INTEREST IN THE SERIES 2009A BONDS UNDER OR THROUGH DTC OR ANY DIRECT PARTICIPANT, OR ANY OTHER PERSON WHICH IS NOT SHOWN ON THE REGISTRATION BOOKS OF THE BOND REGISTRAR AS BEING A BONDHOLDER. THE AUTHORITY, THE STATE AND THE TRUSTEE SHALL HAVE NO RESPONSIBILITY WITH RESPECT TO (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, CEDE & CO., ANY DTC PARTICIPANT, OR ANY INDIRECT PARTICIPANT; (II) ANY NOTICE THAT IS PERMITTED OR REQUIRED TO BE GIVEN TO THE OWNERS OF THE SERIES 2009A BONDS UNDER THE RESOLUTION; (III) THE SELECTION BY DTC OR ANY DTC PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE SERIES 2009A BONDS; (IV) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OR REDEMPTION PREMIUM, IF ANY, OR INTEREST DUE WITH RESPECT TO THE SERIES 2009A BONDS; (V) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS THE OWNER OF SERIES 2009A BONDS; OR (VI) ANY OTHER MATTER. SO LONG AS CEDE & CO. IS THE HOLDER OF THE SERIES 2009A BONDS, AS NOMINEE OF DTC, REFERENCES HEREIN TO THE BOND OWNERS OR HOLDERS OF THE SERIES 2009A BONDS SHALL MEAN CEDE & CO. OR DTC AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE SERIES 2009A BONDS. 16

Termination or Failure of Book-Entry-Only System. The Trustee may issue registered certificates for the Series 2009A Bonds in the event that (i) the Authority determines to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository) or (ii) DTC determines to discontinue providing its services with respect to the Series 2009A Bonds and the Authority fails to identify a qualified securities depository as successor to DTC. General SOURCES OF PAYMENT FOR THE SERIES 2009A BONDS THE STATE IS NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE STATE IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL OR REDEMPTION PRICE, IF ANY, OF OR INTEREST ON THE SERIES 2009A BONDS. THE SERIES 2009A BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE AUTHORITY PLEDGED UNDER THE RESOLUTION AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THE RESOLUTION FOR THE PAYMENT OF THE SERIES 2009A BONDS. THE SERIES 2009A BONDS DO NOT NOW AND SHALL NEVER CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY. THE AUTHORITY HAS NO TAXING POWER. THE SERIES 2009A BONDS SHALL NOT BE A DEBT OR LIABILITY OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF (OTHER THAN THE AUTHORITY TO THE LIMITED EXTENT SET FORTH IN THE RESOLUTION), EITHER LEGAL, MORAL OR OTHERWISE, AND NOTHING IN THE ACT SHALL BE CONSTRUED TO AUTHORIZE THE AUTHORITY TO INCUR ANY INDEBTEDNESS ON BEHALF OF OR IN ANY WAY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. Pledged Property The Series 2009A Bonds are special and limited obligations of the Authority, payable from amounts on deposit in certain funds (and the investment income thereon) held by the Trustee pursuant to the Resolution, and secured by a pledge and assignment to the Trustee of, the Pledged Property. Pursuant to the Resolution, the Pledged Property means the State Contract, the Revenues and the amounts and Investment Securities on deposit in the Funds (other than the Project Fund and the Rebate Fund). Pursuant to the Resolution, Revenues means (i) all amounts appropriated and paid to the Authority pursuant to the State Contract, (ii) any other amounts appropriated and paid by the State to the Authority or received from any other source by the Authority and pledged by the Authority as security for the payment of the Series 2009A Bonds, and (iii) interest received or to be received on any moneys or securities held pursuant to the Resolution and paid or required to be paid into the Revenue Fund; provided, however, that the term Revenues does not include interest received or to be received on any moneys or security held in the Project Fund or the Rebate Fund. Moneys held by the Trustee under the Resolution are required to be invested as provided therein. See COPY OF BOND RESOLUTION in Appendix II hereto. State Contract The State Contract provides that the State Treasurer will, subject to such amounts being appropriated on an annual basis by the State Legislature, pay from the State s General Fund on or prior to each Payment Date an amount sufficient to make the amounts held by the Trustee under the Resolution and available for such purpose equal the sum of (i) the Bond Payment Obligations and (ii) the Financing 17

Facility Payment Obligations due and payable on such Payment Date. The State Treasurer may discharge all or a portion of the obligation to make payments relating to Bond Payment Obligations by delivering to the Trustee for cancellation on or before a Payment Date, the Bonds or a portion thereof on which Debt Service is due on such Payment Date. The payment obligations of the State Treasurer under the State Contract, including any and all transfers and payments to be made from the General Fund of the State, are subject to and dependent upon appropriations being made from time to time by the State Legislature for the purposes set forth in the State Contract as authorized in the Hospital Asset Transformation Act. Although the State Legislature has the legal authority to make the appropriations, it has no obligation to do so. The obligation of the State or the State Treasurer to pay the amounts under the State Contract shall not constitute a debt or liability of the State within the meaning of any State constitutional or statutory provisions, or a pledge of the faith and credit of the State. The Authority shall collect and forthwith cause to be deposited with the Trustee all amounts, if any, payable to it pursuant to the State Contract. The Authority shall enforce the provisions of the State Contract and agreements thereunder. The Authority will not consent or agree to or permit any amendment, change or modification to the State Contract that would reduce the amounts payable to the Authority or extend the times when such payments are to be made thereunder. See FORM OF THE STATE CONTRACT in Appendix III hereto. THE PAYMENT OF THE PRINCIPAL OR REDEMPTION PRICE OF AND INTEREST ON THE SERIES 2009A BONDS IS TO BE DERIVED FROM PAYMENTS MADE BY THE STATE TREASURER TO THE AUTHORITY UNDER THE STATE CONTRACT AND CERTAIN AMOUNTS HELD UNDER THE RESOLUTION. THE OBLIGATION OF THE STATE TREASURER TO MAKE SUCH PAYMENTS UNDER THE STATE CONTRACT IS SUBJECT TO AND DEPENDENT UPON APPROPRIATIONS BEING MADE FROM TIME TO TIME BY THE STATE LEGISLATURE FOR SUCH PURPOSE. THE STATE LEGISLATURE HAS NO LEGAL OBLIGATION TO MAKE ANY SUCH APPROPRIATIONS. There are no remedies available to the Bondholders in the event that the State Legislature does not appropriate sufficient funds or any funds to make payments when due under the State Contract nor is there any other source of monies from which payment on the Series 2009A Bonds could be made. While the State Legislature has the legal authority to make appropriations, it has no obligation to do so. See APPENDIX I - FINANCIAL AND OTHER INFORMATION RELATING TO THE STATE OF NEW JERSEY and the Cumulative Supplement thereto attached hereto for certain financial and other information concerning the State. Event of Non-Appropriation An Event of Non-Appropriation with respect to the Series 2009A Bonds shall be deemed to have occurred under the State Contract if the State Legislature shall fail to appropriate funds for any fiscal year in an amount sufficient to pay when due the Authority s Bond Payment Obligations and Financing Facility Payment Obligations due under the State Contract. In addition, a failure by the Authority to pay when due any Bond Payment Obligations required to be made under the Resolution or the Series 2009A Bonds, or a failure by the Authority to observe and perform any covenant, condition or agreement on its part to be observed or performed under the 18

Resolution or the Series 2009A Bonds resulting from the occurrence of an Event of Non-Appropriation shall not constitute an Event of Default as defined under the Resolution. Upon the occurrence of an Event of Non-Appropriation, the Trustee, on behalf of the Holders of the applicable Series of Series 2009A Bonds, has no remedies. The Trustee may not seek to accelerate the Series 2009A Bonds. The Authority has no obligation to pay any Bond Payment Obligations with respect to which an Event of Non-Appropriation has occurred. However, the Authority would remain obligated to pay such Bond Payment Obligations, with interest thereon at the rate then in effect with respect to the applicable Series 2009A Bonds, and all future Bond Payment Obligations, to the extent State appropriations are subsequently made for such purposes. From and after the occurrence of an Event of Non-Appropriation, and provided that there shall not have occurred and then be continuing any Event of Default under the Resolution, all applicable Pledged Property received by the Trustee shall be applied as follows: First, to the payment of any prior applicable Bond Payment Obligations which remain unpaid by reason of the occurrence of such Event of Non-Appropriation in the order in which such prior Bond Payment Obligations became due and payable, and, if the amount available shall not be sufficient to pay in full all the applicable Bond Payment Obligations due on any date, then to the payment thereof ratably, according to the amounts of principal or Redemption Price and interest due on such date, to the Persons entitled thereto, without any discrimination or preference; and Second, to the payment, to the extent permitted by law, of interest on the amounts described in paragraph First above at the rate in effect on the applicable Bonds, from the last Payment Date to which interest has been paid. See COPY OF BOND RESOLUTION in Appendix II hereto. Refunding Bonds The Authority may, with the approval of the State Treasurer and subject to certain other conditions set forth in the Resolution, issue Refunding Bonds, in accordance with the requirements of the Resolution, to refund the Series 2009A Bonds in whole or in part. The Series 2009A Bonds is the first series of Bonds issued under the Resolution. Refunding Bonds are the only Bonds other than the Series 2009A Bonds authorized by the Resolution. See COPY OF BOND RESOLUTION in Appendix II hereto. Federal Tax Exemption TAX EXEMPTION In the opinion of McManimon & Scotland, L.L.C., Bond Counsel to the Authority ("Bond Counsel") under existing law and assuming compliance by the Authority and the Borrowers with the requirements of the Internal Revenue Code of 1986, as amended, and the regulations thereunder that relate to the Series 2009A Bonds, interest on the Series 2009A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. 19

Bond Counsel is also of the opinion that, pursuant to the American Recovery and Reinvestment Act of 2009, interest on the Series 2009A Bonds held by corporate taxpayers is not included in adjusted current earnings in calculating alternative minimum taxable income for purposes of the federal alternative minimum tax imposed on corporations. Although interest on the Series 2009A Bonds is excluded from gross income for Federal income tax purposes, the accrual or receipt of interest on the Series 2009A Bonds may otherwise affect the Federal income tax liability of the recipient. The nature and extent of these other tax consequences will depend upon the recipient s particular tax status or other items of income or deduction. Bond Counsel expresses no opinion regarding any such consequences. Purchasers of the Series 2009A Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States), property or casualty insurance companies, banks, thrifts or other financial institutions, certain recipients of Social Security benefits and individuals who may be eligible for the earned income tax credit under Section 32 of the Code are advised to consult their own tax advisors as to the tax consequences of purchasing or holding the Series 2009A Bonds. In rendering this opinion, Bond Counsel has assumed compliance by the Authority with its representation, as stated in its Arbitrage and Tax Certificate to be executed by the Authority upon issuance of the Series 2009A Bonds, that the Authority expects and intends to, and will, to the extent permitted by law, comply with the provisions of the Code relating to actions to be taken by the Authority in respect of the Series 2009A Bonds after the issuance thereof to the extent necessary to effect or maintain the federal exclusion from gross income of the interest on the Series 2009A Bonds. Bond Counsel also has assumed compliance by the Borrowers with their covenants in the Arbitrage and Tax Certificate to be executed by the Borrowers upon issuance of the Series 2009A Bonds, that the Borrowers will comply with the provisions of the Code relating to actions to be taken by the Borrowers in respect of the Series 2009A Bonds after the issuance thereof to the extent necessary to effect or maintain the federal exclusion from gross income of the interest on the Series 2009A Bonds. These representations and covenants relate to, among other things, the use of and investment of proceeds of the Series 2009A Bonds and the rebate to the United States Treasury of specified arbitrage earnings, if any. Failure of the Authority or the Borrowers to comply with such requirements could result in the interest on the Series 2009A Bonds becoming subject to federal income tax from the date of issuance. Bond Counsel is also of the opinion that the difference between the principal amount of the Series 2009A Bonds maturing on October 1 in each of the years 2024 and 2031 (collectively, the Discount Bonds ) and their respective initial offering prices to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which prices a substantial amount of such Discount Bonds of the same maturity was sold, constitutes original issue discount which is excluded from gross income for Federal income tax purposes to the same extent as interest on the Discount Bonds. Further, such original issue discount accrues actuarially on a constant interest rate basis over the term of each Discount Bond, and the basis of each Discount Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount. The Bonds maturing October 1, 2013 (collectively, the Premium Bonds ) are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over such Premium Bond s term using constant yield principles, based on the purchaser s yield to maturity or, in the case of Premium Bonds callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser s yield to the call date and giving effect to 20

the call premium. As premium is amortized, it offsets the interest allocable to the corresponding payment period and the purchaser s basis in such Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser s basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult with their tax advisors with respect to the determination and treatment of amortizable premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. New Jersey Gross Income Tax In the opinion of Bond Counsel, the interest on the Series 2009A Bonds and any gain realized on the sale of the Series 2009A Bonds is not includable as gross income under the New Jersey Gross Income Tax Act. Future Events Tax legislation, administrative action taken by tax authorities, and court decisions, whether at the Federal or state level, may adversely affect the exclusion from gross income of interest on the Series 2009A Bonds for federal income tax purpose, or the exclusion of interest on and any gain realized on the sale of the Series 2009A Bonds under the existing New Jersey Gross Income Tax Act, and any such legislation, administrative action or court decisions could adversely affect the market price or marketability of the Series 2009A Bonds. EACH PURCHASER OF THE SERIES 2009A BONDS SHOULD CONSULT HIS OR HER OWN ADVISOR REGARDING ANY CHANGES IN THE STATUS OF PENDING OR PROPOSED FEDERAL OR NEW JERSEY STATE TAX LEGISLATION, ADMINISTRATIVE ACTION TAKEN BY TAX AUTHORITIES, OR COURT DECISIONS. ALL POTENTIAL PURCHASERS OF THE SERIES 2009A BONDS SHOULD CONSULT WITH THEIR TAX ADVISORS IN ORDER TO UNDERSTAND THE IMPLICATIONS OF THE CODE. LEGALITY OF SERIES 2009A BONDS FOR INVESTMENT AND DEPOSIT Under the provisions of the Act, the Series 2009A Bonds are securities in which the State and all political subdivisions of the State, their officers, boards, commissions, departments, or other agencies, all banks, bankers, savings banks, trust companies, savings and loan associations, investment companies and other persons carrying on a banking business, all insurance companies, insurance associations, and other persons carrying on an insurance business, and all administrators, executors, guardians, trustees and other fiduciaries, and all other persons whatsoever who now are or may hereafter be authorized to invest in bonds or other obligations of the State, may properly and legally invest any funds, including capital belonging to them or within their control, to the extent that the investment powers of the foregoing entities are governed by the laws of the State. The Series 2009A Bonds are securities that may properly and legally be deposited with and received by any State or municipal officers or any agency 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 by law. 21

LEGAL MATTERS The Series 2009A Bonds and the proceedings pursuant to which they are issued are subject to the approving opinions as to legality, validity and tax status of McManimon & Scotland, L.L.C., Newark, New Jersey, Bond Counsel. The proposed form of the opinion of Bond Counsel is attached hereto as Appendix V. Certain legal matters will be passed upon for the Authority and the State by the Attorney General of the State of New Jersey. Certain legal matters will be passed upon for the Underwriters by their counsel, Cozen O Connor, Trenton and Newark, New Jersey. LITIGATION There is not now pending any litigation restraining or enjoining the issuance or delivery of the Series 2009A Bonds or questioning or affecting the validity of the Series 2009A Bonds or the proceedings and authority under which they are to be issued. Neither the creation, organization or existence of the Authority, nor the title of the present members or other officers of the Authority to their respective offices is being contested. There is no litigation pending which in any manner questions the right of the Authority to make loans to the Borrowers in accordance with the provisions of the Act, the Resolution and the Loan Agreement. UNDERWRITING Under the bond purchase contract entered into between the Authority and Goldman, Sachs & Co. (the Manager ), as representative of the underwriters of the Series 2009A Bonds set forth on the cover page hereof (the Underwriters ), the Series 2009A Bonds are being purchased by the Underwriters at a purchase price equal to $149,339,282.40 (such purchase price being equal to the aggregate principal amount of the Series 2009A Bonds of $152,925,000.00, less a net original issue discount of $2,717,397.85, less an Underwriters discount of $868,319.75. The obligation of the Underwriters to accept delivery of the Series 2009A Bonds is subject to various conditions contained in the bond purchase contract. The initial public offering prices of the Series 2009A Bonds set forth on the inside cover page may be changed without notice by the Underwriters. The Underwriters may offer and sell the Series 2009A Bonds to certain dealers (including dealers depositing Series 2009A Bonds into investment trusts, certain of which may be sponsored or managed by the Underwriters) and others at prices or yields lower than the offering prices or yields set forth on the inside cover page hereof. RATINGS Fitch Ratings, Moody s Investors Service, Inc. and Standard & Poor s Ratings Services, a division of The McGraw-Hill Companies have assigned their municipal bond ratings of A+, A1, and AA-, respectively, to the Series 2009A Bonds. Each such rating reflects only the views of the respective rating agency, and an explanation of the significance of the ratings may be obtained from the rating agency. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by one or more of the rating agencies, if in the judgment of any such rating agency, circumstances 22

so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series 2009A Bonds. CONTINUING DISCLOSURE The Securities and Exchange Commission (the SEC ), pursuant to the federal Securities Exchange Act of 1934, as amended and supplemented (the Securities Exchange Act ), has adopted amendments to its Rule 15c2-12 ( Rule 15c2-12 ) which generally prohibit a broker, dealer, or municipal securities dealer (a Participating Underwriter ) from purchasing or selling municipal securities, such as the Series 2009A Bonds, unless the Participating Underwriter has reasonably determined that an issuer of municipal securities or an obligated person has undertaken in a written agreement or contract for the benefit of holders of such securities to provide certain annual financial information and event notices to various information repositories. On the date of delivery of the Series 2009A Bonds, the State and the Authority will enter into the Continuing Disclosure Agreement with the Trustee, as Dissemination Agent, for the benefit of the Holders of the Series 2009A Bonds in order to comply on a continuing basis with the disclosure requirements of Rule 15c2-12. See FORM OF THE CONTINUING DISCLOSURE AGREEMENT in Appendix IV hereto. The Treasurer of the State failed to provide the State's annual report containing its financial and operating data as required by the State's various Agreements with Respect to Continuing Disclosure entered into by the State in connection with its general obligation bonds. The annual report was due to the nationally recognized municipal securities repositories on March 15, 2009. The annual report was filed on March 31, 2009. MISCELLANEOUS Reference is hereby made to Appendix II hereto for information relating to the Bond Resolution, Appendix III hereto for information relating to the State Contract and Appendix IV hereto for information relating to the Continuing Disclosure Agreement, which Appendices should be reviewed by prospective purchasers of the Series 2009A Bonds. The Borrowers have reviewed the information contained herein which describes the Borrower, its facilities and business and the 2009 Project, and have approved all such information for use within this Official Statement. The State has provided the information contained in APPENDIX I and the Cumulative Supplement thereto attached hereto. The information contained therein is not to be construed as a representation of the Authority. Information herein regarding DTC has been provided by DTC. The references herein to the Act, the Resolution, the State Contract and the Continuing Disclosure Agreement are summaries of certain provisions thereof and do not purport to be complete. Reference is made to the Act and such documents for full and complete statements of such and all other provisions thereof. This Official Statement is not to be construed as constituting an agreement with the purchasers of the Series 2009A Bonds. So far as any statements are made in this Official Statement involving matters of opinion, projections or estimates, whether or not expressly so stated, they are intended merely as such and not as representations of fact. Copies of the documents mentioned in this paragraph are on file at the corporate trust office of the Trustee at 385 Rifle Camp Road, Woodland Park, New Jersey 07424. 23

This Official Statement, its execution, and its delivery and distribution to prospective purchasers of the Series 2009A Bonds have been approved and authorized by the Authority. NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY Dated: June 11, 2009 By: /s/ Mark E. Hopkins MARK E. HOPKINS Executive Director 24

APPENDIX I-CS1 CUMULATIVE SUPPLEMENT DATED MAY 20, 2009, TO APPENDIX I

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Cumulative Supplement, dated May 20, 2009, to Appendix I, dated March 31, 2009 THIS CUMULATIVE SUPPLEMENT SUPERSEDES AND RESTATES ALL PRIOR SUPPLEMENTS TO APPENDIX I, DATED MARCH 31, 2009, WHETHER CHARACTERIZED AS A SUPPLEMENT TO APPENDIX I OR AS A SUPPLEMENT TO A PRELIMINARY OFFICIAL STATEMENT OR OFFICIAL STATEMENT WHICH INCLUDED APPENDIX I, AS SUPPLEMENTED HEREIN. Please insert the following paragraphs on page I-9 of Appendix I, dated March 31, 2009, immediately above the heading captioned FINANCIAL RESULTS AND ESTIMATES. Changes since the Governor s Fiscal Year 2010 Budget Message On April 22, 2009, the State reported that as a result of the enactment of the Fiscal Year 2010 Budget for the State of New York, which includes an increase in certain personal income tax rates, the State of New Jersey expects an estimated $300 million decrease in New Jersey s Fiscal Year 2010 gross income tax receipts compared to the estimates made at the time of the Governor s Fiscal Year 2010 Budget Message. This anticipated decrease occurs as a result of the effect of the New York rate increases on the amounts which New Jersey taxpayers, under certain conditions, can claim as a resident credit for tax paid to another state. On April 30, 2009, the State disclosed revised estimates regarding the expected revenue shortfall from amounts reflected in the Governor s Fiscal Year 2010 Budget Message for Fiscal Years 2009 and 2010. The State reported that for the period including the remainder of Fiscal Year 2009 and for Fiscal Year 2010 the aggregate revenue shortfall could be between $1.5 billion to $2.0 billion. On May 14, 2009, the State disclosed a projected $1.2 billion shortfall for Fiscal Year 2009, an amount that was greater than that anticipated for Fiscal Year 2009 at the time of the Governor s Fiscal Year 2010 Budget Message as a result of weaker than expected tax collections ($1.1 billion), increased spending needs ($26 million), reduction of previously planned contributions to the unemployment insurance fund of $30 million and a reduction of $88 million in federal fiscal stimulus funds which had previously been anticipated in Fiscal Year 2009 and are now expected to be received in Fiscal Year 2010. Actions proposed on May 14, 2009 to eliminate the $1.2 billion budget shortfall for Fiscal Year 2009 were announced as follows: Action Decreases in spending... Delay in payment of School Aid into FY 2010... Lapse of appropriations for Business Employment Incentive Program grants not needed in FY 2009... Use of FY 2009 opening fund balance... * rounded Total... Amount* $300 million 380million 70million 450million $ 1.2 billion Giving effect to such actions, the projected ending fund balance for Fiscal Year 2009 was anticipated as of May 14, 2009, to be $250 million. Of the $300 million reductions in spending for Fiscal Year 2009 proposed on May 14, 2009, $157 million is a reduction in the State s contribution to the defined benefit pension funds for Fiscal Year 2009. As a result, the State s contribution to the defined benefit pension funds will total $106 million in Fiscal Year 2009, representing 4.8% of the actuarially recommended contribution, a significant reduction from the $1.047 billion included in the Fiscal Year 2009 Appropriations Act, which represented 46.9% of the actuarially recommended contribution. The reduced contribution to the defined benefit pension funds will increase the unfunded accrued actuarial liability of the defined benefit pension funds. On May 19 and 20, 2009, the Treasurer testified before the Assembly and Senate Budget Committees of the State Legislature. At such time, the Treasurer provided updated information regarding the projected budget shortfall I-CS1-1

for Fiscal Year 2009 and actions to eliminate the shortfall. He also provided information regarding expected revenue shortfalls for Fiscal Year 2010 from amounts reflected in the Governor s Fiscal Year 2010 Budget Message. For Fiscal Year 2009, the Treasurer testified that he anticipated an additional net shortfall of $31 million above the May 14, 2009 projections and proposed actions to deal with such shortfall of approximately $94 million. As a result of such additional changes, the projected ending fund balance as of his testimony on May 19 and 20, 2009, for Fiscal Year 2009 is estimated to be $319 million. For Fiscal Year 2010, the Treasurer testified that there is now projected a budget shortfall of approximately $1.6 billion greater than what was anticipated in the Governor s Fiscal Year 2010 Budget Message. He proposed the following changes from the Governor s Fiscal Year 2010 Budget Message to address the budget shortfall: Action Reductions in appropriations... Tax and other revenue increases... Federal Revenue increases... Other miscellaneous revenue offsets... Total... Amount $ 930million 400million 265million 10million $1.605 billion The reduced proposed appropriations include a temporary suspension of all property tax rebates for non-senior citizens ($460 million), a decrease in school aid ($65 million), departmental and debt service savings ($165 million), a decrease in contributions to the defined benefit pension funds ($50 million) 1, a decrease in discretionary municipal aid ($25 million), and decreases in other areas of appropriations ($170 million). The proposed tax and other revenue increases include an increase in the top gross income tax rate to 10.75% for gross incomes above $1 million ($200 million), an increase in the gross income tax rate to 8% for gross incomes between $400,000 and $500,000 ($83 million), an increase in the insurance premium tax ($66 million) and an increase in HMO assessments ($50 million). These tax and other revenue increases will require the enactment of legislation. The increase in federal revenue includes anticipated waiver applications and added federal fiscal stimulus funds which had not been anticipated in the Governor s Fiscal Year 2010 Budget Message. Based on the Treasurer s updated projections and proposed actions described in his testimony before the State Legislature on May 19 and 20, 2009, the projected ending fund balance for Fiscal Year 2010 will be $508 million as compared to $502.1 million projected in the Governor s Fiscal Year 2010 Budget Message. The State is constitutionally required to adopt an Appropriations Act for Fiscal Year 2010 before the beginning of Fiscal Year 2010 which is July 1, 2009, in which anticipated revenues exceed appropriations. The Legislature will consider the Treasurer s revised revenue projections and the proposed actions to close the Fiscal Year 2010 budget gap as part of its process of adopting the Appropriations Act for Fiscal Year 2010. There is no assurance that revenues will be collected as projected or that the tax and revenue increases and expenditure reductions will be enacted as proposed. As part of the process of adopting the Appropriations Act for Fiscal Year 2010, various State officials and others may issue statements or reports containing information different from that included in this Appendix I regarding, among other things: the State s financial condition generally; projected revenues for Fiscal Year 2010; proposals to increase or decrease revenues from various sources; proposed actions to close the Fiscal Year 2010 budget gap provided by the Treasurer; and the level and nature of various expenditures to be included in the Appropriations Act for Fiscal Year 2010. Many of such statements and reports will reflect the nature of the process of adopting the Appropriations Act for Fiscal Year 2010. It is the current intention of the State not to reflect or respond to any such information or reports by preparing any additional supplements to this Appendix I prior to the adoption of the Appropriations Act for Fiscal Year 2010, unless the nature and effect of such information or reports are of a level of materiality that the State believes requires a supplement to this Appendix I, as supplemented. 1 Offsetting revenue losses reduce this to $45 million. I-CS1-2

Please insert the following paragraph on: (i) the introductory page to Appendix I, immediately preceding the subheading Litigation; (ii) on page I-4 prior to the first full paragraph; and (iii) on page I-7 immediately prior to Changes in Fiscal Year 2009 Effect of Economic Downturn on Fiscal Year 2009 and Fiscal Year 2010. The State expects to release the Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2008 (the 2008 CAFR ) on or about May 26, 2009. As soon as practical thereafter, the 2008 CAFR will be filed with each NRMSIR, and, upon such filing, will be deemed incorporated by specific reference in this Appendix I and considered a part of this Appendix I. There have been no changes to the 2008 CAFR compared to the Unaudited Financial Statements for Fiscal Year 2008 previously incorporated by reference in this Appendix I, other than the inclusion of the State Auditors Opinion and the Transmittal Letter. Please insert the following paragraph on pages I-51, I-52, I-54 and I-55 under paragraph headed Source below each table. The June 30, 2008 actuarial valuation reports have been presented to the respective boards for their review. Please replace the last two sentences of the second paragraph under the caption FiberMark North America, Inc. v. State of New Jersey, Department of Environmental Protection on page I-65 of Appendix I, dated March 31, 2009, with the following sentences. The trial on this matter began on May 4, 2009. At the conclusion of FiberMark s presentation of its case on May 7, 2009, DEP moved to dismiss the matter. The court granted DEP s motion to dismiss. FiberMark has indicated that it will file a notice of appeal. The State will vigorously defend this matter. Please insert the following paragraph on page I-67 of Appendix I, dated March 31, 2009, to replace in its entirety the paragraph captioned Railroad Construction Company, Inc. v. State of New Jersey, Department of Transportation. Railroad Construction Company, Inc. v. State of New Jersey, Department of Transportation. Railroad Construction Corporation, Inc. ( RCC ) filed a complaint on April 21, 2009, in the Superior Court, Law Division, Hunterdon County against the New Jersey Department of Transportation ( DOT ) alleging claims of approximately $47.4 million by RCC against DOT arising from a construction contract. The construction contract was for the construction of weigh stations and commercial vehicle inspection stations with complex weighing/monitoring and signaling systems to monitor truck traffic located in either direction of Route 78, at Exit 6 off of Route 78 in Greenwich Township, Warren County. Additionally, the commercial vehicle inspection station on the eastbound side was expanded for use by the New Jersey State Police to provide offices, a break room and a jail cell. Associated roadway improvements constructed include 15 sign structures, lighting, drainage, reconstruction of two bridges, and removal and replacement of a third bridge. The old weigh station at Exit 3 eastbound was demolished. RCC alleges that DOT breached its contract on various grounds, including, but not limited to: unanticipated rock removal; unusual weather conditions; errors in the construction documents; changes in the character of the work; additional work; inaccurate plans to perform milling and paving; acceleration required by DOT; State shutdown during the summer of 2006; JCP&L utility strike; lane occupancy charges; and subcontractor issues. Completion of the project occurred in summer 2008, but the project closeout is not yet fully complete. The State will vigorously defend this matter. STATE OF NEW JERSEY I-CS1-3

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APPENDIX I FINANCIAL AND OTHER INFORMATION RELATING TO THE STATE OF NEW JERSEY

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The information included in this Appendix I differs from that filed with the NRMSIRs on March 31, 2009 in order to reflect certain corrections of typographical errors. Although the State has prepared the information on the above website for the convenience of those seeking that information, no decision in reliance upon that information should be made. Typographical or other errors may have occurred in converting the original source documents to their digital format, and the State assumes no liability or responsibility for errors or omissions contained on any website. Further, the State disclaims any duty or obligation to update or maintain the availability of the information contained on any website or any responsibility or liability for any damages caused by viruses contained within the electronic files on any website. The State also assumes no liability or responsibility for any errors or omissions or for any update to dated information contained on any website.

TABLE OF CONTENTS APPENDIX I FINANCIAL AND OTHER INFORMATION RELATING TO THE STATE OF NEW JERSEY THE STATE OF NEW JERSEY... I-1 DEMOGRAPHIC AND ECONOMIC INFORMATION.... I-1 SELECTED INFORMATION RELATING TO NEW JERSEY S ECONOMIC CONDITION... I-1 CERTAIN CONSTITUTIONAL PROVISIONS... I-2 Budget Limitations... I-2 Debt Limitations... I-3 STATE FINANCES... I-3 New Jersey s Accounting System.... I-3 New Jersey s Budget and Appropriation System.... I-5 RECENT DEVELOPMENTS... I-7 Comprehensive Annual Financial Report for the Fiscal Year ended June 30, 2007 and 2008 Unaudited Financial Statements... I-7 Changes in Fiscal Year 2009 Effect of Economic Downturn on Fiscal Year 2009 and Fiscal Year 2010... I-7 Governor s Fiscal Year 2010 Budget Message... I-8 FINANCIAL RESULTS AND ESTIMATES... I-9 Audit Reports... I-9 Changes in Fund Balances... I-9 Revenues... I-13 Fiscal Year 2009 and Fiscal Year 2010 Estimated Revenues... I-14 Federal Aid... I-15 Appropriations... I-15 Programs Funded Under Recommended Appropriations in Fiscal Year 2010... I-21 Expenditures.... I-28 Balance Sheets..... I-30 OUTSTANDING BONDED INDEBTEDNESS OF THE STATE... I-32 TAX AND REVENUE ANTICIPATION NOTES... I-33 OBLIGATIONS SUPPORTED BY STATE REVENUE SUBJECT TO ANNUAL APPROPRIATION... I-33 Variable Rate Bonds... I-34 Garden State Preservation Trust.... I-37 New Jersey Building Authority... I-37 New Jersey Economic Development Authority... I-37 New Jersey Educational Facilities Authority... I-39 New Jersey Health Care Facilities Financing Authority... I-39 New Jersey Sports and Exposition Authority... I-39 New Jersey Transportation Trust Fund Authority... I-40 State of New Jersey Certificates of Participation... I-40 State Supported School and County College Bonds..... I-40 Lines of Credit for Equipment Purchases... I-40 Swap Agreements... I-41 MORAL OBLIGATION FINANCING... I-43 New Jersey Housing and Mortgage Finance Agency.... I-43 South Jersey Port Corporation... I-43 Higher Education Student Assistance Authority... I-43 STATE EMPLOYEES... I-44 Public Employer-Employee Relations Act... I-44 Negotiation Process... I-44 Contract Status... I-44 Early Retirement Incentive Program... I-45 Recent Actions and Proposals by the State.... I-45 FUNDING PENSION PLANS... I-45 FUNDING POST-RETIREMENT MEDICAL BENEFITS... I-57 LITIGATION... I-60 APPENDIX-I-A COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2007 AND THE UNAUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2008 *... I-A APPENDIX-I-B DEMOGRAPHIC AND ECONOMIC INFORMATION... I-B APPENDIX-I-C SUMMARY OF PRINCIPAL STATE TAXES.... I-C * Filed with each NRMSIR and incorporated by specific reference herein.

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THE STATE OF NEW JERSEY The State was one of the original thirteen colonies and was the third state to ratify the United States Constitution in 1787. The original State Constitution was adopted on July 2, 1776 and was subsequently superseded by the State Constitution of 1844. A new State Constitution was prepared by a constitutional convention in 1947 and was ratified by voters of the State in the general election held November 4, 1947. The State Constitution provides for a bicameral legislature which meets in annual sessions. Members of the State Senate are elected to terms of four years, except for the election following a decennial census, in which case the election is for a term of two years. Members of the General Assembly are elected to terms of two years. The Governor is elected to a term of four years. There are 16 departments of the Executive Branch of State government. The maximum number of departments permitted by the State Constitution is 20. DEMOGRAPHIC AND ECONOMIC INFORMATION New Jersey is the eleventh largest state in population and the fifth smallest in land area. According to the United States Bureau of the Census, the population of New Jersey was 7,365,000 in 1980, 7,730,188 in 1990, and 8,414,350 in 2000, and is estimated at 8,683,000 as of December 2008. With an average of 1,171 persons per square mile, it is the most densely populated of all the states. New Jersey is located at the center of the megalopolis which extends from Boston to Washington, and which includes over one-fifth of the country s population. The extensive facilities of the Port Authority of New York and New Jersey, the Delaware River Port Authority and the South Jersey Port Corporation augment the air, land and water transportation complex which has influenced much of the State s economy. This central location in the northeastern corridor, the transportation and port facilities and proximity to New York City make the State an attractive location for corporate headquarters and international business offices. A number of Fortune Magazine s top 500 companies maintain headquarters or major facilities in New Jersey, and many foreign-owned firms have located facilities in the State. The State s economic base is diversified, consisting of a variety of manufacturing, construction and service industries, supplemented by rural areas with selective commercial agriculture. New Jersey has the Atlantic seashore on the east and lakes and mountains in the north and northwest, which provide recreation for residents as well as for out-of-state visitors. Since 1976, casino gambling in Atlantic City has been an important State tourist attraction. New Jersey s population grew rapidly in the years following World War II, before slowing to an annual rate of 0.27% in the 1970s. Between 1980 and 1990, the annual rate of growth rose to 0.51% and between 1990 and 2000, accelerated to 0.83%. While this rate of growth is less than that for the United States, it compares favorably with other Middle Atlantic States. New York has shown a 0.54% annual rate of increase since 1990 and Pennsylvania s population has increased at a rate of 0.33% per year. The increase in the State s total population during the past quarter century masks the redistribution of population within the State. There has been a significant shift from the northeastern industrial areas toward the four coastal counties (Cape May, Atlantic, Ocean and Monmouth) and toward the central New Jersey counties of Hunterdon, Somerset and Middlesex. For more information, see APPENDIX I-B-DEMOGRAPHIC AND ECONOMIC INFORMATION herein. SELECTED INFORMATION RELATING TO NEW JERSEY S ECONOMIC CONDITION New Jersey s economy weakened significantly in 2008. Payroll employment decreased at an average annual rate of -0.5% in 2008 after growing very slowly at an average annual rate of 0.2% in 2007. The New Jersey Department of Labor and Workforce Development s 2008 benchmarked data reflects the deterioration in the employment conditions in the State. Payroll employment decreased by 85,700 jobs (-2.1%) between December 2007 and December 2008. The State s level of employment in February 2009 of 3.968 million remained below the 4.0 million mark for the second time since December 2008. Previously, the State s level of employment had been above the 4.0 million mark for fifty-four consecutive months. I-1

New Jersey s payroll employment declined by 3.0% (-121,700 jobs) in February 2009, compared to February 2008. Most of the job losses were in professional and business services (-42,700 jobs), manufacturing (-29,600 jobs), trade, transport and utility services (-20,600 jobs), construction (-20,400 jobs) and financial services (-16,700 jobs). Education and health services reported the largest single gain (+13,600 jobs), followed by the public sector which added 1,700 jobs during the same period. The generally declining labor market conditions have kept the State s unemployment rate above 5.0% for ten straight months since May 2008. The State s unemployment rate averaged 5.5% in 2008. The State s unemployment rate increased to 8.2% in February 2009, and rose above the national unemployment rate of 8.1% in February 2009 for the first time since October 2006. According to the United States Commerce Department, Bureau of Economic Analysis in a release dated March 24, 2009, the preliminary growth rate for New Jersey s personal income of 1.8% for the fourth quarter of 2008 came in below the revised growth rate of 3.4% for the third quarter of 2008. Given the general economic recession in the national economy, the average annual growth in personal income for New Jersey is expected to slow down significantly in 2009. The housing sector is expected to continue to weaken in the months ahead with housing permits in 2008 to stay below 20,000 units, below the 26,000 plus units for 2007 and well below the peak of 39,000 units in 2005. Vehicle registrations declined in calendar year 2008 by 15.3%, following a 4.3% decline in 2007. New vehicle registrations for the fiscal year through February 2009, have declined 23.3% percent as compared to a year ago. New vehicle registrations are projected to remain below the 500,000 level in 2009 and 2010. New Jersey and the nation are expected to continue to experience further deterioration in near-term economic growth in 2009. According to the Beige Book on economic performance released by the Federal Reserve Board on March 4, 2009, the Federal Reserve Board stated that economic conditions continued to deteriorate through February 2009 and indicated that a turnaround in the national economy is not expected until late 2009 or early 2010. The latest New Jersey economic forecasts from Global Insight, Moody s Economy.com and Rutgers University expect recessionary conditions to continue through 2009, with credit still tight and financial markets in continued turmoil. New Jersey s economy is expected to follow the national trend in 2009. Employment is projected to decrease by an approximately 3.0% average annual rate in 2009 and a further decrease of 0.3% in 2010. Personal income is expected to contract at a rate of -0.4% in 2009 and improve to a growth rate of approximately 3.0% in 2010. Further weakness in the housing sector is expected in 2009, with the housing sector expected to stabilize in 2010. Inflation is expected to remain low during the current economic recession and may not be a serious concern until consumer spending revives. The future economic outlook hinges on the success of the federal economic stimulus package and supportive fiscal and monetary polices. Availability of credit, stability in the financial markets and improvements in consumer and business confidence are critical factors necessary for an economic turnaround nationally and in New Jersey. With the passage of the 2009 federal economic stimulus package along with supportive monetary and fiscal policies, economic growth in the State is expected to stabilize and improve in 2010 and beyond. However, the State and the nation may experience further near-term deterioration in growth and the expected pace of economic expansion may decline further if consumers, investors, and businesses become more concerned about the unemployment rate, credit availability, financial market stresses, and geopolitical tensions. Appendix I-B contains various demographic and economic statistical tables for New Jersey and, where available, for neighboring states and the nation. Budget Limitations CERTAIN CONSTITUTIONAL PROVISIONS The State Constitution provides, in part, that no money shall be drawn from the State Treasury but for appropriations made by law and that no law appropriating money for any State purpose shall be enacted if the I-2

appropriations contained therein, together with all prior appropriations made for the same fiscal period, shall exceed the total amount of the revenue on hand and anticipated to be available to meet such appropriations during such fiscal period, as certified by the Governor (Article VIII, Sec. 2, para. 2). (For general information regarding the budget process, see STATE FINANCES New Jersey s Budget and Appropriation System herein; for the application of the budget process for Fiscal Years 2009 and 2010, see FINANCIAL RESULTS AND ESTIMATES herein.) Debt Limitations The State Constitution further provides, in part, that the State Legislature shall not, in any manner, create in any fiscal year a debt or liability of the State, which, together with any previous debts or liabilities, shall exceed at any time one percent of the total appropriations for such year, unless the same shall be authorized by a law for some single object or work distinctly specified therein. No such law shall take effect until it shall have been submitted to the people at a general election and approved by a majority of the legally qualified voters voting thereon; provided, however, no such voter approval is required for any such law authorizing the creation of a debt for a refinancing of all or any portion of the outstanding debts or liabilities of the State, so long as such refinancing shall produce a debt service savings. Furthermore, any funds raised under these authorizations must be applied only to the specific object stated therein. The State Constitution provides as to any law authorizing such debt: Regardless of any limitation relating to taxation in this Constitution, such law shall provide the ways and means, exclusive of loans, to pay the interest of such debt or liability as it falls due, and also to pay and discharge the principal thereof within thirty-five years from the time it is contracted; and the law shall not be repealed until such debt or liability and the interest thereon are fully paid and discharged. This constitutional provision does not apply to the creation of debts or liabilities for purposes of war, or to repel invasion, or to suppress insurrection or to meet emergencies caused by disaster or act of God (Article VIII, Sec. 2, para. 3) (the Debt Limitation Clause ). The Debt Limitation Clause of the New Jersey Constitution. (Article VIII, Sec. 2, para.3) was amended by the voters on November 4, 2008. The amendment provides that, beginning after the effective date of the amendment, the State Legislature is prohibited from enacting any law that creates or authorizes the creation of a debt or liability of an autonomous State corporate entity, which debt or liability has a pledge of an annual appropriation as the means to pay the principal of and interest on such debt or liability, unless a law authorizing the creation of that debt or liability for some single object or work distinctly specified therein shall have been submitted to the people and approved by a majority of the legally qualified voters of the State voting thereon at a general election. The constitutional amendment does not require voter approval for any such law providing the means to pay the principal of and interest on such debt or liability subject to appropriations of an independent non-state source of revenue paid by third persons for the use of the single object or work thereof, or from a source of State revenue otherwise required to be appropriated pursuant to another provision of the State Constitution. Furthermore, voter approval is not needed for any law providing for the refinancing of all or a portion of any outstanding debts or liabilities of the State or of an autonomous State corporate entity provided that such law requires that the refinancing produces debt service savings. STATE FINANCES The Director of the Division of Budget and Accounting in the New Jersey Department of the Treasury (the Budget Director ) prescribes and approves the accounting policies of the State and directs their implementation. New Jersey s Accounting System The State prepares its financial statements in accordance with current standards that are outlined in the Governmental Accounting Standards Board ( GASB ) Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments. The State s Comprehensive Annual Financial Report includes government-wide financial statements and fund financial statements. These statements present different views of the State s financial information. (See COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCALYEAR ENDED JUNE 30, 2007, and the notes referred to therein (the 2007 CAFR ) which has been filed with each Nationally Recognized Municipal Securities Information Repository ( NRMSIR ) and is incorporated by specific reference herein and is considered to be part of this Appendix I.) Due to delays in I-3

completing the Fiscal Year 2008 audits of the Division of Investment and the Division of Pensions and Benefits, the Comprehensive Annual Financial Report for the Fiscal Year ended June 30, 2008 (the 2008 CAFR ) is not yet available. Until the 2008 CAFR is available, the State is providing the Unaudited Financial Statements for the Fiscal Year ended June 30, 2008 (the 2008 Unaudited Financial Statements ). See FINANCIAL AND OTHER INFORMATION RELATING TO THE STATE OF NEW JERSEY. The 2008 Unaudited Financial Statements have been filed with each NRMSIR and are incorporated by reference herein and are considered to be part of this Appendix I. The State currently expects that the 2008 CAFR will be filed with each NRMSIR as soon as it is available. The 2007 CAFR and the 2008 Unaudited Financial Statements present the financial position and operating results of the State under generally accepted accounting principles ( GAAP ) applicable to state and local governments as established by GASB. GASB is the standard setting body for establishing governmental accounting and financial reporting principles, which are primarily set forth in GASB s Codification of Governmental Accounting and Financial Reporting Standards. The significant accounting policies followed by the State are described in the Notes to the Financial Statements set forth in the 2007 CAFR and the 2008 Unaudited Financial Statements which are incorporated by specific reference herein. Government-wide financial statements provide a broad view of the State s operations conforming to private sector accounting standards and provide both short-term and long-term information regarding the State s overall financial position through the fiscal year-end. The statements are prepared using the flow of economic resources measurement focus and the accrual basis of accounting. The government-wide financial statements include the Statement of Net Assets and the Statement of Activities. The Statement of Net Assets presents all of the State s assets and liabilities and calculates net assets. Increases or decreases in the State s net assets over time may serve as a useful indicator as to whether or not the State s overall financial position is improving or deteriorating. The Statement of Activities presents how the State s net assets changed during the fiscal year. All changes in net assets are reported when the underlying event occurs giving rise to the change, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will not result in cash flows until future fiscal periods. This statement also presents a comparison between direct expenses and program revenues for each State function. In addition to government-wide financial statements, the State prepares fund financial statements comprised of funds and component units with the State s funds divided into three categories governmental, proprietary, and fiduciary. A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. Most Direct State Services, which support the normal operations of State government, are financed through governmental funds. The governmental funds financial statements focus on current inflows and outflows of expendable resources and the unexpended balances at the end of a fiscal year that are available for future spending. Governmental fund information helps determine whether or not there was an addition or a reduction in financial resources that can be spent in the near future to finance State programs. The State s governmental funds are the General Fund, the Property Tax Relief Fund, the Special Revenue Funds, and the Capital Projects Funds. These funds are reported using the modified accrual basis of accounting, which measures cash and all other financial assets that can readily be converted to cash. The General Fund is the fund into which all State revenues, not otherwise restricted by statute, are deposited and from which appropriations are made. The largest part of the total financial operations of the State is accounted for in the General Fund. Revenues received from taxes and unrestricted by statute, most federal revenue and certain miscellaneous revenue items are recorded in the General Fund. The State Legislature enacts an appropriations act on an annual basis (the Appropriations Act ) which provides the basic framework for the operation of the General Fund. The Long-Term Obligation and Capital Expenditure Fund (the LTOCEF ) was established as a separate, nonlapsing fund in the General Fund pursuant to P.L. 2008, c. 22, enacted on June 25, 2008. Such act provided that monies appropriated to the LTOCEF would be used for the purposes of paying for the costs of capital improvements, retiring and defeasing debt, making supplemental payments to reduce the unfunded pension liabilities of the Stateadministered pension plans and making supplemental payments to reduce the unfunded post-retirement health I-4

benefits liability for members of the State-administered pension plans and the Alternate Benefit Program described herein. As a result of the economic downturn and the deterioration of the financial markets, the defeasance has not occurred and some of the monies in the LTOCEF have been appropriated for other purposes, including the State s economic stimulus plan and to the Property Tax Relief Fund. See SUMMARY OF REVENUES, APPROPRIATIONS AND UNDESIGNATED FUND BALANCES GENERAL STATE FUNDS herein. The Property Tax Relief Fund is used to account for revenues from the New Jersey Gross Income Tax and for revenues derived from a tax rate of 0.5% imposed under the Sales and Use Tax both of which are constitutionally dedicated toward property tax relief and reform, respectively. All receipts from taxes levied on personal income of individuals, estates and trusts must be appropriated exclusively for the purpose of reducing or offsetting property taxes. Annual appropriations are made from the fund, pursuant to formulas established by the State Legislature, to counties, municipalities and school districts. The Property Tax Relief Fund was established by the New Jersey Gross Income Tax Act, N.J.S.A. 54A:9-25, approved July 8, 1976. A special account designated as the Property Tax Reform Account was created in the Property Tax Relief Fund pursuant to an amendment to Article VIII, Section 1, Paragraph 7 of the State Constitution approved by the voters on November 7, 2006. The amendment provides that there shall be annually credited from the General Fund and placed in the Property Tax Reform Account an amount equal to the annual revenue derived from a tax rate of 0.5% imposed under the Sales and Use Tax Act, L. 1966, c. 30 (C.54:32B-1 et seq.), as amended and supplemented, or any other subsequent law of similar effect. The State Constitution provides that the State Legislature shall annually appropriate such amount exclusively for the purpose of property tax reform. Special Revenue Funds are used to account for resources legally restricted to expenditure for specified purposes. Special Revenue Funds include the Casino Control Fund, the Casino Revenue Fund, and the Gubernatorial Elections Fund. Certain financial information with respect to these funds is included herein. Capital Project Funds are used to account for financial resources to be used for the acquisition or construction of major State capital facilities. Proprietary funds are used to account for State business-type activities. Since these funds charge fees to external users, they are known as enterprise funds. Fiduciary funds, which include State pension funds, are used to account for resources held by the State for the benefit of parties outside of State government. Unlike other government funds, fiduciary funds are reported using the accrual basis of accounting. Component Units-Authorities account for operations where the intent of the State is that the cost of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges, or where periodic measurement of the results of operations is appropriate for capital maintenance, public policy, management control or accountability. Component Units-Colleges and Universities account for the operations of the twelve State colleges and universities including their foundations and associations. New Jersey s Budget and Appropriation System The State operates on a fiscal year beginning July 1 and ending June 30. For example, Fiscal Year 2009 refers to the State s fiscal year beginning July 1, 2008 and ending June 30, 2009. Pursuant to Article VIII, Section II, para. 2 of the State Constitution, no money may be drawn from the State Treasury except for appropriations made by law. In addition, all monies for the support of State government and all other State purposes, as far as can be ascertained or reasonably foreseen, must be provided for in one general appropriations law covering one and the same fiscal year. No general appropriations law or other law appropriating money for any State purpose shall be enacted if the amount of money appropriated therein, together with all other prior appropriations made for the same fiscal year, exceeds the total amount of revenue on hand and anticipated to be available for such fiscal year, as certified by the Governor. New Jersey s budget process is comprehensive and inclusive, involving every department and agency in the Executive Branch, the Legislature, the Judicial Branch, and through a series of public hearings, the citizens of the State. The budget process begins in the summer prior to the following fiscal year with preliminary projections of I-5

revenues and expenditures, which are the basis for development of budget targets for each branch, department and agency. Individual departments and agencies are required to prepare a funding plan or strategy for operating within the established target in the following fiscal year, which funding plan or strategy includes an analysis of the costs, benefits and priorities of every program. The funding plans and strategies are the foundations for revenue and spending decisions that are ultimately incorporated into the Governor s Budget Message, as discussed below. The New Jersey Statutes contain provisions concerning the budget and appropriation system. On or before October 1 in each year, each Department, Board, Commission, Office or other Agency of the State must file with the Budget Director a request for appropriation or permission to spend specifying all expenditures proposed to be made by such spending agency during the following fiscal year. The Budget Director then examines each request and determines the necessity or advisability of the appropriation request. The Budget Director may hold hearings, open to the public, during the months of October, November and December and review the budget requests with the agency heads. On or before December 31 of each year or such other time as the Governor may request, after review and examination, the Budget Director submits the requests, together with his or her findings, comments and recommendations, to the Governor. It is then the responsibility of the Governor to examine and consider all requests and formulate his or her budget recommendations. The Governor s budget message (the Governor s Budget Message ) is presented by the Governor during an appearance before a joint session of the State Legislature which, by law, is convened at 12 Noon on a date on or before the fourth Tuesday in February in each year. Pursuant to P.L. 2009, c.15, approved February 24, 2009, the Governor shall transmit the budget message for the Fiscal Year ending June 30, 2010 to the Legislature on or before March 12, 2009. The Governor s Budget Message for the Fiscal Year was delivered on March 10, 2009. On March 19, 2009, the Governor adjusted the amounts contained in his budget message delivered on March 10, 2009 to include the restoration of the property tax deduction for all taxpayers earning up to $150,000, which was offset by a one year increase in the top income tax rate. The Governor s Budget Message delivered on March 10, 2009 as amended by the March 19, 2009 adjustments is referred to herein as the Governor s Fiscal Year 2010 Budget Message. The Governor s Budget Message must include the proposed complete financial program of the State government for the next ensuing fiscal year and must set forth in detail each source of anticipated revenue and the purposes of recommended expenditures for each spending agency (N.J.S.A. 52:27B-20). After a process of legislative committee review (including testimony from the State Treasurer), the budget, in the form of an appropriations bill, must be approved by the Senate and Assembly and must be submitted to the Governor for review. Upon such submissions, the Governor may approve the bill, revise the estimate of anticipated revenues contained therein, delete or reduce appropriation items contained in the bill through the exercise of his or her line-item veto power, or veto the bill in its entirety. As with any gubernatorial veto, such action may be reversed by a two-thirds vote of each House of the State Legislature. In addition to anticipated revenues, the annual Appropriations Act also provides for the appropriation of non-budgeted revenue, including primarily federal funds and a portion of the Energy Tax Receipts, to the extent such revenue may be received and permits the corresponding increase of appropriation balances from which expenditures may be made. Executive Order No. 103, issued by the Governor on June 30, 2008, directs the Executive Branch of State government to present an annual budget message which shall not request or recommend appropriations of the State in an amount in excess of the certified amount of recurring revenues for the fiscal year for which the budget recommendation is made, except for some limited exceptions. Further, for fiscal years beginning on and after July 1, 2009, the Executive Branch is required not to request or recommend appropriations in excess of the certified amount of recurring revenue, and any excess revenue shall be credited or appropriated to the LTOCEF for the purpose of paying for capital improvements, retiring and defeasing debt or making supplemental payments to reduce unfunded post-retirement health benefits liability and to reduce the unfunded pension liabilities of State s pension funds. Due to the State s economic situation, Executive Order No. 103 has been suspended for Fiscal Year 2010 by Executive Order No. 135 issued by the Governor on March 10, 2009. During the course of the fiscal year, the Governor may take steps to reduce State expenditures if it appears that revenues have fallen below those originally anticipated. There are additional means by which the Governor may ensure that the State does not incur a deficit. Under the State Constitution, no supplemental appropriation may be enacted after adoption of an Appropriations Act except where there are sufficient revenues on hand or anticipated, as certified by the Governor, to meet such appropriation. I-6

If a general appropriation law is not enacted prior to the July 1 deadline, under Article VIII, Section 2, Paragraph 2 of the State Constitution, no moneys can be withdrawn from the State treasury. In the one case where this occurred, for Fiscal Year 2007, the Governor declared a state of emergency and mandated the orderly shutdown of State government, other than services and functions of State government directly related to the preservation and protection of human life and safety, the protection of property, the adoption of the annual Appropriation Act and such functions of the Judicial Branch as determined by the Chief Justice. The State Treasurer and the Budget Director were authorized to obligate funds for such essential services. The Division of Lottery ceased selling tickets; parks and beaches were closed and casinos, which by law could not operate without state regulators, were shutdown. An amendment to Section 63 of P.L. 1977, c.110 (C.5:12-63) was enacted on June 27, 2008, and provides for the ability of casinos and racetracks to operate for seven calendar days during a state of emergency, including a shutdown of State government for failure to enact the Appropriations Act, despite the absence of State regulators. If a shutdown occurs, no moneys, other than available amounts already held under bond financing documents will be available to make payments on obligations paid from State revenue subject to annual appropriation. See STATE FINANCES New Jersey s Budget and Appropriation System and OBLIGATIONS SUPPORTED BY STATE REVENUE SUBJECT TO ANNUAL APPROPRIATION herein. RECENT DEVELOPMENTS Comprehensive Annual Financial Report for the Fiscal Year ended June 30, 2007 and 2008 Unaudited Financial Statements Appendix I-A incorporates the 2007 CAFR into this document by specific reference. The 2007 CAFR includes the general purpose financial statements, the combining financial statements and supplemental schedules reported upon by the State Auditor, as well as introductory and statistical sections. The 2007 CAFR includes the Independent Auditor s Report of the State Auditor thereon, dated February 29, 2008. The 2007 CAFR also includes Management s Discussion and Analysis which provides an overview and analysis of the State government s financial performance of its activities for the fiscal year ended June 30, 2007. Due to delays in completing the Fiscal Year 2008 audits of certain divisions within State government, the 2008 CAFR is not yet available. Thus, the State is providing the 2008 Unaudited Financial Statements. See FINANCIAL AND OTHER INFORMATION RELATING TO THE STATE OF NEW JERSEY. Changes in Fiscal Year 2009 Effect of Economic Downturn on Fiscal Year 2009 and Fiscal Year 2010 After the first quarter of Fiscal Year 2009, the national economy weakened quickly into recession. While New Jersey s estimated revenues as set forth in the Fiscal Year 2009 Appropriations Act had been based on conservative projections, over much of the first quarter of 2009, major tax collections began missing the projected targets and then almost every revenue source underperformed the Fiscal Year 2009 estimates as contained in the Fiscal Year 2009 Appropriations Act. On October 16, 2008, Governor Corzine proposed an economic stimulus plan to a joint session of the State Legislature, proposing additional expenditures to provide for immediate assistance to citizens in need, incentives to support employment and economic activity and enhancements to the State s business climate and long-term economic prospects. Also at such time, given the slowdown in revenue collections, the Governor estimated at such time that Fiscal Year 2009 revenue projections were about $400 million lower than estimated and directed various departments in the Executive Branch of State Government to begin reducing expenditures. After October 2008 collections, the State Treasurer estimated on November 12, 2008 that the revenue shortfall for Fiscal Year 2009 would be up to $1.2 billion less than the amounts estimated in the Fiscal Year 2009 Appropriations Act. To address this additional shortfall, additional spending reductions were put in place. Six months into Fiscal Year 2009, on January 2, 2009, New Jersey projected a shortfall for Fiscal Year 2009 of approximately $2.0 billion, comprised of $1.7 billion in revenue shortfalls and more than $275.0 million required for spending programs to deal with the economic crisis. In order to address the constitutional requirement for a balanced budget, the State undertook a line-by-line review of all budgetary spending to identify spending reductions and to reduce appropriations for Fiscal Year 2009. By early January 2009, this review yielded $812.0 million of I-7

amount of $420.0 million from savings generated from a mandatory State employee furlough for one day in each month during Fiscal Year 2010 and proposals to eliminate certain previously negotiated wage increases. FINANCIAL RESULTS AND ESTIMATES Audit Reports The State Auditor is directed by statute (N.J.S.A. 52:24-4) to examine and post-audit all the accounts, reports, and statements and make independent verifications of all assets, liabilities, revenues, and expenditures of the State and its agencies. The audit reports containing the opinion of the State Auditor are available for examination and review upon request to the State Treasurer. The 2007 CAFR has been separately filed with each NRMSIR and is incorporated by specific reference herein and is deemed a part of this Appendix I. As noted above, the 2008 CAFR is not yet available. Until the 2008 CAFR is available, the State is providing the 2008 Unaudited Financial Statements. The 2008 Unaudited Financial Statements have been filed with each NRMSIR and are incorporated by reference herein and are considered to be part of this Appendix I. The accounting and reporting policies of the State conform in all material respects to GAAP as applicable to governments. Changes in Fund Balances The following table sets forth a summary of Revenues, Appropriations and Undesignated Fund Balances for the Fiscal Years ended June 30, 2006 through 2010, covering budgeted funds and the Surplus Revenue Fund. The Undesignated Fund Balances are available for appropriation in succeeding fiscal years. There have been positive Undesignated Fund Balances in the General Fund at the end of each year since the State Constitution was adopted in 1947. Amounts shown for Fiscal Years 2006 and 2007 are actual and final. Amounts for Fiscal Year 2008 are based upon actual but unaudited amounts. Amounts shown for Fiscal Year 2009 are based upon revised estimates for revenues and appropriations as contained in the Governor s Fiscal Year 2010 Budget Message, plus supplemental appropriations, enacted to date and expected to be enacted by the end of Fiscal Year 2009. Amounts shown for Fiscal Year 2010 are estimates as contained in the Governor s Fiscal Year 2010 Budget Message. Budgeted funds include the General Fund, the Property Tax Relief Fund, the Casino Revenue Fund, the Casino Control Fund, and the Gubernatorial Elections Fund. The Surplus Revenue Fund, which was established by P.L. 1990, c. 44, is used to account for revenues reserved for appropriation (a) in the event that anticipated revenues in the General Fund are estimated to be less than those certified by the Governor upon approval of the annual Appropriations Act, or (b) in the event that the State Legislature finds that an appropriation from the Surplus Revenue Fund is preferable to raising revenue through a modification of the tax structure. The provisions enacting the Surplus Revenue Fund also allow for the Governor to meet the costs of any emergency that has been identified. The LTOCEF created pursuant to P.L. 2008, c. 22 is authorized to be used only for paying capital expenditures, retiring and defeasing debt and making supplemental payments for unfunded pension and post-retirement health benefits. However, as a result of the economic downturn, monies in the LTOCEF have been appropriated pursuant to supplemental appropriation acts to other purposes. See STATE FINANCES New Jersey s Accounting System, above and SUMMARY OF REVENUES, APPROPRIATIONS AND UNDESIGNATED FUND BALANCES GENERAL STATE FUNDS herein. I-9

SUMMARY OF REVENUES, APPROPRIATIONS AND UNDESIGNATED FUND BALANCES GENERAL STATE FUNDS ($ Millions) 2010 Estimated 2009 Estimated 2008 Actual(4) 2007 Actual 2006 Actual July 1st Beginning Balances General Fund........................................... $ 699.1 $ 469.8 $ 1,410.4 $ 1,216.7 $ 461.7 Surplus Revenue Fund..................................... 734.7 484.6 559.8 288.6 Property Tax Relief Fund................................... 99.0 690.7 2.6 27.9 Gubernatorial Elections Fund................................. 1.1 0.5 Casino Control Fund...................................... 2.5 3.0 1.5 (1.6) 1.3 Casino Revenue Fund..................................... 1.0 1.0 Total Beginning Balance................................. 701.6 1,307.6 2,588.7 1,778.5 779.5 Anticipated Revenue General Fund........................................... 17,281.7 17,653.1 18,826.1 18,305.9 17,573.6 Property Tax Relief Fund(1)................................. 11,937.0 11,885.0 13,271.5 12,376.5 10,506.6 Gubernatorial Elections Fund................................. 0.7 0.7 0.5 0.5 0.5 Casino Control Fund...................................... 70.1 74.9 73.0 75.6 68.0 Casino Revenue Fund..................................... 351.8 366.3 413.0 450.2 502.3 Total Revenues....................................... 29,641.3 29,980.0 32,584.1 31,208.7 28,651.0 Other Adjustments General Fund Balances Lapsed(2)..................................... 1,611.3 448.2 497.1 391.7 From (To) Surplus Revenue Fund............................. 392.2 (250.1) 75.2 (271.2) From (To) Property Tax Relief Fund........................... (30.6) (132.0) (103.5) (47.4) Budget vs. GAAP Adjustment............................... (2.5) (37.3) 43.8 From (To) Casino Revenue Fund............................. (2.1) From (To) Gubernatorial Elections Fund........................ (7.2) (3.3) (1.2) Corporation Business Tax 4% Dedication...................... 20.8 (37.8) Surplus Revenue Fund From (To) General Fund.................................. (392.2) 250.1 (75.2) 271.2 From (To) Property Tax Relief Fund........................... (342.5) Property Tax Relief Fund Balances Lapsed(2)..................................... 668.7 216.6 94.8 27.3 From (To) General Fund.................................. 30.6 131.9 103.5 47.4 From (To) General Fund Property Tax Dedication................. (649.3) From (To) Long-Term Obligation and Capital Expenditure Fund(3)........ 376.2 From (To) Surplus Revenue Fund............................. 342.5 Property Tax Relief Dedication From (To) Property Tax Relief Fund........................... 649.3 Gubernatorial Elections Fund From General Fund..................................... 7.2 3.3 1.2 Balances Lapsed(2)..................................... 0.1 0.3 Casino Control Fund From (To) Casino Revenue Fund............................. (1.7) Balances Lapsed(2)..................................... 1.7 2.6 0.9 0.4 Miscellaneous......................................... (0.1) Casino Revenue Fund From (To) General Fund.................................. 2.1 From (To) Casino Control Fund.............................. 1.7 Balances Lapsed(2)..................................... 0.4 17.0 68.8 10.0 Total Other Adjustments.................................... 2,658.3 702.6 624.3 435.7 Total Available........................................... 30,342.9 33,945.9 35,875.4 33,611.5 29,866.2 Appropriations General Fund........................................... 17,473.5 19,393.4 19,849.0 18,543.7 16,896.5 Property Tax Relief Fund................................... 11,937.0 13,402.0 14,211.7 11,886.7 10,606.6 Gubernatorial Elections Fund................................. 7.9 5.1 2.0 Casino Control Fund...................................... 70.6 75.4 74.0 73.4 71.3 Casino Revenue Fund..................................... 351.8 368.4 433.1 519.0 511.3 Total Appropriations.................................... 29,840.8 33,244.3 34,567.8 31,022.8 28,087.7 June 30th Ending Balances General Fund........................................... 500.1 699.1 469.8 1,410.4 1,216.7 Surplus Revenue Fund..................................... 734.7 484.6 559.8 Property Tax Relief Fund................................... 99.0 41.4 2.6 Property Tax Reform Account(1)............................. 649.3 Gubernatorial Elections Fund................................. 1.1 0.5 Casino Control Fund...................................... 2.0 2.5 3.0 1.5 (1.6) Casino Revenue Fund..................................... 1.0 1.0 Total Ending Balances.................................... $ 502.1 $ 701.6 $ 1,307.6 $ 2,588.7 $ 1,778.5 Notes: (1) A special account designated as the Property Tax Reform Account was created in the Property Tax Relief Fund pursuant to an amendment to Article VIII, Section 1, Paragraph 7 of the State Constitution. Approved by the voters in 2006, the amendment provides that there shall be annually credited from the General Fund and placed in the Property Tax Reform Account an amount equal to the annual revenue derived from a tax rate of 0.5% imposed under the Sales and Use Tax Act. The State Constitution provides that the State Legislature shall annually appropriate such amount exclusively for the purpose of property tax reform. (2) Upon the end of the fiscal year, any unexpended or unencumbered balance in an appropriation revert (lapse) and therefore are made available for new appropriations. (3) Pursuant to P.L. 2008, c. 22, the LTOCEF was created. Funds were appropriated for retiring and defeasing debt, as well as for various capital improvements. However, as a result of the economic downturn, monies in the LTOCEF have been appropriated for other purposes. (4) Based upon the 2008 Unaudited Financial Statements. I-10

Fiscal Year 2010 Recommended Resources by Fund (1) ($ in Millions) Casino Fund Revenue $351.8 1.2% Fund Balance Other Revenue $701.6 $70.8 2.3% 0.2% Property Tax Relief Revenue $11,937.0 39.3% General Fund Revenue $17,281.7 57.0% Total - $30,342.9 (1) Fiscal Year 2010 Recommended Resources represent the total amount of Fiscal Year 2010 revenues as set forth in the Governor s Fiscal Year 2010 Budget Message plus the total amount of undesignated fund balances as of July 1, 2009. I-11

Fiscal Year 2009 Adjusted Resources by Fund (1) ($ in Millions) Casino Fund Revenue $366.3 1.2% Other Revenue $75.6 0.2% Fund Balance $1,307.6 4.2% Property Tax Relief Revenue $11,885.0 38.0% General Fund Revenue $17,653.1 56.4% Total - $31,287.6 (1) Fiscal Year 2009 Adjusted Resources represents the total amount of Fiscal Year 2009 revenues estimated in the Governor s Fiscal Year 2010 Budget Message plus the total amount of undesignated fund balances as of July 1, 2008. Resources anticipated as of March 10, 2009 are lower than estimated at the time of enactment of the Fiscal Year 2009 Appropriations Act. See RECENT DEVELOPMENTS Changes in Fiscal Year 2009-Effect of Economic Downturn on Fiscal Year 2009 and Fiscal Year 2010.. Revenues The following tables set forth actual revenues for Fiscal Years ended June 30, 2006 and 2007, actual revenues for Fiscal Year 2008 based upon the 2008 Unaudited Financial Statements, and estimated revenues for Fiscal Years 2009 and 2010 for the General Fund, the Property Tax Relief Fund, the Gubernatorial Elections Fund, the Casino Control Fund and the Casino Revenue Fund, and such revenues as a percent of total revenue. The Fiscal Year 2008 unaudited revenues are subject to adjustment, pending completion of the annual audit. The Fiscal Year 2009 and 2010 estimates are as presented in the Governor s Fiscal Year 2010 Budget Message. I-12

REVENUES ($ Millions) 2010 Estimated 2009 Estimated 2008 Actual(4) 2007 Actual 2006 Actual General Fund: Sales and Use Tax.......................... $ 8,712.2 $ 8,448.3 $ 8,915.5 $ 8,609.6 $ 6,853.4 Less: Property Tax Dedication................ (649.0) (636.0) (666.0) (649.3) Net Sales and Use Tax................... 8,063.2 7,812.3 8,249.5 7,960.3 6,853.4 Motor Fuels Tax........................... 553.4 542.6 563.3 561.5 550.9 Corporation Taxes.......................... 2,141.5 2,442.3 3,062.4 3,084.9 3,007.8 Motor Vehicle Fees(1)....................... 400.1 380.5 401.3 280.3 284.1 Cigarette Tax............................. 255.3 236.8 251.2 206.1 632.6 Other Major Taxes.......................... 1,808.3 1,796.7 1,953.5 1,919.1 2,077.1 Medicaid Uncompensated Care................. 490.3 493.0 505.4 375.1 499.3 Other Miscellaneous Taxes, Fees and Revenues........................ 2,110.6 2,461.6 2,256.2 2,447.7 2,265.9 Lottery Funds............................. 928.8 888.0 882.1 828.3 844.2 Tobacco Litigation Settlement(2)................ 63.8 68.4 117.6 15.7 12.5 Other Transfers............................ 466.4 530.9 583.6 626.9 545.8 Total General Fund(3)...................... 17,281.7 17,653.1 18,826.1 18,305.9 17,573.6 Property Tax Relief Fund: Gross Income Tax.......................... 11,288.0 11,249.0 12,605.5 11,727.2 10,506.6 Plus: Property Tax Dedication................ 649.0 636.0 666.0 649.3 Gross Property Tax Relief Fund............. 11,937.0 11,885.0 13,271.5 12,376.5 10,506.6 Gubernatorial Elections Fund.................... 0.7 0.7 0.5 0.5 0.5 Casino Control Fund.......................... 70.1 74.9 73.0 75.6 68.0 Casino Revenue Fund......................... 351.8 366.3 413.0 450.2 502.3 Total.................................. $29,641.3 $29,980.0 $32,584.1 $31,208.7 $28,651.0 (1) Beginning in Fiscal Year 2008, certain State Department of Transportation revenues have been included in Motor Vehicle Fees which had previously been included within Other Miscellaneous Taxes, Fees and Revenues. These include Auto Body Repair Shop Licensing, Drunk Driving Fines, Graduated Driver s License, Heavy Duty Diesel Fines, Motor Vehicle Database Automated Access, Motor Vehicle Inspection Fund, Parking Offenses, Salvage Title Program, Special Plate Fees and Uninsured Motorists Program. (2) The State has transferred to the Tobacco Settlement Financing Corporation (the Corporation ), a special purpose entity established pursuant to P.L. 2002, c. 32 (the Act ), the State s right to receive a portion of each annual tobacco settlement receipt (the TSRs ) expected to be received by the State after December 1, 2003 from the settlement of the litigation with certain of the participating tobacco companies. The Corporation has pledged the TSRs as security for its bonds. In January 2007, the Corporation issued $3,622,208,081.50 of its Tobacco Settlement Asset-Backed Bonds, Series 2007, the proceeds of which were used to refund in full, the prior Series 2002 and Series 2003 Tobacco Settlement Asset-Backed Bonds. In each of 2006, 2007 and 2008 certain of the tobacco companies withheld a portion of their annual payment (approximately $30 million of a scheduled approximate $242 million annual payment in 2006, approximately $27 million of a scheduled approximate $261 million annual payment in 2007 and approximately $22 million of a scheduled approximate $284 million annual payment in 2008) claiming that the settling states, of which the State is one, did not diligently enforce a statute (the Model Statute ) in 2003, 2004 and 2005 which requires tobacco companies that did not enter into the settlement to make certain payments for in-state tobacco product sales. On April 18, 2006, the State filed suit against the participating tobacco companies seeking a declaratory judgment that the State is diligently enforcing the Model Statute. On September 27, 2007, the court ordered the parties to arbitrate the 2003 diligent enforcement action dispute, which ruling was upheld on appeal. A multi-state arbitration of the 2003 diligent enforcement action dispute is expected to begin in 2010. While 2004, 2005 and 2006 are not subject to the court s order, the diligent enforcement dispute between the parties for those years is also ripe. In the event that the State is determined to not have diligently enforced the Model Statute in any year, the State faces a reduction in the amount of annual payments it receives in the subsequent years. In no event can the reduction exceed the amount of the payment due in the year that it failed to diligently enforce the Model Statute. Fiscal Year 2007, 2008 and 2009 payments received by the State primarily reflect unpledged residual TSRs. (3) Excludes Non-Budgeted Revenues which include primarily Federal Funds and a portion of the Energy Tax Receipts. Non-Budgeted Revenues are offset by matching appropriations; therefore, these Non-Budgeted Revenues do not affect the General Fund s Fund Balance. (4) Based upon 2008 Unaudited Financial Statements. I-13

Revenues (% of Total) 2010 Estimated 2009 Estimated 2008 Actual(1) 2007 Actual 2006 Actual General Fund: Sales and Use Tax... 29.4% 28.2% 27.4% 27.6% 23.9% Less: Property Tax Dedication... (2.2) (2.1) (2.0) Net Sales and Use Tax... 27.2 26.1 25.4 27.6 23.9 Motor Fuels Tax... 1.9 1.8 1.7 1.8 1.9 Corporation Taxes... 7.2 8.1 9.4 9.9 10.5 Motor Vehicle Fees... 1.3 1.3 1.2 0.9 1.0 Cigarette Tax... 0.9 0.8 0.8 0.7 2.2 Other Major Taxes... 6.1 6.0 6.0 6.1 7.3 Medicaid Uncompensated Care... 1.7 1.6 1.5 1.2 1.7 Other Miscellaneous Taxes, Fees and Revenues.... 7.1 8.2 6.9 7.8 7.9 Lottery Funds... 3.1 3.0 2.7 2.7 2.9 Tobacco Litigation Settlement... 0.2 0.2 0.4 0.1 0.1 Other Transfers... 1.6 1.8 1.8 2.0 1.9 Total General Fund... 58.3 58.9 57.8 60.8 61.3 Property Tax Relief Fund: Gross Income Tax... 38.1 37.5 38.7 37.6 36.7 Plus: Property Tax Dedication... 2.2 2.1 2.0 Gross Property Tax Relief Fund... 40.3 39.6 40.7 37.6 36.7 Gubernatorial Elections Fund.... Casino Control Fund... 0.2 0.3 0.2 0.2 0.2 Casino Revenue Fund... 1.2 1.2 1.3 1.4 1.8 Total... 100.0% 100.0% 100.0% 100.0% 100.0% (1) Based upon 2008 Unaudited Financial Statements. Fiscal Year 2009 and Fiscal Year 2010 Estimated Revenues Sales and Use Tax. The Sales and Use Tax collections for Fiscal Year 2009 are estimated to decrease 5.2% from Fiscal Year 2008. The Fiscal Year 2010 estimate of $8,712.2 million is a 3.1% increase from Fiscal Year 2009. Gross Income Tax. The Gross Income Tax collections for Fiscal Year 2009 are estimated to decrease 10.8% from Fiscal Year 2008. The Fiscal Year 2010 estimate is a 0.3% increase from Fiscal Year 2009. The Fiscal Year 2009 and 2010 estimates include changes to the Gross Income Tax to take into account the expansion of the New Jersey Earned Income Tax Credit in the amount of $60.0 million and $55.0 million, respectively. The Fiscal Year 2010 estimate includes $788.0 million of revenue initiatives from the following sources: $620.0 million from increasing the top tax rate to 10.25% from 8.97%; $160.0 million from the partial elimination of the Property Tax Deduction for all non-seniors; and $8.0 million for taxing lottery winnings greater than $10,000, all of which require legislative enactment. Corporation Business Tax. The Corporation Business Tax collections for Fiscal Year 2009 are estimated to decrease 20.2% from Fiscal Year 2008. The Fiscal Year 2010 estimate is a 12.3% decrease from Fiscal Year 2009. The Fiscal Year 2010 estimate includes $80.0 million for the extension of the 4.0% surcharge which was due to expire on June 30, 2009. It assumes slower growth in payments for calendar year 2009 associated with the anticipated slowdown in corporate pre-tax profit growth. Casino Revenues. The Casino Revenue Fund accounts for the taxes imposed on the casinos and other related activities. They include casino parking fees, per room per day fee on casino hotel rooms, a tax on casino complimentaries, and a tax on multi-casino progressive slot machine revenue. Collections for Fiscal Year 2009 are estimated to decrease 11.3% from Fiscal Year 2008. The Fiscal Year 2010 estimate is a 4.0% decrease from Fiscal Year 2009. The Fiscal Year 2009 and 2010 estimates reflect the phase down of certain provisions included in legislation enacted in Fiscal Year 2004, taking into account the negative impact of slot machine venues that have I-14

opened in Pennsylvania, the anticipation of a full smoking ban in October 2009, and the general economic conditions overall. General Considerations. Estimated receipts from State taxes and revenues, including the principal taxes set forth above, are forecasts based on the best information available at the time of such forecasts. Changes in economic activity in the State and the nation, consumption of durable goods, corporate financial performance and other factors that are difficult to predict may result in actual collections being more or less than forecasted. See SELECTED INFORMATION RELATING TO NEW JERSEY S ECONOMIC CONDITION herein. Given the current volatility in the financial markets, the subprime mortgage crisis, and the slowing economy overall, it is possible that revenues for Fiscal Year 2009 and/or projections of revenues developed as part of the budget process for Fiscal Year 2010 may differ from the estimates in the Governor s Fiscal Year 2010 Budget Message. If revenues are less than the amount anticipated in the budget for a fiscal year, the Governor may, pursuant to statutory authority, prevent any expenditure under any appropriation. There are additional means by which the Governor may ensure that the State is operated efficiently and does not incur a deficit. No supplemental appropriation may be enacted after adoption of an Appropriations Act except where there are sufficient revenues on hand or anticipated, as certified by the Governor, to meet such appropriation. In the past when actual revenues have been less than the amount anticipated in the budget, the Governor has exercised his or her plenary powers leading to, among other actions, implementation of a hiring freeze for all State departments and the discontinuation of programs for which appropriations were budgeted but not yet spent. See STATE FINANCES New Jersey s Budget and Appropriations System, and RECENT DEVELOPMENTS. Federal Aid Actual federal aid receipts in the General Fund and Special Transportation Fund for Fiscal Years 2006 and 2007, which are non-budgeted revenues, amounted to $8,483.4 million and $8,759.4 million, respectively. Federal receipts in the General Fund and the Special Transportation Fund for Fiscal Year 2008 are $8,815.5 million and are based upon the 2008 Unaudited Financial Statements and subject to adjustment, pending completion of the annual audit. Federal aid receipts in the General Fund and the Special Transportation Fund for Fiscal Year 2009 and Fiscal Year 2010 as contained in the Governor s Fiscal Year 2010 Budget Message are estimated to be $11,979.8 million and $13,439.9 million, respectively. Such federal aid receipts for Fiscal Year 2010 are composed of $3,993.6 million for medical payments, $49.0 million for social services block grants, $1,282.9 million for welfare, $1,774.6 million for other human services, $2,530.9 million for Title I, child nutrition and other education, $419.0 million for labor, $1,184.4 million for transportation, and the remainder for all other federal aid programs. ARRA provides for federal fiscal stimulus funding to the State for State Fiscal Years 2009 and 2010. The funding across both fiscal years totals approximately $3.1 billion. State Fiscal Year 2009 funding of $854.0 million reflects $600.0 million for enhanced Medicaid funding with the remainder primarily for fiscal stabilization which the State will use as a resource for the General Fund. For State Fiscal Year 2010, the total funding of $2.2 billion is primarily allocated as follows: $1.06 billion for enhanced Medicaid funding, $1.1 billion for fiscal stabilization which will be used primarily to support education spending which generally would have been funded through State revenues and $591.1 million for transportation projects. Appropriations Appropriations Fiscal Year 2006 through Fiscal Year 2010 The following table sets forth the composition of annual appropriations, including supplemental appropriations, from the General Fund, the Property Tax Relief Fund, the Gubernatorial Elections Fund, the LTOCEF, the Casino Control Fund and the Casino Revenue Fund for the Fiscal Years 2006 through 2010. Should tax revenues be less than the amount anticipated in the Appropriations Act, the Governor may, pursuant to statutory authority, prevent any expenditure under any appropriation. The amounts appropriated for Fiscal Years 2006 and 2007 are actual and final. The amounts appropriated for Fiscal Year 2008 are based on appropriations contained in the Fiscal Year 2008 Appropriations Act, plus supplemental appropriations, and are subject to adjustment pending completion of the annual audit. The amounts appropriated for Fiscal Year 2009 and Fiscal Year 2010 reflect the amounts shown in the Governor s Fiscal Year 2010 Budget Message. The State has made appropriations for principal and interest payments for general obligation bonds for Fiscal Years 2006 through 2008 in the amounts of $169.3 million, $427.8 million, and $438.8 million, respectively. The Governor s Fiscal Year 2010 Budget Message includes an appropriation in the amount of $270.9 million for Fiscal I-15

Year 2009 and $47.6 million for Fiscal Year 2010, representing principal and interest payments for general obligation bonds. The original Fiscal Year 2009 appropriation assumed a savings of $135.0 million from retiring and defeasing debt through the use of $650.0 million appropriated from the LTOCEF. This debt retirement and defeasance was not implemented in Fiscal Year 2009, due to concerns about weakening General Fund revenues. A Fiscal Year 2009 supplemental appropriation of $135.0 million from the LTOCEF was authorized to meet general obligation bond principal and interest debt service payments. The Governor s Fiscal Year 2010 Budget Message recommendation of $47.6 million represents the anticipated savings from restructuring of both general obligation bonds and obligations supported by State revenue subject to annual appropriation. There is a proposed language provision which contains authority to transfer appropriations for debt service on obligations supported by State revenue subject to annual appropriations to debt service on the general obligation bonds for Fiscal Year 2010 to reflect the results of the restructuring if needed. The appropriations for Fiscal Years 2006 through 2008 reflect amounts provided in the Appropriations Act for Fiscal Years 2006 through 2008 plus enacted supplemental appropriations and authorized lapses. The adjusted appropriations for Fiscal Year 2009 are as set forth in the Governor s Fiscal Year 2010 Budget Message and do not reflect significant reductions in anticipated expenditures that have been undertaken and will continue to be undertaken in the course of Fiscal Year 2009, in response to unanticipated declines in tax revenues. These revenue declines resulted in a shortfall of approximately $3.3 billion in Fiscal Year 2009. See RECENT DEVELOPMENTS Changes in Fiscal Year 2009-Effect of Economic Downturn on Fiscal Year 2009 and Fiscal Year 2010. Appropriations for Fiscal Year 2010 will be supported by $2,220.9 million in federal stimulus funding under the ARRA. This temporary federal funding is estimated to include $1,060.0 million for support of Medicaid programs, $1,091.0 million for fiscal stabilization and $591.1 million for transportation projects. I-16

APPROPRIATIONS ($ MILLIONS) 2010 Estimated For the Fiscal Year Ended June 30, 2009 Estimated 2008 Actual (1) 2007 Actual 2006 Actual (2) General Fund: Legislative Branch...... $ 73.8 $ 74.6 $ 75.5 $ 73.9 $ 74.2 Chief Executive s Office... 4.7 5.3 5.1 4.9 5.0 Department of: Agriculture.... 24.6 22.5 26.4 25.7 22.5 Banking and Insurance... 67.5 71.4 70.3 68.9 67.0 Children and Families(2)...... 1,092.3 1,089.3 1,064.4 959.4 Community Affairs.... 290.2 303.4 145.4 253.7 199.2 Corrections.... 1,189.4 1,196.1 1,129.3 1,075.6 1,054.6 Education..... 810.4 1,067.8 751.1 940.0 734.1 Environmental Protection..... 360.1 424.2 466.2 460.9 345.6 Health and Senior Services(3)... 1,055.1 1,399.7 1,464.5 1,513.8 1,335.0 Human Services...... 4,461.8 4,827.8 4,665.9 4,510.8 5,161.9 Labor and Workforce Development(3)(4)..... 144.8 303.7 394.5 117.9 107.1 Law and Public Safety... 539.2 558.4 592.2 574.2 560.3 Military and Veterans Affairs... 91.3 94.7 93.7 91.0 87.6 Personnel(3)... 22.4 24.0 24.5 Public Advocate...... 16.8 17.1 19.2 19.4 State... 1,258.4 1,283.7 1,291.4 1,225.9 1,296.6 Transportation... 1,253.0 1,353.8 1,290.0 1,292.2 1,178.4 Treasury(3).... 1,139.7 1,369.0 1,488.2 1,454.4 1,083.9 Miscellaneous Executive Commissions... 1.5 1.5 1.4 1.4 1.4 Inter-Departmental Accounts Employee Benefits and Miscellaneous... 2,950.5 3,288.4 4,197.5 3,288.0 3,003.6 Judicial Branch... 648.4 641.0 594.4 567.7 554.0 Total General Fund.... $17,473.5 $19,393.4 $19,849.0 $18,543.7 $16,896.5 Property Tax Relief Fund: Department of: Community Affairs.... $ 819.7 $ 847.5 $ 1,160.3 $ 1,061.4 $ 927.1 Education..... 9,603.3 10,502.5 10,257.4 9,473.7 8,707.0 Environmental Protection..... 10.0 10.0 9.8 9.5 9.0 Human Services...... 148.1 Treasury...... 1,504.0 2,042.0 2,636.1 1,342.1 963.5 Total Property Tax Relief Fund.... $11,937.0 $13,402.0 $14,211.7 $11,886.7 $10,606.6 Gubernatorial Elections Fund.... $ 7.9 $ 5.1 $ $ $ 2.0 Casino Control Fund Department of: Law and Public Safety... $ 44.0 $ 46.0 $ 44.6 $ 44.0 $ 42.6 Treasury...... 26.6 29.4 29.4 29.4 28.7 Total Casino Control Fund... $ 70.6 $ 75.4 $ 74.0 $ 73.4 $ 71.3 Casino Revenue Fund Department of: Health and Senior Services.... $ 188.8 $ 202.4 $ 280.8 $ 317.8 $ 331.6 Human Services...... 130.5 130.5 112.9 163.7 142.8 Labor and Workforce Development... 2.2 2.4 2.4 2.5 2.4 Law and Public Safety... 0.1 0.1 0.1 0.1 0.1 Transportation... 30.2 33.0 36.9 34.9 34.4 Treasury...... Total Casino Revenue Fund.... $ 351.8 $ 368.4 $ 433.1 $ 519.0 $ 511.3 Total Appropriations... $29,840.8 $33,244.3 $34,567.8 $31,022.8 $28,087.7 (1) Based upon 2008 Unaudited Financial Statements. (2) Pursuant to P.L. 2006, c. 47, the Department of Children and Families was established as a department of the Executive Branch of State Government, effective July 1, 2006. The amount listed as the Fiscal Year 2007 Appropriations for the new Department of Children and Families represents the transfer of all Children Services programs from the Department of Human Services to the Department of Children and Families. I-17

(3) The Fiscal Year 2009 Appropriations Act provides for the elimination of the Department of Personnel and transfers functions, powers and duties, primarily to a new Civil Service Commission that now resides in but not of the Departments of Labor and Workforce Development, Health and Senior Services, and Treasury. The Fiscal Year 2009 Appropriations Act also provides language provisions to effectuate the transfer of their respective appropriations to the corresponding departments. (4) During Fiscal Year 2008 and Fiscal Year 2009, $260.0 million and $150.0 million, respectively, was transferred from the General Fund to the Department of Labor and Workforce Development for deposit into the Unemployment Insurance Trust Fund ( Trust Fund ). This funding measure enabled the Trust Fund to meet federal solvency requirements. Because of the economic downturn and the greatly increased number of persons filing for unemployment insurance, it was necessary for the State to borrow funds from the federal government to meet current claims. These borrowings may be repaid from federal economic stimulus funds received under ARRA or from unemployment tax collections. However, such receipts may not be sufficient and it may be necessary for the State to borrow additional funds from the federal government or to increase unemployment insurance taxes. The following table sets forth appropriations by department and by major category for Fiscal Year 2009 and Fiscal Year 2010 as contained in the Governor s Fiscal Year 2010 Budget Message. STATE OF NEW JERSEY APPROPRIATIONS FOR BUDGETED FUNDS * GOVERNOR S FISCAL YEAR 2010 BUDGET MESSAGE FOR THE FISCAL YEAR ENDED JUNE 30, 2010 ($ MILLIONS) Government Branch Direct State Services Grants In-Aid State Aid Capital Construction Debt Service Executive Chief Executive s Office... $ 4.7 $ $ $ $ $ 4.7 Agriculture... 7.1 6.0 11.5 24.6 Banking and Insurance... 67.5 67.5 Children and Families... 328.0 764.1 0.2 1,092.3 Community Affairs... 37.5 56.2 1,016.2 1,109.9 Corrections... 1,020.3 129.9 22.4 16.8 1,189.4 Education... 71.2 13.5 10,328.6 0.4 10,413.7 Environmental Protection... 216.3 15.0 19.3 77.1 42.4 370.1 Health and Senior Services... 64.6 1,169.7 9.6 1,243.9 Human Services... 496.9 3,599.3 491.2 4.9 4,592.3 Labor and Workforce Development.... 81.8 65.2 147.0 Law and Public Safety... 546.6 31.3 6.7 6.6 591.2 Military and Veterans Affairs... 87.9 3.2 0.2 91.3 Public Advocate... 16.8 16.8 State.... 31.5 1,203.5 23.4 1,258.4 Transportation... 61.8 296.2 30.2 895.0 1,283.2 Treasury... 452.9 1,810.0 402.2 5.2 2,670.3 Miscellaneous... 1.5 1.5 Interdepartmental... 1,798.4 939.6 212.5 2,950.5 Subtotal:... 5,393.3 10,102.7 12,361.3 1,213.7 47.6 29,118.6 Legislative.... 73.8 73.8 Judicial... 648.4 648.4 Grand Total:... $6,115.5 $10,102.7 $12,361.3 $1,213.7 $47.6 $29,840.8 * Budgeted funds include the General Fund, the Property Tax Relief Fund, the Casino Revenue Fund, the Casino Control Fund, and the Gubernatorial Elections Fund. I-18 Total

Government Branch STATE OF NEW JERSEY ADJUSTED APPROPRIATIONS FOR BUDGETED FUNDS (1) FOR THE FISCAL YEAR ENDED JUNE 30, 2009 ($ MILLIONS) Direct State Services Grants In-Aid State Aid Capital Construction Debt Service Executive Chief Executive s Office... $ 5.3 $ $ $ $ $ 5.3 Agriculture... 7.5 4.1 10.9 22.5 Banking and Insurance... 71.4 71.4 Children and Families... 334.7 754.6 1,089.3 Community Affairs... 38.1 65.4 1,047.4 1,150.9 Corrections... 1,053.1 120.0 23.0 1,196.1 Education.... 72.2 18.6 11,479.5 11,570.3 Environmental Protection... 231.0 22.2 19.4 101.9 59.7 434.2 Health and Senior Services... 60.9 1,531.7 9.5 1,602.1 Human Services... 522.9 4,004.9 430.5 4,958.3 Labor and Workforce Development... 82.6 222.0 1.5 306.1 Law and Public Safety... 566.0 32.5 11.1 609.6 Military and Veterans Affairs.... 91.5 3.2 94.7 Personnel.... Public Advocate... 17.1 17.1 State.... 36.6 1,212.2 34.9 1,283.7 Transportation.... 100.6 358.2 33.0 895.0 1,386.8 Treasury..... 467.4 2,305.2 456.6 211.2 3,440.4 Miscellaneous... 1.5 1.5 Interdepartmental... 2,166.4 912.6 209.4 3,288.4 Subtotal:... 5,926.8 11,567.4 13,557.3 1,206.3 270.9 32,528.7 Legislative... 74.6 74.6 Judicial... 641.0 641.0 Grand Total:... $6,642.4 $11,567.4 $13,557.3 $1,206.3 $270.9 $33,244.3 (1) Adjusted appropriations reflect the addition of any supplemental appropriations made by the Legislature and approved by the Governor to the appropriations contained in the Fiscal Year 2009 Appropriations Act. Lapses in appropriations are not reflected in the table above. See SUMMARY OF REVENUES, APPROPRIATIONS AND UNDESIGNATED FUND BALANCES GENERAL STATE FUNDS herein. Total I-19

The following table sets forth, by major category, the original and supplemental appropriations for Fiscal Year 2009 and the appropriations for Fiscal Year 2010 as contained in the Governor s Fiscal Year 2010 Budget Message. SUMMARY OF APPROPRIATIONS ($ Millions) Fiscal Year 2010 Fiscal Year 2009 Dollar Change Percentage Change State Aid... $12,361.3 $13,557.3 $(1,196.0) (8.8)% Grants-In-Aid... 10,102.7 11,567.4 (1,464.7) (12.7)% Direct State Services... 6,115.5 6,642.4 (526.9) (7.9)% Capital Construction... 1,213.7 1,206.3 7.4 0.6% Debt Service... 47.6 270.9 (223.3) (82.4)% Total:... $29,840.8 $33,244.3 $(3,403.5) (10.2)% The 8.8% recommended reduction in State Aid is predominantly due to reductions in State funding for education that are offset by federal fiscal stabilization funding under ARRA, and decreases in local employee benefits and municipal aid. The 12.7% recommended reduction in Grants-in-Aid reflects decreases in Medicaid funding that are offset by federal economic stimulus funding, Homestead Rebates, unemployment compensation insurance, NJ Transit, and operating aid to colleges and universities. The 7.9% recommended reduction in Direct State Services reflects savings from an Executive branch wage freeze and employee furlough program, partially offset by increased benefits costs for State employees. The 0.6% recommended increase in Capital Construction reflects increases for prison renovations and flood control, partially offset by reductions in shore protection. The 82.4% recommended reduction in Debt Service reflects projected debt service growth of $137.7 million, offset by debt restructuring savings of $361 million. The restructuring will include both general obligation bonds and obligations supported by State revenue subject to annual appropriation. Fiscal Year 2010 Recommended Appropriations by Use ($ in Millions) Capital Construction $1,213.7 4.1% Debt Service $47.6 0.2% Direct State Services $6,115.5 20.5% State Aid $12,361.3 41.4% Grants-In-Aid $10,102.7 33.9% Total - $29,840.8 I-20

Fiscal Year 2009 Adjusted Appropriations by Use ($ in Millions) Capital Construction $1,206.3 3.6% Debt Service $270.9 0.8% Direct State Services $6,642.4 20.0% State Aid $13,557.3 40.8% Grants-In-Aid $11,567.4 34.8% Total - $33,244.3 Programs Funded Under Recommended Appropriations in Fiscal Year 2010 Of the $29,840.8 million recommended for Fiscal Year 2010 from the General Fund, the Property Tax Relief Fund, the Casino Control Fund, the Casino Revenue Fund and the Gubernatorial Elections Fund, $12,361.3 million (41.4%) is recommended for State Aid, $10,102.7 million (33.8%) is recommended for Grants-in-Aid, $6,115.5 million (20.5%) is recommended for Direct State Services, $47.6 million (0.2%) is recommended for Debt Service on State General Obligation Bonds (see FINANCIAL RESULTS AND ESTIMATES Appropriations, above) and $1,213.7 million (4.1%) is recommended for Capital Construction. State Aid State Aid is the largest portion of Fiscal Year 2010 recommended appropriations. These consist of payments to, or on behalf of, counties, municipalities and school districts, to assist them in carrying out their local responsibilities. The largest recommended State Aid appropriation, in the amount of $10,328.6 million, is provided for local preschool, elementary and secondary education programs. Of this amount, $7,485.6 million in formula aid for P-12 education is recommended to be distributed in accordance with the School Funding Reform Act of 2008. See LITIGATION Abbott v. Burke (Review of Constitutionality of School Reform Act) herein. $655.9 million is recommended for the School Construction and Renovation Program and $99.3 million is recommended in School Building Aid; this funding will service State school construction debt on new and existing bond issues, as well as provide aid for qualifying local debt issued for school construction. In addition, $1,800.4 million is recommended on behalf of school districts as the employers share of the social security and teachers pensions and benefits programs. Recommended appropriations to the Department of Community Affairs total $1,016.2 million in State Aid monies for Fiscal Year 2010. Consolidated Municipal Property Tax Relief Aid is recommended in the amount of I-21

$776.8 million. Other existing programs funded by these recommended appropriations include $142.4 million for Special Municipal Aid, $34.9 million for Trenton Capital City Aid, $24.5 million for Extraordinary Aid, $6.0 million for the Regional Efficiency Aid Program, $8.0 million for the Consolidation Fund and $13.9 million for housing programs. Recommended appropriations for the Department of Human Services total $491.2 million in State Aid monies for Fiscal Year 2010. The principal programs funded by these recommended appropriations are $138.9 million for patients in county psychiatric hospitals and $352.3 million for various income maintenance programs for the economically disadvantaged. Recommended appropriations for the Department of the Treasury total $402.2 million in State Aid monies for Fiscal Year 2010. The principal programs funded by these recommended appropriations are aid to county colleges ($205.3 million) and the cost of senior citizens, disabled and veterans property tax deductions and exemptions ($89.0 million). These recommended appropriations also include $27.0 million for County Solid Waste Debt Service Aid. $22.4 million is recommended for the Department of Corrections for inmate addiction services at county penal facilities. Fiscal Year 2010 State Aid Recommended Appropriations ($ in Millions) Senior, Disabled & Vet, s Deductions/Exemptions $89.0 0.7% Aid to County Colleges $205.3 1.7% Income Maintenance Programs $352.3 2.9% Aid to County Psych Hospitals $138.9 1.1% Other State Aid Programs $231.0 1.9% Municipal Aid $1,016.2 8.2% School Aid $10,328.6 83.6% Total - $12,361.3 I-22

Fiscal Year 2009 State Aid Adjusted Appropriations ($ in Millions) Senior, Disabled & Vet, s Deductions/Exemptions $92.0 0.7% Aid to County Colleges $207.6 1.5% Income Maintenance Programs $306.3 2.3% Aid to County Psych Hospitals $123.8 0.9% Other State Aid Programs $300.7 2.2% Municipal Aid $1,047.4 7.7% School Aid $11,479.5 84.7% Total - $13,557.3 Grants-in-Aid The second largest portion of the recommended appropriations in Fiscal Year 2010 is for Grants-in-Aid. These represent payments to individuals or public or private agencies for benefits to which a recipient is entitled by law, or for the provision of services on behalf of the State. The amount recommended in Fiscal Year 2010 for Grants-in-Aid is $10,102.7 million. $3,599.3 million is recommended for programs administered by the Department of Human Services. Of that amount, $2,045.7 million is for medical services provided under the Medicaid program (excluding FamilyCare), $585.7 million is for community programs for the developmentally disabled, $340.8 million is for community programs for the mentally ill, $263.1 million is for assistance programs for the economically disadvantaged and homeless, $306.1 million is for health insurance for adults and children through the FamilyCare program, and $44.3 million is for addiction services. $1,810.0 million is recommended for the Department of the Treasury. Included in this amount is $1,173.6 million for the Fiscal Year 2010 Homestead Rebate program, which will provide a maximum property tax credit/rebate of up to 20.0% of the first $10,000 of property taxes paid by senior homeowners earning up to $150,000 and non-senior homeowners earning up to $75,000. Also included in the recommended appropriation is $194.0 million for Business Employment Incentive Program grants, $172.5 million for the Senior and Disabled Citizen Property Tax Freeze and $75.8 million for the Lifeline Program in the Board of Public Utilities. $1,169.7 million is recommended for programs administered by the Department of Health and Senior Services. Of that amount, $623.9 million is for medical services for the aged, $228.7 million is for pharmaceutical assistance to the aged and disabled, $96.8 million is for the Early Childhood Intervention Program, $34.0 million is for AIDS services, and $30.2 million is for other programs for the aged. $844.9 million is recommended for State colleges and universities. Other higher education recommended appropriations are $430.4 million for various grant programs including $329.5 million for student financial assistance, $17.5 million to support independent colleges and universities, $32.5 million for debt service for the Dormitory Safety Trust Fund, the Equipment Leasing Fund, the Higher Education Facilities Trust Fund and I-23

$43.9 million for debt service on the Higher Education Capital Improvement Program. In addition, $792.7 million is recommended for fringe benefit costs of State college and university employees. $764.1 million is recommended for programs administered by the Department of Children and Families. Of that amount, $458.4 million is for child protective and permanency services, $244.3 million is for child behavioral health services and $61.4 million is for community programs intended to prevent child abuse and neglect. $296.2 million is recommended for the Department of Transportation for bus and railroad subsidies. $129.9 million is recommended for the Department of Corrections (including the State Parole Board). The largest items of recommended appropriation in this Department are $31.2 million for payments to county penal facilities to house State inmates, $61.5 million for the purchase of community services and $37.1 million for alternative parole programs. Transportation $296.2 2.9% Children and Families Programs $764.1 7.6% Higher Education $2,068.0 20.5% Other DHSS Programs $317.1 3.1% Fiscal Year 2010 Grants in Aid Recommended Appropriations ($ in Millions) Medical Service for the Aged and PAAD $852.6 8.4% Corrections $129.9 1.3% Other Treasury Programs $368.4 3.6% Other Grants-in-Aid Programs $361.0 3.6% Medicaid $2,045.7 20.2% Total - $10,102.7 Community Programs for Developmentally/Mentally Ill $926.5 9.2% Other Department of Human Services Programs $627.1 6.2% Homestead Rebate & Sr and Disabled Property Tax Freeze $1,346.1 13.3% I-24

Children and Families Programs $754.6 6.5% Higher Education $2,057.9 17.8% Other DHSS Programs $328.0 2.8% Fiscal Year 2009 Grants in Aid Adjusted Appropriations ($ in Millions) Transportation $358.2 3.1% Corrections $120.0 1.0% Other Grants-in-Aid Programs $495.1 4.3% Medicaid $2,596.3 22.4% Community Programs for Developmentally/Mentally Ill $919.3 7.9% Other Department of Human Services Programs $489.3 4.2% Medical Service for the Aged and PAAD $1,203.7 10.4% Other Treasury Programs $368.5 3.2% Total - $11,567.4 Homestead Rebate & Sr and Disabled Property Tax Freeze $1,876.5 16.2% Direct State Services The third largest portion of the recommended appropriations in Fiscal Year 2010 is applied to Direct State Services, which supports the operation of State government s departments, the Executive Office, several commissions, the State Legislature and the Judiciary. In Fiscal Year 2010, recommended appropriations for Direct State Services aggregate to $6,115.5 million. Some of the major recommended appropriations for Direct State Services during Fiscal Year 2010 are described below. $1,464.8 million is recommended in the Interdepartmental Accounts for fringe benefits for active and retired State employees, including pensions ($82.4 million), health benefits ($916.2 million), employer taxes ($375.3 million) and a portion of the debt service on State Pension Funding Bonds ($90.9 million) issued by the New Jersey Economic Development Authority. $1,020.3 million is recommended for the Department of Corrections (including the State Parole Board) and $546.6 million is recommended for the Department of Law and Public Safety (including the Juvenile Justice Commission). Among programs funded by these recommended appropriations are the administration of the State s correctional facilities and parole activities, and the investigative and enforcement activities of the State Police. $497.0 million is recommended for programs administered by the Department of Human Services. Of that amount, $407.3 million is recommended for mental health and developmentally disabled programs, including the operation of five psychiatric institutions ($291.6 million) and seven developmental centers ($90.1 million); $23.9 million is recommended for administration of the various income maintenance programs, including Work First New Jersey; and $27.8 million is recommended for administration of the Medicaid program. $327.9 million is recommended for programs administered by the Department of Children and Families for various children services programs. $216.3 million is recommended for the Department of Environmental Protection for the protection of air, land, water, forest, wildlife and shellfish resources and for the provision of outdoor recreational facilities. I-25

$81.9 million is recommended for the Department of Labor and Workforce Development for the administration of programs for workers compensation, unemployment and temporary disability insurance, workforce development and health safety inspection and the Civil Service Commission. $64.6 million is recommended for the Department of Health and Senior Services for the prevention and treatment of diseases, regulation of health care facilities, the uncompensated care program and senior services programs. Of that amount, $7.6 million is recommended for anti-smoking programs. $61.8 million is recommended for the Department of Transportation for the various programs it administers, such as maintenance of and improvements to the State highway system. Fiscal Year 2010 Direct State Services Recommended Appropriations ($ in Millions) Labor & Workforce Development $81.9 1.3% Health & Senior Services $64.6 1.1% Other State Operating $1,047.5 17.1% Transportation $61.8 1.0% Legislature & Judiciary $786.8 12.9% Fringe Benefits Active & Retired State Employees $1,464.8 24.0% Corrections $1,020.3 16.7% Environmental Protection $216.3 3.5% Children & Families $327.9 5.4% Human Services $497.0 8.1% Total - $6,115.5 Law & Public Safety $546.6 8.9% I-26

Fiscal Year 2009 Direct State Services Adjusted Appropriations ($ in Millions) Labor & Workforce Development $82.6 1.2% Other State Operating $1,136.1 17.1% Legislature & Judiciary $776.5 11.7% Fringe Benefits Active & Retired State Employees $1,778.0 26.8% Health & Senior Services $60.9 0.9% Transportation $100.6 1.5% Corrections $1,053.1 15.9% Capital Construction Environmental Protection $231.0 3.5% Children & Families $334.7 5.0% Human Services $522.9 7.9% Total - $6,642.4 Law & Public Safety $566.0 8.5% Capital Construction is funded by a combination of appropriation of current revenues on a pay-as-you-go basis and bond proceeds. The Governor s Fiscal Year 2010 Budget Message recommends $1,213.7 million for this purpose. This amount includes $895.0 million for transportation projects and debt service, which is being credited to the Transportation Trust Fund Account of the General Fund. Of the remainder, $98.0 million is for open space, farmland and historic preservation projects and debt service and is being credited to the Garden State Preservation Trust Fund Account of the General Fund, $38.7 million is for hazardous substance remediation and the redevelopment of brownfields, $25.3 million is for shore protection and flood control projects, $13.2 million is for capital improvements for parks, forestry and wildlife management areas and $10.0 million is for energy efficiency projects. All appropriations for such capital projects are subject to the prior review and recommendation of the New Jersey Commission on Capital Budgeting and Planning (the Commission ) which was established in November 1975. This permanent commission is charged with the preparation of the State s seven-year Capital Improvement Plan. The Capital Improvement Plan is a detailed account of all capital construction projects requested by State departments, agencies and institutions of higher education for the next three fiscal years and forecasts as to the requirements for capital projects for the four fiscal years following. The Capital Improvement Plan includes the Commission s recommendations as to the priority of such capital projects and the means of funding them. The Commission is also charged with reviewing and voting on the State s annual Debt Report. This report on the State s overall debt includes information on the outstanding general obligation debt and appropriation backed bonds and debt service costs for the prior fiscal year, the current fiscal year, and the estimated amount for the subsequent five fiscal years. The report also provides similar information on capital leases and installment obligations. For Fiscal Year 2010, requests for Capital Construction funding were substantially greater than the amount recommended by the Commission. The appropriations for Capital Construction contained in the Governor s Fiscal Year 2010 Budget Message are largely based on the recommendations of the Commission. There can be no assurance that funds will be available in amounts recommended, nor is there any assurance that the amounts recommended are sufficient to maintain or improve the State s capital facilities and infrastructure assets. I-27

Debt Service on General Obligation Bonds The State finances certain capital projects through the sale of general obligation bonds of the State. These bonds are backed by the faith and credit of the State. Certain State tax revenues and certain other fees are pledged to meet the principal payments, interest payments, and redemption premium payments, if any, required to fully pay the bonds. For a listing of bonded indebtedness which was authorized and outstanding as of June 30, 2008, see OUTSTANDING BONDED INDEBTEDNESS OF THE STATE herein. The recommended appropriation for debt service on the State s general obligation bonds is $47.6 million for Fiscal Year 2010. This assumes restructuring of certain general obligation bonds and appropriation-backed bonds. See FINANCIAL RESULTS AND ESTIMATES Appropriations, above. Expenditures As used herein, the term expenditures designates that fiscal year s net disbursements plus amounts obligated for payment in a subsequent fiscal year. The table on the following page displays the expenditures for Fiscal Years 2006 through 2008. Expenditures exceed the dollar amounts enumerated in the annual appropriations acts by reason of and only to the extent of specific provisions in the authorizing acts which appropriate (or permit the expenditure of) unexpended balances of prior appropriations, certain cash receipts (such as student service fees and extension fees at State colleges) and most federal aid. Such unexpended balances, cash receipts and federal aid are not included in the tables of appropriations or revenues herein. I-28

EXPENDITURES ($ Millions) For the Fiscal Year Ended June 30 2008 Actual (1) 2007 Actual 2006 Actual General Fund: Legislative Branch... $ 77.5 $ 77.8 $ 75.3 Chief Executive s Office..... 5.7 5.9 5.8 Department of: Agriculture... 314.9 309.0 284.0 Banking and Insurance...... 73.4 93.6 70.0 Children and Families...... 1,469.7 1,336.9 Community Affairs... 719.2 806.4 644.6 Corrections... 1,204.8 1,201.1 1,131.9 Education... 1,537.0 1,771.4 1,554.9 Environmental Protection.... 538.8 530.2 438.4 Health and Senior Services.... 3,263.8 3,156.2 3,049.8 Human Services... 9,608.1 9,210.0 10,272.3 Labor and Workforce Development... 1,001.2 696.7 721.4 Law and Public Safety...... 1,078.1 1,045.2 1,062.6 Military and Veterans Affairs... 168.3 127.7 117.5 Personnel.... 26.3 27.5 29.0 Public Advocate.... 19.6 16.8 State... 1,380.7 1,306.2 1,397.7 Transportation... 1,666.4 1,648.9 1,522.5 Treasury... 2,835.5 2,742.2 2,234.5 Miscellaneous Executive Commission... 1.4 1.4 1.4 Inter-Departmental Accounts... 4,017.4 3,102.0 2,845.7 Judicial Branch... 749.4 718.1 687.0 Total General Fund... $31,757.2 $29,931.2 $28,146.3 Property Tax Relief Fund: Department of: Community Affairs... $ 1,010.7 $ 976.8 $ 869.0 Education... 10,224.4 9,411.1 8,710.4 Environmental Protection.... 9.8 9.1 8.7 Human Services... 148.0 Treasury... 2,461.0 1,299.1 1,346.1 Total Property Tax Relief Fund.... $13,853.9 $11,696.1 $10,934.2 Gubernatorial Elections Fund... $ $ $ 1.8 Casino Control Fund: Department of: Law and Public Safety...... $ 43.5 $ 43.6 $ 42.3 Treasury... 28.1 29.5 28.8 Total Casino Control Fund... $ 71.6 $ 73.1 $ 71.1 Casino Revenue Fund: Department of: Health and Senior Services.... $ 276.3 $ 259.6 $ 489.5 Human Services... 112.9 163.0 142.8 Labor and Workforce Development... 2.4 2.4 2.4 Law and Public Safety...... 0.1 0.1 0.1 Transportation... 36.9 34.9 34.4 Total Casino Revenue Fund... $ 428.6 $ 460.0 $ 669.2 Total Expenditures... $46,111.3 $42,160.4 $39,822.6 (1) Based on 2008 Unaudited Financial Statements. I-29

Balance Sheets The comparative balance sheets for the General Fund as of June 30, 2007 and 2008 and the balance sheets of the Casino Control Fund, the Casino Revenue Fund, the Gubernatorial Elections Fund and the Property Tax Relief Fund as of June 30, 2008 are set forth below. The June 30, 2007 balance sheet is audited and the June 30, 2008 balance sheet is unaudited. See STATE FINANCES New Jersey s Accounting System. GENERAL FUND COMPARATIVE BALANCE SHEETS As of June 30 2008 2007 Unaudited Audited ASSETS Cash and Cash Equivalents... $ 45,603,027 $ 57,018,656 Investments... 3,057,213,911 3,874,790,938 Receivables, Net of Allowances for Uncollectibles Federal Government... 431,444,949 193,242,790 Departmental Accounts... 1,941,974,322 1,975,320,471 Loans... 22,183,281 21,748,793 Other... 200,374,040 205,462,726 Advances to Other Funds... 8,000,000 Other Assets Due from Other Funds.... 1,346,743,638 1,539,277,518 Deferred Charges.... Other... 23,479,791 32,500,204 Total Assets... $7,077,016,959 $7,899,362,096 LIABILITIES AND FUND BALANCES Liabilities Accounts Payable... $1,787,322,891 $1,693,323,170 Deferred Revenue... 287,442,887 311,223,246 Due to Other Funds(1)... 375,542,359 1,175,825,812 Other... 85,406,430 117,142,957 Total Liabilities... $2,535,714,567 $3,297,515,185 Fund Balances Reserved: Reserved for Encumbrances... $ 923,852,981 $ 974,465,893 Reserved Other... 65,805,449 251,357,872 Reserved Surplus Revenue... 734,706,805 484,564,562 Unreserved: Designated for Unrealized Gains... 7,986,758 Designated for Continuing Appropriations... 2,347,110,195 1,473,117,947 Undesignated.... 469,826,962 1,410,353,879 Total Fund Balances... $4,541,302,392 $4,601,846,911 Total Liabilities and Fund Balances.... $7,077,016,959 $7,899,362,096 (1) The Fiscal Year 2008 decrease in Due to Other Funds mainly represents the constitutionally dedicated revenue derived from a tax rate of 0.5% imposed under the Sales and Use Tax that was collected in Fiscal Year 2007 in the General Fund but was transferred to the Property Tax Relief Fund as of June 30, 2007. See the 2007 CAFR and the 2008 Unaudited Financial Statements, incorporated herein by reference, for the notes which are an integral part of these financial statements and for further information concerning the other funds of the State. I-30

BALANCE SHEET AS OF JUNE 30, 2008 (Unaudited) Casino Control Fund(1) Casino Revenue Fund(2) Gubernatorial Elections Fund(3) Property Tax Relief Fund(4) ASSETS Cash and Cash Equivalents.... $ 51,000 $ $ $ Investments... Receivables, Net of Allowances for Uncollectibles: Departmental Accounts... 11,718,146 27,897,569 486,625 685,649,422 Other Assets Due from Other Funds... 1,888,499 54,166,956 603,485 10,955,770 Total Assets... $13,657,645 $82,064,525 $1,090,110 $696,605,192 LIABILITIES AND FUND BALANCES Liabilities Accounts Payable... $ 4,994,102 $26,979,251 $ $ 48,298,848 Deferred Revenue... 3,222,500 7,000 Due to Other Funds... 396,033,425 Other.... 115,871,560 Total Liabilities... $ 8,216,602 $26,986,251 $ $560,203,833 Fund Balances Reserved for Encumbrances... $ 1,789,974 $55,078,274 $ $ 19,618,659 Unreserved: Designated for Continuing Appropriations... 643,592 17,835,541 Undesignated... 3,007,477 1,090,110 98,947,159 Total Fund Balances.... $ 5,441,043 $55,078,274 $1,090,110 $136,401,359 Total Liabilities and Fund Balances... $13,657,645 $82,064,525 $1,090,110 $696,605,192 (1) The Casino Control Fund is used to account for fees from the issuance and annual renewal of casino licenses. Approprations are made to fund the operations of the Casino Control Commission and the Division of Gaming Enforcement. The Casino Control Fund was established by N.J.S.A. 54:12-143, approved June 2, 1977. (2) The Casino Revenue Fund is used to account for the tax on gross revenues generated by the casinos. Gross revenue refers to the total of all sums actually received by a licensee from gaming operations, less the total sums paid out as winnings to patrons. Appropriations from this fund must be used for reductions in property taxes, utility charges and other expenses of eligible senior citizens and disabled residents. The Casino Revenue Fund was established by N.J.S.A. 54:12-25, approved June 2, 1977. (3) The Gubernatorial Elections Fund is used to account for receipts from the dollar designations on New Jersey Gross Income Tax returns. When indicated by the taxpayer, one dollar of the tax is reserved from Gross Income Tax revenues and credited to the Gubernatorial Elections Fund. These funds are available for appropriation pursuant to The New Jersey Campaign Contributions and Expenditures Reporting Act (P.L. 1973, c. 83), as amended. The Gubernatorial Elections Fund was established by the New Jersey Gross Income Tax Act, N.J.S.A. 54A:9-25, approved July 8, 1976. (4) The Property Tax Relief Fund is used to account for revenues from the New Jersey Gross Income Tax and for revenues derived from a tax rate of 0.5% imposed under the Sales and Use Tax that is constitutionally dedicated toward property tax reform. Revenues realized from the Gross Income Tax and derived from a tax rate of 0.5% imposed under the Sales and Use Tax are dedicated by the State Constitution. All receipts from taxes levied pursuant to the New Jersey Gross Income Tax on personal income of individuals, estates, and trusts must be appropriated exclusively for the purpose of reducing or offsetting property taxes. Annual appropriations are made from the Fund, pursuant to formulas established by the State Legislature, to counties, municipalities and school districts. The Property Tax Relief Fund was established by the New Jersey Gross Income Tax Act, N.J.S.A. 54A:9-25, approved July 8, 1976. I-31

OUTSTANDING BONDED INDEBTEDNESS OF THE STATE The following table sets forth the authorized and outstanding general obligation bonded indebtedness of the State as of June 30, 2008. No additional general obligation bonds have been issued subsequent to June 30, 2008. See also OBLIGATIONS SUPPORTED BY STATE REVENUE SUBJECT TO ANNUAL APPROPRIATION and MORAL OBLIGATION FINANCING herein. Bond Act Year Authorized Final Maturity Amount Authorized Amount Unissued Amount Retired(1) Amount Outstanding Water Conservation Bonds.......... 1969 271,000,000 271,000,000 Clean Waters Bonds.............. 1976 2027 120,000,000 3,750,000 115,025,000 1,225,000 State Land Acquisition and Development Bonds... 1978 2027 200,000,000 197,270,000 2,730,000 Natural Resources Bonds........... 1980 2024 145,000,000 9,600,000 119,260,000 16,140,000 Energy Conservation Bonds......... 1980 2024 50,000,000 1,600,000 48,045,000 355,000 Water Supply Bonds.............. 1981 350,000,000 93,400,000 256,600,000 Hazardous Discharge Bonds......... 1981 2012 100,000,000 43,000,000 55,815,000 1,185,000 Community Development Bonds...... 1982 85,000,000 85,000,000 New Jersey Green Acres Bonds....... 1983 135,000,000 14,500,000 120,500,000 Pinelands Infrastructure Trust Bonds.... 1985 30,000,000 8,000,000 22,000,000 Resource Recovery and Solid Waste Disposal Facility Bonds................ 1985 2011 85,000,000 81,380,000 3,620,000 Hazardous Discharge Bonds......... 1986 2012 200,000,000 48,000,000 129,865,000 22,135,000 Green Acres, Cultural Centers and Historic Preservation Bonds............. 1987 2027 100,000,000 1,000,000 88,165,000 10,835,000 Jobs, Education & Competitiveness Bonds....... 1988 2015 350,000,000 344,605,000 5,395,000 New Jersey Open Space Preservation Bonds...... 1989 2024 300,000,000 26,000,000 266,110,000 7,890,000 Public Purpose Buildings and Community-Based Facilities Construction Bonds....... 1989 2015 125,000,000 5,000,000 113,290,000 6,710,000 Stormwater Management and Combined Sewer Overflow Abatement Bonds........ 1989 2027 50,000,000 16,000,000 25,555,000 8,445,000 New Jersey Bridge Rehabilitation and Improvement and Railroad Right-of-way Preservation Bonds.. 1989 2012 115,000,000 108,145,000 6,855,000 New Jersey Green Acres, Clean Water, Farmland & Historic Preservation Bonds........ 1992 2027 345,000,000 23,780,000 277,835,000 43,385,000 Developmental Disabilities Waiting List Reduction and Human Services Facilities Construction Bonds...................... 1994 2027 160,000,000 127,690,000 32,310,000 Green Acres, Farmland and Historic Preservation, and Blue Acres Bonds........... 1995 2027 340,000,000 21,000,000 244,755,000 74,245,000 Port of New Jersey Revitalization, Dredging, Environmental Cleanup, Lake Restoration, and Delaware Bay Area Economic Development Bonds...................... 1996 2027 300,000,000 119,000,000 55,700,000 125,300,000 Urban and Rural Centers Unsafe Buildings Demolition Bonds............. 1997 2009 20,000,000 16,285,000 3,715,000 Statewide Transportation and Local Bridge Bonds.. 1999 2024 500,000,000 341,870,000 158,130,000 Dam, Lake, Stream, Flood Control, Water Resources, and Wastewater Treatment Project Bonds..................... 2003 2027 200,000,000 68,750,000 2,725,000 128,525,000 Green Acres, Farmland, Blue Acres, and Historic Preservation Bonds............. 2007 200,000,000 200,000,000 Refunding Bonds(2).............. 1985 2020 5,141,859,598 2,999,644,116 2,142,215,482 Total Bonded Debt:............. $10,017,859,598 $702,380,000 $6,514,134,116 $2,801,345,482 (1) The amounts shown under the Amount Retired column include bonds for which provision for payment has been made through the issuance of refunding bonds. (2) The amount shown under the Amount Authorized column represents the aggregate amount of refunding bonds issued. The refunding bond act does not limit the amount of refunding bonds which may be issued, provided certain other restrictions are met. The issuance of refunding bonds may defease bonds previously issued under any bond act. I-32

The following table sets forth the future debt service on outstanding general obligation bonds as of June 30, 2008. Fiscal Year Principal Interest (1) Total 2009... $ 255,525,482.00 $157,783,396.22 $ 413,308,878.22 2010... 281,180,000.00 127,434,254.47 408,614,254.47 2011... 276,380,000.00 116,149,610.04 392,529,610.04 2012... 280,535,000.00 97,420,153.79 377,955,153.79 2013... 280,075,000.00 84,468,287.54 364,543,287.54 2014... 200,565,000.00 69,047,607.54 269,612,607.54 2015... 211,035,000.00 58,289,412.54 269,324,412.54 2016... 217,630,000.00 46,815,706.29 264,445,706.29 2017... 173,305,000.00 36,578,300.04 209,883,300.04 2018... 161,630,000.00 28,094,928.15 189,724,928.15 2019... 157,440,000.00 19,852,596.88 177,292,596.88 2020... 136,500,000.00 12,242,725.00 148,742,725.00 2021... 26,895,000.00 8,088,587.50 34,983,587.50 2022... 28,220,000.00 6,809,062.50 35,029,062.50 2023... 29,545,000.00 5,517,718.76 35,062,718.76 2024... 31,810,000.00 4,165,375.00 35,975,375.00 2025... 16,835,000.00 2,653,750.00 19,488,750.00 2026... 17,680,000.00 1,812,000.00 19,492,000.00 2027... 18,560,000.00 928,000.00 19,488,000.00 $2,801,345,482.00 $884,151,472.26 $3,685,496,954.26 (1) Includes capital appreciation bonds, for which the full accretion in value from the date of issuance is reflected as interest in the year of bond maturity. TAX AND REVENUE ANTICIPATION NOTES In Fiscal Year 1992, the State initiated a program under which it issued tax and revenue anticipation notes to aid in providing effective cash flow management to fund imbalances which occur in the collection and disbursement of the General Fund and Property Tax Relief Fund revenues. Such tax and revenue anticipation notes do not constitute a general obligation of the State or a debt or liability within the meaning of the State Constitution. Such notes constitute special obligations of the State payable solely from monies on deposit in the General Fund and the Property Tax Relief Fund and legally available for such payment. On September 11, 2008, the State issued $1.8 billion of its Tax and Revenue Anticipation Notes, Series Fiscal 2009 A. The notes will mature on June 25, 2009. OBLIGATIONS SUPPORTED BY STATE REVENUE SUBJECT TO ANNUAL APPROPRIATION The State has entered into a number of leases and contracts described below (collectively, the Agreements ) with several governmental authorities to secure the financing of various projects and programs in the State. Under the terms of the Agreements, the State has agreed to make payments equal to the debt service on, and other costs related to, the obligations sold to finance the projects, including payments on swap agreements defined below. The State Legislature has no legal obligation to enact such appropriations, but has done so to date for all such obligations. The amounts appropriated to make such payments are included in the appropriation for the department, authority or other entity administering the program or in other line item appropriations. See STATE FINANCES New Jersey s Budget and Appropriation System and FINANCIAL RESULTS AND ESTIMATES Appropriations herein. I-33

The principal amount of bonds which may be issued and the notional amount of swaps which may be entered into by such governmental authorities is, in certain cases, subject to specific statutory dollar ceilings or programmatic restrictions which effectively limit such amounts. In other cases, there are currently no such ceilings or limitations. In addition, the State Legislature may at any time impose, remove, increase or decrease applicable existing ceilings and impose, modify or remove programmatic restrictions. The State Legislature may also authorize new leases and contracts with the governmental authorities listed below or other governmental authorities to secure the financing of projects and programs in the future. The State expects that additional obligations supported by State revenues subject to appropriation will be issued during Fiscal Year 2009 and future Fiscal Years. The amount of such obligations issued in the future could be significant. The amendment to the Debt Limitation Clause, described under CERTAIN CONSTITUTIONAL PROVISIONS Debt Limitations herein, may reduce future authorizations of obligations supported by State revenues subject to appropriation. The State Legislature is not legally obligated to appropriate amounts for the payment of such debt service in any year, and there can be no assurance that the State Legislature will make any such appropriations. Future legislative action may depend in part on various factors including the financial condition of the State. The following tables set forth the obligations outstanding on June 30, 2008 which are supported by State revenues subject to appropriation by the State Legislature (i) by issuer and by program, the aggregate principal amount of obligations outstanding on June 30, 2008 and the Fiscal Year 2009 debt service on such obligations and (ii) in the aggregate for future years debt service on such obligations outstanding on June 30, 2008. The data has not been modified to reflect subsequent activity. The tables reflect certain line items that are (1) for governmental entities or programs that are not considered part of the State s long-term obligations for financial reporting purposes under generally accepted accounting principles or (2) a component unit of the State. These items are therefore not reflected in Note 10 Long-Term Obligations and the Schedule of Long-Term Debt in the 2007 CAFR. Variable Rate Bonds During Fiscal Year 2008 significant problems developed in both the taxable and tax-exempt variable rate demand bond market and the auction rate bond market, whereby the AAA rated bond insurers exposure to the sub-prime mortgage crisis negatively impacted the bonds that they insured. Several bond insurers experienced rating downgrades by some or all three rating agencies. A limited number of bond insurers remain rated AAA while others are below BBB- (non-investment grade). The AAA ratings were an essential part of the operation of the variable rate demand and auction rate bond markets, as many investors generally required a AAA rating as a minimum requirement for their purchase of such bonds. The State, through various independent State authorities, had $4.05 billion in variable rate bonds outstanding on January 1, 2008, of which $3.37 billion were auction rate bonds and $680.0 million were variable rate demand bonds. The payment of the debt service on such bonds is subject to annual appropriation by the State Legislature. The interest rates on these bonds increased substantially versus the interest rates in effect as of June 30, 2007. Subsequent to January 1, 2008, when interest rates increased on both variable rate and auction rate bonds due to the downgrade in the ratings of certain bond insurers and the decisions by broker-dealers conducting auctions to stop purchasing auction rate bonds for their own accounts, the State and the independent State authorities took actions to mitigate the increase in interest rates. Of the $3.37 billion of auction rate bonds outstanding, $2.675 billion had been restructured or refunded as either letter of credit-backed variable rate demand bonds or fixed rate bonds by May 2008. The remaining $694.0 million of auction rate bonds were restructured or refunded by September 2008. A portion of the auction rate bonds were restructured or refunded with letter of credit backed variable rate demand bonds. As of June 30, 2008, the State, through various independent authorities, had $2,227,920,000 variable rate demand bonds outstanding with interest rates set daily or weekly. Due to weakened credit quality of many banks globally, as well as the global financial crisis, interest rates on some bonds increased substantially for short periods of time in September and October 2008. All of the bonds remain outstanding with interest rates reflecting a narrow range around the national tax exempt short term index, SIFMA. There is no assurance that variable rate interest rates will not rise in the future. I-34

Issuer SUMMARY OF OBLIGATIONS SUBJECT TO ANNUAL APPROPRIATION Type of Agreement Principal Amount Outstanding(1) Fiscal Year 2009 Debt Service(2) Garden State Preservation Trust... Contract $ 1,149,714,410 $ 59,161,678 New Jersey Building Authority... Lease 679,601,607 93,983,793 New Jersey Economic Development Authority Trenton Office Complex... Lease 35,960,000 10,197,900 Economic Recovery Fund.... Contract 173,974,641 21,603,966 Liberty State Park Park Projects... Lease 12,726,012 1,249,853 Liberty State Park Science Center Projects... Lease 93,415,000 6,970,996 Market Transition Facility... Contract 237,120,000 71,789,250 Green Lights Energy Conservation Program... Lease 855,000 312,750 New Jersey Performing Arts Center... Lease 29,915,000 5,542,020 State Pension Funding... Contract 2,612,685,638 212,177,677 Department of Human Services Programs... Service Contract 26,115,000 3,478,345 New Jersey Transit Light Rail System... Lease 469,380,000 70,425,098 State Office Buildings Projects... Lease 46,265,000 5,262,750 School Facilities Construction... Contract 7,005,714,000 437,447,184 Municipal Rehabilitation... Contract 171,225,000 14,110,528 Motor Vehicle Commission(3)... Contract 159,998,107 Business Employment Incentive Program... Contract 201,850,000 40,960,074 Designated Industries Economic Growth and Development... Contract 28,640,000 7,575,874 Motor Vehicle Surcharges Revenue.... Contract 807,502,356 37,763,281 Motor Vehicle Surcharges Revenue Special Needs Housing... Contract 206,508,197 5,546,175 Cigarette Tax Revenue... Contract 1,315,940,000 130,347,806 Lafayette Yard Hotel Project... Lease 17,710,000 1,578,643 New Jersey Educational Facilities Authority Facilities Trust Fund... Contract 58,435,000 20,973,875 Technology Infrastructure Fund... Contract 6,165,000 6,346,097 Capital Improvement Fund... Contract 476,475,000 43,886,875 Dormitory Safety Trust Fund... Contract 45,830,000 7,891,871 Equipment Leasing Fund... Contract 13,320,000 9,008,725 Public LibraryProject Grant Program... Contract 39,595,000 3,776,648 New Jersey Health Care Facilities Financing Authority GreystoneParkPsychiatricHospitalProject... Contract 204,330,000 15,623,525 Hospital Asset Transformation Program St. Mary s Hospital, Passaic... Contract 45,425,000 3,692,380 New Jersey Sports and Exposition Authority(4)... Contract 691,035,000 71,347,380 New Jersey Transportation Trust Fund Authority... Contract 8,923,911,792 656,165,156 State of New Jersey Certificates of Participation James J. Howard Marine Science Laboratory... Lease 5,315,000 1,155,513 New Jersey Transit, Transportation Equipment... Lease 609,095,000 58,201,638 State Supported School District Bonds(5)... Statutory State Supported County College Bonds(6)... Statutory 225,885,177 35,748,225 State Equipment Line of Credit... Lease 49,393,080 26,694,721 TOTAL... $26,877,025,017 $2,197,998,269 (1) Amount outstanding is as of June 30, 2008, and has not been modified to reflect subsequent activity. (2) Debt service reflects principal and interest due on obligations outstanding on June 30, 2008. Amounts have not been modified to reflect subsequent activity. For variable rate bonds, interest amounts were calculated using the rates in effect on June 30, 2008. For capital appreciation bonds, the full accretions in value from the date of issuance are reflected as interest in the year of bond maturity. See OBLIGATIONS SUPPORTED BY STATE REVENUE SUBJECT TO ANNUAL APPROPRIATION Variable Rate Bonds herein. I-35

(3) These bonds consist of capital appreciation bonds with no maturities or payments due in Fiscal Year 2009. (4) In connection with the Convention Center Lease Financing, the New Jersey Sports and Exposition Authority has issued Standby Deficiency Bonds Series of 2001 and Series of 2008 in the maximum amount of $100 million and $65,640,492.15, respectively. The Standby Deficiency Bonds are additional bonds under the resolution, but are contingent bonds. No amounts are currently outstanding and the Authority does not anticipate at this time that it will be required to make payments on the Standby Deficiency Bonds. Accordingly, no principal and interest are included in the above table. See OBLIGATIONS SUPPORTED BY STATE REVENUE SUBJECT TO ANNUAL APPROPRIATION New Jersey Sports and Exposition Authority below. (5) These bonds reached final maturity during Fiscal Year 2007. The State currently has no expectation that additional bonds will be issued. See State Supported School and County College Bonds below for a description of the bonds. (6) Includes bonds issued by the New Jersey Educational Facilities Authority that are secured by contract with the State. Fiscal Year ESTIMATED FUTURE DEBT SERVICE SUBJECT TO APPROPRIATION(1) Principal Estimated Interest(2) 2009... $ 943,806,646 $ 1,254,191,622 $ 2,197,998,269 2010... 1,052,507,517 1,239,008,555 2,291,516,071 2011... 1,080,260,937 1,203,929,320 2,284,190,257 2012... 1,064,883,049 1,161,549,614 2,226,432,663 2013... 1,067,710,905 1,151,647,997 2,219,358,902 2014... 1,092,318,606 1,124,084,583 2,216,403,189 2015... 1,141,459,533 1,092,036,874 2,233,496,407 2016... 1,190,945,885 1,029,396,425 2,220,342,309 2017... 1,213,148,460 1,019,409,041 2,232,557,501 2018... 1,266,050,535 996,516,472 2,262,567,007 2019... 1,278,801,356 990,787,784 2,269,589,140 2020... 1,288,726,181 967,722,761 2,256,448,941 2021... 1,343,068,033 894,906,762 2,237,974,796 2022... 1,317,283,064 865,923,772 2,183,206,837 2023... 1,372,963,195 810,284,176 2,183,247,371 2024... 993,371,837 750,168,596 1,743,540,433 2025... 842,194,501 858,565,721 1,700,760,222 2026... 1,092,804,757 567,897,850 1,660,702,607 2027... 1,166,513,080 491,743,822 1,658,256,902 2028... 1,136,764,583 429,910,435 1,566,675,019 2029... 1,134,437,375 365,431,849 1,499,869,224 2030... 593,853,876 289,697,516 883,551,392 2031... 384,601,518 277,291,543 661,893,061 2032... 343,482,542 270,030,253 613,512,796 2033... 333,053,299 262,036,432 595,089,731 2034... 340,320,137 253,034,491 593,354,628 2035... 263,347,603 243,630,372 506,977,975 2036... 203,318,082 238,823,186 442,141,269 2037... 206,947,924 235,192,238 442,140,163 2038... 128,080,000 3,101,881 131,181,881 $26,877,025,017 $21,337,951,944 $48,214,976,961 Total (1) Amounts are attributable to obligations outstanding on June 30, 2008 and have not been modified to reflect subsequent activity. I-36

(2) For variable rate bonds, interest amounts were calculated using the rates in effect on June 30, 2008. For capital appreciation bonds, the full accretions in value from the date of issuance are reflected as interest in the year of bond maturity. See OBLIGATIONS SUPPORTED BY STATE REVENUE SUBJECT TO ANNUAL APPROPRIATION Variable Rate Bonds herein. Garden State Preservation Trust The Garden State Preservation Trust ( GSPT ) issues bonds for the purpose of preserving open space and farmland. Pursuant to the Garden State Preservation Trust Act, as amended (the GSPT Act ), the principal amount of bonds, notes or other obligations which may be issued prior to July 1, 2009, other than refunding bonds, cannot exceed $1.15 billion. After July 1, 2009, only refunding bonds can be issued. The bonds issued by the GSPT are special obligations of the GSPT payable from amounts paid to it under a contract between the GSPT and the State Treasurer, subject to appropriation by the State Legislature. New Jersey Building Authority The New Jersey Building Authority ( NJBA ) issues bonds for the acquisition, construction, renovation and rehabilitation of various State office buildings, historic buildings and correctional facilities. Pursuant to a lease agreement, the State makes rental payments to the NJBA in amounts sufficient to pay debt service on the bonds, subject to appropriation by the State Legislature. New Jersey Economic Development Authority The New Jersey Economic Development Authority (the NJEDA ) has been authorized to issue bonds for various purposes described below. The Economic Recovery Bonds have been issued pursuant to legislation enacted in 1992 to finance various economic development purposes. Pursuant to that legislation, the NJEDA and the State Treasurer entered into an agreement through which the NJEDA has agreed to undertake the financing of certain projects and the State Treasurer has agreed to credit to the Economic Recovery Fund from the General Fund amounts equivalent to payments due to the State under an agreement with the Port Authority of New York and New Jersey subject to appropriation by the State Legislature. The Market Transition Facility Bonds have been issued pursuant to legislation enacted June 1994 to pay the current and anticipated liabilities and expenses of the Market Transition Facility, which issued private passenger automobile insurance policies for drivers who could not be insured by private insurance companies on a voluntary basis. Debt service on the bonds is payable pursuant to a contract between the State Treasurer and the NJEDA, subject to appropriation by the State Legislature. Pursuant to the Business Employment Incentive Program Act, P.L. 1996, c. 26, the NJEDA has entered into agreements with various private businesses in order to provide business employment incentive grants ( BEIP grants ) in consideration for the attainment of certain employment promotion targets as established therein. P.L. 2003, c. 166, which authorizes the NJEDA to issue bonds to provide funds (i) for the payment of the BEIP grants, and (ii) to be used by the NJEDA for the purposes enumerated in subsections a. and b. of section 4 of P.L. 1992, c. 16 (C. 34:1B-7.13) for payments to designated businesses. Debt service on the bonds is payable pursuant to a contract between the State Treasurer and the NJEDA, subject to appropriation by the State Legislature. The State Pension Funding Bonds were issued pursuant to legislation enacted June 1997 to pay a portion of the State s unfunded accrued pension liability for the State s retirement system, which together with amounts derived from the revaluation of pension assets pursuant to companion legislation enacted at the same time, were sufficient to fully fund the then unfunded accrued pension liability. The Educational Facilities Construction and Financing Act, P.L. 2000, c. 72 ( EFCFA ) authorizes the NJEDA to issue bonds to finance the State share of costs for school facilities construction projects. EFCFA originally provided that the aggregate principal amount of bonds, notes or other obligations issued by NJEDA shall not exceed: $100,000,000 for the State share of costs for county vocational school district school facilities projects, $6,000,000,000 for the State share of costs for Abbott District school facilities projects, and $2,500,000,000 for I-37

the State share of costs for school facilities projects in all other districts. Debt service on the bonds issued pursuant to EFCFA is paid pursuant to a contract between the State Treasurer and the NJEDA, subject to appropriation by the State Legislature. EFCFAwas amended on July 9, 2008, to increase the amount of bonds, notes or other obligations authorized to be issued by the NJEDA in an additional aggregate principal amount not to exceed: $2,900,000,000 for the State share of costs for SDA Districts (formerly Abbott Districts ) school facilities projects, $1,000,000,000 for the State share of costs for school facilities projects in all other districts, and $50,000,000 for the State share of costs for county vocational school district facilities projects. In regard to this increase in the amount of bonds authorized to be issued by NJEDA pursuant to this amendment, debt service on these bonds or refunding bonds issued by NJEDA and any additional costs authorized pursuant to Section 14 of EFCFA shall first be payable from revenues received from the New Jersey Gross Income Tax except that debt service on bonds issued to pay for administrative, insurance, operating and other expenses of the NJEDA and the Schools Development Authority in connection with school facilities projects shall be payable from the General Fund. The additional bonds issued pursuant to this amendment are also payable pursuant to the contract between the State Treasurer and the NJEDA, mentioned above, subject to appropriation by the State Legislature. The Municipal Rehabilitation and Economic Recovery Act, P.L. 2002, c. 43 (N.J.S.A. 52:27BBB-1 et seq.), authorizes the NJEDA to issue bonds for the purpose of making deposits into certain funds described in N.J.S.A. 52:27BBB-49 and N.J.S.A. 52:27BBB-50, to provide loans and grants to sustain economic activity in qualified municipalities under the Act. Debt service on the bonds is paid pursuant to a contract between the NJEDA and the State Treasurer, subject to appropriation by the State Legislature. The Motor Vehicle Security and Customer Service Act, P.L. 2003, c. 13, authorizes the NJEDA to issue bonds to pay the costs of capital improvements for New Jersey Motor Vehicle Commission facilities. The legislation provides that bonds shall not be issued in an aggregate principal amount exceeding $160 million without the prior approval of the Joint Budget Oversight Committee. The bonds are secured by the monies in the Market Transition Facility Revenue Fund when all currently outstanding Market Transition Facility Bonds are retired, which, as provided in the legislation, shall be no later than July 1, 2011. The Motor Vehicle Surcharges Securitization Act of 2004, P.L. 2004, c. 70, authorizes the NJEDA to issue bonds payable from, and secured by, dedicated motor vehicle surcharge revenues as defined in the legislation, with the pledge of certain of the surcharges being subject and subordinate to the Market Transition Facility Bonds and the Motor Vehicle Commission Bonds. Debt service on the bonds is payable pursuant to a contract between the NJEDA and the State Treasurer, subject to appropriation by the State Legislature. Pursuant to P.L. 2005, c. 163, P.L. 2004, c. 70 was amended to authorize the issuance of bonds by NJEDA in an amount not to exceed $200 million to fund grants and loans for the costs of special needs housing projects in the State. The expenditure of the funds is administered by the New Jersey Housing and Mortgage Finance Agency. The Cigarette Tax Securitization Act of 2004, P.L. 2004. c. 68, authorizes the NJEDA to issue bonds payable from, and secured by, a dedicated portion, $0.0325 per cigarette, of the cigarette tax imposed pursuant to N.J.S.A. 54:40A-1 et seq. Debt service on the bonds is payable pursuant to a contract between the NJEDA and the State Treasurer, subject to appropriation by the State Legislature. The NJEDA is authorized to issue bonds to purchase a redevelopment revenue bond (the City Bond ) issued by the City of Trenton. The City Bond was issued to refund a portion of bonds issued by a non-profit corporation to construct the Lafayette Yard hotel and conference center project in Trenton. The NJEDA Bonds are secured by the principal and interest payments on the City Bond, which, in turn, are payable solely from payments in lieu of taxes (the PILOTS ) made by the NJEDA. The PILOTS are payable solely from supplemental rent the State pays to the NJEDA under a lease, subject to appropriation by the State Legislature. P.L. 2006, c.102 authorized the issuance of $270 million of bonds by the NJEDA to fund various State capital construction projects, including stem cell research facilities in New Brunswick and Newark, biomedical research facilities, blood collection facilities and cancer research facilities. Debt service on the bonds shall be paid pursuant to a contract to be entered into between the NJEDA and the State Treasurer, subject to appropriation by the State Legislature. I-38

The NJEDA has issued revenue bonds on behalf of non-profit community service providers. The payment of debt service on these revenue bonds as well as the payment of certain other provider expenses is made by the State pursuant to service contracts between the State Department of Human Services and these providers, subject to appropriation by the State Legislature. The contracts have one year terms, subject to annual renewal. In addition, the State has entered into a number of leases with the NJEDA relating to the financing of certain real property, office buildings and equipment. The rental payments required to be made by the State under these lease agreements are sufficient to pay debt service on the bonds issued by the NJEDA to finance the acquisition and construction of such projects and other amounts payable to the NJEDA, including certain administrative expenses of the NJEDA. Amounts payable under the lease agreements are subject to appropriation by the State Legislature. New Jersey Educational Facilities Authority The New Jersey Educational Facilities Authority ( NJEFA ) issues bonds pursuant to seven separate legislative programs to finance: (i) the purchase of equipment to be leased to institutions of higher learning; (ii) grants to the State s public and private institutions of higher education for the development, construction and improvement of instructional, laboratory, communication and research facilities; (iii) grants to public and private institutions of higher education to develop a technology infrastructure within and among the State s institutions of higher education; (iv) capital projects at county colleges; (v) grants to public and private institutions of higher education to finance the renewal, renovation, improvement, expansion, construction, and reconstruction of educational facilities and technology infrastructure; (vi) grants to public libraries to finance the acquisition, expansion and rehabilitation of buildings to be used as public library facilities and the acquisition and installation of equipment to be located therein; and (vii) loans to public and private institutions of higher education and public or private secondary schools, military schools or boarding schools located in the State which are required under the Dormitory Safety Trust Fund Act to install automatic fire suppression systems for the cost or a portion of the cost of the construction, reconstruction, development, extension or improvement of dormitory safety facilities, including fire prevention and sprinkler systems. The debt service on the bonds issued under these programs is payable by the State pursuant to contracts between the NJEFA and the State Treasurer. New Jersey Health Care Facilities Financing Authority The New Jersey Health Care Facilities Financing Authority ( HCFFA ) is authorized to acquire, construct and lease projects to the New Jersey Department of Human Services ( DHS ) and to issue bonds to finance such projects, the debt service on which shall be paid by DHS, subject to appropriation by the State Legislature. Under the Hospital Asset Transformation Program established by P.L. 2000, c. 98 and as amended by P.L. 2007, c. 110, as amended and supplemented by P.L. 2009. c. 2, HCFFA is authorized to issue bonds to provide funds to any nonprofit health care organization in order to, among other things, satisfy the outstanding indebtedness of a hospital, pay the costs of transitioning or terminating the provision of hospital acute care services at a specific location, including the costs of construction, renovation, equipment, information technology and working capital, and pay the costs associated with the closure or acquisition of a general hospital. Such bonds are special obligations of HCFFA payable from amounts paid to it under a contract between HCFFA and the State Treasurer, subject to appropriation by the State Legislature. New Jersey Sports and Exposition Authority The New Jersey Sports and Exposition Authority (the NJSEA ) issues bonds for various purposes payable from a contract between the NJSEA and the State Treasurer (the NJSEA State Contract ). Pursuant to the NJSEA State Contract, the NJSEA undertakes certain projects and the State Treasurer credits to the NJSEA amounts from the General Fund sufficient to pay debt service and other costs related to the bonds, subject to appropriation by the State Legislature. In 2001, in connection with the Atlantic City Convention Center Structured Lease Financing, the NJSEA issued its State Contract Bonds, Series B Standby Deficiency Agreement Series of 2001, Equity Termination Value Standby Deficiency Agreement Series of 2001 and Swap Payment Standby Deficiency Agreement Series of 2001, in the maximum amount payable as to principal and interest of $100 million. These Standby Deficiency Bonds also I-39

constitute additional bonds under the general resolution for this program, but are contingent obligations and no amounts are currently outstanding nor is it expected that the NJSEA will be required to make payments. In September 2008, AIG-Financial Products (AIG-FP), a provider of a letter of credit under the Atlantic City Convention Center Structured Lease Financing, was downgraded by Standard & Poor s below the minimum rating required under the financing documents. A substitute letter of credit was obtained from The Bank of New York for a 2-year period. The reimbursement obligation to The Bank of New York Mellon under the Letter of Credit and Reimbursement Agreement is secured by a State Contract Bond Equity Termination Value Standby Deficiency Agreement Series of 2008 in the maximum amount of $65,640,492.15. The AIG-FP letter of credit was returned to the NJSEA and remains outstanding but held in safekeeping by the bond trustee, The Bank of New York Mellon. As a result, the Standby Deficiency Bond Series of 2001 remains outstanding as security for the AIG-FP Letter of Credit and Reimbursement Agreement, but is not to be drawn upon, due to the NJSEA holding the obligation in safekeeping with the trustee. New Jersey Transportation Trust Fund Authority The New Jersey Transportation Trust Fund Authority (the TTFA ) issues bonds for the purpose of funding a portion of the State s share of the cost of improvements to the State s transportation system. Pursuant to the New Jersey Transportation Trust Fund Authority Act of 1984, as amended (the TTFA Act ), the principal amount of the TTFA s bonds, notes or other obligations which may be issued in any fiscal year commencing with the fiscal year beginning July 1, 2006 and ending with the fiscal year beginning on July 1, 2010, generally may not exceed $1,600,000,000 in any fiscal year, as such amount shall be reduced in each of those fiscal years by the amount by which the appropriation of State funds to the Transportation Trust Fund Account for that fiscal year shall exceed $895,000,000; provided, however, that if a portion of that permitted amount of debt, less any reduction as provided above, is not incurred in a fiscal year, an amount not greater than the unused portion may be incurred in a subsequent fiscal year in addition to the amount otherwise permitted, subject to the approval of the Joint Budget Oversight Committee of the State Legislature. The bonds issued by the TTFA are special obligations of the TTFA payable from a contract among the TTFA, the State Treasurer and the Commissioner of Transportation, subject to appropriation by the State Legislature. State of New Jersey Certificates of Participation The State, acting through the Director of the Division of Purchase and Property, has entered into a series of lease purchase agreements which provide for the acquisition of equipment, services and real property to be used by various departments and agencies of the State. Certificates of Participation in such lease purchase agreements have been issued. A Certificate of Participation represents a proportionate interest of the owner thereof in the lease payments to be made by the State under the terms of the lease purchase agreement, subject to appropriation by the State Legislature. State Supported School and County College Bonds Legislation provides for future appropriations for State Aid to local school districts equal to a portion of the debt service on bonds issued by such local school districts for construction and renovation of school facilities (P.L. 1968, c. 177; P.L. 1971, c. 10; and P.L. 1978, c. 74) and for State Aid to counties equal to a portion of the debt service on bonds issued by or on behalf of such counties for construction of county college facilities (P.L. 1971, c. 12, as amended). The State Legislature has no legal obligation to make such appropriations, but has done so to date for all obligations issued under these laws. The NJEFA is also authorized to issue its obligations to finance county college capital facilities which are secured in whole or in part by an agreement with the State Treasurer, subject to appropriation by the State Legislature. Lines of Credit The State finances the acquisition of certain equipment, vehicles, services and real property to be used by various State departments through lines of credit established from time to time with one or more financial services I-40

providers. Repayments of amounts drawn under the lines of credit are subject to appropriation by the State Legislature. Swap Agreements The State s obligation to make payments with respect to certain financings includes payments related to interest rate exchange agreements listed below ( swap agreements ). Under such a swap agreement, the issuer will make periodic payments to the swap counterparty at either a fixed or variable rate of interest, and will receive periodic payments from the swap counterparty at either a variable or fixed rate of interest, such interest calculations based on the principal or notional amount of the swap agreement. If the swap agreement is terminated prior to its stated termination date, either the issuer or the swap counterparty may be required to make a termination payment to the other party. The State s obligation to make payments under the swap agreements is subject to appropriation by the State Legislature. The dislocation occurring in the auction rate and variable rate bond markets as described in OBLIGATIONS SUPPORTED BY STATE REVENUE SUBJECT TO ANNUAL APPROPRIATION Variable Rate Bonds has caused interest rates paid on auction rate and variable rate bonds to increase. At the same time floating rate payments received from swap counterparties have declined. This mismatch between receipts and payments caused an increase in interest expense on the State s obligations. The following table sets forth for each swap agreement: the issuer, counterparty, outstanding notional amount, effective date, termination date, fixed rate and floating index as of June 30, 2008. The table reflects certain line items that are (1) for governmental entities or programs that are not considered part of the State s long-term obligations for financial reporting purposes under generally accepted accounting principles or (2) are a component unit of the State. These items are therefore not reflected in Note 12 DERIVATIVES in the 2007 CAFR or the 2008 Unaudited Financial Statements. See Note 12 DERIVATIVES in the 2007 CAFR and the 2008 Unaudited Financial Statements for more information concerning the State s derivatives. Subsequent to June 30, 2008, in conjunction with the restructuring and/or refunding of auction rate and variable rate demand bonds to letter of credit-backed bonds or fixed rate bonds, the State and the independent State authorities terminated swaps listed below under NJSEA with AIG Financial Products Corporation and those listed under NJEDA (Transportation Project Sublease Revenue Bonds). I-41

State of New Jersey Interest Rate Swap Agreement Summary As of June 30, 2008 Bond Issuer Counterparty Outstanding Notional Amount Effective Date Termination Date Fixed Rate Floating Index NJBA Citibank, N.A., New York $ 74,980,000 8/20/2003 6/15/2023 3.64000% 62% 1-Month LIBOR+20 bps Citibank, N.A., New York 32,135,000 8/20/2003 6/15/2023 3.64000% 62% 1-Month LIBOR+20 bps Goldman Sachs Mitsui Marine Derivative Products, L.P. 24,985,000 8/20/2003 6/15/2023 3.64000% 62% 1-Month LIBOR+20 bps Goldman Sachs Mitsui Marine Derivative Products, L.P. 10,720,000 8/20/2003 6/15/2023 3.64000% 62% 1-Month LIBOR+20 bps Morgan Stanley Capital Services, Inc. 24,985,000 8/20/2003 6/15/2023 3.64000% 62% 1-Month LIBOR+20 bps Morgan Stanley Capital Services, Inc. 10,720,000 8/20/2003 6/15/2023 3.64000% 62% 1-Month LIBOR+20 bps $ 178,525,000 NJEDA (Transportation Project Sublease Revenue Bonds)(1) Morgan Stanley Capital Services, Inc. $ 93,050,000 10/9/2003 5/1/2019 3.32000% 62% 1-Month LIBOR+20 bps Morgan Stanley Capital Services, Inc. 10,500,000 10/9/2003 5/1/2019 3.54600% 62% 1-Month LIBOR+20 bps UBS AG, Stamford Branch 217,650,000 10/9/2003 5/1/2019 3.32000% 62% 1-Month LIBOR+20 bps UBS AG, Stamford Branch 24,500,000 10/9/2003 5/1/2019 3.54600% 62% 1-Month LIBOR+20 bps $ 345,700,000 NJEDA (School Facilities Construction Bonds) Variable-to-Fixed Swaps Bank of America, N.A. $ 201,460,000 9/1/2006 9/1/2031 4.40740% 71.98% 1-Month LIBOR Bank of Montreal 250,000,000 11/1/2009 9/1/2034 4.54850% 62% 1-Month LIBOR+40 bps Deutsche Bank AG - New York Branch 97,080,000 11/1/2006 11/1/2016 4.32375% 75% 1-Month LIBOR+5.25 bps Goldman Sachs Mitsui Marine Derivative Products, L.P. 179,042,500 3/1/2006 3/1/2031 4.29590% 70.8% 1-Month LIBOR Goldman Sachs Mitsui Marine Derivative Products, L.P. 201,460,000 9/1/2006 9/1/2031 4.40740% 71.98% 1-Month LIBOR Goldman Sachs Mitsui Marine Derivative Products, L.P. 195,582,500 9/1/2007 9/1/2032 4.39900% 71.57% 1-Month LIBOR IXIS Financial Products, Inc. 250,000,000 11/1/2008 9/1/2033 4.48900% 62% 1-Month LIBOR+40 bps Merrill Lynch Capital Services, Inc. 500,000,000 5/1/2010 3/1/2035 4.25100% 62% 1-Month LIBOR+40 bps Royal Bank of Canada 250,000,000 5/1/2009 3/1/2034 4.51240% 62% 1-Month LIBOR+40 bps UBS AG, Stamford Branch 172,310,000 9/1/2004 9/1/2029 4.06250% 71.13% 1-Month LIBOR UBS AG, Stamford Branch 223,417,500 3/1/2005 3/1/2030 4.17625% 74.24% 1-Month LIBOR UBS AG, Stamford Branch 195,582,500 9/1/2007 9/1/2032 4.39900% 71.57% 1-Month LIBOR Wachovia Bank, N.A. 172,310,000 9/1/2004 9/1/2029 4.06250% 71.13% 1-Month LIBOR Wachovia Bank, N.A. 223,417,500 3/1/2005 3/1/2030 4.17625% 74.24% 1-Month LIBOR Wachovia Bank, N.A. 179,042,500 3/1/2006 3/1/2031 4.29590% 70.8% 1-Month LIBOR Fixed-to-Variable Swap UBS AG, Stamford Branch $ 380,515,000 51/08 9/1/2015 3.03590% 75% 1-Month LIBOR $3,671,220,000 NJSEA(1) AIG Financial Products, Corp. $ 167,370,000 11/12/1992 9/1/2024 5.86000% 92% SIFMA $ 167,370,000 NJTTFA Goldman Sachs Mitsui Marine Derivative Products, L.P. $ 85,000,000 1/30/2003 12/15/2017 3.56500% 67% 1-Month LIBOR Goldman Sachs Mitsui Marine Derivative Products, L.P. 50,000,000 1/30/2003 12/15/2018 3.63000% 67% 1-Month LIBOR Goldman Sachs Mitsui Marine Derivative Products, L.P. 85,000,000 1/30/2003 12/15/2018 3.53700% 67% 1-Week LIBOR Goldman Sachs Mitsui Marine Derivative Products, L.P. 62,500,000 1/30/2003 12/15/2019 3.67500% 67% 1-Week LIBOR Goldman Sachs Mitsui Marine Derivative Products, L.P. 62,500,000 1/30/2003 12/15/2019 3.67500% 67% 1-Week LIBOR $ 345,000,000 Totals $4,707,815,000 (1) Terminated subsequent to June 30, 2008. The State has entered into swap agreements with eleven different counterparties. The State s outstanding notional amount of swap agreements with any single counterparty does not exceed 24.0% of the State s total outstanding notional amount. As of June 30, 2008, the mark-to-market value of the swap agreements are negative for the State indicating that the State has no credit exposure to its swap counterparties. If the ratings of a counterparty were to be reduced below levels specified in the documentation relating to its swap agreements with the State and at such time the State did have in excess of a specified amount of credit exposure to such counterparty, the counterparty would be required to provide collateral to support all or a portion of the State s credit exposure. No assurance can be given that the ratings of the counterparties will be maintained at current levels or that the mark-tomarket value of the swaps will not change to create credit exposure by the State to one or more counterparties. I-42

MORAL OBLIGATION FINANCING The authorizing legislation for certain State entities provides for specific budgetary procedures with respect to certain obligations issued by such entities. Pursuant to such legislation, a designated official is required to certify any deficiency in a debt service reserve fund maintained to meet payments of principal of and interest on the obligations, and a State appropriation in the amount of the deficiency is to be made. However, the State Legislature is not legally bound to make such an appropriation. Bonds issued pursuant to authorizing legislation of this type are sometimes referred to as moral obligation bonds. There is no statutory limitation on the amount of moral obligation bonds which may be issued by eligible State entities. The following table sets forth the moral obligation bonded indebtedness issued by State entities as of June 30, 2008. Amounts have not been modified to reflect subsequent activity. Principal Amount Outstanding Fiscal Year 2009 Debt Service New Jersey Housing and Mortgage Finance Agency.... $ 51,965,000 $ 7,599,212 South Jersey Port Corporation... 123,075,000 11,150,998 Higher Education Student Assistance Authority... 1,545,135,000 68,355,425 $1,720,175,000 $87,105,635 New Jersey Housing and Mortgage Finance Agency Neither the New Jersey Housing and Mortgage Finance Agency nor its predecessors, the New Jersey Housing Finance Agency and the New Jersey Mortgage Finance Agency, have had a deficiency in a debt service reserve fund which required the State to appropriate funds to meet its moral obligation. It is anticipated that this agency s revenues will continue to be sufficient to pay debt service on its bonds. South Jersey Port Corporation The State, under its moral obligation, has provided the South Jersey Port Corporation (the Port Corporation ) with funds to replenish its debt service reserve fund to the extent drawn upon by the Port Corporation when Port Corporation revenues are insufficient to pay debt service on its outstanding bonds. Such payments to the Port Corporation are subject to appropriation by the State Legislature. The following table sets forth the amounts paid to the Port Corporation to replenish its debt service reserve fund for the past five fiscal years. Fiscal Year Amounts paid for debt service 2004... 4,189,690 2005... 6,962,739 2006... 6,455,167 2007... 6,878,287 2008... 6,881,543 Higher Education Student Assistance Authority The Higher Education Student Assistance Authority ( HESAA ) has not had a revenue deficiency which required the State to appropriate funds to meet its moral obligation. It is anticipated that the HESAA s revenues will continue to be sufficient to pay debt service on its bonds. HESAA has issued auction rate bonds whose interest costs have increased due to the ongoing failures in the auction rate bond market; however, cash flows from the repayment of student loans originally funded from bond proceeds have been sufficient to meet debt service obligations. HESAA issued $350.0 million fixed rate bonds in July 2008. This issue funded new loans and included a surety bond as the deposit in the debt service reserve fund. To the extent that the surety is drawn upon, the State Legislature may be required to replenish the debt service reserve fund, subject to annual appropriation. I-43

STATE EMPLOYEES Public Employer-Employee Relations Act The State, as a public employer, is covered by the New Jersey Public Employer-Employee Relations Act, as amended (N.J.S.A. 34:13A-1 et seq.), whichguarantees public employees the righttonegotiate collectively through employee organizations certified or recognized as the exclusive collective negotiations representatives for units of public employees found to be appropriate for collective negotiations purposes. Approximately 73,800 executive branch employees are paid through the State payroll system. Of the 73,800 employees, 64,000 are represented by certified or recognized exclusive majority representatives and are organized into various negotiation units. There are six civilian units which presently represent more than 53,000 employees. The Health Care and Rehabilitation Services Unit is represented by the American Federation of State, County and Municipal Employees ( AFSCME ) and includes about 9,900 employees. The Administrative and Clerical Services Unit, the Primary Supervisory Unit, the Professional Unit and the Higher Level Supervisory Unit are all represented by the Communications Workers of America ( CWA ) and include about 8,200 employees, 10,400 employees, 16,000 employees and 3,200 employees, respectively. The sixth unit, consisting of approximately 5,400 employees, is represented by Local 195, International Federation of Professional and Technical Engineers ( IFPTE ). Negotiation Process The New Jersey Public Employer-Employee Relations Act specifies a negotiation process for non-police and non-fire units which includes mediation and advisory fact-finding in the event of a negotiations impasse. This process is geared to the public employer s budget submission process. Thus, in the case of the State, unless there is a multi-year agreement then in effect, negotiations begin in October of the year (or no later than 120 days) prior to the new budget, and the entire process, including mediation and fact-finding, should be completed prior to the Governor s submission of a budget to the State Legislature in late January or early February of each year, so that the budget process can reflect the results of negotiations. In the event that negotiations are not completed by the budget submission date, a later supplemental appropriations request may be made. The economic provisions included in these negotiated agreements generally take effect at the beginning of each fiscal year or at other times provided in the agreements. Police and fire negotiations units may also submit to mediation and fact-finding in the event that negotiations with the State produces an impasse and the parties agree to do so, but where no agreement is achieved by exhaustion of these processes, police and fire units are additionally entitled to submit their final demands to binding interest arbitration. Approximately 11,000 State employees come under the binding interest arbitration process. Of the 11,000, approximately 2,900 are in the State Police. Contract Status The State has entered into four-year contracts for Fiscal Years 2008-2011 with the AFSCME, the IFPTE, and the CWA. These unions represent approximately 53,000 State employees. The contracts provide for a total salary increase of 13.0%, comprising increases 3.0% in Fiscal Year 2008, 3.0% in Fiscal Year 2009, 3.5% in Fiscal Year 2010 and 3.5% in Fiscal Year 2011. The State has entered into a four-year contract for Fiscal Years 2008-2011 with the New Jersey State Policemen s Benevolent Association State Law Enforcement Unit ( SLEU ). SLEU represents approximately 224 employees. The contract provides for a total salary increase of 14.5%, comprising increases of 3.5% in Fiscal Year 2008, 3.5% in Fiscal Year 2009, 3.75% in Fiscal Year 2010 and 3.75% in Fiscal Year 2011. The New Jersey State Policemen s Benevolent Associations State Corrections Officers Local No. 105 ( PBA 105 ) consisting of approximately 6,500 employees has completed interest arbitration and is awaiting the arbitrator s award. The negotiation process for developing new four-year contracts for the remaining law enforcement units, including the State Police, is either underway or commencing shortly for the approximately 4,200 State employees represented by a union. I-44

Early Retirement Incentive Program On June 24, 2008, Governor Corzine signed an Early Retirement Incentive (the ERI ) program into law for certain full-time employees of the Executive and Judicial Branches of the State government. The incentives under the ERI program include additional service credit under certain Pension Plans, State-paid post-retirement medical benefits, and a supplemental benefit of $500 per month for the first 24 months of retirement. To qualify for the additional benefits being offered under the ERI program, eligible employees must retire by August 1, 2008 unless extended by the State to no later than June 30, 2009. Employees retiring between March 1, 2008 and July 1, 2008 also qualify for the additional benefits. A total of 1,488 employees accepted the ERI of the 3,828 who were eligible. The purpose of the ERI is to reduce the size of the State government workforce in order to generate budget savings. To ensure that the ERI program meets its intended purpose, the ERI legislation contains a provision which limits the filling of vacancies resulting from the ERI to 10%. Employees electing to retire under the ERI program are also prohibited from returning to work in the Executive or the Judicial Branch of the State government, other than employment on an hourly basis for emergency management purposes, for a period of three years from the retirement date. The ERI legislation also excludes employees of certain State departments and State agencies from eligibility for ERI benefits due to the restriction on backfilling. Specifically, employees in departments or agencies whose mission is principally related to the provision of direct care, or when the nature of their operations otherwise does not permit the imposition of a strict limit on the filing of vacancies are not eligible for ERI benefits. Recent Actions and Proposals by the State See RECENT DEVELOPMENTS above for a description of mandatory one day furloughs imposed by the State, challenges to the mandatory one day furloughs imposed by the State and proposals to eliminate certain previously negotiated wage increases. FUNDING PENSION PLANS General. Almost all of the public employees of the State and its counties, municipalities and political subdivisions are members of pension plans administered by the State. The State operates seven defined benefit pension plans (collectively, the Pension Plans ). Public Employees Retirement System ( PERS ) and Teachers Pension and Annuity Fund ( TPAF ) are the largest plans, which as of June 30, 2008, the date of the latest actuarial valuations for all systems covered 319,182 and 156,087 active members, respectively, and 134,555 and 76,068 retired members, respectively. These actuarial reports are final but have not yet been presented to the respective boards of the Pension Plans for their review. The other systems are Police and Firemen s Retirement System ( PFRS ) (as of June 30, 2008, 45,466 active members and 33,151 retired members), Consolidated Police and Firemen s Pension Fund ( CP&FPF ) (as of June 30, 2008, no active members and 532 retired members), State Police Retirement System ( SPRS ) (as of June 30, 2008, 2,947 active members and 2,520 retired members), Judicial Retirement System ( JRS ) (as of June 30, 2008, 425 active members and 468 retired members) and Prison Officers Pension Fund ( POPF ) (as of June 30, 2008, no active members and 167 retired members). From June 30, 2003 to June 30, 2008, the total number of active members and retired members of all of the State-administered plans increased by 35,974 and 40,047, respectively, which represented increases of 7.4% and 19.3%, respectively. The State is not the only employer sponsoring PERS and PFRS. Local governments within the State participate as employers as well. In both of these Pension Plans, the assets that the State and the local governments contribute are invested together and generate one investment rate of return. However, both of these Pension Plans segregate the active and retired members and the related actuarial liabilities between the State on one hand and the local governments on the other hand. As experience with the State s active and retired members changes, these Pension Plans adjust the actuarial liabilities of the State without affecting the actuarial liabilities of the local governments, and the same occurs with the experience with the local governments active and retired members. As of June 30, 2008, those members of the PERS and PFRS for which the State is responsible for making contributions were, with respect to PERS, 95,331 active members and 42,170 retired members and, with respect to PFRS, 7,936 active members and 3,860 retired members. Although PERS and PFRS segregate the active and retired members of the State and the local governments, under certain State statutes, the State is responsible for making certain contributions to PFRS and PERS on behalf of I-45

In the case of the expected rate of return of assets, the actual rate of return on the Pension Plans depends on the performance of their respective investment portfolios. The investment portfolios of the respective Pension Plans can be highly volatile. The value of the securities in the investment portfolios can dramatically change from one Fiscal Year to the next, which could, in turn, cause substantial increases or decreases in the applicable UAAL. For Fiscal Year 2008, the rate of return of the assets of the Pension Plans was -2.9%, causing the UAAL of the Pension Plans to increase between Fiscal Year 2007 and Fiscal Year 2008. For Fiscal Year 2009, the estimated performance for the Pension Plans fiscal year-to-date through February 28, 2009 is -25.5%. If there is no recovery in the rate of return prior to the end of the fiscal year, it is anticipated that the UAAL will continue to increase and the funding ratios of the Pension Plans will decrease. Based on current market conditions there is no assurance that such negative trends will not continue in Fiscal Year 2010 and beyond. In addition, the actuarial valuations of the Pension Plans use several actuarial methods to calculate the actuarial value of assets and actuarial accrued liability of the Pension Plans. For example, the Pension Plans use an asset valuation method of smoothing the difference between the market value of assets and the actuarial value of assets over a five-year period to prevent extreme fluctuations that may result from temporary or cyclical economic and market conditions. As of June 30, 2008, the aggregate market value of all of the assets of the Pension Plans, as determined by the Pension Plans actuaries, was approximately $82.0 billion, which amount includes contribution receivables from the State and local employers. To the extent these receivables do not materialize, adjustments will be made by the actuaries in the next year s valuations. As of June 30, 2008, the aggregate actuarial value of all assets of the Pension Plans was $91.4 billion. Based on these figures, the Pension Plans have a net unsmoothed loss of approximately $9.4 billion. The Pension Plans use an amortization method that calculates the amount of the UAAL that is included in the actuarially recommended rates of contribution based on the assumption in each year s actuarial valuation that the State (and other sponsoring employers, as applicable) will amortize the UAAL over a 30-year period as a level percent of pay. This means that the actuarial valuation assumes that the portion of the UAAL that the State will amortize in each of the years in the 30-year period will represent the same percentage of payroll for the covered employees in those years. The actuarial valuations of the Pension Plans assume that the payroll for such covered employees will increase by 4.0% in each year, which means that the amount of this payroll will be the smallest dollar amount in the first year of the assumed amortization period. As a consequence of this method, even if the State were to contribute to the Pension Plans the full amount of the actuarially recommended contributions, the UAAL for the Pension Plans will continue to rise indefinitely, so long as all of the other actuarial assumptions of the Pension Plans are realized. Furthermore, if the UAAL of a Pension Plan rises from one year to the next, then the actuarial valuations will once again use the full 30-year amortization period which can result in the State not effectively amortizing the UAAL of the Pension Plans. State law also requires the Pension Plans to conduct experience investigations every three years, which examine the demographic and economic assumptions used in the Pension Plans actuarial valuations to ensure that those assumptions are consistent with the Pension Plans respective historical experiences. Changes recommended by the actuaries are reviewed and considered for implementation by the appropriate Pension Board. State law provides that any changes in the retirement benefits of the Pension Plans or any changes in the funding methods of the Pension Plans must be approved by the State Legislature, and that each bill submitted to the State Legislature must be accompanied by a fiscal note stating the cost of the proposal. The State Legislature is under no requirement to adopt the recommendations of an actuary in determining the funding of the Pension Plans. State law provides that the retirement benefits of the Pension Plans are not subject to negotiations between the State and other public employers and the employee members of the Pension Plans. Since the Pension Plans are governed by State law, any increases or decreases to the retirement benefits paid by the Pension Plans must be authorized by the State Legislature and approved by the Governor. The State s annual contribution to the Pension Plans is contingent upon the annual Appropriations Act, which is also subject to the approval of the State Legislature and the Governor. Due to budgetary constraints, the amounts appropriated as the State s contribution to the Pension Plans for a Fiscal Year are expected to be less than the actuarially recommended contributions. I-47

The Division of Investment of the New Jersey Department of the Treasury, which is under the independent supervision of the State Investment Council, invests the assets of the Pension Plans. State law regulates the types of investments which are permitted. See FUNDING PENSION PLANS Litigation, below. In PERS, the State makes employer contributions for State employees while counties, municipalities, school districts and local public agencies make such contributions for their employee members. The State, rather than local school boards, pays the employer contributions to TPAF, including the employer s share of the Social Security tax, with respect to public school teachers in the State. The PFRS is primarily established for municipal policemen and firemen. The State s participation in this Pension Plan is limited to those State-employed law enforcement officers who have been permitted to enroll therein. The State is solely responsible for funding the benefits of the SPRS, JRS, CP&FPF and the POPF. The CP&FPF and the POPF are closed plans and not open to new membership. Benefits. Nearly all State employees participate in one of the Pension Plans, with eight to ten years of employment required before retirement benefits become vested. Upon retirement, members of PERS and TPAF are eligible for annual retirement benefits equal to 1/55 of final average compensation for each year of service credit. This is in accordance with legislation enacted by the State Legislature in 2001 which increased the retirement benefits under PERS and TPAF by changing the retirement benefit formula from 1/60 to 1/55 of final average compensation for each year of service. Final average compensation equals the average compensation for the final three years of service before retirement or highest three years compensation if other than the final three years. Also available to such participants are an early retirement benefit after 25 years of service and a veteran s retirement benefit after 20 and 25 years of service, if age requirements for those retirement benefits are met. After a participant in one of the Pension Plans has been retired for two years, the participant is eligible for the pension adjustment program, which provides for an adjustment in retirement benefits. The pension adjustment program is non-contributory and covers all eligible retirees and survivors of the Pension Plans. Eligible retirees and their survivors are those who have been retired at least 24 months. The percentage adjustment is 60.0% of the change in the Consumer Price Index from the year of retirement to the year immediately preceding the year of adjustment (there is no cap on the amount of such increase). In all Pension Plans, except CP&FPF and POPF, the Pension Plans directly fund the cost-of-living increases and these cost-of-living increases are included in the actuarial accrued liability of the Pension Plans. The State funds cost-of-living increases in the CP&FPF and POPF on a pay-as-you-go basis. From Fiscal Year ended June 30, 2003 to Fiscal Year ended June 30, 2008 the total net assets of all of the Pension Plans, which includes both the assets relating to State and local government active and retired members, as reported in their respective Audited Financial Reports, increased by $18.7 billion from $64.3 billion to $83.0 billion and the total expenditures incurred by the Pension Plans over the same period increased by $2.1 billion from $4.4 billion to $6.5 billion. The amount of these expenditures is expected to increase in future fiscal years. This resulted in an increase in the Annual Expenditures to Net Assets Ratio from 6.87% for the Fiscal Year ended June 30, 2003 to 7.88% for the Fiscal Year ended June 30, 2008. It is likely that the Annual Expenditures to Net Assets Ratio will worsen and increase in future fiscal years. Net assets represent the difference between a Pension Plan s total assets and its liabilities and mainly consist of investment holdings, which are stated at market value, and member and employer receivables. Expenditures include retirement benefit payments, including cost-of-living adjustments, contributory and noncontributory death benefit payments, member withdrawals and administrative expenses. Legislative Changes: The State Legislature has in the past adopted laws that increased the retirement benefits payable by the Pension Plans. The result of these increases in retirement benefits was to increase the actuarial accrued liability of the affected Pension Plans which also had the effect of increasing the actuarially recommended contributions for the State for the affected Pension Plans. For example, on June 24, 2008, Governor Corzine signed an Early Retirement Incentive program into law for certain full-time employees of the Executive and Judicial Branches of State government. See STATE EMPLOYEES Early Retirement Incentive Program. The increase in the unfunded aggregate UAAL of the Pension Plans caused by the Early Retirement Incentive program for the 1,488 State employees who elected to retire under this program is estimated to be $184.7 million. I-48

In addition, the State Legislature has in the past adopted laws that limited future retirement benefits payable by the Pension Plans. These laws are expected to limit the future growth of the actuarial accrued liability of the affected Pension Plans which also has the effect of limiting the growth of the actuarially recommended contributions for the State for the affected Pension Plans in future plan years. For example, the State Legislature adopted laws for the Fiscal Year ending June 30, 2009 which raised the minimum annual salary required to establish eligibility for membership under certain Pension Plans and increased the retirement age at which full pension benefits are payable from 60 to 62 for certain employees hired on or after November 2, 2008. The State Legislature also adopted laws in the Fiscal Year ended June 30, 2007 which raised the employee contribution rate for PERS and TPAF active members from 5.0% to 5.5%, raised the early retirement age at which full retirement benefits are payable from 55 to 60 for new employees enrolled in the PERS and TPAF on or after July 1, 2007, and provides that new employees hired on or after July 1, 2007 are subject to a maximum compensation limit for PERS and TPAF pension contributions. Current and Historical Contributions and Funding Status. From the Fiscal Year ended June 30, 1997 through Fiscal Year ended June 30, 2003, the State made minimal contributions to the Pension Plans because the actuarial value of the assets in each of the Pension Plans exceeded the actuarial accrued liability and the State used that excess as a credit against the actuarially recommended contributions. Beginning with the actuarial valuations of the Pension Plans as of June 30, 2002, several of the Pension Plans (including PERS and TPAF) suffered from adverse market conditions and the Funded Ratio of these Pension Plans declined rapidly. As a result, the actuarial recommended contributions in those actuarial valuations steeply increased and the State was not financially in the position to absorb the entire amount of the actuarially recommended contributions. As a consequence, the State adopted a phase-in approach to financing the State s contributions to the Pension Plans. Under this approach, since Fiscal Year ended June 30, 2004, which was the first year in which these increased actuarially recommended contributions applied, the State has not paid the aggregate actuarially recommended contributions to the Pension Plans (taking the Pension Plans as a whole). For the Fiscal Years ended June 30, 2004, June 30, 2005, June 30, 2006, June 30, 2007, and June 30, 2008, the State paid approximately 20.0%, 30.0%, 40.0%, 57.5%, and 50.1%, respectively, of the total actuarially recommended contributions of all of the Pension Plans. However, for PERS and TPAF, the State s Appropriation Acts for the Fiscal Years ended June 30, 2004, 2005 and 2006 authorized the use of the Benefit Enhancement Fund to cover the phase-in costs for those years. The Benefit Enhancement Fund is a special reserve fund within PERS and TPAF to which the required normal contributions to provide retirement benefit increases under Chapter 353, P.L. 2001 and Chapter 133, P.L. 2001 was charged. The fund was established in the Fiscal Year ended June 30, 2002 and credited with excess assets equivalent to member contributions for Fiscal Years ended June 30, 2000 and 2001 by transferring reserves in the Contingent Reserve Fund to the Benefit Enhancement Fund. Amounts in the Benefit Enhancement Fund for each of PERS and TPAF were calculated within the respective actuarial value of assets and the related retirement benefits were calculated within the respective actuarial accrued liabilities. Therefore, because the State used amounts from the Benefit Enhancement Fund to pay its contributions in Fiscal Years ended June 30, 2004 through 2006, from an actuarial perspective, the State did not contribute any funds to PERS or TPAF in the Fiscal Years ended June 30, 2004 and 2005 and the State contributed minimal amounts in the Fiscal Year ended June 30, 2006. The Benefit Enhancement Fund became fully depleted in the Fiscal Year ended June 30, 2006 and the State made a contribution to PERS and TPAF representing approximately 57.5% of the actuarially recommended contributions of those Pension Plans for the Fiscal Year ended June 30, 2007. For the Fiscal Year ending June 30, 2009, although $1.047 billion was included in the Fiscal Year 2009 Appropriations Act as the State s pension contribution to the Pension Plans, it is expected that the State will only contribute $263.1 million to the Pension Plans due to continuing budgetary problems caused by the current economic crisis. This estimated pension contribution represents only 11.8% of the total actuarially recommended contribution to the Pension Plans of $2.231 billion and only 25.1% of the amount included in the Fiscal Year 2009 Appropriations Act. Based on the Governor s Fiscal Year 2010 Budget Message, the State is expected to make a pension contribution of only $150.7 million to the Pension Plans for the Fiscal Year ending June 30, 2010, representing approximately 6.0% of the aggregate actuarially recommended pension contribution for the Pension Plans of $2.519 billion. These reductions in the State s pension contribution for Fiscal Year 2009 and Fiscal Year 2010, absent significant improvement in investment returns or actions resulting in changes to liabilities of the I-49

Pension Plans, are expected to cause the UAAL of the Pension Plans to increase significantly, which would lower the overall funded ratio of the Pension Plans and increase the need for future State pension contributions to ensure the fiscal integrity of the Pension Plans. No assurances can be given as to the level of the State s pension contributions in future fiscal years. I-50

Pension Plan FUNDING STATUS PENSION FUND ACTUARIAL LIABILITIES AND ASSETS Actuarial Valuations as of June 30, 2008 (In Millions) Actuarial Value of Assets(1) Actuarial Accrued Liability(2) Unfunded Actuarial Accrued Liability(3) Funded Ratio(4) State PERS... $11,200.7 $ 17,072.7 $ 5,872.0 65.6% TPAF... 36,664.6 51,754.8 15,090.2 70.8% PFRS... 2,316.0 3,749.1 1,433.1 61.8% CP&FPF... 15.7 17.3 1.6 90.8% SPRS... 2,127.3 2,609.2 481.9 81.5% JRS... 381.0 553.3 172.3 68.9% POPF... 12.9 6.8 (6.1) 189.7% Subtotal... 52,718.2 75,763.2 23,045.0 69.6% Local PERS... 18,217.7 23,173.2 4,955.5 78.6% PFRS... 20,437.5 26,871.1 6,433.6 76.1% Subtotal... 38,655.2 50,044.3 11,389.1 77.2% Total... $91,373.4 $125,807.5 $34,434.1 72.6% Source: New Jersey Department of the Treasury, Division of Pensions and Benefits. Information was derived from the actuarial valuation reports as of June 30, 2008 for each of the indicated Pension Plans. The June 30, 2008 actuarial valuation reports were recently finalized; however, they have not yet been presented to the respective pension boards for their review. (1) The actuarial value of assets of each of the Pension Plans is set forth in the actuarial valuation relating to a Pension Plan and represents the market-related value of the assets held by the Pension Plan as adjusted to reflect various actuarial methods including the smoothing of actuarial losses and gains (including investment losses and gains) over a five-year period. (2) The actuarial accrued liability of each of the Pension Plans is set forth in the actuarial valuation relating to a Pension Plan and is an estimate based on demographic and economic assumptions of the present value of benefits that the Pension Plan will pay during the assumed life expectancies of the applicable retired members and active members after they retire. (3) The UAAL of each of the Pension Plans is set forth in the actuarial valuation relating to a Pension Plan and reflects the amount of the excess of the actuarial accrued liability of a Pension Plan over its actuarial value of assets. The indicated amounts reflect the UAAL as calculated pursuant to the requirements of the Government Accounting Standards Board ( GASB ) for purposes of presentation in the Comprehensive Annual Financial Report of the State. These amounts differ immaterially from the UAAL of the Pension Plans calculated strictly pursuant to the actuarial methods required by State statutes and the actuarial assumptions adopted by the applicable Pension Plan boards. (4) The Funded Ratio of each of the Pension Plans is presented in the actuarial valuation relating to a Pension Plan and reflects the quotient obtained by dividing the actuarial value of assets of the Pension Plan by the actuarial accrued liability of the Pension Plan. The indicated percentages reflect the Funded Ratio as calculated pursuant to the requirements of the Governmental Accounting Standards Board ( GASB ) for purposes of presentation in the Comprehensive Annual Financial Report of the State. These percentages differ immaterially from the Funded Ratios of the Pension Plans calculated strictly pursuant to the actuarial methods required by State statutes and the actuarial assumptions adopted by the applicable Pension Plan boards. I-51

HISTORICAL FUNDING STATUS AGGREGATE PENSION FUND ACTUARIAL LIABILITIES AND ASSETS(1) Actuarial Valuations as of June 30, 2002 through June 30, 2008 (In Millions) Valuation Year Ending June 30, Actuarial Value of Assets Actuarial Accrued Liability Unfunded Actuarial Accrued Liability (UAAL) Funded Ratio State 2002... $50,530.9 $50,129.9 (401.0) 100.8% 2003... 49,673.6 53,914.2 4,240.6 92.1% 2004... 49,574.1 58,017.6 8,443.5 85.4% 2005... 49,755.1 62,796.5 13,041.4 79.2% 2006... 50,659.2 67,266.3 16,607.1 75.3% 2007... 52,433.4 71,655.8 19,222.4 73.2% 2008... 52,718.2 75,763.2 23,045.0 69.6% Local 2002... 32,895.3 32,110.4 (784.9) 102.4% 2003... 32,853.9 34,145.9 1,292.0 96.2% 2004... 33,176.5 36,846.9 3,670.4 90.0% 2005... 33,854.1 39,730.9 5,876.8 85.2% 2006... 34,981.1 43,181.5 8,200.4 81.0% 2007... 37,190.7 46,326.3 9,135.6 80.3% 2008... 38,655.2 50,044.3 11,389.1 77.2% Source: New Jersey Department of the Treasury, Division of Pensions and Benefits. Information was derived from the actuarial valuation reports as of June 30, 2002 through June 30, 2008 for all the Pension Plans. The June 30, 2008 actuarial valuation reports were recently finalized; however, they have not yet been presented to the respective pension boards for their review. (1) Please refer to the footnotes of the immediately preceding table for an explanation of the categories set forth in the columns of this table. Each of the columns of this table reflects an aggregate of all of the Pension Plans. Thus, each of the indicated categories reflects a sum of that category of all of the Pension Plans for the indicated Fiscal Years (except with respect to the Funded Ratios which are the weighted average Funded Ratios of all of the Pension Plans for the indicated Fiscal Years). I-52

SCHEDULE OF STATE AND LOCAL EMPLOYER CONTRIBUTIONS TO PENSION PLANS For the Fiscal Year Ending June 30, 2009 (In Millions) Pension Plan Actuarially Recommended Contributions(1) Expected Contributions(2)(5) Amount Unfunded(3)(5) State PERS... $ 506.3 $ 51.7 $ 454.6 TPAF... 1,349.3 166.4 1,182.9 PFRS(4)... 271.8 32.0 239.8 CP&FPF... 1.3 1.3 SPRS... 75.9 8.7 67.2 JRS... 26.1 3.0 23.1 POPF... Subtotal... 2,230.7 263.1 1,967.6 Local PERS... 500.0 250.0 250.0 PFRS... 668.7 334.3 334.4 Subtotal... 1,168.7 584.3 584.4 Total... $3,399.4 $847.4 $2,552.0 Source: New Jersey Department of the Treasury, Division of Pensions and Benefits. Information regarding the actuarially recommended contributions was derived from the June 30, 2007 actuarial valuation reports for all of the Pension Plans except with respect to PFRS for which the information was derived from the actuarial valuation report as of June 30, 2006. Information regarding the expected contributions for the State was derived from the Fiscal Year 2009 Appropriations Act. Information with respect to the expected contributions of local governments was derived from the actuarial valuation report of PERS as of June 30, 2007 and the actuarial valuation report of PFRS as of June 30, 2006. (1) The State and local participating employers will make its pension contributions to the indicated Pension Plans in the Fiscal Year ending June 30, 2009 based on the information contained in the actuarial valuations for the Pension Plans as of June 30, 2007, except in the PFRS where the contribution will be based on the actuarial valuation prepared as of June 30, 2006. The PERS and PFRS local employer pension contribution excludes early retirement incentive (ERI) contributions payable in Fiscal Year 2009 by local government employers who have adopted ERI programs for their employees. (2) As a result of the State budgetary decision to defer required State s contributions, the State s pension contributions to the Pension Plans will be substantially lower than the actuarially recommended contributions as set forth in the actuarial valuations of the Pension Plans. On the local side, P.L. 2009, c.19 was recently enacted which gives PERS and PFRS local employers the option of funding only 50.0% of the actuarially recommended contribution amount due for the Fiscal Year ending June 30, 2009 and for making additional contributions over a period of 15 years beginning in the Fiscal Year ending June 30, 2012 to cover the unfunded liability on the reduced contribution. It is expected that most local employers will opt to make the 50.0% contribution. (3) Represents the difference between the actuarially recommended pension contribution and the expected contribution from the State and the local participating employers. (4) The State contribution to the PFRS includes contributions made by the State on behalf of local active and retired members to cover certain benefit enhancements. Of the total expected contribution of $32.0 million for the Fiscal Year ending June 30, 2009, $15.0 million represents contributions on behalf of local participants. (5) Estimated. I-53

SCHEDULE OF STATE AND LOCAL EMPLOYER CONTRIBUTIONS TO PENSION PLANS For the Fiscal Year Ending June 30, 2010 (In Millions) Pension Plan Actuarially Recommended Contributions(1) Expected Contributions(2)(5) Amount Unfunded(3)(5) State PERS... $ 580.4 $ 29.7 $ 550.7 TPAF... 1,527.5 95.5 1,432.0 PFRS(4)... 299.1 18.4 280.7 CP&FPF... 0.4 0.4 SPRS... 82.5 5.0 77.5 JRS... 28.9 1.7 27.2 POPF... Subtotal... 2,518.8 150.7 2,368.1 Local PERS... 566.4 566.4 PFRS... 714.7 714.7 Subtotal... 1,281.1 1,281.1 Total... $3,799.9 $1,431.8 $2,368.1 Source: New Jersey Department of the Treasury, Division of Pensions and Benefits. Information regarding the actuarially recommended contributions was derived from the June 30, 2008 actuarial valuation reports for all of the Pension Plans except with respect to PFRS for which the information was derived from the actuarial valuation report as of June 30, 2007. The June 30, 2008 actuarial valuation reports were recently finalized; however, they have not yet been presented to the respective pension boards which may have comments and/or concerns. Information regarding the expected contributions for the State was derived from the Governor s Fiscal Year 2010 Budget Message, except for CP&FPF which was derived from the actuarial valuation report of CP&FPF as of June 30, 2008. Information with respect to the expected contributions of local governments was derived from the actuarial valuation report of PERS as of June 30, 2008 and the actuarial valuation report of PFRS as of June 30, 2007. (1) The State and local participating employers will make its pension contributions to the indicated Pension Plans in the Fiscal Year ending June 30, 2010 based on the information contained in the actuarial valuations for the Pension Plans as of June 30, 2008, except in the PFRS where the contribution will be based on the actuarial valuation prepared as of June 30, 2007. The PERS and PFRS local employer pension contribution excludes early retirement incentive (ERI) contributions payable in Fiscal Year 2010 by local government employers who have adopted ERI programs for their employees. (2) As a result of the State budgetary decision to defer required State s contributions, the State s pension contributions to the Pension Plans will be substantially lower than the actuarially recommended contributions as set forth in the actuarial valuations of the Pension Plans. For local participating employers, full contributions based on the actuarially recommended amounts are expected. (3) Represents the difference between the actuarially recommended pension contribution and the expected contribution from the State and the local participating employers. (4) The State contribution to the PFRS includes contributions made by the State on behalf of local active and retired members to cover certain benefit enhancements. Of the total expected contribution of $18.4 million for the Fiscal Year ending June 30, 2010, $8.6 million represents contributions on behalf of local participants. (5) Estimated. I-54

AGGREGATE STATE AND LOCAL EMPLOYER CONTRIBUTIONS TO PENSION PLANS For the Fiscal Years Ending June 30, 2004 through June 30, 2010 (1) (In Millions) Fiscal Year Ending June 30, Actuarially Recommended Contributions(2) Actual and Expected Contributions Amount Unfunded 2004... $ 783.2 $ 26.4 $ 756.8 2005... 1,066.2 61.1 1,005.1 2006... 1,450.8 164.4 1,286.4 2007... 1,778.6 1,023.2 755.4 2008... 2,089.8 1,046.1 1,043.7 2009... 2,230.7 263.1 1,967.6 2010... 2,518.8 150.7 2,368.1 Subtotal... $11,918.1 $2,735.0 $ 9,183.1 Local 2004... 407.0 48.4 358.6 2005... 484.0 158.9 325.1 2006... 678.1 353.8 324.3 2007... 842.5 605.6 236.9 2008... 1,089.1 993.4 95.7 2009... 1,168.7 584.3 584.4 2010... 1,281.1 1,281.1 Subtotal... 5,950.5 4,025.5 1,925.0 Total... $17,868.6 $6,760.5 $11,108.1 Source: New Jersey Department of the Treasury, Division of Pensions and Benefits. Information regarding the actuarially recommended contributions of the State was derived from the actuarial valuation reports as of June 30, 2002 through June 30, 2008 for all of the Pension Plans except for PFRS for which the information was derived from the actuarial valuation reports of PFRS as of June 30, 2001 through June 30, 2007. The June 30, 2008 actuarial valuation reports were recently finalized; however, they have not yet been presented to the respective pension boards for their review. Information regarding the actual contributions of the State for Fiscal Years 2004 through 2008 was provided by the Division of Pensions and Benefits. Information regarding estimated contributions of the State for Fiscal Year 2009 is as set forth in the Fiscal Year 2009 Appropriations Act and for Fiscal Year 2010 is as set forth in the Governor s Fiscal Year 2010 Budget Message. Information regarding the actuarially recommended contributions and the actual and estimated contributions of local governments was derived from the actuarial valuation reports of PERS as of June 30, 2002 through June 30, 2008 and the actuarial valuation reports of PFRS as of June 30, 2001 through June 30, 2007. (1) Please refer to the footnotes of the immediately preceding table for an explanation of the categories set forth in the columns of this table. Each of the columns of this table reflects an aggregate of all of the Pension Plans. Thus, each of indicated categories reflects a sum of that category of all of the Pension Plans (except with respect to the Funded Ratio which is a weighted average Funded Ratio of all of the Pension Plans) (2) For all pension plans except PFRS, the State and local employer contributions relating to an actuarial valuation as of the end of a Fiscal Year are made in the second succeeding Fiscal Year. For example, the State and local employers contributions relating to the actuarial valuation as of June 30, 2008 will be made in the Fiscal Year ended June 30, 2010. For PFRS, the State and local employer contributions are made in the third succeeding Fiscal Year. For example, the State and local employers contributions relating to the June 30, 2007 actuarial valuation will be made in the Fiscal Year ended June 30, 2010. Impact of State s Pension Plan Funding Actions. The State has not contributed the full amount of the actuarially recommended contributions with respect to the Pension Plans since the Fiscal Year ending June 30, 2003. From the Fiscal Year ended June 30, 1997 through Fiscal Year ended June 30, 2003, the actuarially I-55

recommended contributions were minimal because the actuarial value of the assets in each of the Pension Plans exceeded the actuarial accrued liability and the State used that excess as a credit against the actuarially recommended contributions. Beginning with the Fiscal Year ending June 30, 2004, excess valuation assets were nearly fully depleted and full contributions were required in most of the Pension Plans. For the Fiscal Years ended June 30, 2004, June 30, 2005, June 30, 2006, June 30, 2007, and June 30, 2008, the State s contributions to the Pension Plans, including amounts transferred from the Benefit Enhancement Fund within the PERS and TPAF, were approximately 20.0%, 30.0%, 40.0%, 57.5%, and 50.1%, respectively, of the total actuarially recommended contributions of all of the Pension Plans. While the State had increased its contributions to more significant levels for Fiscal years 2007 and 2008, as a result of deteriorating economic conditions, for the Fiscal Year ending June 30, 2009, the State estimates that it will pay approximately 11.8% of the actuarially recommended contributions and for the Fiscal Year ending June 30, 2010, the State estimates that it will pay approximately 6% of the actuarial recommended contribution. The Pension Plans have experienced increasing deterioration in their funded status as a result of these low levels of State funding which has been exacerbated by recent declines in the valuations of fund assets. The aggregate Funded Ratio of the Pension Plans has declined from approximately 100.8% as of June 30, 2002 to 69.6% as of June 30, 2008, and absent an unanticipated increase in the value of fund assets will decline further for the Fiscal Years ended June 30, 2009 and 2010, respectively. In order to maintain the long-term fiscal integrity of the Pension Funds and their ability to pay required benefits to the members of the Pension Plans, a combination of some or all of the following will be required: (i) substantially increased contributions by the State, (ii) significantly increased investment returns, or (iii) actions resulting in changes to liabilities of the Pension Plans. Any significant increase in State contributions would in turn create a significant burden on all aspects of the State s budget. No assurances can be given as to the level of the State s pension contributions in future fiscal years. Recent Developments on Pension Plans and on the State s Financial Condition. The State expects that the UAAL of the Pension Plans as of June 30, 2009 will probably experience a substantial increase as a result of losses on their investment portfolio. For the period from July 1, 2008 through February 28, 2009, the State estimates that the investment portfolio of the Pension Plans declined by approximately 25.5%. If the rate of return on the assets of the Pension Plans for the full Fiscal Year ending June 30, 2009 experiences a decline in the general order of magnitude of 25.5%, then this will likely result in a substantial increase in the UAAL of the Pension Plans. Based on current economic conditions, no assurance can be given that such substantial increases will not continue for the Fiscal Year ending June 30, 2010 and beyond. As discussed above, the UAAL of the Pension Plans has also consistently risen since the Fiscal Year ended June 30, 2004 and is expected to experience a substantial increase as of the end of the current Fiscal Year as a result of the State, since the Fiscal Year ended June 30, 2004, not contributing the full actuarially recommended contribution and the recent poor investment performance of the Pension Plans. This element of the increase in the UAAL is also expected to continue to increase in the Fiscal Year ending June 30, 2010 and possibly beyond. The UAAL also makes numerous economic and demographic assumptions such as how high inflation will rise in the future, when the members of the Pension Plans will retire, how long these members will live and how many of these members will become disabled. If any of these assumptions prove to be materially worse than assumed, any resulting increase in the UAAL could be substantial, with the result that the financial condition of the Pension Plans would be worse than presented above. The deterioration of the financial condition of the Pension Plans reflected by the increasing UAAL may have two consequences. First, the deterioration increases the amount of future actuarially recommended contributions of the State which has the effect of deferring a substantial portion of the State s funding responsibilities to future Fiscal Years. Second, the deterioration reduces the amount of assets the Pension Plans have to pay benefits to their members. As discussed above, as the financial condition of the Pension Plans has deteriorated, the Pension Plans Annual Expenditures to Net Assets Ratio has steadily increased and for the Fiscal Year ended June 30, 2008 was 7.88%. Although the accumulation of assets in the Pension Plans does not jeopardize the payment of pension benefits in the short term, the long-term impact of continuation of a funding policy that allows the State to contribute less than the aggregate actuarially recommended contributions could impact, at some point, the Pension Plans ability to meet their obligations absent significant additional contributions by the State, increased investment returns or actions resulting in changes to liabilities of the Pension Plans. Future increased contributions by the State I-56

in future Fiscal Years, depending on the magnitude, would likely create a significant burden on all aspects of the State s budget. No assurances can be given as to the level of the State s pension contributions in future fiscal years. Alternate Benefit Program. In addition to these defined benefit programs, the State also maintains the Alternate Benefit Program ( ABP ), which is a defined contribution plan for eligible employees of the public institutions of higher education in the State. Employer and employee contributions under the ABP are paid to authorized investment carriers who offer participants a variety of investment choices. The six investment carriers for this program are ING Life Insurance and Annuity Company, Met Life (formerly Travelers/CitiStreet), TIAA-CREF, AIG VALIC, AXA Financial (Equitable) and The Hartford. The State pays the employer pension contribution to the ABP at a rate equal to 8.0% of the member s base salary. In addition, the State provides funding to cover the cost of noncontributory group life insurance and long-term disability insurance coverage for ABP participants. For Fiscal Year 2008 and 2009, the State appropriated $158.3 million and $166.5 million, respectively, to cover pension contributions and to provide funding for noncontributory group life insurance and long-term disability benefits. For Fiscal Year 2010, the Governor s Fiscal Year 2010 Budget Message includes $174.7 million as the State s contribution to the ABP to cover pension, noncontributory group life insurance, and long-term disability benefit costs. Since the ABP is a defined contribution plan and not a defined benefit plan, the State s sole obligation with respect to the ABP is to make the annual contributions and the State has no responsibility to ensure that the participating employees ultimately receive a level of benefit. Central Pension Fund. The State also administers the Central Pension Fund ( CPF ), which is a singleemployer noncontributory defined benefit plan for special groups that are not included in other State-administered systems. The State funds the CPF on a pay-as-you-go basis. There are no State or local government employees covered by the CPF. Noncontributory Life Insurance. The State funds noncontributory insurance benefit costs for active and retired State employees. State appropriations are received on a monthly basis to cover actual benefit charges incurred and payable to beneficiaries of active and retired State employees plus administrative fees charged by the insurance providers. The State funds these benefit costs on a pay-as-you-go basis and does not actuarially determine the future liability of these benefit costs. The State has appropriated $68.7 million to cover noncontributory insurance benefit costs of the Pension Plans for the Fiscal Year ending June 30, 2009. For Fiscal Year 2010, the Governor s Fiscal Year 2010 Budget Message recommends an appropriation of $72.4 million for noncontributory insurance benefits for the Pension Plans. The State expects that its noncontributory insurance benefit costs will increase in future fiscal years. Defined Contribution Retirement Program. The State Legislature adopted legislation in the Fiscal Year ending June 30, 2007 which required the establishment of the Defined Contribution Retirement Program (the DCRP ), which is a new defined contribution plan for elected and appointed officials and for certain PERS and TPAF employees subject to a maximum compensation limit. The employee contribution rate for the DCRP is 5.5%. Employers are required to contribute an additional 3.0% of base salary on behalf of employees enrolled in the plan. With regard to PERS and TPAF members enrolled in the DCRP, contributions are based on compensation in excess of the Social Security maximum. SEC Inquiry. The Division of Pensions and Benefits was contacted in late April 2007 by the Securities and Exchange Commission ( SEC ) regarding a confidential, informal inquiry into New Jersey s pension system. The SEC has asked for information as part of its fact finding inquiry, which it is sharing with the United States Attorney s Office for the District of New Jersey. The State is cooperating fully and is providing information in response to the SEC s requests. The State is unable to predict the ultimate outcome of such inquiry. See below under the captions LITIGATION New Jersey Education Association et al. v. State of New Jersey et al and Professional Firefighters Association of New Jersey et al. v. State of New Jersey et al for a description of claims pending against the State relating to the Pension Plans. FUNDING POST-RETIREMENT MEDICAL BENEFITS In addition to the pension benefits, the State provides post-retirement medical ( PRM ) benefits for certain State and other retired employees meeting the service credit eligibility requirements. This includes retired State I-57

employees of PERS, TPAF, PFRS, SPRS, JRS and ABP; local retired TPAF and other school board employees; and some local PFRS retirees. To become eligible for this State-paid benefit, a member of these Pension Plans must retire with 25 or more years of pension service credit or on a disability pension. These benefits are provided through the State Health Benefits Program ( SHBP ) and the recently established School Employees Health Benefits Program ( SEHPB ), created under the provisions of Chapter 103, P.L. 2007 to provide medical and prescription drug coverage to active and retired education employees beginning July 1, 2008. The SHBP and the SEHBP are administered by the Division of Pensions and Benefits. The benefits provided include medical, prescription drug, mental health/substance abuse and Medicare Part B reimbursement for covered retirees, spouses and dependents. In Fiscal Year 2008, the State paid PRM benefits for 102,681 State and local retirees. The State funds post-retirement medical benefits on a pay-as-you-go basis, which means that the State does not pre-fund, or otherwise establish a reserve or other pool of assets against the PRM expenses that the State may incur in future years. For Fiscal Year 2008, the State expended $1.073 billion to pay for PRM benefits for the eligible retirees in these groups mentioned above. The Fiscal Year 2009 Appropriations Act appropriates $1.145 billion to cover anticipated pay-as-you-go PRM costs. In accordance with the provisions of GASB Statements No. 43 and 45, the State is required to quantify and disclose its obligations to pay PRM to current and future retirees. GASB Statement No. 43, Financial Reporting for Post-employment Benefit Plans Other Than Pensions is effective for the SHBP beginning with Fiscal Year 2007 (July 1, 2006 June 30, 2007). GASB Statement No. 45, Accounting and Reporting by Employers for Postemployment Benefits Other Than Pensions is effective for the State beginning with Fiscal Year 2008 (July 1, 2007 June 30, 2008). Based on the most recent valuation of these benefits and as summarized in the report, Postemployment Benefits Other Than Pension Actuarial Valuation, submitted to the Division of Pensions and Benefits by AON Consulting (AON) in September, 2008, the Fiscal Year 2008 actuarial accrued liability of the State to provide PRM to active and retired members of the pension plans has been measured to be $50.649 billion. GASB 45 does not impose any requirement on the State to pre-fund its PRM actuarial accrued liability. The results of the report are summarized in the table below. GASB 43 Results ($ millions) July 1, 2007- June 30, 2008 State Education-State Total Actuarial Accrued Liability* Active... $12,097.6 $19,734.6 $31,832.2 Retired.... $ 6,319.4 $12,497.9 $18,817.3 Total... $18,417.0 $32,232.5 $50,649.5 * Assuming no pre-funding of obligations The amounts set forth in this table exclude the actuarial accrued liability of the Local Governmental Employers who are participating in the State Health Benefits Program. The PRM actuarial accrued liability for the local governmental employers is $9,096.6 million. The State has no legal responsibility with respect to the PRM obligations of Local Governmental Employers. AON calculated the State PRM actuarial accrued liability based on plan provisions, as provided by the State, along with certain demographic and economic assumptions recommended by AON and approved by the State, and which conform to the requirements of GASB 43 and 45. AON used the Projected Unit Credit Actuarial Method to calculate the PRM actuarial accrued liability of the State and local participating employers. Many of the actuarial assumptions used to project the PRM actuarial accrued liability are the same as those used to determine the accrued actuarial liabilities of the Pension Plans. The discount rate used to determine the retiree healthcare liabilities is 4.5%, which is the maximum discount rate that GASB 43 and 45 permit when employers do not pre-fund their PRM actuarial accrued liabilities. When projecting the growth of expected claims of the lifetimes of the qualifying retirees, (1) AON assumed that healthcare expenses would increase at rates ranging from 9.5% to 10.5% per year for the next 11 years and then 5.0% each year after that and (2) AON assumed that prescription drug expenses would increase at a rate of 11.5% per year for the next 13 years and then 5.0% per year after that. For additional information regarding the PRM actuarial accrued liability of the State and local employers, including a detailed description of the related actuarial I-58

LITIGATION The following are cases presently pending or threatened in which the State has the potential for either a significant loss of revenue or a significant unanticipated expenditure. Buena Regional Commercial Township et al. v. New Jersey Department of Education et al. This lawsuit was filed in Superior Court, Chancery Division, Cumberland County on December 9, 1997, on behalf of 17 rural school districts seeking the same type of relief as has been mandated to be provided to the poor urban school districts in Abbott v. Burke, which included, without limitation, sufficient funds to allow the school districts to spend at the average of wealthy suburban school districts, to implement additional programs such as full-day kindergarten, half-day preschool programs for three and four year olds, technology, alternative school, accountability and school-to-work and college transition programs, and to upgrade school facilities. The Buena school districts are seeking to be treated as special needs districts and to receive parity funding with the Abbott school districts as a remedial measure. They also are seeking additional funding as may be necessary to provide an education equivalent to that being provided in the Abbott districts. The State and the plaintiffs entered into a consent order to transfer the matter to the Commissioner of Education (the Commissioner ) for a hearing. The plaintiffs petition was amended to include three more rural districts for a total of 20. On February 24, 2000, the Commissioner decided the State s final motion to dismiss and ordered that the matter be transmitted to the Office of Administrative Law ( OAL ) for a hearing limited to whether each petitioning district has fully effectuated the provisions of the Comprehensive Educational Improvement and Financing Act ( CEIFA ). Upon transmittal, three districts withdrew from the litigation. On December 29, 2000, the Administrative Law Judge ( ALJ ) rendered a decision finding that all of the petitioning school districts established that they were using CEIFA funding appropriately and recommended that the second part of the hearing process move forward. Subsequently, with a modification as to the standard of review, the Commissioner affirmed the ALJ s decision. The matter was remanded to the OAL to determine whether educational deficiencies exist in the districts and, if so, whether the deficiencies are linked to the funding formula. On September 26, 2002, the ALJ issued an Initial Decision (the Initial Decision ), finding that 5 of the 17 petitioning school districts were unable to provide a thorough and efficient education to their students: Salem City, Commercial, Buena Regional, Fairfield and Woodbine. As a remedy, the ALJ recommended full Abbott funding for these five districts. On November 9, 2002, the parties submitted written exceptions to the Initial Decision. Of the twelve (12) districts that were unsuccessful in demonstrating a failure to provide a thorough and efficient education to their students and therefore no remedy was proposed by the ALJ, only six filed exceptions that the ALJ was incorrect as to them: Clayton, Egg Harbor City, Lakehurst, Lawrence, Maurice River and Lakewood. Following a review of the Initial Decision, exceptions and record, the Commissioner, on February 10, 2003, adopted in part and rejected in part the Initial Decision. The Commissioner rejected the finding that Buena Regional, Commercial, Fairfield and Woodbine met the standard for special needs district status. The Commissioner adopted the finding that Salem City met the standard for special needs status and recommended to the Legislature that Salem be included within CEIFA s definition of an Abbott District. Additionally, the Commissioner adopted the finding that the other twelve petitioning districts did not demonstrate that CEIFA is insufficient to enable them to provide a thorough and efficient education to their students. On March 6, 2003, the districts of Buena Regional, Clayton, Commercial, Egg Harbor, Fairfield, Lakehurst, Lakewood, Lawrence, Maurice River, and Woodbine appealed the decision of the Commissioner to the State Board of Education. On July 2, 2003, the districts of Commercial and Maurice River withdrew their appeals. On June 15, 2005, the Legal Committee of the State Board of Education ( Legal Committee ) issued a report ( Initial Report ) to the parties. The Initial Report found that the current methods of funding school districts in the State are ineffective and cause disparities. Moreover, the Initial Report found that the appealing school districts in this litigation and those school districts in this litigation which did not pursue an appeal are entitled to relief. The Initial Report directs the Commissioner to undertake a Statewide study of components necessary for a thorough and efficient education and for the Commissioner to conduct individual school district needs assessments for all of the original school districts in this litigation. The Department of Education (the Department ) filed exceptions to this Initial Report on July 25, 2005. On September 26, 2005, the Department received a revised report from the Legal Committee which came virtually to the same conclusions as the Initial Report. The Department filed exceptions to the revised report. On January 4, 2006, the State Board of Education adopted the revised report, with slight modifications, from the Legal Committee, thereby finding CEIFA unconstitutional as applied to the school districts in this litigation. The State Board of Education has directed the Commissioner to design a needs assessment, which I-60

is to be performed in each of the school districts participating in this litigation. The Commissioner was directed to submit the proposed design of the needs assessment to the State Board of Education by February 1, 2006. Additionally, the State Board of Education found problems with the method of school funding on a Statewide basis and directed the Commissioner to analyze the current system and provide the State Board of Education with findings and recommendations as to the educational components essential to the establishment of a unified system for public education which meets constitutional goals. On January 11, 2006, a notice of appeal was filed with the New Jersey Superior Court, Appellate Division on behalf of the plaintiffs. On February 23, 2006, the State filed a motion to dismiss the appeal as to all parties except Buena Regional, Clayton, Egg Harbor City, Fairfield, Lakehurst, Lakewood, Lawrence and Woodbine. On March 28, 2006, the Appellate Division granted the State s motion to dismiss ( March 28th Order ). The plaintiffs filed a motion for reconsideration of the Appellate Division s March 28th Order on March 31, 2006. On April 17, 2006, the plaintiff s motion for reconsideration was denied. On January 29, 2007, the plaintiffs filed with the New Jersey Supreme Court (the Supreme Court ) a notice of motion for certification of appeal pending unheard in the Appellate Division. On that date, plaintiffs also filed with the Appellate Division a motion to accelerate the appeal. By order filed on February 21, 2007, the Supreme Court denied the plaintiffs motion for certification of appeal pending unheard in the Appellate Division. By order filed on February 21, 2007, the Appellate Division denied the plaintiffs motion to accelerate the appeal. Oral arguments were heard by the Appellate Division on December 3, 2007. On March 14, 2008, the Appellate Division affirmed the decision of the State Board of Education. The Appellate Division ordered the Commissioner to complete the needs assessment within six months, and, based on that needs assessment, determine whether the remedial measures in the School Funding Reform Act of 2008 afford students in the Buena school districts the thorough and efficient education to which they are constitutionally entitled. On September 24, 2008, the Appellate Division granted the Commissioner s request to extend the time to complete the records assessment until December 31, 2008. The needs assessments were completed by the December 31, 2008 deadline. The Commissioner is currently compiling reports detailing the results of the needs assessments. The State is vigorously defending this matter. 2001-2002 Abbott District Appeals. Several Abbott districts filed administrative petitions of appeal to the Commissioner regarding departmental decisions rendered on approved programs and funding for the 2001-2002 school year. Four districts (Elizabeth, Neptune, Passaic and Pemberton) filed appeals of decisions on the early childhood program plans. Each of the districts asked that their programs be approved as originally requested. These appeals were amicably resolved. Additionally, four districts (Elizabeth, Gloucester City, Neptune and Passaic) filed appeals on behalf of each of the schools in their districts challenging the Department s determinations on each school s Whole School Reform Plan/School-Based Budgets. The matters involving Gloucester City, Neptune and Passaic were amicably resolved. With regard to Elizabeth, upon notice by the district, the initial decisions of the ALJ were not acted upon by the Commissioner and, instead, the matter was dismissed as withdrawn by the district. Also, eleven districts (Asbury Park, Camden, East Orange, Elizabeth, Gloucester City, Neptune, New Brunswick, Passaic, Pemberton, Trenton and Vineland) filed petitions of appeal on the Department s decisions awarding Additional Abbott v. Burke State aid seeking, in total, over $353 million in additional aid. The districts disagreed with the Department s findings of budget reallocations, revenues and the final award of Additional Abbott v. Burke State aid. Motions to dismiss in lieu of answers were filed in the Camden, Trenton, Vineland, and New Brunswick matters. The State s motion to dismiss the Camden petition was granted and the remaining matters were transferred to the OAL for hearing. Amicable resolutions were reached in the Asbury Park, East Orange, Gloucester City, Neptune, New Brunswick, Passaic, Pemberton, Trenton, Vineland and Elizabeth matters. Finally, the Education Law Center (the ELC ) filed a petition and amended petition challenging the decisions and non-decisions of the Department in this regard on behalf of students in the thirty Abbott districts. Generally, the ELC took issue with the Department s process and decisions regarding Additional Abbott v. Burke State aid. On August 24, 2001, the State filed a motion for summary decision in lieu of answer and will continue to vigorously defend this appeal. J.D., J.G., v. Lucille E. Davy, Commissioner of the New Jersey Department of Education. In late January 2007, plaintiffs filed a complaint in the New Jersey Superior Court, Chancery Division, Essex County (the Court ) for injunctive and declaratory relief striking down provisions of State law, specifically N.J.S.A. 18A:36A-10, N.J.S.A. 18A:36A-12 and N.J.A.C. 6A:10A-1.2, that plaintiffs allege unconstitutionally discriminate against children attending Newark public charter schools. The action is styled as a class action for all students currently attending public charter schools in Newark. The complaint further states that the disparity between I-61

Abbott funding in Newark s district schools and the public charter schools in Newark is $9,600 annually per pupil and $37,000 per pupil in facilities funding. By not allowing Newark s public charter schools access to Abbott funding and State facilities funding, plaintiffs allege the State is violating the Equal Protection Clause of the New Jersey Constitution. The State filed a motion to dismiss the complaint on April 10, 2007. On September 29, 2008, the Chancery Division granted the State s motion to dismiss the complaint. On November 13, 2008, the plaintiffs filed a notice of appeal with the Appellate Division. Upon the filing of the notice of appeal, the plaintiffs sought a stay of the appeal pending the outcome of Abbott v. Burke (Review of Constitutionality of School Funding Reform Act) remand. The Appellate Division granted the stay. The State is vigorously defending this matter. Abbott v. Burke (Review of Constitutionality of School Funding Reform Act). On March 17, 2008, the State moved before the New Jersey Supreme Court seeking constitutional review of the School Funding Reform Act of 2008 ( SFRA ). The Education Law Center filed an opposition to the State s motion on both jurisdictional and substantive grounds. While briefing by the primary parties progressed, numerous Abbott districts and other stakeholders sought to participate in the matter. The Court granted amicus status to all movants. Oral argument was held on September 22, 2008. On November 18, 2008, the Court issued a decision remanding the matter for an expedited hearing before Special Master Peter Doyne, A.J.S.C. The remand proceeding commenced on February 9, 2009, and ended March 3, 2009, with closing summations. Both parties and amici filed post-trial briefs. Additionally, the Court directed that the remedial orders of the Abbott rulings remain in place pending the outcome of the remand proceeding. On March 23, 2009, Judge Peter Doyne, AJSC and Special Master, issued his findings and recommendations. Judge Doyne found the SFRA to be a well considered, even expansive, formula to allow a thorough and efficient education for all children in the State. However, Judge Doyne determined that absent a safety net of supplemental funding for at least the first three years, the SFRA is not constitutional as applied to the Abbott districts. The matter now returns to the Supreme Court for consideration. Briefs in response to Judge Doyne s decision are due April 13, 2009, with replies due April 20, 2009. The Court will hear oral argument by the parties on April 28, 2009. The State intends to vigorously support the constitutionality of the new school funding formula as applied to the Abbott districts as well as the fact that supplemental funding is no longer necessary under the SFRA. Under the SFRA, the State of New Jersey budgeted more then $8.4 billion for state aid to public schools for the 2008-2009 school year. An adverse ruling by the Supreme Court following the remand proceeding might have an impact on the amount of and allocation of state aid funding for public schools. The State plans to vigorously defend this matter. Abbott v. Burke (Motion to Enforce Facilities Order). On October 2, 2007, the plaintiffs filed a new motion in aid of litigants rights with the New Jersey Supreme Court (the Supreme Court ) requesting the State be ordered to comply with prior Supreme Court directives to remediate the school facilities deficiencies in the Abbott districts. The plaintiffs argue that the State is in default of its constitutional obligations to fund school facilities construction projects in the Abbott districts. The plaintiffs are requesting that the Supreme Court order the State to secure and provide funding necessary to resume planning, design, construction and other activities to complete approved school construction projects in the Abbott districts, including necessary health and safety repairs, by December 31, 2007. Oral argument was held on January 23, 2008. By order dated February 19, 2008, the court denied the plaintiffs motion in light of representations made by the state that the Governor would seek legislation authorizing an increase in the statutory bond limit for Abbott district school facilities construction projects by a minimum of $2.5 billion in February 2008. Lonegan v. State. On July 28, 2008, a complaint (the Complaint ) was filed in the Superior Court of New Jersey, Law Division, Bergen County, Docket Number BER-L-5712-08, against the State, the State Treasurer, the New Jersey Economic Development Authority ( NJEDA and, together with the State and the State Treasurer, the State Defendants ), the Governor of the State and the Commissioner of the Department of Education claiming that P.L. 2008, c. 39, which amends certain provisions of the Educational Facilities Construction and Financing Act (Chapter 72, 1 through 30 and 57 through 71 of the Laws of New Jersey of 2000), and authorizes the issuance by NJEDA of an additional $3.9 billion of bonds, the debt service on which is payable from State appropriations under a contract between the NJEDA and the State Treasurer (collectively, the School Construction Bonds ), violates Article VIII, Section 2, paragraph 3 of the New Jersey Constitution, commonly known as the Debt Limitation Clause. I-62

The plaintiff previously asserted that the School Construction Bonds were subject to voter referendum pursuant to the Debt Limitation Clause in the cases of Lonegan v. State, 174 N.J. 435 (2002) and Lonegan v. State, 176 N.J. 2 (2003), and the New Jersey Supreme Court ruled in favor of the State Defendants. The Superior Court dismissed the complaint in its entirety, with prejudice on December 8, 2008. The plaintiff filed a notice of appeal in January 2009. The State plans to vigorously defend this matter. Disability Rights New Jersey v. Jennifer Velez (I). Plaintiff, a non-profit agency designated as New Jersey s protection and advocacy organization ( DRNJ ) pursuant to 42 U.S.C. 10801 et seq., filed this action on April 5, 2005. DRNJ filed an amended complaint on May 19, 2005, eliminating the state law claims from its original complaint. The suit alleges that the Department of Human Services ( DHS ) is in violation of Due Process provisions of the United States Constitution; the integration mandate of Americans with Disabilities Act, 42 U.S.C. 12130 et seq., as interpreted by the Supreme Court in Olmstead v. L.C., 527 U.S. 581 (1999); and Section 504 of the federal Rehabilitation Act, 29 U.S.C. 794. Specifically, DRNJ is seeking to vindicate the rights of all patients in state psychiatric hospitals on Conditional Extension Pending Placement ( CEPP ) status, pursuant to IMO S.L., 94N.J. 128 (1983)). DRNJ is seeking prospective injunctive relief, specifically an order requiring DHS to promptly take all necessary steps to enable patients on CEPP status to receive services in the most integrated setting appropriate to their needs; monetary penalties, prevailing party costs, disbursements and attorneys fees pursuant to 42 U.S.C. 1988; and an injunction requiring DHS to report to DRNJ on the number and names of CEPP patients and other information as DRNJ may require, on a ongoing basis. The State filed a motion to dismiss the complaint. In its opposition to the motion, DRNJ agreed to strike the portion of the complaint in which it requested a per diem penalty. The remainder of the motion to dismiss was denied by the court on September 30, 2005. The State filed its answer denying liability on all claims asserted by DRNJ on October 13, 2005. In February 2008, DHS issued a written plan, Home to Recovery CEPP Plan, to develop a system over the next six years that ensures persons placed on CEPP status are placed within six months. At this time, the State estimates its exposure for these claims to be in excess of $20 million per year in increased costs for community placements. The State is vigorously defending this matter. Disability Rights New Jersey et al. v. Jennifer Velez (II). Plaintiff, DRNJ and two clients of the New Jersey Department of Human Services, Division of Developmental Disabilities ( Department ) filed this action on September 29, 2005. On October 7, 2005, Plaintiff served defendant, Commissioner of Human Services ( Commissioner ) with a summons complaint and waiver of service. The Plaintiff alleges that the Department is in violation of Title II of the Americans With Disabilities Act (the ADA ), as interpreted in Olmstead v. L.C., 527U.S. 581 (1999), Section 504 of the Rehabilitation Act and the Medicaid Act. The Plaintiff is seeking declaratory and prospective injunctive relief, attorneys fees, litigation expenses and other relief. More specifically, the Plaintiff seeks community placements for the people that Plaintiff alleges are in State-operated developmental centers while awaiting community placement. The State filed its answer on December 5, 2005. On February 1, 2008, the Plaintiff filed an amended complaint, alleging that the Commissioner is in violation of the Fourteenth Amendment of the United States Constitution and the ADA because the Commissioner fails to provide for commitment hearings before a developmentally disabled individual is admitted to a State developmental center and fails to provide for on-going commitment hearings during an individual s continued residence at a State developmental center. In addition, the Plaintiff seeks injunctive relief requiring that the State conduct hearings on notice and with representation for the developmentally disabled individual prior to admission and annually thereafter. Pursuant to L. 2006, c. 61, on May 21, 2007, the Department submitted to the State Legislature an eight-year plan to make community placements for all people who are assessed to be appropriate for community placement and wish to be so placed. The State filed its answer on June 4, 2007. The State is vigorously defending this matter. Disability Rights New Jersey v. Jennifer Velez (III). Plaintiff, DRNJ filed suit on April 23, 2008 against the Commissioner of the Department of Human Services seeking relief for individuals who are eligible for services from the New Jersey Department of Human Services, Division of Developmental Disabilities (the Department ), seeking reformation of the Department s Home and Community Based Waiver services, which are implemented by the Department pursuant to State and federal law. Part of that cost is borne by the federal government as part of the New Jersey Community Care Waiver, which is part of the State s Medicaid plan. DRNJ alleges that there are approximately 8,000 developmentally disabled persons on the waiting list for community placements. Although both State law and the Medicaid Act allow waiting lists, DRNJ s suit, brought under 42 U.S.C.A. 1983, alleges that the waiver program, I-63

as currently utilized, violates Title II of the ADA, Section 504 of the Rehabilitation Act, and Sections 1396a(a)(8) and 1396n(c)(2)(C) and (d)(2)(c) of the Medicaid Act. DRNJ seeks an injunction requiring the State to provide the community services within specified reasonable time frames and to eliminate the waiting list within 3 years, as well as other relief, attorneys fees other and costs. The State filed a motion for a more definite statement and to strike portions of the complaint, which motion was granted by the court on September 9, 2008. DRNJ filed an amended complaint on September 26, 2008. The State filed a motion to dismiss the complaint on December 31, 2008. The State is vigorously defending this matter. East Cape May Associates v. New Jersey Department of Environmental Protection. This matter is a regulatory taking case in which the plaintiff claims that it is entitled to in excess of $30 million in damages for a taking of its property without just compensation. The property is approximately 96 acres of freshwater wetlands in the City of Cape May. Plaintiff filed its complaint in Superior Court, Law Division, on December 8, 1992, after the Department of Environmental Protection ( DEP ) denied an application for 366 single family homes. On motion for summary judgment, the trial court ruled that the State was liable for a regulatory taking as of December 1992. Thereafter, the New Jersey Appellate Division held that DEP could avoid liability by approving development on the property under Section 22(b) of the Freshwater Wetlands Protection Act. In addition, the Appellate Division remanded the case for a determination of whether the property also included 100 acres previously developed by the plaintiff s principals. On remand from the Appellate Division, the trial court ruled on October 8, 1999 that the property did not include the 100 acres previously developed, and that DEP could not approve development of the 80 remaining acres without first adopting rules. Since DEP had not adopted rules, the trial court held that DEP s development offer of 64 homes on the 80 acres was ineffective and DEP was liable for a taking of the property. The State filed an appeal of the trial court s decision and East Cape May Associates filed a cross-appeal. Oral argument was held on May 14, 2001. On July 25, 2001, the Appellate Division affirmed the trial court s decision, and found that before DEP could approve limited development to avoid a taking, it was required to adopt rules. The Appellate Division remanded the case for such rule-making, the making of a development offer under the rules, and a determination by the trial court as to whether the new offer complies with the rules and avoids a taking. East Cape May Associates petitioned the New Jersey Supreme Court for certification of this decision, which was denied. Upon remand from the Appellate Division, DEP promulgated regulations to implement Section 22(b), which took effect on January 22, 2002 and is now implementing those rules. The case remains on remand pending DEP s full implementation of the regulations. In July 2003, the trial judge referred the case to mediation and appointed former Justice Daniel O Hern as mediator. On February 17, 2005, mediator Justice O Hern advised the trial court that mediation had concluded without agreement. A settlement was tentatively reached in January 2008, but the parties were not able to satisfy various settlement contingencies. The parties are in the process of reaching a tentative resolution to this matter which accommodates the concerns of all involved, including the municipality and the American Littoral Society, the environmental amicus. DEP is moving forward to prepare its settlement analysis prior to public comment. The State is vigorously defending this matter. FiberMark North America, Inc. v. State of New Jersey, Department of Environmental Protection. This lawsuit was filed in Superior Court, Law Division, Hunterdon County on May 27, 2008 by FiberMark North America, Inc. ( FiberMark ) as owner of the Warren Glen waste water treatment facility ( Warren Glen ) in Hunterdon County. FiberMark s complaint asserts claims against DEP under the New Jersey Eminent Domain Act, N.J.S.A. 20:3-1 et seq., Article 1, Paragraph 20 of the State Constitution and the 5 th and 14 th Amendments of the United States Constitution, and for trespass, private nuisance, negligence and dangerous condition under the New Jersey Tort Claims Act, N.J.S.A. 59:1-1 et seq. Specifically, FiberMark alleges that DEP is responsible for unpermitted discharges of landfill pollutants into FiberMark s waste water treatment lagoon #1 at Warren Glen from a neighboring landfill. FiberMark also claims that it has suffered damages due to incurred maintenance costs for Warren Glen, taxes, utility fees, license fees and operating fees and costs associated with Warren Glen, costs to operate the wastewater treatment system for Warren Glen, costs associated with delay in the clean-up of Warren Glen under the ISRA statutes, consulting and legal fees, and other costs resulting from being unable to cease operations and to decommission and sell Warren Glen. FiberMark claims it is the successor to a 1991 landfill agreement ( 1991 Agreement ), by which FiberMark was obligated to receive and treat leachate from the neighboring landfill in FiberMark s waste water treatment lagoons before discharge into the Musconetcong River. FiberMark claims that as part of a voluntary Chapter 11 bankruptcy petition for reorganization filed in the State of Vermont, the bankruptcy court granted FiberMark s I-64

motion to reject the 1991 Agreement on June 23, 2005. FiberMark claims it has had no responsibility to treat the leachate from the neighboring landfill since that date and has suffered damages from DEP s alleged illegal discharges of leachate onto Warren Glen, but that DEP forced FiberMark to continue treating leachate discharged from the neighboring landfill from March 2006 through September 13, 2007. In April 2007, DEP successfully rerouted the leachate so that it no longer runs onto Warren Glen and is permanently enjoined, on a prospective basis, from allowing leachate to run onto Warren Glen pursuant to a partial consent judgment entered into by the parties on September 12, 2007 in a related case, FiberMark North America Inc. v. Jackson, previously filed in the United States District Court. The State filed its answer to FiberMark s complaint filed in State court on June 23, 2008. The trial on this matter is scheduled to begin on May 4, 2009. The State is vigorously defending this matter. New Jersey Department of Environmental Protection et al. v. Occidental Chemical Corporation, et al. In December 2005, the New Jersey Department of Environmental Protection ( NJDEP ), the Commissioner of NJDEP, and the Administrator of the New Jersey Spill Compensation Fund (collectively, Plaintiffs ) filed suit in the Superior Court, Law Division, Essex County against Occidental Chemical Corporation ( Occidental ), Maxus Energy Corporation ( Maxus ), Tierra Solutions, Inc. ( Tierra ), Repsol YPF, S.A., YPF, S.A., YPF Holdings, Inc. and CLH Holdings, Inc. seeking costs and damages relating to the discharge of dioxin into the Passaic River and its environs by Diamond Shamrock Corporation, a predecessor of defendant Occidental. In November 2008, Maxus and Tierra filed counterclaims against the Plaintiffs seeking, among other things, (a) contribution under the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 to -23.24 (the Spill Act ), for an equitable share of any Passaic River cleanup and removal costs and damages for which Maxus and Tierra may be found liable, (b) claims under the Environmental Rights Act, N.J.S.A. 2A:35A-1 to 35A-14, and an injunction against the issuance of permits issued in violation of N.J.S.A. 58:14-7 and -8; (c) the abatement of discharges of untreated or inadequately treated wastewater in the Newark Bay Complex; the abatement of pollution sources from outside the Newark Bay Complex; and an order removing NJDEP as trustee for natural resources within the Newark Bay Complex, (d) a judgment finding NJDEP liable for aiding and abetting discharges of polluting matter into the Passaic River, and an injunction prohibiting NJDEP from permitting or condoning the further discharge of polluting matter into the Passaic River or its tributaries, (e) the reduction or extinction of any judgment rendered against Maxus and Tierra under the doctrine of recoupment, (f) a judgment that NJDEP is liable for public nuisance in the event that all or part of the Newark Bay Complex is determined to be a public nuisance; an order imposing on the Plaintiffs an equitable share of any relief the court might order on the Plaintiffs public nuisance claims, (g) an order setting off the Plaintiffs share of liability for discharges of hazardous substances into the Newark Bay Complex and an order setting off any benefits that the Plaintiffs have received from activities that contaminated the Newark Bay Complex against any liability that Maxus and Tierra may have, and (h) contribution for a proportionate share of cleanup and removal costs, damages or other losses for which Maxus and Tierra may be held liable or that they have incurred or may incur for the Newark Bay Complex. In February 2009, Maxus and Tierra filed third party complaints against the State, the Department of Agriculture and the Department of Transportation ( NJDOT ) seeking contribution from each of these third party defendants. With respect to NJDOT, Maxus and Tierra allege that hazardous substances were discharged into the Newark Bay Complex from the Kearny Oil Lake Site while NJDOT owned and operated that site and that NJDOT is a dischargee under the Spill Act. The State is vigorously defending this matter. New Jersey Education Association et al. v. State of New Jersey et al. This matter was filed in the New Jersey Superior Court, Law Division, Mercer County. Plaintiffs third amended complaint alleges that the State violated various constitutional provisions, statutes and common law by failing to fund the Teachers Pension and Annuity Fund ( TPAF ) in the amount and manner prescribed by law while increasing the contribution paid by employees who participate in the fund from 3% to 5%. In particular, plaintiffs allege that the Treasurer failed to submit to the Legislature a request for the monies certified by the TPAF s actuary to be necessary to fund the State s contribution to the TPAF for Fiscal Years 2004 through 2007 and that the State Legislature failed to properly fund the TPAF as required by law and required the local school boards to increase the employees contributions from 3% to 5% in violation of applicable law. Plaintiffs are seeking a judgment declaring that defendants failure to properly and adequately fund the TPAF violates various constitutional and statutory provisions, including provisions of the Internal Revenue Code of 1986. In their complaint, plaintiffs ask that the defendants be directed to make a payment into the TPAF or in the I-65

alternative, that the employees contribution be maintained at 3% and not increased. In addition, plaintiffs are seeking attorneys fees, disbursements and costs pursuant to 42 U.S.C. 188 or any other legal basis. On April 28, 2004, the State moved to dismiss the complaint for failure to state a claim upon which relief can be granted. Oral argument on the motion was held on June 11, 2004. On July 15, 2004, the court issued its decision granting the State s motion to dismiss as to claims of violation of the constitutional principles of uniformity and fairness in taxation, violation of the Internal Revenue Code of 1986 and N.J.S.A. 43:3C-9.1, and breach of promissory estoppel. The court denied the State s motion on the other claims. On or about June 28, 2004, the plaintiffs filed an amended complaint which included allegations of underfunding the TPAF for the Fiscal Year 2005 and which sought an additional payment of $675 million into the TPAF. On November 23, 2004, the State moved to dismiss the amended complaint which motion was denied. The State then moved for leave to appeal to the Appellate Division seeking review of the court s denial of the State s motion to dismiss. On January 13, 2005, the Appellate Division denied the State s motion. On February 2, 2005, the State moved for leave to appeal to the Supreme Court of New Jersey seeking review of the court s order declining to dismiss the amended complaint against the State. By order dated September 12, 2005, the Supreme Court denied the State s motion for leave to appeal. On April 2, 2008, the trial court held that the plaintiffs had failed to prove a substantial impairment of a contractual right and dismissed the complaint in its entirety. On May 22, 2008, the plaintiffs filed a notice of appeal. The parties have filed their briefs with the Appellate Division. The Appellate Division has not yet issued a scheduling order or set a date for oral argument. The State is vigorously defending this matter. Professional Firefighters Association of New Jersey et al. v. State of New Jersey et al. This matter was filed in the New Jersey Superior Court, Law Division, Mercer County, on October 4, 2005 and was served on the State on October 20, 2005. The plaintiffs complaint alleges that the State violated various constitutional provisions (federal and State), statutes and common law by failing to fund the Police and Firemen s Retirement System ( PFRS ) for Fiscal Year 2004 and Fiscal Year 2005 in the amount required by law. The plaintiffs also challenge the constitutionality of P.L. 2003, c. 108, which reduces the PFRS contributions required of local employers for Fiscal Year 2004 through Fiscal Year 2007. In addition to a judgment declaring that the defendants failure to properly and adequately fund PFRS in Fiscal Year 2004 and Fiscal Year 2005 violates various constitutional provisions, statutes and common law, the plaintiffs seek an order requiring the State to make a payment to PFRS for FY2004 and FY2005 to properly fund the PFRS, in accordance with fiscally responsible actuarial calculations. On January 26, 2007, the court heard arguments on motions made by the State to dismiss the complaint. On March 13, 2007, the court granted the State s motion to dismiss three counts of the seven count complaint and to merge the other counts. The only count before the court is the plaintiffs claim that the State s funding decisions constitute an unconstitutional impairment of contract. Discovery in the case is in progress. The plaintiffs filed a motion for summary judgment in August 2008. The State filed a cross-motion for summary judgment to dismiss the complaint, or in the alternative, a stay of the proceedings pending resolution of the New Jersey Education Association et al. v. State of New Jersey et al. matter. Oral argument on the summary judgment motions is scheduled for April 24, 2009. The State is vigorously defending this matter. AMEC Civil, LLC v. State of New Jersey, Department of Transportation (MON-L-003174-03), (MON-L-004675-03) and (MON-L-3671-04). These matters were filed in the Law Division of the Superior Court of New Jersey in Monmouth County in 2003 and 2004. They involve claims against the New Jersey Department of Transportation ( DOT ) arising from a construction contract involving the N.J. Route 35 Shark River Bridge Replacement in Belmar, New Jersey. Plaintiff alleges that DOT breached the contract on various grounds including, without limitation, the DOT placed limitations on plaintiff s work hours and work days in the river channel; the DOT gave instructions to plaintiff during a beam erection which resulted in an accident; the project was defectively designed so that it could not be constructed as designed; the DOT failed to disclose access problems and differing site conditions; the DOT failed to obtain permits and utility relocations; and the DOT is generally responsible for a host of delay-causing issues resulting in significant alleged damages to the plaintiff. By order of the court dated December 15, 2004, all three matters were consolidated for all purposes. On March 18, 2005, cross-motions for summary judgment on the issues concerning access to the river channel were denied by the court. The discovery period ended on May 9, 2007. In June 2007, the parties took part in mediation in an effort to settle the litigation. Such efforts were unsuccessful. Motions for summary judgment were filed on October 1, 2007. On May 22, 2008, the motions for summary judgment were argued. With one exception (pre-judgment interest), all motions and cross-motions for summary judgment were decided in favor of DOT on December 16, 2008. The I-66

plaintiff has filed a motion for reconsideration and other in-limine motions. No trial date has yet been set. The State is vigorously defending these matters. Railroad Construction Company, Inc. v. State of New Jersey, Department of Transportation. This matter is not yet in litigation. It involves claims of approximately $47.4 million by Railroad Construction Company, Inc. ( RCC ) against the New Jersey Department of Transportation ( DOT ) arising from a construction contract. The construction contract was for the construction of weigh stations and commercial vehicle inspection stations with complex weighing/monitoring and signaling systems to monitor truck traffic located in either direction of Route 78, at Exit 6 off of Route 78 in Greenwich Township, Warren County. Additionally, the commercial vehicle inspection station on the eastbound side was expanded for use by the New Jersey State Police to provide offices, a break room and a jail cell. Associated roadway improvements constructed include 15 sign structures, lighting, drainage, reconstruction of two bridges, and removal and replacement of a third bridge. The old weigh station at Exit 3 eastbound was demolished. RCC alleges that DOT breached its contract on various grounds, including, but not limited to: unanticipated rock removal; unusual weather conditions; errors in the construction documents; changes in the character of the work; additional work; inaccurate plans to perform milling and paving; acceleration required by DOT; State shutdown during the summer of 2006; JCP&L utility strike; lane occupancy charges; and subcontractor issues. Completion of the project occurred in summer 2008, but the project closeout is not yet fully complete. RCC is providing documentation in support of its claims. DOT and RCC will initially present their positions to the DOT Claims Committee. If resolution fails, both parties have agreed to proceed to mediation. If mediation fails, it is anticipated that RCC will file suit. The State will vigorously defend this matter. Twenty First Century Rail Corporation v. New Jersey Transit Corporation. In December 2008, Twenty First Century Rail Corporation ( TFC ) filed claims against the New Jersey Transit Corporation ( NJ Transit ) concerning the construction by TFC of a major portion of the second phase of NJ Transit s Hudson Bergen Light Rail Transit Project ( HBLRT ). TFC is the prime contractor on the long-term design, construction and operation of the HBLRT. Although the entire project was bid out by NJ Transit as a design/build/operate/maintain contract to be constructed in several major phases, one portion of the second phase was designed in its entirety by NJ Transit s design consultant firm, Parsons, Brinkerhoff, Quade & Douglass (the Design Consultant ), for construction by TFC (the N-30 Tunnel Contract ). The N-30 Tunnel Contract involved the enlargement and rehabilitation of the existing Weehawken Tunnel under the Palisades, the construction of a new street-level station to be connected to the Weehawken Tunnel by an elevator system, and the installation of necessary light rail tracks, signals and communications. The contract with TFC required it to subcontract out the work after soliciting competitive bids. The subcontract was issued by TFC to a joint venture of Frontier-Kemper Constructors, J.F. Shea Construction and Beton-Und Monierbau (collectively, Frontier-Kemper ). TFC and Frontier-Kemper claim that substantial design errors and omissions by NJ Transit s Design Consultant led to significant delays on the N-30 Tunnel Contract by Frontier-Kemper, resulting in substantial damages to TFC and Frontier-Kemper. TFC has also asserted claims for breach of contract and breach of the covenant of good faith and fair dealing. TFC and Frontier- Kemper have also asserted claims of unjust enrichment/quantum meruit against NJ Transit and claims for negligence and negligent misrepresentation against the Design Consultant. In March 2009, NJ Transit filed an answer to TFC s complaint, counterclaims and cross-claims against TFC and Frontier-Kemper and a motion for summary judgment. In March 2009, the Design Consultant filed cross-claims against NJ Transit and a third party complaint against other parties involved in the matter. The State is vigorously defending this matter. Horizon Blue Cross Blue Shield of New Jersey v. The State of New Jersey et als. The New Jersey Legislature amended the insurance premiums tax to remove the availability of the insurance premiums tax cap for health service corporations. The Legislature projected that the amendment would have a positive revenue effect of approximately $40 million annually. On July 6, 2005, Horizon Blue Cross Blue Shield of New Jersey ( Horizon ) filed a complaint in the Superior Court of New Jersey, Chancery Division, Essex County, contesting this tax amendment and seeking (i) a declaration that the statute is unconstitutional; (ii) to restrain and enjoin the State from collecting the tax; and (iii) other relief. Horizon asserts numerous Federal and State constitutional claims regarding the amendment, including violations of due process, equal protection, special legislation, retroactivity, the takings clause, and the attainder clause, and unauthorized state action under 42 U.S.C. Sec. 1983. The State filed an answer and a motion to transfer the matter to the Tax Court of New Jersey, on August 9, 2005, respectively. On October 28, 2005, the court granted the State s motion to transfer this matter to the Tax Court of New Jersey. I-67

On February 9, 2006, Horizon filed an order to show cause seeking injunctive relief against enforcement by the State of the amendment. On February 21, 2006, the State filed its opposition to the order to show cause and also filed a cross motion to dismiss Horizon s Section 1983 and takings clause claims. On February 22, 2006, the Tax Court denied Horizon s request for injunctive relief, agreeing with the State that the payment of the insurance premium tax pursuant to the amendment did not cause irreparable harm to Horizon. The Tax Court also, on February 22, 2006, denied the State s cross motion. On May 4, 2006, the State filed a motion to dismiss Horizon s Section 1983 claim for failure to state a claim. On May 26, 2006, in response to the State s motion to dismiss Horizon s Section 1983 claim, Horizon filed a cross motion to compel discovery; which cross motion has been subsequently withdrawn. On June 9, 2006, the Tax Court dismissed Horizon s Section 1983 claim. On February 2, 2009, Horizon filed a motion for summary judgment. The State filed their opposition and a cross-motion to Horizon s motion for summary judgment on March 30, 2009. The State is vigorously defending this matter. Oracle International Corporation v. Director, Division of Taxation On or about March 25, 2009, Oracle International Corporation ( Oracle ) filed a complaint contesting the New Jersey Department of the Treasury, Division of Taxation s ( Division ) December 17, 2008, Notice of Assessment Relating to Final Audit Determination, imposing Corporation Business Tax for the audit period June 1, 2001, through May 31, 2007. Oracle alleges it is not subject to tax in the State, and challenges the assessment on a number of grounds, including the claim that the State s throw out rule under N.J.S.A. 54:10A-6(b) is facially invalid and unconstitutional as applied under the State and federal constitutions. The State intends to vigorously defend this matter. New Jersey Self-Storage Association, etc., et al. v. Jon Corzine, et al. (II) On or about January 12, 2007, the New Jersey Self-Storage Association (the Plaintiff ) field a complaint in the New Jersey Superior, Chancery Division, Monmouth County. The Plaintiff seeks a declaration under N.J.S.A. 2A:16-50 that the enactment of the new seven (7) percent sales tax on self-storage receipts violates several Federal and State constitutional provisions including, violations of due process and equal protection, the takings clause, the special legislation clause and the uniformity clause. On March 5, 2007, the State filed a motion (in lieu of an answer) to dismiss the complaint, or in the alternative, to transfer this matter to the Tax Court of New Jersey. On April 24, 2007, the Court granted the State s motion to transfer this matter to the Tax Court of New Jersey. In December 2007, the plaintiff filed a motion for summary judgment. On February 19, 2008, the State filed its brief in opposition to the plaintiff s motion for summary judgment and cross-moved for summary judgment. Arguments on the matter were held on May 23, 2008. On June 25, 2008, the Tax Court ruled in favor of the State denying the plaintiff s motion for summary judgment and granted the State s cross-motion for summary judgment dismissing four of the plaintiff s five Federal and State constitutional claims. The plaintiff advised the Tax Court on July 25, 2008, that the plaintiff would not pursue their remaining Federal and State constitutional claim based on the takings clause. The Plaintiff filed a notice of appeal on August 22, 2008 with the Appellate Division. On November 26, 2008, the Plaintiff withdrew its appeal. Lukens v. State of New Jersey. This suit was filed on December 16, 2008 in the Superior Court, Law Division, Atlantic County by Charles Lukens, Doris Mann Lukens and Liberty & Prosperity 1776, Inc. (the Plaintiffs ). Plaintiffs seek a declaration that the amendment to the Debt Limitation Clause of the New Jersey Constitution (Article VIII, Sec. 2, para 3.), specifically to paragraph (b) of Article VIII, Sec. 2, para. 3 of the State Constitution adopted as Senate Concurrent Resolution No. 39 by the State Legislature and approved by the voters at the general election on November 4, 2008, is unconstitutional. The Plaintiffs claim that the ballot question and the interpretative statement were defective. On February 23, 2009, by order of the court, venue for this matter was changed to the Superior Court, Law Division, Mercer County. The State intends to vigorously defend this matter. Tort, Contract and Other Claims. At any given time, there are various numbers of claims and cases pending against the State, State agencies and employees, seeking recovery of monetary damages that are primarily paid out of the fund created pursuant to the New Jersey Tort Claims Act (N.J.S.A. 59:1-1 et seq.). The State does not formally estimate its reserve representing potential exposure for these claims and cases. The State is unable to estimate its exposure for these claims and cases. The State routinely receives notices of claim seeking substantial sums of money. The majority of those claims have historically proven to be of substantially less value than the amount originally claimed. Under the New Jersey Tort Claims Act, any tort litigation against the State must be preceded by a notice of claim, which affords the State the opportunity for a six-month investigation prior to the filing of any suit against it. I-68

In addition, at any given time, there are various numbers of contract and other claims against the State and State agencies, including environmental claims asserted against the State, among other parties, arising from the alleged disposal of hazardous waste. Claimants in such matters are seeking recovery of monetary damages or other relief which, if granted, would require the expenditure of funds. The State is unable to estimate its exposure for these claims. At any given time, there are various numbers of claims and cases pending against the University of Medicine and Dentistry and its employees, seeking recovery of monetary damages that are primarily paid out of the Self Insurance Reserve Fund created pursuant to the New Jersey Tort Claims Act (N.J.S.A. 59:1-1 et seq.). An independent study estimated an aggregate potential exposure of $151,800,000 for tort and medical malpractice claims pending as of June 30, 2008. In addition, at any given time, there are various numbers of contract and other claims against the University of Medicine and Dentistry, seeking recovery of monetary damages or other relief which, if granted, would require the expenditure of funds. The State is unable to estimate its exposure for these claims. I-69

APPENDIX I-A-1 COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2007 The State of New Jersey issues annually a Comprehensive Annual Financial Report ( CAFR ) which includes the general purpose financial statements, the combining financial statements and supplemental schedules reported upon by the State Auditor, as well as, introductory and statistical sections. The CAFR for the Fiscal Year ended June 30, 2007 has been separately filed with each Nationally Recognized Municipal Securities Information Repository and is incorporated by specific reference in this Appendix I and is considered to be a part hereof.

APPENDIX I-A-2 UNAUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2008 The CAFR for the Fiscal Year ended June 30, 2008 is not yet available. Pending such CAFR becoming available, the State has separately filed with each Nationally Recognized Securities Information Repository ( NRMSIR ) its Unaudited Financial Statements for the Fiscal Year ended June 30, 2008 and is incorporating by specific reference in this Appendix I and is considered to be a part hereof. The State currently expects that the 2008 CAFR will be filed with each NRMSIR as soon as it is available.

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APPENDIX I-B DEMOGRAPHIC AND ECONOMIC INFORMATION

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TABLE OF CONTENTS APPENDIX-I-B DEMOGRAPHIC AND ECONOMIC INFORMATION Table I State of New Jersey Thirty Largest Non-Governmental Employers... I-B-1 Table II Population Changes... I-B-2 Table III Total Personal Income for New Jersey, Selected Neighboring States and the United States 1999-2008... I-B-2 Table IV 2008 Per Capita Personal Income for New Jersey, Selected Neighboring States and the United States... I-B-3 Table V Per Capita Personal Income for New Jersey, Selected Neighboring States and the United States 1999-2008... I-B-3 Table VI Wage and Salary Workers in Nonagricultural Establishments, Annual Averages by NAICS Industry Divisions, New Jersey 1999-2008... I-B-4 Table VII Construction Contracts Awarded, New Jersey 1999-2008... I-B-4 Table VIII Average Annual Unemployment Rates for New Jersey and United States 1999-2008... I-B-5 Table IX Average Hourly Wages (NAICS) Production Workers on Manufacturing Payrolls for New Jersey and Selected Neighboring States 1999-2008... I-B-5 Table X New Vehicle Registrations for New Jersey 1999-2008..... I-B-6 Table XI NAICS Composition of Nonagricultural Wage and Salary Employment for New Jersey and the United States 2008... I-B-7

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Company TABLE I STATE OF NEW JERSEY THIRTY LARGEST NON-GOVERNMENTAL EMPLOYERS 2007 New Jersey Employees Wakefern Food Corporation... 31,671 The Great Atlantic & Pacific Tea Co., Inc. (A&P).... 21,277 Verizon... 17,996 Harrah s Entertainment, Inc.... 16,167 United Parcel Service (UPS).... 16,120 Wal-Mart Stores, Inc.... 14,717 Johnson & Johnson... 14,500 Continental Airlines... 13,752 The Home Depot... 12,000 Public Service Enterprise Group, Inc. (PSEG)... 10,500 AT&T, Inc.... 10,300 CVS Caremark.... 9,700 Trump Entertainment Resorts, Inc.... 9,700 Macy s, Inc.... 9,000 Commerce Bank... 8,841 FedEx Corporation... 8,800 Merrill Lynch & Co., Inc.... 8,600 Prudential Financial, Inc.... 8,143 Schering-Plough Corp.... 8,000 Merck & Company, Inc.... 8,000 Bristol-Myers Squibb Company... 7,900 Citigroup, Inc.... 7,705 Acme Markets, Inc.... 7,250 Wawa, Inc.... 7,132 ARAMARK.... 7,102 The Stop & Shop Supermarket Co.... 6,754 Borgata Hotel Casino & Spa.... 6,649 Bank of America... 6,000 Wachovia... 6,000 UBS... 5,873 Source: New Jersey Business Magazine, May 2008 I-B-1

Census 1980 TABLE II POPULATION CHANGES Population (Thousands) Census 1990 Census 2000 Estimate 2008 Population Per Square Mile 2000 Annual Rate of Growth (Percent) United States... 226,546 248,710 281,422 304,060 80 1.09 0.94 1.24 Northeast... 49,135 50,809 53,594 54,925 308 0.02 0.34 0.54 New England... 12,348 13,207 13,923 14,304 222 0.42 0.67 0.53 Middle Atlantic.. 36,787 37,602 39,672 40,621 357 (0.12) 0.22 0.54 NewYork... 17,558 17,990 18,976 19,490 402 (0.38) 0.24 0.54 New Jersey.... 7,365 7,730 8,414 8,683 1,134 0.27 0.49 0.85 Pennsylvania... 11,864 11,882 12,281 12,448 274 0.05 0.01 0.33 1970 to 1980 1980 to 1990 1990 to 2000 Source: U.S. Census Bureau, December 22, 2008. TABLE III TOTAL PERSONAL INCOME NEW JERSEY, SELECTED NEIGHBORING STATES AND THE UNITED STATES 1999-2008 (Dollars in Millions) Total Personal Income Calendar Years New Jersey New York Pennsylvania United States 1999... 294,385 619,659 342,611 7,796,137 2000... 323,553 663,005 364,838 8,422,074 2001... 332,951 679,886 372,339 8,716,992 2002... 337,010 677,605 382,252 8,872,871 2003... 342,858 693,533 393,908 9,150,320 2004... 361,822 739,969 413,855 9,711,363 2005... 377,448 790,074 431,951 10,284,356 2006... 405,255 848,937 456,732 10,968,393 2007... 427,441 914,057 483,014 11,652,587 2008... 500,218 933,868 440,886 12,063,410 Total Personal Income As a Percent of 1999 Base Calendar Years New Jersey New York Pennsylvania United States 1999... 100% 100% 100% 100% 2000... 109.9 107.0 106.5 108.0 2001... 113.1 109.7 108.7 111.8 2002... 114.5 109.4 111.6 113.8 2003... 116.5 111.9 115.0 117.4 2004... 122.9 119.4 120.8 124.6 2005... 128.0 127.3 125.4 131.5 2006... 137.5 136.6 133.0 140.8 2007... 145.3 145.3 140.6 149.2 2008... 169.9 150.7 128.7 154.7 Source: U.S. Department of Commerce, Bureau of Economic Analysis, September 18, 2008. I-B-2

TABLE IV 2008 PER CAPITA PERSONAL INCOME FOR NEW JERSEY, SELECTED NEIGHBORING STATES AND THE UNITED STATES 2007 Amount 2008* Amount 2008 Percent of National Average Rank in United States Percent Change 2007-2008 United States... $38,564 $39,674 100.0% 2.9% New Jersey... 49,238 50,778 128.0% 2 3.1% NewYork... 46,664 47,914 120.8% 5 2.7% Pennsylvania... 38,740 40,184 101.3% 19 3.7% * 2008 numbers are preliminary. Source: U.S. Department of Commerce, Bureau of Economic Analysis, September 18, 2008. TABLE V PER CAPITA PERSONAL INCOME NEW JERSEY, SELECTED NEIGHBORING STATES AND THE UNITED STATES 1999-2008 Per Capita Personal Income Calendar Years New Jersey New York Pennsylvania United States 1999... $35,215 $32,816 $27,937 $27,939 2000... 38,372 34,901 29,696 29,845 2001... 39,191 35,640 30,302 30,574 2002... 39,378 35,416 31,063 30,821 2003... 39,844 36,107 31,954 31,504 2004... 41,872 38,423 33,514 33,123 2005... 43,526 40,942 34,729 34,650 2006... 46,703 43,898 36,727 36,744 2007... 49,238 46,664 38,740 38,564 2008 *... 50,778 47,914 40,184 39,674 Per Capita Personal Income As a Percent of United States Calendar Years New Jersey New York Pennsylvania 1999... 126.0% 117.5% 100.0% 2000... 128.6 116.9 99.5 2001... 128.2 116.6 99.1 2002... 127.8 114.9 100.8 2003... 126.5 114.6 101.4 2004... 126.4 116.0 101.2 2005... 125.6 118.2 100.2 2006... 127.1 119.5 100.0 2007... 127.7 121.0 100.5 2008 *... 128.0 120.8 101.3 * 2008 numbers are preliminary. Source: U.S. Department of Commerce, Bureau of the Economic Analysis, September 18, 2008. I-B-3

TABLE VI WAGE AND SALARY WORKERS IN NONAGRICULTURAL ESTABLISHMENTS, ANNUAL AVERAGES BY NAICS INDUSTRY DIVISIONS, NEW JERSEY, 1999-2008* (In thousands) Year Total Non- Farm Employment Manufacturing Natural Resources & Mining Construction Trade Transportation Financial and Utilities Information Activities Services and Miscellaneous** Government 1999.... 3,901.0 422.5 2.2 143.6 873.6 123.0 260.8 1,497.7 577.6 2000.... 3,994.4 421.6 2.0 149.6 899.0 126.9 266.9 1,539.6 588.9 2001.... 3,997.0 401.3 1.8 158.6 890.7 126.4 269.8 1,545.8 602.6 2002.... 3,984.0 367.5 1.6 162.6 881.4 113.2 276.7 1,567.6 613.5 2003.... 3,978.7 350.5 1.6 160.4 876.2 102.0 276.2 1,590.0 621.9 2004.... 3,999.0 338.3 1.6 165.9 874.6 98.0 276.9 1,610.3 633.4 2005.... 4,039.1 330.4 1.7 169.2 877.3 97.1 279.7 1,642.2 641.6 2006.... 4,071.0 323.9 1.7 175.0 876.0 97.4 279.4 1,670.2 647.3 2007.... 4,073.6 312.8 1.7 171.5 876.4 97.8 274.7 1,690.8 648.2 2008***... 4,061.2 302.6 1.7 166.6 871.9 98.3 266.5 1,706.0 647.8 Notes: * Seasonally Adjusted. ** Includes Professional and Business Services, Educational and Health Services, Leisure and Hospitality and Other Services. *** 2008 numbers are preliminary. Source: New Jersey Department of Labor and Workforce Development, Division of Labor Market & Demographic Research, Economic Indicators, January 27, 2009. TABLE VII CONSTRUCTION CONTRACTS AWARDED, NEW JERSEY 1999-2008 (Dollars in Millions) Construction Type 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2008/2007 % change Nonresidential....... $4,590.0 $ 5,274.0 $ 5,017.2 $ 4,918.8 $ 5,104.8 $ 4,339.2 5,742.0 5,046.0 4,684.8 5,374.8 (7.16)% Residential......... 3,712.8 3,838.8 3,885.6 3,926.4 4,437.6 4,944.0 5,986.8 5,545.2 4,044.0 2,791.2 (27.07)% Nonbuilding*....... 1,304.4 1,827.6 2,547.6 2,581.2 2,265.6 1,905.6 2,660.4 3,061.2 3,388.8 2,575.2 10.70% Total Construction.... 9,607.2 10,940.4 11,450.4 11,426.4 11,808.0 11,188.8 14,389.2 13,652.4 12,117.6 10,741.2 (11.24)% Note: Data include monthly revisions published by special contract with F.W. Dodge; reprinting is not permitted, except for cumulative year-to-date percent changes. * Nonbuilding includes public construction, such as streets and highways, bridges, systems as well as utilities and communications systems. Source: N.J. Department of Labor, Division of Labor Market and Demographic Research, Economic Indicators, January 2009. I-B-4

TABLE VIII AVERAGE ANNUAL UNEMPLOYMENT RATES NEW JERSEY AND UNITED STATES 1999-2008* Calendar Years New Jersey United States 1999... 4.5% 4.2% 2000... 3.7 4.0 2001... 4.3 4.7 2002... 5.8 5.8 2003... 5.9 6.0 2004... 4.9 5.5 2005... 4.5 5.1 2006... 4.7 4.6 2007... 4.2 4.6 2008**... 5.5 5.8 * Seasonally adjusted ** 2008 numbers are preliminary. Source: N.J. Department of Labor and Workforce Development, Division of Labor Market & Demographic Research, Economic Indicators, January 19, 2009. U.S. Department of Labor, Bureau of Labor Statistics, Data Base and Tables, Unemployment, January 27, 2009. TABLE IX AVERAGE HOURLY WAGES (NAICS) PRODUCTION WORKERS ON MANUFACTURING PAYROLLS NEW JERSEY AND SELECTED NEIGHBORING STATES 1999-2008* Calendar Years New Jersey New York Pennsylvania 1999... $15.11 $13.87 $14.19 2000... 15.47 14.24 14.60 2001... 14.74 16.25 14.37 2002... 15.19 16.75 14.75 2003... 15.45 16.78 14.99 2004... 15.89 17.29 15.16 2005... 16.33 17.77 15.26 2006... 16.56 18.29 15.38 2007... 17.22 18.49 15.48 2008**... 17.88 18.58 15.77 * Not Seasonally adjusted. ** 2008 numbers are preliminary. Source: U.S. Department of Labor, Bureau of Labor Statistics, January 27, 2009. I-B-5

Calendar Years TABLE X NEW VEHICLE REGISTRATIONS NEW JERSEY 1999-2008* Car Light Truck/Van Total Vehicles Monthly Annual Average % Change 1999... 374,408 218,406 592,814 49,401 10.4% 2000... 397,435 245,153 642,588 53,549 8.4 2001... 380,003 257,804 637,807 53,151 (0.7) 2002... 362,190 261,687 623,877 51,990 (2.2) 2003... 337,791 305,220 643,011 53,584 3.1 2004... 319,567 323,085 642,652 53,554 (0.1) 2005... 314,383 307,086 621,469 51,789 (3.3) 2006... 318,862 286,809 605,671 50,473 (2.5) 2007... 321,236 286,737 607,973 50,664 0.4 2008**... 282,041 213,676 495,717 45,065 (11.1) * Not Seasonally Adjusted. ** 2008 numbers are preliminary. Source: N.J. Department of Labor and Workforce Development, Division of Labor Market and Demographic Research, Economic Indicators, January 2009. I-B-6

TABLE XI NAICS COMPOSITION OF NONAGRICULTURAL WAGE AND SALARY EMPLOYMENT NEW JERSEY AND THE UNITED STATES 2008* New Jersey No. of %of Jobs Total United States No. of %of Jobs Total (000) (mil.) Total Nonfarm... 4,057.7 100.0% 137.0 100.0% Manufacturing... 298.8 7.4 13.4 9.8 Natural Resources & Mining... 1.7 0.0 0.8 0.6 Construction... 164.7 4.1 7.2 5.3 Trade, Transportation & Utilities... 863.8 21.3 26.4 19.2 Information... 92.3 2.3 3.0 2.2 Financial Activities... 269.3 6.6 8.1 5.9 Services... 1,716.2 42.3 55.6 40.6 Government... 651.0 16.0 22.5 16.4 * 2008 numbers are preliminary. Note: Percent of Total column may not add to 100% due to rounding. Services include Professional and Business, Educational and Health, Leisure and Hospitality, and other services. Source: U.S. Department of Labor, Bureau of Labor Statistics March 11, 2009. N.J. Department of Labor and Workforce Development, Division of Labor Market and Demographic Research, Economic Indicators, March 4, 2009. I-B-7

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APPENDIX I-C SUMMARY OF PRINCIPAL STATE TAXES

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TABLE OF CONTENTS APPENDIX-I-C SUMMARY OF STATE TAXES Air Toxics Surcharge... Alcoholic Beverage Tax... Casino Control Tax... Cigarette Tax and Tobacco Products Wholesale Tax... Clean Communities and Recycling Grant User Fee (User Fee)... Corporation Business Tax (CBT) (As Amended by the Business Reform Act, P.L. 2002, c. 40)... Cosmetic Medical Procedures Gross Receipts Tax... Energy Tax Receipts... Gross Income Tax (GIT)... Hazardous Substance Transfer Tax and Hazardous Substance Cleanup and Remediation Fees... Homestead Property Tax Credit Act... Hotel and Motel Occupancy Fee... Insurance Premiums Tax... Litter Control Tax... Local Tire Management Program Fee... Motor Fuels Tax... Nursing Home Quality of Care Improvement Fund Act... Petroleum Products Gross Receipts Tax... Public Community Water System Tax... Realty Transfer Tax... Roadside Sign Control and Outdoor Advertising Fee... Sales and Use Tax... Sanitary Landfill Facility Taxes... Savings Institution Tax... Solid Waste Recycling Facility Tax... Spill Compensation and Control Tax... Sports and Entertainment District Urban Revitalization Taxes.... Transfer Inheritance and Estate Tax... Tourism Tax.... Voice Grade Access Line and Service Number Fees.... I-C-1 I-C-1 I-C-1 I-C-2 I-C-2 I-C-2 I-C-4 I-C-5 I-C-5 I-C-7 I-C-8 I-C-8 I-C-9 I-C-9 I-C-9 I-C-10 I-C-10 I-C-10 I-C-10 I-C-11 I-C-11 I-C-12 I-C-13 I-C-13 I-C-14 I-C-14 I-C-14 I-C-14 I-C-15 I-C-15

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Summary of Principal State Taxes The following is a summary of state taxes in New Jersey: Air Toxics Surcharge The Air Toxics Surcharge was repealed effective July 7, 2005. The repealer applies retroactively to calendar year 2004 and thereafter (P.L. 2005, c. 141). P.L. 2004, c. 51 imposes an air toxics surcharge upon the owner or operator of each facility, as defined by Chapter 51. The surcharge is based on the annual emissions of each Category 2 toxic substance, Category 3 toxic substance and Category 4 toxic substance as reported in the release and pollution prevention report for that facility. The air toxics surcharge for each facility will be assessed as follows: (1) $10.00 for each pound of Category 4 toxic substances released as stack or fugitive emissions; (2) $1.00 for each pound of Category 3 toxic substances released as stack or fugitive emissions; and (3) $0.10 for each pound of Category 2 toxic substances released as stack or fugitive emissions. Chapter 51 also provides that the owner or operator of each facility that releases any Category 2 toxic substance, Category 3 toxic substance or Category 4 toxic substance in any amount as stack or fugitive emissions as reported on the release and pollution prevention report, would pay a maximum of $500,000 per facility each year regardless of the amount of Category 2 toxic substances, Category 3 toxic substances and Category 4 toxic substances released in the year subject to the air toxics surcharge. Chapter 51 also allows a credit of 50% of the amount of the air toxic surcharge due by the owner or operator of a facility if the owner or operator undertakes certain environmental improvements at the facility to reduce air emissions; and dedicates $2 million of the air toxics surcharges collected to a nuclear power plant security fund for the provision or enhancement of security at nuclear power plants in this State. P.L. 2004, c. 51. Alcoholic Beverage Tax The Alcoholic Beverage Tax applies to the first sale or delivery of beer, liquor and wine to retailers in New Jersey. This tax is collected from licensed manufacturers, wholesalers and State beverage distributors, based on the number of gallons, or fractions thereof, sold. License fees for manufacturing, distributing, transporting and warehousing alcoholic beverages are also imposed pursuant to this law. Current Rates: Beer $0.12 per gallon; Liquor $4.40 per gallon; Wines $0.70 per gallon; certain apple ciders $0.12 per gallon. P.L. 1990, c. 41. Casino Control Tax The Casino Control Act imposes an 8% tax on the gross revenues of gambling casinos, as defined by the Act. On July 1, 2003, the law was amended to impose a 7.5% fee on the annual adjusted net income of licensed casinos in calendar years 2003-2006. The law was also amended to impose a 4.25% fee on certain complimentary amenities, specifically entertainment, rooms, food and beverages provided at no cost or reduced prices to casino hotel patrons. The amendments also impose a $3 per day occupancy fee on hotel rooms in a casino hotel facility, leaving to the casinos discretion whether to pay the charge on behalf of the patrons or charge the patrons for the fee. The measure imposes an 8% gross revenue tax on companies that administer and service multi-progressive casino slot machine systems and increases parking fees by $1 for casino hotel parking in Atlantic City as defined by the Act. P.L. 2003, c. 116. As of August 25, 2004, the 4.25% tax imposed on complimentary amenities was phased for elimination as of June 30, 2009. In this regard, the rate shall be as follows: in State fiscal years 2004 through 2006, 4.25%; in State fiscal year 2007, 3.1875%; in State fiscal year 2008, 2.125%; and in State fiscal year 2009, 1.0625%. Furthermore, with respect to each year the tax is to be collected, the State will issue a rebate or assessment, as appropriate, to the casinos if the amount of tax collected is more or less than the following: in State fiscal years 2004 through 2006, I-C-1

$26 million; in State fiscal year 2007, $19.5 million; in State fiscal year 2008, $13 million; and in State fiscal year 2009, $6.5 million. P.L. 2004, c. 128. Cigarette Tax and Tobacco Products Wholesale Tax The Cigarette Tax is imposed on the sale, use or possession of all cigarettes within New Jersey. This tax is collected from licensed distributors who receive cigarettes directly from out-of-state manufacturers. Receipts from the sale or use of tobacco products, other than cigarettes, by a distributor or wholesaler to a retail dealer or consumer are subject to the Tobacco Products Wholesale Tax. P.L. 1990, c. 39. As of March 1, 2002, the Tobacco Products Wholesale Tax is imposed on the price that a distributor pays to buy products from the manufacturer. P.L. 2001, c. 448. As of July 15, 2006, moist snuff is no longer taxed based on its wholesale price but is taxed based on its weight. P.L. 2006, c. 37. The weight-based tax will raise the price of moist snuff and reduce youth access. Current Rates: Cigarette Tax $0.12875 per cigarette; Moist snuff $0.75 per ounce with a proportionate tax rate for fractional amounts; Tobacco Products Wholesale Tax 30%. As of March 1, 2002, the tobacco products tax rate was decreased from 48% to 30%. P.L. 2001, c. 448. As of July 15, 2006, the cigarette tax increased from $2.40 per pack of cigarettes to $2.575 per pack. P.L. 2006, c.37. Clean Communities and Recycling Grant User Fee (User Fee) The user fee imposed by the Clean Communities and Recycling Grant Act (P.L. 2002, c. 128) replaces the former Litter Control Tax imposed on certain litter-generating products. See discussion of Litter Control Tax below. As amended, the Litter Control Tax was scheduled to expire on December 31, 2000 (P.L. 1995, c. 301). The Clean Communities and Recycling Grant Act, affirms the Legislature s intent to repeal the Litter Control Tax. (P.L. 2002, c. 128, 12). The Clean Communities and Recycling Grant user fee is imposed on receipts from non-exempt New Jersey sales of litter-generating products made by manufacturers, wholesalers and distributors at the rate of 3/100 of 1% (.0003), and upon receipts of certain non-exempt sales by retailers at the rate of 2.25/100 of 1% (.000225), effective January 1, 2002. (P.L. 2002, c. 128, 4, 14). Retailers subject to the user fee as defined by the Act having less than $500,000 of annual retail sales are exempt from the fee. The user fees, as well as penalties also imposed by the Act and any applicable appropriations, are to be credited to the nonlapsing, revolving Clean Communities Program Fund in the Department of the Treasury. The fund is to be administered by the Department of Environmental Protection. The funds are allocated and to be distributed as provided by the Act in the form of State Aid to qualifying municipalities for specified litter remediation activities, projects and antilittering educational campaigns. Corporation Business Tax (CBT) (As amended by the Business Tax Reform Act, P.L. 2002, c. 40). The CBT is imposed on every corporation, including S corporations (P.L. 1993, c. 173) not expressly exempted by statute, real estate investment trusts (P.L. 1989, c. 59), savings institutions, and certain other business entities such as limited liability companies and limited liability partnerships that elect to be treated as corporations for federal income tax purposes. The CBT is imposed on corporations for the privilege of having or exercising their corporate franchises in New Jersey, of deriving receipts from sources or of engaging in contacts within New Jersey, or of doing business, employing or owning capital or property, or maintaining an office, in New Jersey. Corporations are required to pay a tax that is the greater of the amount resulting from rates applied to corporate net income allocated to New Jersey, or the alternative minimum assessment (AMA). Corporate net income is based on federal taxable income with certain additions, exclusions and modifications. S corporations, professional corporations, investment companies, pass-through entities, and federally qualified cooperatives are exempted from the AMA. The AMA is computed using a formula that uses either allocated gross receipts or allocated gross profits. If a corporation s AMA exceeds its tax computed on entire net income in any one year, the difference is allowed as a credit to reduce the CBT in a future year, but to not less than 50% of the liability otherwise due. Many corporations not otherwise subject to the tax based on corporate net income or to the alternative minimum assessment are subject to a minimum tax. A number of tax credits against the CBT are provided, such as for investment in certain new or expanded business facilities which create new jobs in New Jersey. P.L. 1993, c. 70. I-C-2

To determine the tax liability of a corporation s business activity in the State of New Jersey, a four-fraction apportionment formula is used. P.L.1945, c.162 The four-fraction formula determines the proportion of income subject to tax by measuring the activities of the corporation in the State to the total activity of the corporation. The apportionment formula consists of a double-weighted sales fraction, a property fraction, and a payroll fraction. Some of a corporation s income derived from other states is not taxed by those states. As a result, the apportionment formula omits these sales from the denominator of the sales fraction, which increases the sales fraction. The throw out of these sales increases the portion of entire net income of a corporation apportioned to New Jersey. For privilege periods beginning on or after July 1, 2010, P.L. 2008, c. 120 eliminates the throw-out provision in the apportionment formula. Also, the law eliminates the regular place of business requirement for taxpayers to allocate income. Taxpayers who allocate less than 100% of income to New Jersey are no longer required to show that a regular place of business exists outside of the State. P.L. 2008, c. 120. For privilege periods beginning on or after January 1, 2001 and ending before January 1, 2002, a domestic or foreign limited liability company or a domestic or foreign limited partnership classified as a partnership for federal purposes, may obtain the consent of each of its corporate owners allowing New Jersey to tax the corporate owners income derived from the activities of the limited liability company or limited partnership in New Jersey. For each non-consenting owner, the limited liability company or limited partnership must pay a corporation business tax on each of the non-consenting owner s share of the business New Jersey income. Certain limited liability companies and limited partnerships are exempt, as are corporate owners already exempt under the CBT itself and noncorporate owners subject to the New Jersey Gross Income Tax. P.L. 2001, c. 136. Current Rates: Prior to July 1, 1996, 9% of entire net income allocable to New Jersey; and beginning July 1, 1996, the rate is 7 1 2% for taxpayers with entire net income of $100,000 or less (P.L. 1995, c. 246). For corporations with entire net income less than $50,000, the rate is 6 1 2%. For periods beginning on January 1, 2002, the AMA is computed on corporations with gross profits of more than $1 million, and on corporations with gross receipts of more than $2 million, at differing graduated rates. Corporations may elect which rate to use. The AMA for each period may not exceed $5,000,000, except for affiliated groups of five or more taxpayers, in which case the AMA is capped at $20 million. The AMA expires for periods beginning after June 30, 2006, except for corporations not subject to the CBT under federal P.L. 86-272. Beginning January 1, 2002, entities classified as partnerships for federal income tax purposes, including limited liability partnerships and companies (pass-through entities), that have income from New Jersey sources and more than two members, pay an annual $150 per owner filing fee, capped at $250,000 per entity. A filing fee of $150 per licensed professional for professional corporations with more than two licensed professionals, also capped at $250,000, is also paid. Partnerships make payments on the share of the income of each nonresident partner at a 9% rate for corporate owners and a 6.37% rate for individual owners. P.L. 2002, c. 40. For S corporations, 2% of entire net income allocable to New Jersey if greater than $100,000 for periods ending on or after July 1, 1998 but before July 1, 2001, 1.33% for periods ending on or after July 1, 2001 but before July 1, 2006, and 0.67% for periods ending on or after July 1, 2006 but before July 1, 2007; and 0.5% of entire net income of $100,000 or less for periods ending on or after July 1, 1998 and before July 1, 2001, expiring July 1, 2001. P.L. 1997, c. 40. The rates for S corporation income of $100,000 or more expire July 1, 2007. P.L. 2002, c. 40. For investment companies the rate is 25% of entire net income prior to June 30, 2002, and 40% as of July 1, 2002; and for real estate investment trusts, the rate is 4% of entire net income, but in no case less than $250. I-C-3

As of July 7, 2006, the minimum tax imposed on corporations for the calendar year 2006 and thereafter, will be based on a corporation s New Jersey gross receipts as follows: New Jersey Gross Receipts Minimum Tax Less than $100,000... $ 500 $100,000 or more but less than $250,000... $ 750 $250,000 or more but less than $500,000... $1,000 $500,000 or more but less than $1,000,000... $1,500 $1,000,000 or more... $2,000 The minimum tax for members of an affiliated group or a controlled group, as defined by federal tax law with a total payroll of $5 million or more, remains at $2,000 annually. P.L. 2006 c. 38. Effective July 7, 2006, corporations are required to pay a 4% surcharge on Corporate Business tax liability for corporate business tax years ending in State fiscal years 2007, 2008, and 2009. The surcharge is applied after the allowance of any business incentive credits. Such credits are not permitted to be applied against the 4% surcharge but are permitted as a credit toward the prepayment of the tax liability. P.L. 2006 c. 38. On November 5, 1996, Article VIII, Section II of the New Jersey Constitution was amended to provide that an amount equivalent to 4% of the revenue annually derived from the CBT (or any other law of similar effect) be deposited in a special account for appropriation only for the following purposes and in the following manner: 1) a minimum of 1/2 for funding State costs relating to hazardous discharge remediations; 2) a minimum of 1/3, dedicated until December 31, 2008, for funding loans and grants for underground storage tank upgrades and replacements; and 3) a minimum of 1/6 or $5 million, whichever is less, for funding costs related to water quality monitoring, watershed planning, and nonpoint source water pollution prevention. Effective June 29, 2004, for privilege periods beginning during the 2004 and 2005 calendar years, Net Operating Loss deductions will be allowed to reduce the entire net income subject to corporate business tax to 50% of what it would otherwise be. P.L. 2004, c. 47. With respect to privilege periods beginning in the 2006 calendar year, Net Operating Loss deductions return to full deductibility. P.L. 2004, c. 47. In addition, under P.L. 2004, c. 47, the date on which the amount of the disallowed Net Operating Loss carryover deduction would otherwise expire is extended to a period equal to the period for which application of the Net Operating Loss was disallowed. To encourage businesses to invest in the State of New Jersey, P.L. 2008, c. 102 extended the number of years to which a corporation business taxpayer can deduct net operating losses from its taxable income. For privilege periods ending after June 30, 2009, the net operating loss deduction period is extended from seven years to twenty years. Net operating losses for privilege periods ending before June 30, 2009 continue to have a seven-year deduction period. For privilege periods after December 31, 2004, P.L. 2005, c. 127 disallows (i.e., uncouples ) the deduction for certain qualified production activities income, which deduction is allowed for federal income tax purposes under the American Jobs Creation Act of 2004 (Pub. L. 108-377). Specifically, Section 1 of the Act amends C. 54:10A-4 of the CBT Act by modifying the definition of entire net income to disallow a deduction for amounts that may be deducted for federal tax purposes pursuant to the federal Internal Revenue Code of 1986, 26 U.S.C. 199. This exclusion shall not apply to amounts deducted pursuant to federal 199 that are exclusively based upon domestic production gross receipts of the taxpayer derived solely from any lease, rental, license, sale, exchange, or other disposition of qualifying production property which the taxpayer demonstrates to the satisfaction of the director was manufactured or produced by the taxpayer in whole or in significant part within the United States (but excluding qualified production property that was grown or extracted by the taxpayer). C. 127 also defines the statutory term manufactured or produced for CBT purposes, which definition limits the term consistent with the other amendments implemented by c. 127 (P.L. 2005, c. 127, effective July 6, 2005). Cosmetic Medical Procedures Gross Receipts Tax P.L. 2004, c. 53 imposes a 6% gross receipts tax on certain cosmetic medical procedures, defined as any medical procedure performed on an individual which is directed at improving the subject s appearance, and which does not meaningfully promote the proper function of the body or prevent or treat illness or disease. The tax must be I-C-4

collected from the subject of the procedure by each person billing for services, property or occupancy associated with the cosmetic medical procedure. This tax will be reported and paid on a quarterly basis in a manner prescribed by the Director of the Division of Taxation in accordance with regulations to be promulgated. The tax imposed will be governed by the provisions of the State Uniform Tax Procedure Law. P.L. 2004, c. 53. Energy Tax Receipts To preserve certain revenues while transitioning to more competitive markets in energy and telecommunications, the law concerning taxation of gas and electric public utilities, and certain telecommunication companies was amended. The tax laws concerning sales of electricity, natural gas, and energy transportation service, were also amended. Effective January 1, 1998, the Gross Receipts and Franchise Tax previously collected by electric, gas and telecommunications utilities, was eliminated. P.L. 1997, c. 162. In its place, electric, gas, and telecommunications utilities, became subject to the State s Corporation Business Tax and the retail sale of electricity and natural gas, with certain exceptions, became subject to the State s Sales and Use Tax. P.L. 1997, c. 167. A portion of the revenues derived from the energy tax receipts are credited to a special dedicated fund known as the Energy Tax Receipts Property Tax Relief Fund ( Fund ). The Fund guarantees annual State aid to municipalities. P.L. 1997, c. 167. A Transitional Energy Facility Assessment ( TEFA ) to be phased out over five years, is applied on electric and gas utilities. P.L. 1997, c. 162. This phase out has been extended through 2011. P.L. 2008, c. 32. This act (P.L. 2008 c. 32) will freeze the TEFA unit rate surcharge at calendar year 2008 rates for 2009, 2010, and 2011 and then reduce those surcharges in calendar years 2012 and 2013 by the following percentages: January 1, 2012... 25% January 1, 2013... 50% After December 31, 2013, the TEFA assessments will be eliminated to comport with the original planned phase-out of the tax as had been proposed in the 1997 energy tax reform law. P.L. 2007, c. 94 grants a seven (7) year period of exemption from the State s Sales and Use Tax and the TEFA unit rate surcharge to qualified manufacturing facilities producing products meeting certain recycled content standards. However, qualified manufacturing facilities will continue to pay the sales tax and the TEFA surcharge but shall file for quarterly refunds within 30 days of the close of the calendar quarter. Current Rates: For gas and electric companies: the standard tax rate as determined by the BPU plus 12 1 2% surtax (5% if gross receipts do not exceed $50,000). For sewerage and water corporations: 5% (2% if gross receipts do not exceed $50,000) plus 7.5% on gross receipts plus 0.625% surtax (.25% if gross receipts do not exceed $50,000) plus 0.9375%. For other utilities 5% (2% if gross receipts do not exceed $50,000) plus 0.625% surtax (.25% if gross receipts do not exceed $50,000) plus 0.5%. Gross Income Tax (GIT) The GIT is imposed on enumerated categories of gross income of New Jersey resident individuals, estates and trusts. New Jersey source income, except pension and annuity income (P.L. 1989, c. 219) or other retirement income, such as income from IRC 401(k), 403, 414, 457 Plans (P.L. 104, c. 95, effective January 1, 1996), of nonresident individuals, estates and trusts, is also subject to GIT. Gambling winnings of non-residents other than from the New Jersey Lottery are subject to the GIT as well. P.L. 1993, c. 143. Non-residents pay GIT based on a statutory calculation which requires non-residents to compute liability as though they are residents and then prorate liability by the proportion of New Jersey source income to total income. P.L. 1993, c. 178. However, the requirement that non-residents must compute their tax liability on a prorated basis may be suspended provided New York State eliminates a similar requirement for its non-resident personal income taxpayers. P.L. 1993, c. 320. I-C-5

The GIT includes many of the same taxable additions as the federal income tax, but allows only certain deductions such as for personal exemptions, medical expenses, alimony payments, property taxes on principal residences and qualified contributions of certain real property interests. Gross income does not include employerprovided commuter transportation benefits for employees who participate in ride-sharing programs; beginning in 1993, $720 of such benefits is excludible from income (P.L. 1993, c. 108) and beginning January 1, 1997, $1,000 is deductible, with this amount annually adjusted based on relevant C.P.I. s. P.L. 1996, c. 121. Gross income also does not include earnings on or distributions from an individual trust account or savings account established pursuant to the New Jersey Educational Savings Trust Program (P.L. 1997, c. 237); or contributions to or distributions from a medical savings account excluded from federal gross income under 26 U.S.C. 220 (P.L. 1997, c. 414). Roth IRA s also receive favorable tax treatment. P.L. 1998, c. 57. Additionally, under the New Jersey Limited Liability Company Act, for State tax purposes, members or assignees of members of the newly created limited liability companies are treated as partners in a partnership and single member limited liability companies are treated as sole proprietorships, unless treated otherwise for federal income tax purposes. P.L. 1993, c. 210; P.L. 1998, c. 79. Beginning January 1, 2001 military pension and survivor benefits respecting service in the United States Armed Forces are included. P.L. 2001, c. 84. However, for taxable years beginning on or after January 1, 2004, P.L. 2005, c. 63 excludes from taxable income housing and subsistence allowances received by New Jersey National Guard members on State Active duty, and by members of the U.S. Armed Forces active and reserve components (effective April 7, 2005). For taxable periods commencing during 1996, resident taxpayers are allowed to take deductions against gross income tax pursuant to the Property Tax Deduction Act. P.L. 1996, c. 60. Among the key provisions of P.L. 1996, c. 60 are the graduated deductions allowed over a three-year period to a maximum of $10,000 per year thereafter. Specifically, the allowable 1996 deductions are based on 50% of property taxes paid on the resident s homestead, not to exceed $5,000. In 1997, resident taxpayers are allowed deductions based on 75% of property taxes paid, not to exceed $7,500. Married residents filing separately are allowed one-half of the deduction permitted by law on the qualifying homestead. Allowable deductions are subject to certain limitations. The deductions are available in some instances for renters as well. The law also provides for a minimum benefit for certain classes of taxpayers in the form of a $50 credit, which was phased in for 1996 in the amount of $25 and for 1997 in the amount of $37.50. For sales or exchanges of principal residences occurring after May 7, 1997, gains of up to $500,000 on joint returns and $250,000 on single returns may be excluded, subject to certain limitations and qualifications. P.L. 1998, c. 3. The minimum taxable income for gross income tax purposes is amounts in excess of $7,500 for unmarried individuals, estates, trusts, heads of households, surviving spouses and married couples filing joint returns for tax years commencing January 1, 1994 P.L. 1994, c. 8. With respect to married persons filing separate returns, the minimum taxable income subject to tax is amounts in excess of $3,750. P.L. 2000, c. 80 created an Earned Income Tax Credit ( EITC ) program in New Jersey. Effective January 1, 2007, an eligible New Jersey resident can claim a credit based upon a percentage of the individual s federal EITC, which is allowed and applied for, under section 32 of the federal Internal Revenue Code of 1986 (26 U.S.C. 32). P.L. 2007, c. 109. The credit percentages for eligible claimants are as follows: 20% from 2003 through 2007, 22.5% in 2007, and 25% thereafter. P.L. 2003, c. 9, effective January 27, 2003, creates an exemption from New Jersey gross income tax for income of decedent victims of the September 11, 2001 terrorist attacks. The exemption applies to income received in tax years 2000 and 2001. P.L. 2003, c. 9 also provides for the refund, without interest, of any income tax paid for the applicable tax years. Further, the measure extends the deadline for filing refund claims for the applicable tax years to four years from the end of the tax year in which the decedent died. P.L. 2004, c. 55 amends the Gross Income Tax Act by imposing a Gross Income Tax obligation on nonresident individuals, estates, or trusts to report and pay estimated Gross Income Tax on any gain derived from the sale or transfer of real property in the State of New Jersey. Chapter 55 specifies that county recording officers will act as agents of the Director, Division of Taxation, in collecting the estimated gross income tax due at an amount no less than 2% of the consideration stated in the deed for the sale or transfer of property and transmitting those funds, net of the administrative fee, to the Division of Taxation in such form and manner as the Director will determine. I-C-6

Chapter 55 further requires that no deed for the sale or transfer of real property by a nonresident will be accepted or recorded by the county recording officer without the simultaneous filing of the appropriate forms and the payment of the tax due or proof of payment. The act became effective on August 1, 2004. P.L. 2004, c. 55. See also, summary of P.L. 2004, c. 66, amending the Realty Transfer Tax, below. For tax years 2005 and thereafter, Chapter 139 creates a deduction from the GIT for certain health care providers who practice in or near a Health Enterprise Zone. P.L. 2004, c. 139. For the same taxable periods, P.L. 2005, c. 127 disallows (i.e., uncouples ) the deduction for certain qualified production activities income, which deduction is allowed for federal income tax purposes under the American Jobs Creation Act of 2004 (Pub. L. 108-377). Specifically, Section 2 of c. 127 specifies that the deduction of any amounts pursuant to 199 of the federal Internal Revenue Code of 1986, 26 U.S.C. 199, shall be disallowed. However, this disallowance shall not apply to amounts deducted pursuant to section 199 of the federal Internal Revenue Code of 1986 that are exclusively based upon domestic production gross receipts of the taxpayer, or allocable to the taxpayer under that section, which are derived only from any lease, rental, license, sale, exchange, or other disposition of qualifying production property. The uncoupling required by c. 127 will not apply to gross receipts from qualifying production property manufactured or produced by the taxpayer. The uncoupling will apply to the other activities described above and that are set forth under the American Jobs Creation Act of 2004, will apply to qualified production property that was grown or extracted by the taxpayer (P.L. 2005, c. 127, effective July 6, 2005). Chapter 130 eliminates the GIT pension exclusion and other retirement income exclusion for certain taxpayers. Section 1 of the Act amends C. 54A:6-10 by eliminating the pension exclusion from gross income for taxable years beginning on or after January 1, 2005, unless a taxpayer s gross income does not exceed $100,000. Similarly, Section 2 of the Act amends C. 54A:6-15 to eliminate exclusion of other retirement income for taxable years beginning on or after January 1, 2005, unless a taxpayer s gross income does not exceed $100,000 (P.L. 2005, c. 130, effective July 2, 2005). Rates: Beginning in 1996 and thereafter, further rate reductions enacted pursuant to P.L. 1995, c. 165 will result in cumulative decreases from the 1993 taxable year levels of 30%, 15% and 9% for certain taxable income levels. The graduated rate effective for tax years commencing January 1, 1996 for married couples filing jointly and certain qualified individual filers is: 1.400% on taxable income not exceeding $20,000; $280.00 plus 1.750% on taxable income in excess of $20,000 but not over $50,000; $805.00 plus 2.450% on taxable income in excess of $50,000 but not over $70,000; $1,295.50 plus 3.500% on taxable income in excess of $70,000 but not over $80,000; $1,645.00 plus 5.525% on taxable income in excess of $80,000 but not over $150,000; and $5,512.50 plus 6.370% on taxable income exceeding $150,000. The graduated rate effective for tax years commencing January 1, 1996 for qualified individual filers is: 1.400% on taxable income not exceeding $20,000; $280.00 plus 1.750% on taxable income in excess of $20,000 but not over $35,000; $542.50 plus 3.500% on taxable income in excess of $35,000 but not over $40,000; $717.50 plus 5.525% on taxable income in excess of $40,000 but not over $75,000; and $2,651.25 plus 6.370% on taxable income exceeding $75,000. Beginning in 2004 and thereafter, a new graduated gross income tax rate of 8.97% will be imposed on taxpayers with income over $500,000. P.L. 2004, c. 40. Hazardous Substance Transfer Tax and Hazardous Substance Cleanup and Remediation Fees P.L. 2004, c. 50 changes the tax for transfers of hazardous substances to $0.023 per barrel for petroleum or petroleum products, precious metals, elemental phosphorus, or in certain circumstances, antimony or antimony trioxide sold for use in the manufacture or the purpose of fire retardants. For hazardous substances other than petroleum products, precious metals, elemental phosphorus, or, in certain circumstances, antimony or antimony trioxide sold for use in the manufacture or for the purpose of fire retardants, the tax is 1.53% of the fair market value of the product. I-C-7

The Act is retroactive to January 1, 2004, thus requiring a taxpayer to file an amended tax return on or before the third month following the date of enactment and pay the additional taxes owed on transfers occurring between January 1, 2004, and the date of enactment of this act. Chapter 50 also makes permanent a provision (section 1 of P.L. 2002, c. 37) scheduled to expire on June 30, 2004. This provision defines the circumstances under which the Department of Environmental Protection may establish or impose fees for Department oversight of hazardous substance cleanups and remediations, which include indirect costs. Chapter 50 provides that sections 1 and 4 of the act became effective on June 30, 2004. Section 2 of the act pertaining to the tax rate changes, took effect immediately, is retroactive to January 1, 2004, and applies to all transfers of hazardous substances occurring on or after January 1, 2004. Section 3 took effect immediately. P.L. 2004, c. 50. Homestead Property Tax Credit Act In April 2007, the Legislature enacted the Homestead Property Tax Credit Act (the Act ). The Act amends the current Homestead Property Tax Rebate Act, P.L. 1990 c. 61 (C. 54:4-8.57), to further reduce the property tax burden on New Jersey homeowners and renters. The Act also permits an electronic funds transfer of any credit allowed under the Act, to the local property tax account of the claimant. Although, in some instances, any homestead benefit applied for under the Act may still be issued as a rebate. P.L. 2007 c. 62. Under P.L. 2007 c. 62, the credit or rebate is calculated based upon a percentage of the property taxes, not in excess of $10,000, paid by the claimant on the claimant s homestead as follows: For Resident Taxpayer With Tax Year Gross Income: Percentage Not over $100,000..... 20% Over $100,000 but not over $150,000... 15% Over $150,000 but not over $250,000... 10% Taxpayers who are 65 years or older, or a taxpayer who is allowed to claim a personal deduction as a blind or disabled taxpayer, shall be allowed a homestead credit or rebate equal to the greater of (a) the amount of property taxes paid based on the taxpayer s gross income as set forth above, or (b) the amount equal to property taxes paid by the taxpayer in excess of 5% of the taxpayer s gross income, but not more than the property taxes actually paid, as follows: With Tax Year Gross Income: Range Not over $70,000... $1,200 to $1,000 Over $70,000 but not over $125,000... $800 to $600 Over $125,000 but not over $200,000... $500 P.L. 2008, c. 35 provides that resident homeowners with gross income in excess of $150,000 for the 2007 tax year are excluded from the program. Residents with gross income in excess of $100,000 but not in excess of $150,000 for the 2007 tax year, are eligible for rebates in the amount of 10% of the first $10,000 of property taxes paid. P.L. 2008 c. 35 provides that for the 2007 tax year, resident tenants who are not 65 years of age or older, or who are not blind or disabled are eligible for rebates of $80. Resident tenants who are 65 years of age or older, or who are blind or disabled are eligible for rebates between $160 and $860 if their gross income is $70,000 or less, or rebates of $160 if their gross income is in excess or $70,000 but not in excess of $100,000. Hotel and Motel Occupancy Fee A State hotel and motel occupancy fee is imposed by P.L. 2003, c. 114, effective July 1, 2003. The law also authorizes an optional municipal hotel and motel occupancy fee. The amount of the tax will vary year to year. For Fiscal Year 2004, the State imposed a 7% fee. For Fiscal Year 2005 and thereafter, a 5% fee will be imposed. I-C-8

In addition, the law authorizes an optional tax, which applies to most municipalities, at the rate of 1% for Fiscal Year 2004 and up to 3% for Fiscal Year 2005 and thereafter. Some municipalities have existing hotel taxes, such as Atlantic City, the Wildwoods, Newark and Jersey City. The combined rates of the new fee imposed under P.L. 2003, c. 114, plus the Sales and Use Tax and any tax and assessment imposed under P.L. 1992, c. 165, section 4 cannot exceed 14% (P.L. 2006, c. 44). In municipalities with existing hotel taxes pursuant P.L. 1981, c. 77, the law provides that the State will receive a 1% hotel and motel occupancy fee. P.L. 2003, c. 114. Effective January 26, 2007, an eligible municipality that establishes a sports and entertainment district, may dedicate by ordinance, the hotel and motel occupancy fees that municipalities are authorized to impose pursuant to P.L. 2003, c. 114 (C. 40:48F-1), and may charge an additional 2 percent fee from hotels within the district, for a period of no more than 30 years. An eligible municipality may dedicate some or all of the fees collected, to the project costs of the sports and entertainment facility. P.L. 2007, c. 30. Insurance Premiums Tax The Insurance Premiums Tax is imposed on net premiums collected by every stock, mutual and assessment insurance company transacting business in New Jersey for insurance contracts covering property and risks in this state. Effective January 1, 1992, health service corporations became subject to tax on their experience-rated health insurance. P.L. 1989, c. 295. A surtax on all automobile insurance premiums, except as exempted by statute, was imposed from June 1, 1990 through May 31, 1992. P.L. 1990, c. 8. Current Rates: 1.05% on group accident and health or legal insurance policies; 2.1% on life and non-life insurance companies; 3% on surplus lines coverage; 5.25% on marine insurance companies; 2% on foreign fire insurance companies. Chapter 128 modifies the insurance premiums tax treatment of health service corporations. Specifically the Act amends the maximum tax rule, which rule caps taxable premiums at 12.5% of total premiums for any company whose taxable premiums in New Jersey exceed 12.5% of its total taxable premiums. The amendment excludes all health service corporations established pursuant to the provisions of P.L. 1985, c. 236 (C. 17:48A-1 et seq.) from the coverage of the cap. Additionally, the Act imposes the insurance premium tax on all premiums of health services corporations and on any life, accident or health insurance corporation in which a health services corporation owns stock in, controls, or with which it otherwise becomes affiliated (P.L. 2005, c. 128, effective July 2, 2005). Litter Control Tax The Litter Control Tax is imposed on all gross receipts from sales of litter-generating products sold within New Jersey by every person engaged in business in this State. Originally set to expire on December 31, 1991 (P.L. 1986, c. 187), the expiration date of this tax has been extended to expire on December 31, 2000 (P.L. 1995, c. 301). Any retailer with less than $250,000 in annual retail sales of litter-generating products is exempt from the tax. P.L. 1985, c. 533. The user fee imposed on sales of certain litter-generating products under the Clean Communities and Recycling Grant Act (P.L. 2002, c. 128) replaces the former Litter Control Tax. See discussion Clean Communities and Recycling Grant User Fee, above. As amended, the Litter Control Tax was scheduled to expire on December 31, 2000 (P.L. 1995, c. 301). The Clean Communities and Recycling Grant Act affirms the Legislature s intent to repeal the Litter Control Tax. (P.L. 2002, c. 128, 12). Former Rate: 3/100 of 1% (.003) on manufacturers, wholesalers and distributors. 2.25/100 of 1% (.000225) on certain retailers of litter-generating products. Local Tire Management Program Fee P.L. 2004, c. 46 took effect on August 1, 2004. Chapter 46 imposes on the purchaser a fee of $1.50 on the sale of a new motor vehicle tire if the sale is subject to tax pursuant to the Sales and Use Tax Act, P.L. 1966, c. 30 (C.54:32B-1). If the purchaser or transferee is exempt under subsections (a) or (b) of section 9 of the Act, no fee is imposed. This fee is also imposed on new motor vehicle tires as a component part of a motor vehicle and motor vehicle tires as a component part of a leased motor vehicle. The Director of the Division of Taxation will have all of I-C-9

the powers and authority granted under the Sales and Use Tax Act in order to carry out the fee provisions of this Act. Also, the fee provisions of this act will be governed by the provisions of the State Uniform Tax Procedure Law, R.S. 54:48-1 et seq. Also, Chapter 46 establishes a Local Tire Management Program in the Department of Environmental Protection for the proper cleanup of abandoned tire piles and to provide grants to counties and municipalities for proper cleanup of abandoned tire piles within their respective jurisdictions. To fund these grants, and for other purposes, Chapter 46 establishes the Tire Management and Cleanup Fund, a nonlapsing fund in the Department of Environmental Protection. After collection costs, the first $2.3 million in fees collected will be deposited in this fund. Additional fee revenues will be available for appropriation to the Department of Transportation to support snow removal operations. P.L. 2004, c. 46. Motor Fuels Tax The Motor Fuels Tax is collected on a per-gallon basis by every distributor, importer and gasoline jobber on sales of motor fuels, including gasoline, diesel fuel, liquified petroleum gas, natural gas, aviation and jet fuels and alcohol-blend motor fuels. Motor fuels taxes attributable to aviation fuels are deposited in the Airport Safety Fund. P.L. 1983, c. 264. Liability for payment of the tax on special fuels (including diesel fuel used interchangeably for home heating and in motor vehicles and sales to unlicensed buyers) is on the person who places fuel in the fuel tank of a motor vehicle. P.L. 1992, c. 23. Article VIII, Section 2, Paragraph 4 of the New Jersey Constitution provides for a dedication of revenue from the Motor Fuels Tax to the Transportation Trust Fund Account for improvements to the State Transportation infrastructure. Effectively July 1, 2007, the dedicated funds shall be an amount equivalent to $0.105 per gallon. Current Rates: General motor fuels $0.105; special fuels $0.135; LP gas and natural gas $0.0525; aviation fuel $0.105; turbine fuel $0.02; fuel sold to aviation airports $0.125. Nursing Home Quality of Care Improvement Fund Act The Nursing Home Quality of Care Improvement Fund Act establishes a non-lapsing fund for enhancement of the quality of nursing home care in New Jersey. Each nursing home provider is to pay a quarterly assessment not to exceed 6% of the aggregate amount of annual statewide nursing home revenues. These assessments will, in turn, be used to attract federal matching funds. P.L. 2003, c. 105. Petroleum Products Gross Receipts Tax The Petroleum Products Gross Receipts Tax applies to gross receipts from the first sale or use of petroleum products in New Jersey. Exempt sales include home heating oil and propane gas used exclusively for residential heating, certain sales to non-profit or governmental entities, sales to the Federal government (P.L. 1991, c. 19) and asphalt. The applicability of this tax to the sale of fuel oil used by any utility, co-generation facility or wholesale operation facility to generate electricity was phased out over a period ending December 31, 2004. P.L. 2000, c. 156. In November 2000 Article VIII, Section 4 of the New Jersey Constitution was amended to dedicate to the Transportation Trust Fund Account in the General Fund not less than $100 million for the fiscal year commencing July 1, 2000, and not less than $200 million for each fiscal year thereafter from the petroleum products tax to fund transportation infrastructure improvements. Current Rate: 2 3 4%. For fuel oil, aviation fuel and motor fuels, tax is fixed at $0.04 a gallon. P.L. 2000, c. 48. Public Community Water System Tax The Public Community Water System Tax is imposed on the owner or operator of every public community water system for water delivered after January 1984. P.L. 1983, c. 443. Current Rate: $0.01 per 1,000 gallons of water delivered to consumers. I-C-10

Realty Transfer Tax The Realty Transfer Tax is imposed on grantors recording deeds or other writings which transfer title to real property located in New Jersey for consideration greater than $100. Certain transfers of title are exempt from this tax. The Neighborhood Preservation Nonlapsing Revolving Fund is funded by the increase in taxes ($0.75 per $500) collected on transfers greater than $150,000, P.L. 1985, c. 222. Current Rates: Counties collect the tax at a rate of $1.75 for each $500 of consideration up to $150,000 ($0.50 is retained by the county, $1.25 is sent to the State Treasurer) plus $0.75 per $500 of consideration over $150,000. Pursuant to N.J.S.A. 46:15-10.1(b), new construction is exempt from 80% of the state portion of the tax imposed by N.J.S.A. 46:15-7 (i.e. $1.00), for each $500 of consideration under $150,000. Sales of one and two family, owner-occupied residences owned by senior citizens, blind persons and disabled persons and sales of low and moderate income housing are exempt from the state portion of the tax for each $500 of consideration or fraction thereof (i.e. $1.25). P.L. 2004, c. 66. Pursuant to N.J.S.A. 46:15-7.1, a supplemental fee is imposed under the Act in addition to the above-recited Realty Transfer Tax upon presentation for filing of deeds evidencing transfers of real property. The supplemental fee will also be collected by the counties. The supplemental fee is $.25 for each $500 of consideration not in excess of $150,000; $.85 for each $500 of consideration in excess of $150,000 but not in excess of $200,000; and $1.40 for each $500 of consideration in excess of $200,000. The law also imposes an additional fee of $1.00 for each $500 consideration, not in excess of $150,000, for transfers of title to property on which there is new construction. The new supplemental fee does not apply to the transfers that are now completely exempt from the current fee and does not apply to the transfers by senior citizens, blind persons, or disabled persons and the transfers of low and moderate income housing. P.L. 2003, c. 113. A new general purpose fee is imposed under N.J.S.A. 46:15-7.1 in addition to the above-recited Realty Transfer Tax on grantors upon presentation for filing deeds evidencing transfers of real property whose value is more than $350,000. P.L. 2004, c. 66. The general purpose fee will also be collected by the counties. The general purpose fee is $0.90 for each $500 on the first $550,000 of the value recited in the deed of transfer; $1.40 on each $500 of the value between $550,000 and $850,000; $1.90 on each $500 of value between $850,000 and $1,000,000; and $2.15 for each $500 of the value over $1,000,000. P.L. 2004, c. 66. In addition, the grantee (buyer) of real property zoned residential, whether improved or not, for consideration in excess of $1,000,000 is required to pay a separate fee equal to 1% of the full amount of the consideration. The fee imposed by subsection a. of P.L. 2004 c. 66 8 (C.46:15-7.2) shall not apply to a deed if the transfer of real property is incidental to a corporate merger or acquisition if the equalized assessed value of the real property transferred is less than 20% of the total value of all assets exchanged in the merger or acquisition. P.L. 2006 c. 66. Pursuant to Section 9 of P.L. 2004, c. 66, the 2004 RTT amendments apply to deeds presented for recording that evidence real property transfers occurring on or after August 1, 2004. Effective February 1, 2005, P.L. 2005, c. 19, amended the one percent fee so that it only applies to the purchase of certain types of residentially-zoned property for consideration in excess of $1,000,000, including real property that: (1) is classified for assessment purposes as Class 2 (residential); (2) includes certain property classified for assessment purposes as Class 3A (farm property (regular)) and other real property sold in conjunction with such property; or (3) that is a cooperative unit; or (4) that is classified pursuant to the requirements of N.J.A.C. 18:12-2.2 as Class 4A (commercial properties). P.L. 2006 c. 66. If a transfer includes property classified pursuant to the requirements of N.J.A.C. 18:12-2.2 as Class 4 property or any type, the parties to the transaction shall file affidavits of consideration indicating the consideration, the county and municipality in which the property is situated, and the block and lot description of the real property conveyed. Chapter 66 of P.L. 2006 did not alter P.L. 2005 c. 19, which exempts from the fee any transfer to a 501(c)(3) charitable organization, and permits a full refund to be provided to a buyer who paid the fee but would not have been required to do so under the amended law. Roadside Sign Control and Outdoor Advertising Fee Effective July 1, 2003, the Roadside Sign Control and Outdoor Advertising Act was amended to impose a 6% fee on the gross amounts collected by a retail seller for billboard advertising space. The fee is imposed directly on I-C-11

the retail seller of the advertising space, as defined by the amendments to the Act. The law imposing the fee applies to collections for any period on or after July 1, 2003, through June 30, 2004. P.L. 2003, c. 124. Effective June 29, 2004, the law was amended to reduce and ultimately eliminate the fee. P.L. 2004, c. 42. In this regard, the fee will be phased-out as follows: 1) for the period beginning July 1, 2003 through June 30, 2006 the rate is 6%, 2) for the period beginning July 1, 2006 through June 30, 2007 the rate is 4%, and 3) for the period beginning July 1, 2007 and thereafter the rate is 0%. P.L. 2004, c. 42. Sales and Use Tax The Sales and Use Tax is imposed on the receipts from: (a) the retail sale, rental or use of tangible personal property not specifically exempted by statute; (b) the retail sale of services, except for resale, including producing, fabricating, processing, installing, maintaining, repairing, storing and servicing tangible personal property and certain advertising services; (c) sales of food and drink by restaurants and other similar establishments; and (d) the sale, except for resale, of telecommunications. This tax is also imposed on the rental of hotel and motel rooms, and certain admission charges including those for professional wrestling. Effective July 1, 1992, retail sales of alcoholic beverages are also subject to this tax. P.L. 1990, c. 40, 11. As of October 1, 2006, the scope of the Sales and Use Tax Act is broadened to include digital property and some services. Digital property includes delivered music, ringtones, movies, books, audio and video works and similar products where the customer is granted a right or license to use, retain, or make a copy of such an item. P.L. 2006, c. 44. The Sales Tax is also extended as of October 1, 2006, to services, subject to some exemptions, including, but not limited to, furnishing of space for storage; parking, storing or garaging a motor vehicle; tanning services, massage services, tattooing, investigation and security services, information services, limousine services originating within New Jersey; initiation fees, membership fees or dues for access to the use of property or facilities of a health and fitness, athletic, sporting or shopping club or organization. P.L. 2006, c. 44. Exemptions from the Sales and Use Tax include, but are not limited to: prescription medicines and drugs; enumerated medical equipment and supplies; clothing (except fur clothing) and footwear; household paper products; recycling equipment; certain sales of direct mail advertising materials and related printing and production costs; certain sales of materials and supplies for contractors use in constructing, improving or rehabilitating housing projects financed by the New Jersey Housing and Mortgage Financing Agency and other government subsidies; sales of telephones, telephone lines, cables, central office equipment or station apparatus or other similar equipment, provided that the sale is made to a service provider subject to the jurisdiction of the Board of Public Utilities or the FCC; coin-paid charges for coin-operated telecommunications devices; and property used directly and primarily on farms. The Sales and Use Tax is reduced by 50% in counties in which there is an entrance to an interstate bridge or tunnel connecting New Jersey with a state which does not impose a sales and use tax or imposes such a tax at a rate at least five percentage points lower than the New Jersey rate. P.L. 1993, c. 373. Qualified businesses engaged in making retail sales in designated urban enterprise zones are authorized to collect sales tax equal to 50% of the tax in effect but not on sales of alcoholic beverages, cigarettes, motor vehicles, restaurant meals, room rentals, catalog sales and services. P.L. 1983, c. 303; P.L. 1993, c. 40. As of July 1, 2006, P.L. 2006 c. 34 amended P.L. 1983 c. 303 20 (C.52:27H-79). P.L. 2006, c. 34 limits the types of business purchases included in the exemptions for business and contractors under the Urban Enterprise Zone ( UEZ ) program. Chapter 34 of P.L. 2006, however, does not affect the reduced tax rates on retail sales made in these zones. Rather, P.L. 2006, c. 34 provides that the goods purchased for the building of a commercial structure for a qualified business and the physical expansion of a qualified business are exempt purchases. In addition, purchases for the initial equipping of the business and for equipping the business in relation to a physical expansion of the business are exempt. Chapter 34 of P.L. 2006 excludes energy, motor vehicles and supplies from the exemption, and it does not exempt services. Notably, P.L. 2006, c. 34 requires qualified businesses to obtain their UEZ sales tax exemptions savings in rebate form, rather than exempting the sales tax at the point of sale. P.L. 2008, c. 118, broadens the qualified business sales tax exemptions from businesses with annual gross receipts of under $3 million to businesses with gross receipts under $10 million. P.L. 2001, c. 347 provides for the extension of urban enterprise zone designations and for the new designation of an urban enterprise zone-impacted district. I-C-12

Effective November 6, 1996, eligible developers under redevelopment agreements negotiated with the State may receive reimbursement of 75% of the costs of closure and remediation of municipal solid waste landfills after the sites are redeveloped, from one half the sales tax collected on non-exempt sales generated from businesses located on the sites. P.L. 1996, c. 124. P.L. 2001, c. 332 permits a refund of the tax on the purchase of wastewater effluent and conveyance equipment placed in an exempt use. On November 3, 1998 Article VIII, Section II of the New Jersey Constitution was amended to dedicate up to $98 million annually from sales tax revenues for open space, farmland and historic preservation commencing on July 1, 1999. In November 2000 this Article and Section was amended to dedicate not less than $80 million from sales tax revenue for the fiscal year commencing July 1, 2001, not less than $140 million for the fiscal year commencing July 1, 2002, and not less than $200 million for each fiscal year thereafter, for credit to the Transportation Trust Fund Account in the General Fund to be used to fund improvements to the State s transportation infrastructure. Effective July 15, 2006, car rental fees are increased from $2 per day to $5 per day (up to 28 days) for each rental motor vehicle. The rental fee is imposed on each rental company in New Jersey with the first $2 to fund disaster and security related purposes. The remainder of the rental fee is to be used to support the State General Fund. P.L. 2006, c. 44 P.L. 2003, c. 136, effective August 1, 2003, exempts from sales tax, receipts from rentals of tangible personal property between related business entities. To qualify for this exemption, the entities must be 80% or more owned by each other or 80% owned by the same third parties. This exemption became operative November 1, 2003. Effective October 1, 2005, P.L. 2005, c. 126 conforms New Jersey s SUTAct to the Streamlined Sales and Use Tax Agreement. These amendments to the Act enable the State to join with 42 other states and the District of Columbia to continue the task of seeking common definitions and uniformly understood tax principles. Key features of the Agreement incorporated in the SUT Act by c. 126 include certain uniform definitions and determinations of transactions subject to sales and use taxation, uniform exemptions from tax, rate simplification, various administrative provisions, and an amnesty program for uncollected or unpaid sales and use tax for certain sellers under specified circumstances (Approved July 2, 2005). Current Rate: 7% (P.L. 2006, c.44). Sanitary Landfill Facility Taxes The Landfill Closure and Contingency Tax is levied on the owner or operator of every sanitary landfill facility located in New Jersey on all solid waste accepted for disposal on or after January 1, 1982. P.L. 1981, c. 306. Current Rate: $0.15/cubic yard for solids or $0.002/gallon for liquids Savings Institution Tax This tax is applicable to every savings institution (any state or federally chartered building and loan association, savings and loan association, or savings bank) operating a financial business in New Jersey. The tax is prepaid (80% of the following year s tax) when the current year s tax is due. A tax credit is available to savings institutions that provide employees incentives for participating in ride-sharing programs, P.L. 1993, c. 150. The Savings Institution Tax was repealed by the Business Tax Reform Act, P.L. 2002, c. 40, 23, effective July 2, 2002. Notwithstanding the repeal of this tax, any pre-existing liabilities, whether self-assessed or assessed by audit, remain due and collectible. P.L. 2002, c. 40, 24. Former Rate: 3% of net income; minimum of $50 for associations with assets of less than $1 million and $250 for associations with assets of $1 million or more. I-C-13

Solid Waste Recycling Facility Tax This tax is imposed on the owner or operator of every solid waste facility located in New Jersey based on all solid waste accepted for disposal on or after January 1, 1982, P.L. 1981, c. 278, and on all solid waste accepted for disposal or transfer on or after July 1, 1987. P.L. 1987, c. 102. Proceeds from the tax constitute the State Recycling Fund administered by the State Department of Environmental Protection and Energy. A credit against the Corporation Business Tax (CBT) is available for purchase of recycling equipment. P.L. 1987, c. 102. The tax and C.B.T. credit provision both expired on December 31, 1996. P.L. 1981, c. 278. The Solid Waste Recycling Facility Tax was repealed by the Clean Communities and Recycling Grant Act, P.L. 2002, c. 128, 12, effective December 20, 2002. Former Rate: $1.50/ton Effective April 1, 2008, there is levied upon the owner or operator of every solid waste facility a recycling tax on all solid waste accepted for disposal or transfer at the solid waste facility. P.L. 2007, c. 314. Current Rate (2008): $3.00/ton Spill Compensation and Control Tax This tax is imposed on the first transfer of hazardous substances (as determined by the State Department of Environmental Protection) in New Jersey. Current Rates: (1) Non-petroleum hazardous substances/products 1.53% of the fair market value of the product, (2) Petroleum substances/products $0.023 per barrel, and (3) Precious metals (including elemental phosphorous, or, in certain circumstances, antimony or antimony trioxide sold for use in the manufacture or for the purpose of fire retardants) $0.023 per barrel. P.L. 2004, c. 50. The tax of qualified taxpayers has been capped at 125% of their 1986 tax liability, and does not apply to facilities entirely closed or decommissioned prior to January 1, 1996, but only those facilities existing at the time of assessment as well as in 1986. P.L. 1997, c. 143; P.L. 1999, c. 342. As of April 1, 2002, the tax is capped at 100% of the tax paid in 1999 for certain taxpayers; and the tax rates for certain transfers of elemental antimony or antimony trioxide were changed. P.L. 2001, c. 424. Sports and Entertainment District Urban Revitalization Taxes Pursuant to the newly enacted Sports and Entertainment District Urban Revitalization Act, effective January 26, 2007, an eligible municipality that establishes a sports and entertainment district, may by ordinance establishing the district, assess any or all of the following taxes for a period of not more than 30 years: (1) a 2 percent tax on receipts from every sale within the district of tangible personal property subject to taxation under subsection (a) of section 3 of P.L. 1966, c. 30 (C. 54:32B-3); (2) a 2 percent tax on sales within the district of food and drink subject to taxation pursuant to subsection (c) of section 3 of P.L. 1966, c. 30 (C. 54:32B-3); (3) a 2 percent tax on hotel rooms occupied within the district and subject to taxation pursuant to subsection (d) of section 3 of P.L. 1966, c. 30 (C. 54:32B-3); and (4) a 2 percent tax on admission charges to places of amusement within the district subject to taxation pursuant to subsection (3) of P.L. 1966, c. 30 (C. 54:32B-3). An eligible municipality may dedicate some or all of the taxes collected, to the financing of a sports and entertainment facility within the district. P.L. 2007, c. 30. Transfer Inheritance and Estate Tax The Transfer Inheritance Tax applies to the transfer of all personal property, New Jersey real property and intangible personal property wherever situated, having a market value of $500 or more in estates of resident I-C-14

decedents and of real and tangible personal property located within New Jersey of non-resident decedents. No tax is imposed on transfers made to a husband, wife or child of a decedent. P.L. 1985, c. 57. Current Rates: 11% to 16%, depending on the relationship of the beneficiaries to the decedent and the amount received by each beneficiary. For decedents dying on or before December 31, 2001, the estate tax constitutes the amount of any available federal estate tax credit remaining after state inheritance and estate taxes are paid, under the provisions of the federal estate tax in effect on December 31, 2001. The federal estate tax in effect on December 31, 2001 is on the value of a decedent s estate after allowing a credit calculated as a percentage of the federal liability, for any state inheritance or estate taxes paid. For decedents dying after December 31, 2001, the estate tax is computed in accordance with the federal estate tax as of December 31, 2001 or under a simplified method prescribed by the Director of the Division of Taxation, as the estate representative may elect. P.L. 2002, c. 31. The estate tax is due nine months after the death of the decedent, at the time the federal return is filed. Tourism Tax This tax may be imposed on certain tourism related retail receipts within tourism improvement and development districts created by ordinances of two or more contiguous municipalities located in counties of the sixth class. P.L. 1992, c. 165; P.L. 1997, c. 273. Current Rate: not to exceed 2%. Voice Grade Access Line and Service Number Fees P.L. 2004, c. 48 imposes a fee of $0.90 to be charged by mobile telecommunications companies for each voice grade access service number as part of mobile telecommunications service provided to a customer, billed by or for the customer s home service provider, and provided to a customer with a place of primary use in this State. It further imposes a fee of $0.90 for each voice grade access line provided by a telephone exchange company. It exempts from the fee charged by a telephone exchange company any customer enrolled in the Lifeline Telecommunications program or in receipt of Lifeline Telecommunications or Universal Service Fund benefits for a periodic bill. State government agencies, county or municipal governments or their agencies and school districts are further exempt from this fee charged by a telephone exchange company for any bill issued to them on or after January 1, 2005. This act became effective immediately and applies to billing periods ending on or after July 1, 2004, except that for bills issued to Private Branch Exchange or Centrex systems, this act applies to bills issued for billing periods ending on or after August 1, 2004. P.L. 2004, c. 48. 2009 Tax Amnesty P.L. 2009, c. 21 establishes a 45 day tax amnesty period ending no later than June 15, 2009. The amnesty applies to taxpayers who have failed to pay any State tax liability for tax returns due on or after January 1, 2002 and before February 1, 2009. During the amnesty period, a taxpayer who has failed to pay a State tax can pay the tax and one-half of the interest balance due as of May 1, 2009. Amnesty is not available to a taxpayer, who at the time of payment, is under criminal investigation or charge for any State tax matter. Tax amnesty is available for matters pending administrative or judicial appeal on the effective date of Chapter 21 only upon the express approval by the Director of the Division of Taxation. The State expects to recover $100 million from the amnesty program with $10 million of those funds appropriated to the Division of Taxation for administration of the program. I-C-15

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APPENDIX II Copy of Bond Resolution

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NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY HOSPITAL ASSET TRANSFORMATION PROGRAM STATE CONTRACT BOND RESOLUTION (JFK MEDICAL CENTER OBLIGATED GROUP ISSUE) ADOPTED OCTOBER 23, 2008 Not Exceeding $169,000,000 Aggregate Principal Amount of: State Contract Bonds (Hospital Asset Transformation Program) Series 2008B TABLE OF CONTENTS Page ARTICLE I...1 DEFINITIONS AND STATUTORY AUTHORITY...1 101. Definitions...1 102. Authority for the Resolution...15 103. Resolution to Constitute Contract....15 ARTICLE II...17 AUTHORIZATION AND ISSUANCE OF BONDS...17 201. Authorization of Bonds...17 202. General Provisions for Issuance of Bonds...17 203. Refunding Bonds....19 204. Reserved....20 205. Designation, Series, Principal Amount and Payment Dates...20 206. Purpose....21 207. Authorization of Negotiated Bond Sale; Appointment of Parties; Approval of Purchase Contract; Selection of Manager and Underwriters; Determination Under Executive Order No. 26....21 208. Approval of Loan Agreement, State Contract, Escrow Deposit Agreements, Solaris Agreement and Preliminary Official Statement....22 209. Authorization of Distribution of Preliminary Official Statement....23 210. Rule 15c2-12...23 211. Additional Proceedings....23 212. Denomination, Numbers and Letters; Payment...25 213. Redemption...26 214. Book-Entry Only System....26 215. Application of Proceeds of Series 2008B State Contract Bonds...28 216. Appointment of Trustee/Bond Registrar/Paying Agent...29 217. Form of Bonds and Trustee's Certificate of Authentication....29 ARTICLE III...38 GENERAL TERMS AND PROVISIONS OF BONDS...38 AND OTHER OBLIGATIONS...38 301. Medium of Payment; Form and Date; Letters and Numbers...38 302. Legends....38 303. Execution and Authentication....38 304. Exchange, Transfer and Registry...39 305. Regulations with Respect to Exchanges and Transfers...40 306. Bonds Mutilated, Destroyed, Stolen or Lost...40 307. Temporary Bonds....40 308. Cancellation and Destruction of Bonds....41 309. Other Obligations....41 ARTICLE IV...42 REDEMPTION OF BONDS...42 401. Privilege of Redemption and Redemption Price...42 402. Redemption at the Election or Direction of the Authority....42 403. Redemption Otherwise Than at the Authority s Election or Direction...42 404. Selection of Bonds to be Redeemed....42 405. Notice of Redemption....43 406. Payment of Redeemed Bonds....43 i 407. Adjustment of Sinking Fund Installments Upon Redemption of Bonds....44 408. Redemption or Prepayment of Other Obligations...44 ARTICLE V...45 ESTABLISHMENT OF FUNDS AND APPLICATION THEREOF...45 501. The Pledge Effected by this Resolution...45 502. Establishment of Funds and Accounts....46 503. Project Fund; Application of Moneys Therein....46 504. Deposit of Revenues...48 505. Payments into Certain Funds....48 506. Debt Service Fund...48 507. Deposit to Debt Service Fund Upon Sale of Muhlenberg Regional Medical Center Hospital....49 508. Rebate Fund....50 ARTICLE VI...51 SECURITY FOR DEPOSITS...51 AND INVESTMENT OF FUNDS...51 601. Moneys Held as Trust Funds...51 602. Deposits....52 603. Investment of Certain Funds....52 604. Valuation and Sale of Investments...53 605. Swap Agreements; Financing Facilities...53 ARTICLE VII...54 PARTICULAR COVENANTS OF THE AUTHORITY...54 701. Payment of Bonds....54 702. Extension of Payment of Bonds...54 703. Offices for Servicing Bonds....54 704. Further Assurance....54 705. Power to Issue Bonds, Pledge of Pledged Property....55 706. Creation of Liens....55 707. State Contract....55 708. Accounts and Reports...55 709. Compliance with Resolution and Act and Other Matters...56 710. Swap Agreements and Financing Facilities....56 711. Obligation to Enforce Swap Agreements and Financing Facilities...56 ARTICLE VIII...57 EVENTS OF DEFAULT; REMEDIES OF BONDHOLDERS...57 801. Events of Default...57 802. Reserved....59 803. Application of Pledged Property After Default...59 804. Application of Pledged Property After Event of Non-Appropriation...61 805. Proceedings Brought by Trustee...61 806. Restrictions on Bondholder s Action....62 807. Remedies Not Exclusive....62 808. Effect of Waiver and Other Circumstances...63 809. Notice of Default...63 810. Rights of Financing Facility Providers....63 ARTICLE IX...64 CONCERNING THE FIDUCIARIES...64 901. Trustee; Acceptance of Duties...64 902. Paying Agents; Appointment and Acceptance of Duties....64 ii II-1 903. Responsibilities of Fiduciaries....64 904. Evidence on Which Fiduciaries May Act...65 905. Compensation....65 906. Certain Permitted Acts...66 907. Resignation of Trustee...66 908. Removal of the Trustee...67 909. Appointment of Successor Trustee....67 910. Transfer of Rights and Property to Successor Trustee....67 911. Merger or Consolidation...68 912. Adoption of Authentication....68 913. Resignation or Removal of Paying Agent and Appointment of Successor....68 ARTICLE X...70 SUPPLEMENTAL RESOLUTIONS...70 1001. Supplemental Resolutions Effective Upon Filing With the Trustee....70 1002. Supplemental Resolutions Effective Upon Consent of Trustee....70 1003. Supplemental Resolutions Effective with Consent of Bondholders....71 1004. General Provisions....71 ARTICLE XI...73 AMENDMENTS...73 1101. Mailing....73 1102. Powers of Amendment....73 1103. Consent of Bondholders...73 1104. Modifications by Unanimous Consent....75 1105. Exclusion of Bonds....75 1106. Notation on Bonds....75 ARTICLE XII...76 MISCELLANEOUS...76 1201. Defeasance...76 1202. Evidence of Signatures of Bondholders and Ownership of Bonds....80 1203. Moneys Held for Particular Bonds...81 1204. Preservation and Inspection of Documents....81 1205. Parties Interested Herein....81 1206. No Recourse on the Bonds...82 1207. Publication of Notice; Suspension of Publication....82 1208. Severability of Invalid Provisions....82 1209. Holidays....82 1210. Registration or Qualification of Series 2008B State Contract Bonds Under Blue Sky Laws of Various Jurisdictions....82 1211. Escheat Provision...83 ARTICLE XIII...84 BOND FORM AND EFFECTIVE DATE...84 1301. Form of Bonds, Trustee s Certificate of Authentication...84 1302. Effective Date...84 iii

HOSPITAL ASSET TRANSFORMATION PROGRAM STATE CONTRACT BOND RESOLUTION (JFK MEDICAL CENTER OBLIGATED GROUP ISSUE) BE IT RESOLVED by the New Jersey Health Care Facilities Financing Authority as follows: 101. Definitions. ARTICLE I DEFINITIONS AND STATUTORY AUTHORITY The following terms shall, for all purposes of the Resolution, have the following meanings: Account or Accounts shall mean, as the case may be, each or all of the Accounts to be established pursuant to Section 502. Accountant s Certificate shall mean a certificate signed by an independent certified public accountant of recognized standing or a firm of independent certified public accountants of recognized standing, selected by an Authorized Officer of the Authority, which may be the accountant or firm of accountants which regularly audits the books of the Authority. Act shall mean the New Jersey Health Care Facilities Financing Authority Law (P.L. 1972, c.29, N.J.S.A. 26:2I-1 et seq.), as amended and supplemented. Administrative Expenses Initial shall mean any Administrative Expenses Ordinary to be paid at the closing for a Series from the proceeds of such Series. Administrative Expenses Ordinary shall mean ordinary costs, liabilities and expenses incurred by the Authority to undertake the Project, including, but not limited to, the fees and expenses of the Trustee, accounting and other usual administrative costs, including the fees of any Rebate Consultant and any other expenses incurred in connection with the calculation and payment of arbitrage rebate as required by the Tax Compliance Certificate, in an amount pursuant to the budget prepared by the Authority and approved by the Treasurer; provided however that Administrative Expenses Ordinary shall not include the Annual Administrative Fee which shall be paid by the Borrowers under the Loan Agreement. Aggregate Debt Service for any period shall mean, as of any date of calculation, the sum of the amounts of Debt Service for such period with respect to all Series. Annual Administrative Fee shall mean the annual fee for the general administrative services of the Authority which shall be subject to change at the option of the Authority. Authority shall mean the New Jersey Health Care Facilities Financing Authority, a public body corporate and politic created and existing under and by virtue of the Act. Authorized Newspaper shall mean a financial newspaper customarily published at least once a day for at least five days (other than legal holidays) in each calendar week, printed in the English language and of general circulation in the Borough of Manhattan, City and State of New York. Authorized Officer of the Authority shall mean the Chairman, Vice- Chairman, Secretary, Assistant Secretary, Treasurer, Assistant Treasurer, Executive Director or Deputy Executive Director and when used with reference to any act or document also means any other person authorized by the by-laws or any resolution of the Authority to perform such act or execute such document; provided that, for purposes of Section 503(e) hereof, the term Authorized Officer of the Authority shall also include the Director of Operations and Finance. Authorized Officer of the Borrower shall mean (i) any person designated as an Authorized Officer of such Borrower by a Certificate of such Borrower executed by the Borrower and filed with the Trustee and (ii) any person designated to act on behalf of the Borrowers by a Certificate executed by the Borrowers and filed with the Trustee. Bond or Bonds shall mean any bonds, including Refunding Bonds, notes or Other Obligations, authenticated and delivered under and pursuant to the Resolution; provided, however, that as used in Articles III and IV hereof, the term Bonds shall not include Other Obligations. Bondholder or Holder of Bonds or Holder shall mean any person who shall be the registered owner of any Bond or Bonds. Bond Counsel shall mean, with respect to the issuance and delivery of the Series 2008B State Contract Bonds, McManimon & Scotland, L.L.C., having offices in Newark, New Jersey, and subsequent thereto, such nationally recognized bond counsel satisfactory to the Authority. Bond Payment Obligations shall mean the Authority s obligation to pay the principal or Redemption Price of and interest on the Bonds. Bond Registrar shall mean the Trustee and any other bank or trust company organized under the laws of any state of the United States of America or national banking association appointed by the Authority to perform the duties of Bond Registrar enumerated in Section 703 and Section 304. Bond Resolution shall mean this Hospital Asset Transformation Program State Contract Bond Resolution (JFK Medical Center Obligated Group Issue). Book-Entry Form or Book-Entry System shall mean a form or system, as applicable, under which physical Bond certificates in fully registered form are registered only in the name of the Securities Depository or its nominee and are held in the custody of the Securities Depository or its agent. 1 2 Borrower shall mean each of The Community Hospital Group, Inc., t/a JFK Medical Center, a New Jersey nonprofit corporation, Hartwyck at Oak Tree, Inc., a New Jersey nonprofit corporation, and Muhlenberg Regional Medical Center, Inc., a New Jersey nonprofit corporation, and their respective successors and assigns. Borrowers shall mean, collectively, The Community Hospital Group, Inc., t/a JFK Medical Center, a New Jersey nonprofit corporation, Hartwyck at Oak Tree, Inc., a New Jersey nonprofit corporation, and Muhlenberg Regional Medical Center, Inc., a New Jersey nonprofit corporation, and their respective successors and assigns. Business Day shall mean any day that is not a Saturday, Sunday or legal holiday in the State or a day on which banking institutions chartered by the State or the United States are legally authorized or required to close or a day on which the Securities Depository for the Bonds or the New York Stock Exchange is closed. Capital Improvement Projects shall have the meaning given in Section 503(c) hereof. Closing Date shall mean the date of issuance and delivery of the Series 2008B Bonds. Code shall mean the Internal Revenue Code of 1986, as amended from time to time and the regulations promulgated thereunder. Continuing Disclosure Agreement shall mean the Continuing Disclosure Agreement, by and among the Authority, the Treasurer and the Dissemination Agent named therein, relating to the Series 2008B State Contract Bonds, as the same may be amended and supplemented from time to time. Cost or Costs shall mean any and all costs incurred in connection with or associated with the following: satisfying the outstanding bonded indebtedness or any other outstanding indebtedness of any hospital in the State; transitioning a general hospital to a nonprofit, non-acute care health care-related facility, including, but not limited to, construction, renovation, equipment and information technology; transitioning acute care and related services from the hospital at which inpatient acute care services are to be terminated to an existing nonprofit general hospital, including, but not limited to, construction, renovation, equipment, and information technology; the closure of a general hospital; the acquisition of a general hospital in the State for the purpose of either (i) moving an existing general hospital s services into the acquired hospital and closing the acquirer s inpatient acute care services, or (ii) closing its inpatient acute care services; the issuance of any bonds for any of the aforementioned purposes; or other costs specifically related to the closure or transition of inpatient acute care services as identified in the State Contract. Cost of Issuance Account shall mean each Cost of Issuance Account or Accounts in the Project Fund established in Section 502. Debt Service shall mean, with respect to any Series and with respect to each Payment Date for such Series, the principal and Redemption Price of and accrued interest coming due and payable on such Series on such Payment Date. 3 II-2 Debt Service Fund shall mean the Debt Service Fund established in Section 502. Escrow Deposit Agreement means each of the 1993 Bonds Escrow Deposit Agreement, the 1995 Bonds Escrow Deposit Agreement, the 1998 Bonds Escrow Deposit Agreement, the 2003A-1 Bonds Escrow Deposit Agreement and the 2005A-3 Bonds Escrow Deposit Agreement. Escrow Deposit Agreements means, collectively, the 1993 Bonds Escrow Deposit Agreement, the 1995 Bonds Escrow Deposit Agreement, the 1998 Bonds Escrow Deposit Agreement, the 2000 Bonds Escrow Deposit Agreement, the 2003A-1 Bonds Escrow Deposit Agreement and the 2005A-3 Bonds Escrow Deposit Agreement. Event of Default shall have the meaning given to such term in Section 801. Event of Non-Appropriation shall mean an event described in Section 801(d) hereof. Federal Securities shall mean (i) any direct and general obligations of, or any obligations guaranteed by, the United States of America, including but not limited to interest obligations of the Resolution Funding Corporation or any successor thereof, (ii) any obligations of any state or political subdivision of a state which are fully secured as to principal and interest by an irrevocable pledge of moneys or direct and general obligations of, or obligations guaranteed by, the United States of America, which moneys or obligations are segregated in trust and pledged for the benefit of the holders of such bonds, and (iii) certificates of ownership of the principal or interest of direct and general obligations of, or obligations guaranteed by, the United States of America, which obligations are held in trust by a commercial bank which is a member of the Federal Reserve System. Fiduciary or Fiduciaries shall mean the Trustee, the Paying Agents, the Bond Registrar, the Dissemination Agent, the escrow agents under the Escrow Deposit Agreements or any or all of them, as may be appropriate. Financing Facility shall mean any revolving credit agreement, agreement establishing a line of credit or letter of credit, reimbursement agreement, interest rate exchange agreement, insurance contract, surety bond, commitment to purchase or sell bonds, purchase or sale agreement, or commitments or other contracts or agreements, and other security agreements as approved by an Authorized Officer of the Authority and by each Rating Agency which has issued a rating on the Bonds to which such Financing Facility relates, in connection with the issuance of Bonds. The term Financing Facility shall include, without limitation, any Swap Agreement. Financing Facility Payment Obligations shall mean all payment and reimbursement obligations of the Authority in connection with any Financing Facility. Financing Facility Provider shall mean the issuer or provider of a Financing Facility. 4

Financing Facility Revenues shall mean all amounts received by the Authority or the Trustee pursuant to any Financing Facility. Fiscal Year shall mean the fiscal year of the State which presently includes the twelve (12) month period commencing July 1 of each year and ending on the succeeding June 30. Fitch shall mean Fitch Ratings. Fund or Funds shall mean, as the case may be, each or all of the Funds established in Section 502. Hartwyck at Oak Tree means Hartwyck at Oak Tree, Inc., a New Jersey nonprofit corporation. Hartwyck at Oak Tree Facilities means the buildings and all related facilities and equipment located on the Hartwyck at Oak Tree Parcel. Hartwyck at Oak Tree Parcel means the land located at Block 545-R, Lots 19, 37 and 38 and Block 4, Lot 2-R-3 on the tax map of the Township of Edison, County of Middlesex, New Jersey. Hospital Asset Transformation Program shall have the meaning given such term in the State Contract. Interest Payment Date shall mean, with respect to a Series of Bonds, each date set forth in the Supplemental Resolution authorizing such Series of Bonds or the Series Certificate relating thereto on which accrued interest on the Bonds of such Series shall be payable. Investment Agreement shall mean an investment agreement with (i) a commercial bank or trust company or a national banking association in any case having a capital stock and surplus of more than $100,000,000, or (ii) an insurance company with the highest rating provided by A.M. Best Company, or (iii) a corporation; provided that the credit of such commercial bank or trust company or national banking association, insurance company or corporation, as the case may be, is rated (or, in the case of a corporation, whose obligations thereunder are guaranteed by a corporation whose credit is rated) not lower than the rating category of Moody s and S&P required to maintain the rating then in effect or to obtain the rating to be obtained on the Bonds in respect of which such Investment Agreement is entered into, which agreement provides for the investment of funds held in the Funds and Accounts, which funds shall be collateralized by at least one hundred two (102%) percent in principal amount of Investment Securities, as the same may be amended from time to time. Investment Securities shall mean and include any of the following securities, if and to the extent the same are at the time legal for investment of the Authority s funds: (ii) Bonds, debentures, notes or other evidences of indebtedness issued by any agency or instrumentality of the United States to the extent such obligations are guaranteed by the United States or by another such agency the obligations (including guarantees) of which are guaranteed by the United States; (iii) Bonds, debentures, notes or other evidences of indebtedness issued by any corporation chartered by the United States, including, but not limited to, Governmental National Mortgage Association, Federal Land Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Federal Home Loan Banks, Federal Intermediate Credit Banks, Banks for Cooperatives, Tennessee Valley Authority, United States Postal Service, Farmers Home Administration, Resolution Funding Corporation, Export-Import Bank, Federal Financing Bank and Student Loan Marketing Association; (iv) Negotiable or non-negotiable certificates of deposit (or other time deposit arrangements) issued by any bank, trust company or national banking association, including a Fiduciary, which certificates of deposit shall be continuously secured or collateralized by obligations described in subparagraphs (i) or (ii) of this definition, which shall have a market value at all times at least equal to the principal amount of such certificates of deposit and shall be lodged with the Trustee, as custodian, by the bank, trust company or national banking association issuing such certificates of deposit; (v) Uncollateralized negotiable or non-negotiable certificates of deposit (or other time deposit arrangements) issued by any bank, trust company or national banking association, the unsecured obligations of which are rated in one of the two highest rating categories, without rating sub-categories, by Moody s and S&P; (vi) Repurchase agreements collateralized by obligations described in subparagraphs (i), (ii) or (iii) of this definition with any registered broker/dealer subject to the Securities Investors Protection Corporation jurisdiction, which has an uninsured, unsecured and unguaranteed obligation rated Prime-1 or A3 or better by Moody s and A-1 or A or better by S&P, or any commercial bank with the above ratings, provided; (a) a master repurchase agreement or specific written repurchase agreement governs the transaction, which characterizes the transaction as a purchase and sale of securities, (b) the securities are held, free and clear of any lien, by the Trustee or an independent third party acting solely as agent for the Trustee, and such third party is (i) a Federal Reserve Bank, (ii) a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less than $75,000,000 or (iii) a bank approved in writing for such purpose by each Financing Facility Provider, if any, and the Trustee shall have received written confirmation from such third party that it holds such securities, free and clear of any lien, as agent for the Trustee, (i) Federal Securities; (c) a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 31 CFR 306.1 et seq. or 31 5 6 CFR 350.0 et seq. or a successor provision in such securities is created for the benefit of the Trustee, (d) the repurchase agreement has a term of six months or less, or the Trustee will value the collateral securities no less frequently than monthly and will liquidate the collateral securities if any deficiency in the required collateral percentage is not restored within two Business Days of such valuation, (e) the repurchase agreement matures on or before a Payment Date (or, if held in a Fund other than the Debt Service Fund, other appropriate liquidation period), and (f) the fair market value of the securities in relation to the amount of the repurchase obligation is equal to the collateral levels established by a Rating Agency for the rating assigned by the Rating Agency to the seller. (vii) Banker s acceptances, eurodollar deposits and certificates of deposit (in addition to the certificates of deposit provided for by subparagraphs (iv) and (v) above) of the domestic branches of foreign banks having a capital and surplus of $1,000,000,000 or more, or any bank or trust company organized under the laws of the United States of America or Canada, or any state or province thereof, having capital and surplus, in the amount of $1,000,000,000; provided that the aggregate maturity value of all such banker s acceptances and certificates of deposit held at any time as investments of Funds under this Resolution with respect to any particular bank, trust company, or national association shall not exceed 5% of its capital and surplus; and provided further than any such bank, trust company, or national association shall be rated in one of the two highest rating categories, without regard to rating subcategories, by Moody s and S&P; (viii) Other obligations of the United States of America or any agency thereof which may then be purchased with funds belonging to the State of New Jersey or which are legal investments for savings banks in the State of New Jersey; (ix) Deposits in the New Jersey Cash Management Fund; (x) Obligations of any state, commonwealth or possession of the United States or a political subdivision thereof or any agency or instrumentality of such a state, commonwealth, possession or political subdivision, provided that at the time of their purchase such obligations are rated in either of the two highest rating categories by Moody s and S&P; (xi) Commercial paper with a maturity date not in excess of 270 days rated by the Rating Agencies at least equal to the rating assigned by the Rating Agencies to the applicable Series of Bonds and in no event lower than the A category established by a Rating Agency (which may include subcategories indicated by plus or minus or by numbers) at the time of such investment, issued by an entity incorporated under the laws of the United States or any state thereof; (xii) Shares of a diversified open-end management investment company as defined in the Investment Company Act of 1940, which is a money market fund, which is then rated in any of the three highest rating categories by each Rating 7 II-3 Agency which is then rating the Bonds or money market accounts of the Trustee or any bank or trust company organized under the laws of the United States or any state thereof which has a combined capital and surplus of not less than $50,000,000; (xiii) Investment contracts (a) providing for the future purchase of securities of the type described in (i), (ii), (iii) and (viii) above, which contracts have been approved for sale by a national securities exchange and all regulatory authorities having jurisdiction or (b) the obligor under which or the guarantor thereof shall have a credit rating such that its long term debt is rated at least A+ by S&P if the Bonds are then rated by such Rating Agency and at least A1 by Moody s if the Bonds are then rated by such Rating Agency; and (xiv) Investment Agreements. JFK Medical Center means The Community Hospital Group, Inc., t/a JFK Medical Center, a New Jersey nonprofit corporation. JFK Medical Center Facilities means the buildings and all related facilities and equipment located on the JFK Medical Center Parcel. JFK Medical Center Parcel means (i) the land located at Block 643-EE, Lots 17-U-4 and 17-S on the tax map of the Township of Edison, County of Middlesex, New Jersey and (ii) the land located at Block 643-EE, Lots 17-U-3 and 18-J-3 on the tax map of the Township of Edison, County of Middlesex, New Jersey. Kenyon House Facilities means the buildings and all related facilities and equipment located on the Kenyon House Parcel. Kenyon House Parcel means the land located at Block 13, Lot 38.02 on the tax map of the City of Plainfield, County of Union, New Jersey. Loan shall mean the loan by the Authority to the Borrower of certain proceeds of the Series 2008B State Contract Bonds, as specified in and to be used, together with other available moneys of the Borrower, in the manner prescribed herein and in the Loan Agreement. Loan Agreement shall mean the Loan Agreement dated the Closing Date between the Authority and the Borrower, relating to the Series 2008B State Contract Bonds, as the same may be amended and supplemented from time to time. Manager shall mean Goldman, Sachs & Co., as managing underwriter for the Series 2008B State Contract Bonds. Master Trustee shall mean The Bank of New York Mellon, West Paterson, New Jersey, and any successors thereto. Month shall mean a calendar month. Moody s shall mean Moody s Investors Service, Inc. 8

Mortgages shall mean, collectively, (i)(a) the Mortgage and Security Agreement, dated the Closing Date, by JFK Medical Center, as mortgagor, to the Master Trustee, as mortgagee, on the portion of the JFK Medical Center Parcel described in clause (i) of the definition thereof and (b) the Mortgage and Security Agreement, dated the Closing Date, by the JFK Medical Center Foundation, as mortgagor, to the Master Trustee, as mortgagee, on the portion of the JFK Medical Center Parcel described in clause (ii) of the definition thereof, (ii) the Mortgage and Security Agreement, dated the Closing Date, by Hartwyck at Oak Tree, as mortgagor, to the Master Trustee, as mortgagee, on the Hartwyck at Oak Tree Parcel and (iii) the Mortgage and Security Agreement, dated the Closing Date, by Muhlenberg Regional Medical Center, as mortgagor, to the Master Trustee, as mortgagee, on the MRMC Parcels as each may be amended and restated from time to time in accordance with their respective terms. Mortgages. Mortgaged Property means, collectively, the properties described in the MRMC Campus means collectively, the Muhlenberg Regional Medical Center Hospital Facilities, the Muhlenberg School of Nursing Facilities, the Kenyon House Facilities and the Muhlenberg Regional Medical Center Parking Facilities. MRMC Parcels means collectively, the Muhlenberg Regional Medical Center Hospital Parcel, the Muhlenberg School of Nursing Parcel, the Kenyon House Parcel and the Muhlenberg Regional Medical Center Parking Parcel. Muhlenberg Regional Medical Center means Muhlenberg Regional Medical Center Inc., a New Jersey nonprofit corporation. Muhlenberg Regional Medical Center Hospital Facilities means the buildings and all related facilities and equipment located on the Muhlenberg Regional Medical Center Hospital Parcel. Muhlenberg Regional Medical Center Hospital Parcel means the land located at Block 13, Lot 38.03 on the tax map of the City of Plainfield, County of Union, New Jersey. Muhlenberg Regional Medical Center Parking Facilities means the improvements and related facilities and equipment located on the Muhlenberg Regional Medical Center Parking Parcel. Muhlenberg Regional Medical Center Parking Parcel means the land located at Block 729, Lot 1 on the tax map of the City of Plainfield, County of Union, New Jersey. Muhlenberg School of Nursing Parcel means the land located at Block 13, Lot 38.01 on the tax map of the City of Plainfield, County of Union, New Jersey. Muhlenberg School of Nursing Facilities shall mean the buildings and all related facilities and equipment located on the Muhlenberg School of Nursing Parcel. 1993 Bonds shall mean the Authority s Revenue Bonds, JFK Health Systems Obligated Group Issue, Series 1993, originally issued on March 18, 1993 in the aggregate principal amount of $22,200,000. 1993 Bonds Escrow Deposit Agreement means the Escrow Deposit Agreement, dated the Closing Date, by and among the Authority, the Borrower and The Bank of New York Mellon, as successor to The Summit Trust Company, as escrow agent. 1995 Bonds shall mean the Authority s Revenue Bonds, JFK Health Systems Obligated Group Issue, Series 1995, originally issued on June 14, 1995 in the aggregate principal amount of $30,100,000. 1995 Bonds Escrow Deposit Agreement means the Escrow Deposit Agreement, dated the Closing Date, by and among the Authority, the Borrower and Commerce Bank, National Association, as escrow agent. 1998 Bonds shall mean the Authority s Revenue and Refunding Bonds, JFK Medical Center/Hartwyck at Oak Tree Obligated Group Issue, Series 1998 originally issued on August 6, 1998 in the aggregate principal amount of $53,205,000. 1998 Bonds Escrow Deposit Agreement means the Escrow Deposit Agreement, dated the Closing Date, by and among the Authority, the Borrower, and U.S. Bank National Association, as successor to First Union National Bank, as escrow agent. Opinion of Counsel or Opinion shall mean an opinion signed by an attorney or firm of attorneys of recognized standing in the field of law relating to municipal bonds (who may be general, special or bond counsel to the Authority). Other Obligations shall mean bank loan agreements, lines of credit and other security agreements, and any other form of indebtedness which the Authority is authorized to enter into or obtain to provide direct payment of any costs which the Authority is authorized to pay pursuant to the Act. Outstanding when used with reference to Bonds, shall mean, as of any date, Bonds theretofore or thereupon being authenticated and delivered under the Resolution except: (i) Bonds cancelled by the Trustee at or prior to such date; (ii) Bonds (or portions of Bonds) for the payment or redemption of which moneys, equal to the principal amount or Redemption Price thereof, as the case may be, with interest to the date of maturity or redemption date, shall be held in trust under the Resolution and set aside for such payment or redemption (whether at or prior to the maturity or redemption date), provided that if such Bonds (or portions of Bonds) are to be redeemed, notice of such redemption shall have been given or provisions satisfactory to the Trustee shall have been made for the giving of such notice as provided in Article IV; (iii) Bonds in lieu of or in substitution for which other Bonds shall have been authenticated and delivered pursuant to Article III or Section 406 or Section 1106; and 9 10 (iv) Bonds deemed to have been paid as provided in subsections 2 or 3 of Section 1201. Outstanding Bonded Indebtedness shall mean, collectively, the 1993 Bonds, the 1995 Bonds, the 1998 Bonds, the 2003A-1 Bonds and the 2005A-3 Bonds. Paying Agent shall mean any bank or trust company organized under the laws of any state of the United States of America or any national banking association designated as paying agent for the Bonds of any Series, and its successors hereafter appointed in the manner provided in the Resolution. Payment Date shall mean each Interest Payment Date and each date upon which any principal or Redemption Price of any Bonds Outstanding shall become due and payable. Permitted Borrower Lines of Credit shall mean any and all lines of credit available only to the Borrowers in the amount(s) and as specified in the Loan Agreement. Permitted Borrowings Through the Authority shall mean any and all future borrowings by any Borrower through the Authority in the amount(s) and as specified in the Loan Agreement. Permitted Borrowings shall mean, collectively, the Permitted Borrower Lines of Credit and the Permitted Borrowings Through the Authority. Pledged Property shall mean (a) with respect to the Bond Payment Obligations and, to the extent provided in any Supplemental Resolution authorizing a Series which is to be secured, in whole or in part, by, or payable, in whole or in part, from, a Financing Facility, the applicable Financing Facility Payment Obligations, the State Contract, the Revenues and the amounts and Investment Securities on deposit in the Funds (other than the Project Fund and the Rebate Fund), and (b) with respect to any Series of Bonds in connection with which the Authority has obtained a Financing Facility, and to the extent provided in a Supplemental Resolution, the applicable Financing Facility and Financing Facility Revenues and all moneys from time to time held in any applicable subaccount within the Debt Service Fund. Project Fund shall mean, collectively, the 2008B-1 Project Fund and the 2008B-2 Project Fund established in Section 502. Purchase Contract shall have the meaning given to such term in Section 207. Rating Agency shall mean, to the extent applicable, S&P and any successor thereto, if it has assigned a rating to any Bonds, Moody s and any successor thereto, if it has assigned a rating to any Bonds, Fitch and any successor thereto, if it has assigned a rating to any Bonds or any other nationally recognized bond rating agency and any successor thereto if it has assigned a rating to any Bonds. 11 II-4 Rebate Consultant shall mean a firm of investment bankers, financial consultants, attorneys or certified public accountants that is experienced in calculating amounts due to the United States of America under Section 148(f) of the Code. Rebate Fund shall mean the Rebate Fund established in Section 502. Record Date shall mean with respect to an Interest Payment Date for a particular Series of Bonds, unless otherwise provided by the Supplemental Resolution authorizing such Series, the fifteenth day next preceding such Interest Payment Date. Redemption Price shall mean, with respect to any Bond, the principal amount thereof plus the applicable premium, if any, payable upon redemption thereof pursuant to such Bond or the Resolution. Refunding Bonds shall mean all Bonds, whether issued in one or more Series, authenticated and delivered on original issuance pursuant to Section 203, and any Bonds thereafter authenticated and delivered in lieu of or in substitution for such Bonds pursuant to Article III or Section 406 or Section 1106. Related Swap Bonds shall mean, with respect to and during the term of any Swap Agreement, the Bonds to which such Swap Agreement relates, as specified in the applicable Supplemental Resolution. Related Swap Bond Payment Obligations shall mean, with respect to any Related Swap Bonds, (i) that portion of the interest on such Bonds payable from Swap Revenues as set forth in the applicable Supplemental Resolution and (ii) any Swap Termination Payments payable to the Holders of such Related Swap Bonds or to be used to purchase a substitute Swap Agreement. Resolution shall mean this Bond Resolution, as from time to time amended or supplemented by Supplemental Resolutions (including Series Certificates) in accordance with the terms hereof. 502. Revenue Fund shall mean the Revenue Fund established in Section Revenues shall mean (i) all amounts appropriated and paid to the Authority pursuant to the State Contract, (ii) any other amounts appropriated and paid by the State to the Authority or received from any other source by the Authority and pledged by the Authority as security for the payment of Bonds, and (iii) interest received or to be received on any moneys or securities held pursuant to the Resolution and paid or required to be paid into the Revenue Fund; provided, however, that the term Revenues shall not include Financing Facility Revenues or interest received or to be received on any moneys or security held in the Project Fund or the Rebate Fund. S&P shall mean Standard & Poor s Ratings Services. Securities Depository shall mean The Depository Trust Company, New York, New York, until a successor Securities Depository shall have become such pursuant to the applicable provisions of the Resolution, and, thereafter, Securities Depository shall mean the successor Securities Depository. Any Securities 12

Depository shall be a securities depository that is a clearing agency under federal law operating and maintaining, with its participants or otherwise, a Book-Entry System to record ownership of beneficial interests in the Series 2008B State Contract Bond, and to effect transfers of the Series 2008B State Contract Bonds, in a Book-Entry Form. Series shall mean all of the Bonds authenticated and delivered on original issuance and identified pursuant to the Supplemental Resolution authorizing such Bonds as a separate Series of Bonds, and any Bonds thereafter authenticated and delivered in lieu of or in substitution for such Bonds pursuant to Article III or Section 406 or Section 1106, regardless of variations in maturity, interest rate, redemption provisions or other provisions. Series Certificate shall mean a certificate, executed by an Authorized Officer of the Authority and approved in writing by the Treasurer making certain determinations in connection with the issuance of a Series of Bonds pursuant to this Bond Resolution or the Supplemental Resolution providing for, among other items, the issuance of such Series of Bonds. Each Series Certificate, upon execution and delivery, shall be deemed to be a part of this Bond Resolution or such applicable Supplemental Resolution. Series 2008B Bonds or Series 2008B State Contract Bonds shall mean, collectively, the Series 2008B-1 Bonds and the Series 2008B-2 Bonds. Series 2008B-1 Bonds shall mean the Authority s State Contract Bonds (Hospital Asset Transformation Program), Series 2008B-1, which bonds are issued on a tax-exempt basis. Series 2008B-2 Bonds shall mean the Authority s State Contract Bonds (Hospital Asset Transformation Program)(Federally Taxable), Series 2008B-2, which bonds are issued on a taxable basis. Solaris Agreement shall mean the agreement, dated the Closing Date, by and between the Authority and Solaris Health System, a New Jersey nonprofit corporation. State shall mean the State of New Jersey. State Contract shall mean the contract to be entered into between the Treasurer and the Authority prior to the issuance of the Series 2008B State Contract Bonds under this Resolution, together with any and all amendments and supplements thereto which contract provides, among other things, for the credit of amounts to the Debt Service Fund and for payment, subject to appropriation, to the Authority of the amounts so credited pursuant to the Act. Supplemental Resolution shall mean any resolution supplemental to or amendatory of the Resolution adopted by the Authority in accordance with Article X hereof. Swap Agreement shall mean any interest rate swap, cap or collar or other arrangement between the Authority and one or more financial institutions providing for the transfer or mitigation of interest rate risks either generally or under specific contingencies. Swap Payment Obligations shall mean, for any period of time and with respect to any Related Swap Bonds, all net amounts payable by the Authority (including Swap Termination Payments payable by the Authority) under any Swap Agreement in respect of such Related Swap Bonds Swap Provider shall mean the provider of any Swap Agreement. Swap Revenues shall mean all amounts received by the Authority or the Trustee pursuant to any Swap Agreement, including without limitation any Swap Termination Payment. Swap Revenues Subaccount shall mean the Swap Revenues Subaccount within the Debt Service Fund established in Section 506. Swap Termination Payment shall mean, with respect to any Swap Agreement, any settlement amount payable by the applicable Swap Provider or the Authority by reason or on account of the early termination of such Swap Agreement. The term Swap Termination Payment shall not include net unpaid amounts which would have been payable by the Swap Provider or the Authority pursuant to the terms of the applicable Swap Agreement irrespective of the early termination of such Swap Agreement. 508 hereof. Tax Compliance Certificate shall have the meaning given in Section Tax-Exempt Bonds shall mean the Series 2008B-1 Bonds and any other Bonds issued pursuant to this Resolution the interest on which is excluded from the gross income of the holders thereof for federal income tax purposes. Treasurer shall mean the Treasurer of the State of New Jersey. Trustee shall mean the Trustee appointed under Section 216 hereof, and its successor or successors and any other corporation which may at any time be substituted in its place pursuant to the Resolution. 2000 Bonds shall mean the Authority s Revenue and Refunding Bonds, Muhlenberg Regional Medical Center Issue, Series 2000, originally issued on October 12, 2000 in the aggregate principal amount of $25,990,000. 2000 Bonds Escrow Deposit Agreement means the Escrow Deposit Agreement, dated the Closing Date, by and among the Authority, the Borrower and The Bank of New York Mellon, as Escrow Agent. 2003A-1 Bonds shall mean the Authority s Revenue Bonds, Variable Rate Composite ( COMP ) Program, Series 2003 A-1, originally issued on June 20, 2003 in the aggregate principal amount of $20,000,000. 2003A-1 Bonds Escrow Deposit Agreement means the Escrow Deposit Agreement, dated the Closing Date, by and among the Authority, the Borrower and The Bank of New York Mellon, as Escrow Agent. 13 14 2005A-3 Bonds shall mean the Authority s Revenue Bonds (Variable Rate Composite Program-JFK Medical Center Project) Series 2005 A-3, originally issued on December 20, 2005 in the aggregate principal amount of $18,000,000. 2005A-3 Bonds Escrow Deposit Agreement means the Escrow Deposit Agreement, dated the Closing Date, by and among the Authority, the Borrower, and The Bank of New York Mellon, as escrow agent. 2008 Project shall mean (1) various capital improvements to the JFK Medical Center Facilities, including, but not limited to, expansion of inpatient bed capacity and unit renovations, emergency room expansion, cardiac catheterization lab suite expansion, operating room renovations and expansion, renovation of existing space for hyperbaric wound center, and other necessary expansions, renovations and improvements and the relocation of support departments and conversion of HVAC system at the Muhlenberg Regional Medical Center Hospital Facilities, (2) the payment of capitalized interest on a portion of the Series 2008B Bonds and (3) the refinancing of various series of bonds issued on behalf of, and other indebtedness of, JFK Medical Center, Hartwyck at Oak Tree and Muhlenberg Regional Medical Center, all in connection with the termination of the provision of hospital acute care services at the Muhlenberg Regional Medical Center Hospital Facilities and pursuant to the State s Hospital Asset Transformation Program. interest granted and the pledge and assignment made in the Resolution and the covenants and agreements therein set forth to be performed on behalf of the Authority shall be for the equal benefit, protection and security of the Holders of any and all of the Bonds, all of which, regardless of the time or times of their authentication and delivery or maturity, shall be of equal rank without preference, priority or distinction of any of the Bonds over any other thereof, all except as expressly provided in or permitted by the Resolution. (b) Notwithstanding the provisions of subsection (a) above, to the extent provided in the Supplemental Resolution authorizing a Series of Bonds, (i) any and all Bonds of such Series may be secured by and payable from, in whole or in part, a Financing Facility, (ii) the security interest granted and the pledge and assignment made in the Resolution may also secure, on a parity with all other Bonds issued under the Resolution, the Authority s Financing Facility Payment Obligations with respect thereto, provided, however that the aggregate amount of indebtedness which may be secured by this Resolution with respect to any Series of Bonds on a parity with all other Bonds issued or to be issued under the Resolution may not exceed the aggregate principal amount of, premium, if any, and interest on the Bonds of such Series, and (iii) Related Swap Bond Payment Obligations may be payable solely from the applicable Swap Revenues, and such Swap Revenues may be pledged solely to and shall be applied solely for the payment of such Related Swap Bond Payment Obligations. 2008 Series Certificate shall mean the Series Certificate for the Series 2008B Bonds. 2008B-1 Project Fund shall mean the Project Fund for the Series 2008B-1 Bonds. 2008B-2 Project Fund shall mean the Project Fund for the Series 2008B-2 Bonds. Unassigned Authority s Rights shall have the meaning assigned to such in the Loan Agreement. Underwriters shall mean, collectively, the Manager and such additional underwriters for the Series 2008B State Contract Bonds appointed pursuant to Section 207. Except where the context otherwise requires, words importing the singular number shall include the plural number and vice versa, and words importing persons shall include firms, associations, corporations, districts, agencies and bodies. 102. Authority for the Resolution. This Resolution is adopted pursuant to the provisions of the Act. 103. Resolution to Constitute Contract. (a) In consideration of the purchase and acceptance of any and all of the Bonds authorized to be issued hereunder by those who shall hold the same from time to time, the Resolution shall be deemed to be and shall constitute a contract between the Authority and the Holders from time to time of the Bonds; and the security 15 II-5 16

ARTICLE II AUTHORIZATION AND ISSUANCE OF BONDS 201. Authorization of Bonds. (a) The Authority is hereby authorized to issue from time to time, as hereinafter provided, Bonds of the Authority to be designated as State Contract Bonds (Hospital Asset Transformation Program) Series 2008B in an aggregate principal amount not to exceed $169,000,000. (b) The Bonds may be issued in one or more Series, and the designation thereof, in addition to the name State Contract Bonds (Hospital Asset Transformation Program), shall include such further appropriate particular designation added to or incorporated in such title for the Bonds of any particular Series as the Authority may determine. Each Bond shall bear upon its face the designation so determined for the Series to which it belongs. (c) Nothing in the Resolution shall be deemed to preclude or prevent the consolidation into a single Series for purposes of issuance and sale of Bonds otherwise permitted by the Resolution to be issued at the same time in two or more separate Series, provided that solely for the purpose of satisfying the requirements of Sections 202, 203 or 205, as the case may be, the Bonds otherwise permitted by the Resolution to be issued as a separate Series shall be considered separately as if such Bonds were to be issued as a separate Series. In the event that separate Series are combined for purposes of issuance and sale, they may be issued under a single Supplemental Resolution notwithstanding any other provision of the Resolution. 202. General Provisions for Issuance of Bonds. (a) All (but not less than all) the Bonds of each Series shall be executed by the Authority for issuance under the Resolution and delivered to the Trustee and thereupon shall be authenticated by the Trustee and by it delivered to the Authority or upon its order, but only upon the receipt by the Trustee of: (1) A copy of the Supplemental Resolution authorizing such Bonds (other than for the Series 2008B State Contract Bonds), and a copy of the Series Certificate, if any, relating to such Bonds, each certified by an Authorized Officer of the Authority, which shall, among other provisions, specify: (a) the authorized maximum principal amount, designation and Series of such Bonds; (b) the purposes for which such Series of Bonds are being issued, which shall be (i) to provide funds to the Borrower to pay a portion of the costs of the 2008 Project; (ii) to pay the costs of issuing such Bonds, (iii) the refunding of Bonds as provided in Section 203 or (iv) any other lawful purpose permitted under the Act; (c) the date, and the maturity date or dates, of the Bonds of such Series; (d) the interest rate or rates or the method of calculation of the interest rate or rates of the Bonds of such Series and the Interest Payment Dates therefor; (e) the denominations of, and the manner of dating, numbering and lettering, the Bonds of such Series; (f) the Redemption Price or Prices or prepayment price or prices, if any, and, subject to Article IV, the redemption or prepayment terms for the Bonds of such Series; (g) provisions for the sale of the Bonds of such Series; (h) the amount (or the method of determining the amount), if any, to be deposited from the proceeds of such Series of Bonds or other sources in the Funds and provisions for the application thereof; (i) the form of the Bonds of such Series, and the form of the Trustee s certificate of authentication (if applicable), which forms shall be, respectively, substantially in the forms set forth in Section 217, with such variations, omissions or insertions as are required or permitted by this Resolution; and (j) such other provisions as an Authorized Officer of the Authority may deem necessary or desirable in connection with the issuance of such Series of Bonds. Notwithstanding the foregoing, the Authority may delegate to an Authorized Officer of the Authority the authority to determine by Series Certificate any of the matters that are required to be set forth in a Supplemental Resolution other than the authorization of the issuance of Bonds, the maximum principal amount of the Bonds of such Series, the final maturity date of the Bonds of such Series, the maximum redemption premium and the maximum interest rate or true interest cost with respect to such Bonds or any other provisions required by the Act to be authorized by a resolution. (2) An Opinion of Bond Counsel to the effect that (i) the Authority has the right and power to adopt this Resolution, and the Resolution has been duly and lawfully adopted by the Authority, is in full force and effect and is valid and binding upon the Authority in accordance with its terms, and no other authorization for the Resolution is required; (ii) the Resolution creates the valid pledge which it purports to create of the Revenues, moneys, securities and funds and other Pledged Property, subject to the provisions of the Resolution permitting the application thereof for the purposes and on the terms and conditions set forth in the Resolution; and (iii) the Bonds of such Series are valid and binding obligations of the Authority as provided in the Resolution and entitled to the benefits of the Resolution and of the Act as amended to the date of such Opinion, and such Bonds have been duly and validly authorized and issued in accordance with law, including the Act as amended to the date of such Opinion, and in accordance with the Resolution; provided, that such Opinion may take exception as to the effect of, or for restrictions or limitations imposed by or resulting from, bankruptcy, insolvency, debt adjustment, moratorium, reorganization or other similar laws, judicial decisions and principles of equity affecting creditors rights generally and judicial discretion; (3) A written order as to the delivery of such Bonds, signed by an Authorized Officer of the Authority; (4) A certificate of an Authorized Officer of the Authority stating that (a) the Authority is not, or upon the issuance of such Series of Bonds will not be, in default in the performance of any of the covenants, conditions, agreements or provisions contained in the Resolution; and (b) the State Contract is in full force and effect; (5) The written approval of the Treasurer for the issuance of such Bonds. (6) Such further documents, moneys, securities and evidences of deposit of funds with the Trustee as are required by the provisions of Section 17 18 203 or Article X or the Supplemental Resolution authorizing such Series of Bonds. (b) After the original issuance of Bonds of any Series, no Bonds of such Series shall be issued except in lieu of or in substitution for other Bonds of such Series pursuant to Article III or Section 406 or Section 1106. 203. Refunding Bonds. (a) One or more Series of Refunding Bonds may be issued at any time to refund Outstanding Bonds of one or more Series or one or more maturities within a Series or any Bonds of one or more maturities within one or more Series. Refunding Bonds shall be issued in a principal amount sufficient, together with other moneys available therefor, to accomplish such refunding (including, without limitation, the payment of the costs of issuance of such Refunding Bonds) and to make the deposits in the Funds and Accounts under this Resolution required by the provisions of the Supplemental Resolution authorizing such Refunding Bonds. (b) Refunding Bonds of each Series shall be authenticated and delivered by the Trustee only upon receipt by the Trustee (in addition to the documents required by Section 202) of: (1) Instructions to the Trustee, satisfactory to it, to give due notice of redemption, if applicable, of all the Bonds to be refunded on a redemption date or dates specified in such instructions, subject to the provisions of Section 1201 hereof; (2) If the Bonds to be refunded are not by their terms subject to redemption or will not be redeemed within the next succeeding sixty (60) days, instructions to the Trustee, satisfactory to it, to mail the notice provided for in Section 1201 to the Holders of the Bonds being refunded; and (3) The deposit of amounts as shall be necessary to comply with the provisions of subsection 2 of Section 1201; and (4) Such further documents and moneys as are required by the provisions of Article X or any Supplemental Resolution authorizing such Refunding Bonds. (c) The proceeds, including accrued interest, of the Refunding Bonds of each Series shall be applied simultaneously with the delivery of such Refunding Bonds for the purposes of making deposits in such Funds and Accounts under this Resolution as shall be provided by the Supplemental Resolution authorizing such Series of Refunding Bonds and shall be applied to the refunding purposes thereof in the manner provided in said Supplemental Resolution or Series Certificate. 204. Reserved. 205. Designation, Series, Principal Amount and Payment Dates. (a) Series 2008B-1 Bonds. Pursuant to the provisions of this Resolution, a Series of Bonds entitled to the benefits, protection and security of such provisions is hereby authorized to be issued as tax-exempt bonds in an aggregate principal amount, together with the Series 2008B-2 Bonds, not to exceed $169,000,000. The Series 2008B-1 Bonds shall be distinguished from the Bonds of all other Series by the title, State Contract Bonds (Hospital Asset Transformation Program), Series 2008B-1 Bonds. The respective principal amounts, interest rate or rates, dated dates, Payment Dates, redemption provisions and maturity provisions with respect to the Series 2008B-1 Bonds shall be as determined by the Authorized Officers of the Authority, in accordance with Section 211, by the 2008 Series Certificate executed by any one such Authorized Officer of the Authority and approved in writing by the Treasurer; provided, however, that the final maturity of the Series 2008B-1 Bonds shall be not later than October 1, 2038, the maximum redemption premium on the Series 2008B-1 Bonds, if expressed as a percentage of the principal amount of such Series 2008B-1 Bond to be redeemed, shall not exceed 105%, provided, however, that at the option of the Authority, any Series 2008B-1 Bond may be subject to optional redemption pursuant to a make whole provision which may exceed one hundred five percent (105%) of the principal amount of such Series 2008B-1 Bond, if and as provided in the 2008 Series Certificate, and the true interest cost on the Series 2008B- 1 Bonds shall not exceed ten percent (10%) per annum. Any Series 2008B-1 Bonds may be issued in one or more sub-series as may be provided in the 2008 Series Certificate. (b) Series 2008B-2 Bonds. Pursuant to the provisions of this Resolution, a Series of Bonds entitled to the benefits, protection and security of such provisions is hereby authorized to be issued as taxable bonds, together with the Series 2008B-1 Bonds in an aggregate principal amount not exceeding $169,000,000. The Series 2008B-2 Bonds shall be distinguished from the Bonds of all other Series by the title, State Contract Bonds (Hospital Asset Transformation Program), Series 2008B-2 (Federally Taxable). The respective principal amounts, interest rate or rates, dated dates, Payment Dates, redemption provisions and maturity provisions with respect to the Series 2008B-2 Bonds shall be as determined by the Authorized Officers of the Authority, in accordance with Section 211, by the 2008 Series Certificate executed by any one such Authorized Officer of the Authority and approved in writing by the Treasurer; provided, however, that the final maturity of the Series 2008B-2 Bonds shall be not later than October 1, 2038, the maximum redemption premium on the Series 2008B-2 Bonds, if expressed as a percentage of the principal amount of such Series 2008B-2 Bond to be redeemed, shall not exceed 105%, provided, however, that at the option of the Authority, any Series 2008B-2 Bond may be subject to optional redemption pursuant to a make whole provision which may exceed one hundred five percent (105%) of the principal amount of such Series 2008B-2 Bond, if and as provided in the 2008 Series Certificate, and the true interest cost on the Series 2008B- 2 Bonds shall not exceed twelve percent (12%) per annum. Any Series 2008B-2 Bonds may be issued in one or more sub-series as may be provided in the 2008 Series Certificate. 19 II-6 20

206. Purpose. The Series 2008B State Contract Bonds shall be issued for the purposes of this Resolution, specifically to: (i) provide funds to the Borrower to pay a portion of the costs of the 2008 Project; and (ii) pay the costs of issuing the Series 2008B State Contract Bonds. 207. Authorization of Negotiated Bond Sale; Appointment of Parties; Approval of Purchase Contract; Selection of Manager and Underwriters; Determination Under Executive Order No. 26. Upon recommendation of the Treasurer based upon Treasury s competitive RFP/RFQ process and in accordance with the State of New Jersey Executive Order No. 26 signed by Governor Christine Todd Whitman (1994) ( Executive Order No. 26), the Authority hereby appoints Goldman, Sachs & Co., Inc. as Manager for the Series 2008B State Contract Bonds and, upon recommendation of the Treasurer in accordance with Executive Order No. 26, an Authorized Officer of the Authority is hereby authorized to select additional co-senior managers and comanagers for the Series 2008B State Contract Bonds. Such appointment(s) shall be evidenced by the execution of the Purchase Contract (as defined below). The purchase of the Series 2008B State Contract Bonds by the Underwriters and the sale of the Series 2008B State Contract Bonds by the Authority to the Underwriters shall be subject to the execution by the Authority and the Manager, as representative of the Underwriters, of a Bond Purchase Contract (the Purchase Contract ) in substantially the form presented to this meeting. The Purchase Contract, in substantially the form presented to this meeting, is hereby approved; provided, that an Authorized Officer of the Authority is hereby authorized, with the advice of Bond Counsel and the Attorney General of the State (the State Attorney General ), to make such changes, insertions and deletions to and omissions from such form as may be necessary or appropriate. The Authorized Officers of the Authority are each hereby authorized, in consultation with Bond Counsel and the State Attorney General, to negotiate the terms of the Purchase Contract. The Authorized Officers of the Authority are, and each such Authorized Officer of the Authority is, hereby authorized on behalf of the Authority to approve the terms of the Purchase Contract relating to the sale of the Series 2008B State Contract Bonds and to execute and deliver such Purchase Contract to the Manager, as representative of the Underwriters; provided, that the provisions of the Purchase Contract are acceptable to counsel to the Authority (including Bond Counsel and the State Attorney General) and (i) the aggregate purchase price for the Series 2008B Bonds to be paid by the Underwriters pursuant to the Purchase Contract shall not be less than par, plus any original issue premium, less (A) any original issuance discount; and (B) any underwriters' discount, including the fees and expenses of underwriters counsel, not in excess of $9.75 per $1,000.00 of Series 2008B State Contract Bonds issued, (ii) (A) the final maturity date for the Series 2008B-1 State Contract Bonds shall not be later than October 1, 2038 and (B) the final maturity date for the Series 2008B-2 State Contract Bonds shall not be later than October 1, 2038, (iii) the aggregate principal amount of the Series 2008B Bonds shall not exceed $169,000,000, including costs incurred in connection with the issuance of the Series 2008B State Contract Bonds; and (iv) the true interest cost on (a) the Series 2008B-1 Bonds shall not exceed ten percent (10%) per annum and (b) the Series 2008B-2 Bonds shall not exceed twelve percent (12%) per annum. In accordance with Executive Order No. 26, the Authority has determined that the Series 2008B State Contract Bonds will be sold in accordance with the Purchase Contract pursuant to a negotiated sale and that such negotiated sale is permissible as a result of the complex financing structure and volatile interest rate conditions. Notwithstanding anything to the contrary contained herein, in no event shall the Purchase Contract be executed by an Authorized Officer of the Authority unless and until the Borrowers shall have received a signed commitment for one or more Permitted Borrowings in form and substance satisfactory to an Authorized Officer of the Authority, or cash, in an amount not less than $30 million. 208. Approval of Loan Agreement, State Contract, Escrow Deposit Agreements, Solaris Agreement and Preliminary Official Statement. (a) The form of the Loan Agreement presented at the meeting at which this Resolution is adopted (copies of which shall be filed with the records of the Authority), and the rights to receive payment thereunder and under the Notes (defined therein) is hereby approved. Any Authorized Officer of the Authority is hereby authorized to execute, acknowledge and deliver, and any other Authorized Officer of the Authority is hereby authorized to affix and attest the seal of the Authority to the Loan Agreement in substantially such form, with such changes therein and any supplements thereto as Counsel may advise and the Authorized Officer executing the same may approve, such approval to be evidenced by such Authorized Officer s execution thereof. (b) The form of the State Contract presented at the meeting at which this Resolution is adopted (copies of which shall be filed with the records of the Authority), is hereby approved. Any Authorized Officer of the Authority is hereby authorized to execute, acknowledge and deliver, and any other Authorized Officer of the Authority is hereby authorized to affix and attest the seal of the Authority to the State Contract in substantially such form, with such changes therein and any supplements thereto as Counsel may advise and the Authorized Officer executing the same may approve, such approval to be evidenced by such Authorized Officer s execution thereof. (c) The form of Escrow Deposit Agreement presented at the meeting at which this Resolution is adopted is hereby approved. Any Authorized Officer of the Authority is hereby authorized to execute and deliver Escrow Deposit Agreements in substantially such form, with such changes therein and any supplements thereto as Counsel may advise and the Authorized Officer executing the same may approve, such approval to be evidenced by such Authorized Officer s execution thereof. (d) The form of the Solaris Agreement presented at the meeting at which this Resolution is adopted (copies of which shall be filed with the records of the Authority) is hereby approved. Any Authorized Officer of the Authority is hereby authorized to execute and deliver the Solaris Agreement in substantially such form, with such changes therein and any supplements thereto as Counsel may advise and the Authorized Officer executing the same may approve, such approval to be evidenced by such Authorized Officer s execution thereof. (e) The preliminary official statement relating to the offering of the Series 2008B State Contract Bonds (the Preliminary Official Statement ), substantially 21 22 in the form presented to this meeting, is hereby approved; provided, that Appendix I to the Preliminary Official Statement (which is provided by the State of New Jersey) shall be included therein, and provided, further, that an Authorized Officer of the Authority is hereby authorized, with the advice of Bond Counsel and the State Attorney General, to make such changes and insertions to and omissions from such form as may be necessary or appropriate. An Authorized Officer of the Authority is hereby authorized, with the advice of Bond Counsel and the State Attorney General, to deem the Preliminary Official Statement final within the meaning of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934, as amended, and to provide written evidence relating thereto in form acceptable to Bond Counsel. 209. Authorization of Distribution of Preliminary Official Statement. The distribution in connection with the sale of the Series 2008B State Contract Bonds of the Preliminary Official Statement, with such changes, insertions and omissions in the Preliminary Official Statement as an Authorized Officer of the Authority shall approve, with the advice of Bond Counsel and the State Attorney General, is hereby authorized. Any Authorized Officer of the Authority is further authorized to take all such other actions as such Authorized Officer of the Authority shall deem necessary or desirable to effect the issuance and sale of the Series 2008B State Contract Bonds. 210. Rule 15c2-12. The Continuing Disclosure Agreement, substantially in the form presented to this meeting, is hereby approved; provided, that an Authorized Officer of the Authority is hereby authorized with the advice of Bond Counsel and the State Attorney General, to make such changes and insertions to and omissions from such form as such Authorized Officer of the Authority may deem necessary or appropriate. The Authorized Officers of the Authority are hereby authorized, with the advice of Bond Counsel and the State Attorney General, to execute such documents and instruments relating to continuing disclosure, if any as may be necessary or desirable to enable brokers, dealers and municipal securities dealers to comply with Rule 15c2-12 promulgated under the Securities Exchange Act of 1934, as amended. 211. Additional Proceedings. As additional proceedings of the Authority in connection with the issuance, sale and delivery of the Series 2008B State Contract Bonds hereby authorized, there is hereby delegated to the Authorized Officers of the Authority the power to take the following actions and make the following determinations as to the Series 2008B State Contract Bonds by the Series Certificate executed by any one such Authorized Officer of the Authority and approved in writing by the Treasurer: (a) To determine, subject to the provisions of this Resolution, the respective principal amounts, maturities, redemption provisions, interest rate or rates and denominations (not exceeding the aggregate principal amount of each maturity) of the Series 2008B State Contract Bonds and any other provisions deemed advisable by such person not in conflict with or in substitution for the provisions of this Resolution. 23 II-7 (b) To execute a final Official Statement of the Authority, substantially in the form of the Preliminary Official Statement, with such insertions, revisions and omissions as may be authorized by the Authorized Officer of the Authority executing the same, with the advice of Bond Counsel and the State Attorney General, to deliver the final Official Statement to the Underwriters and to authorize the use of the final Official Statement and the information contained therein in connection with the offering and sale of the Series 2008B State Contract Bonds. (c) To select and appoint a firm to serve as bidding agent to solicit bids, to enter into one or more repurchase agreements and to purchase other Investment Securities, for the Series 2008B State Contract Bonds from a pool of bidding agents to be established by the State through a competitive RFP/RFQ process in accordance with the rules governing selection from the pool. (d) To purchase a municipal bond insurance policy or policies with respect to any or all of the maturities of the Series 2008B State Contract Bonds if an Authorized Officer of the Authority, in consultation with the Treasurer, determines that such policy or policies of municipal insurance is necessary or desirable, to include in the Series Certificate such provisions relating to the insurance policy or policies as such Authorized Officer of the Authority, with the advice of Bond Counsel, the State Attorney General, or her designees, and the Treasurer, deems appropriate, and to include on the form of any Series 2008B State Contract Bond that is insured by a municipal bond insurance policy a statement of insurance in the form requested by the issuer of such municipal bond insurance policy. (e) Prior to the issuance of the Series 2008B State Contract Bonds, to make such revisions to this Resolution as may be requested by Fitch, Moody s and/or S&P in connection with their respective ratings of the Series 2008B State Contract Bonds, or by the issuer of any municipal bond insurance policy insuring any of the Series 2008B State Contract Bonds; provided, that such revisions, if any, shall be memorialized in the Series Certificate for the Series 2008B State Contract Bonds. (f) To execute Escrow Deposit Agreements, substantially in the form presented to this meeting, with such changes and insertions to and omissions from such form as an Authorized Officer of the Authority, with the advice of Bond Counsel and the State Attorney General, may deem necessary or appropriate, in connection with the redemption of the Outstanding Bonded Indebtedness. (g) To purchase United States Treasury Obligations, State and Local Government Series, in connection with any or all of the Outstanding Bonded Indebtedness, or to appoint a bidding agent in accordance with the procedure set forth in paragraph (c) of this Section 211, to solicit bids and purchase Investment Securities (as defined in each Escrow Deposit Agreement) from the provider pursuant to and as contemplated by the Escrow Deposit Agreement, in the event that the Authority determines that it is disadvantageous to the Authority to utilize United States Treasury Obligations - State and Local Government Series, in connection with the Outstanding Bonded Indebtedness. The Authority hereby finds that the services to be provided by such broker are professional or technical in nature and that the Authority is authorized to select such broker by negotiation. Notwithstanding the foregoing, nothing contained herein shall prohibit an Authorized Authority Official from purchasing United States Treasury Obligations, State and Local Government Series and other Investment 24

Securities, to the extent permitted by law. Bond Counsel, the Trustee, and the Manager are hereby authorized to act as agent(s) on behalf of the Authority for the subscription of United States Treasury Obligations, State and Local Government Series via SLGSafe pursuant to the regulations promulgated therefor set forth in 31 CFR Part 344. (h) To waive any and all requirements of notice to the Authority in connection with the refunding and defeasance of the Outstanding Bonded Indebtedness as an Authorized Officer of the Authority, with the advice of Bond Counsel and the State Attorney General, may deem necessary or appropriate. (i) In the event an Authorized Officer of the Authority, in consultation with the Treasurer, determines that advertising is necessary in connection with the sale and issuance of the Series 2008B Bonds, (i) to solicit and purchase advertising, including, but not limited to, retaining the services of an advertising consultant to assist the Authority, pursuant to applicable processes in accordance with State law or (ii) to direct the Underwriters to obtain such advertising or advertising consultant on behalf of the Authority; provided that any fees and expenses for such advertising or advertising consultant shall not to exceed $100,000; and provided further that any such fees and expenses incurred by the Underwriters under (ii) shall be payable from the Underwriter s compensation as determined pursuant to Section 207 of this Resolution. (j) To make such other determinations, to execute such other documents, instruments and papers and to do such acts and things as may be necessary or advisable in connection with the issuance, sale and delivery of, and security for, the Series 2008B State Contract Bonds and are not inconsistent with the provisions of this Resolution. Any and all actions heretofore taken by the Authorized Officers of the Authority in connection with the issuance of the Series 2008B State Contract Bonds are hereby ratified. All matters determined by an Authorized Officer of the Authority under the authority of this Resolution shall constitute and be deemed matters incorporated into this Resolution and approved by the Authority, and, whenever an Authorized Officer of the Authority is authorized or directed to take any action pursuant to this Resolution with or upon the advice, consent or consultation with or by any other person, agency, office or official, a certificate of such Authorized Officer of the Authority may be relied upon as being determinative that such advice, consultation or consent has in fact occurred and that such actions of the Authorized Officer of the Authority are valid and binding. 212. Denomination, Numbers and Letters; Payment. (a) The Series 2008B State Contract Bonds shall be issued in such denominations as shall be set forth in the Series Certificate. Unless an Authorized Officer of the Authority shall otherwise direct, the Series 2008B State Contract Bonds shall be lettered and numbered from one upward preceded by the letter R prefixed to the number. Unless an Authorized Officer of the Authority shall otherwise direct, the Series 2008B State Contract Bonds shall be issued in Book-Entry Form. Subject to the provisions of this Resolution, the form of the Series 2008B State Contract Bonds and the Trustee s Certificate of Authentication shall be substantially as set forth in Section 217. (b) The Series 2008B State Contract Bonds shall be payable, with respect to principal and Redemption Price, if any, in any coin or currency of the United States of America that at the time of payment is legal tender for the payment of public and private debts. Interest on the Series 2008B State Contract Bonds, unless otherwise provided, shall be payable by check or draft drawn on the Paying Agent. However, interest on the Series 2008B State Contract Bonds will be paid to any owner of $1,000,000 or more in aggregate principal amount of Series 2008B State Contract Bonds by wire transfer to a wire transfer address within the continental United States upon the written request of such owner received by the Trustee not less than five days prior to the Record Date. 213. Redemption. Subject to the terms set forth herein, Bonds shall be subject to redemption prior to maturity as provided in a Supplemental Resolution or Series Certificate. Without limiting the generality of the preceding sentence, the Series 2008B Bonds may be subject to a make whole premium, as set forth in the 2008 Series Certificate. 214. Book-Entry Only System. (a) Except as provided in subparagraph (3) of this Section 214, the registered Holder of all of the Series 2008B State Contract Bonds shall be, and the Series 2008B State Contract Bonds shall be registered in the name of, Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"). With respect to all Series 2008B State Contract Bonds for which Cede & Co. shall be the registered Holder, payment of semiannual interest on such Series 2008B State Contract Bonds shall be made by wire transfer to the account of Cede & Co. on the interest payment dates for the Series 2008B State Contract Bonds at the address indicated for Cede & Co. in the registration books of the Authority kept by the Trustee, as Bond Registrar. With respect to Series 2008B State Contract Bonds so registered in the name of Cede & Co., the Authority and the Trustee shall have no responsibility or obligation to any DTC participant, indirect DTC participant or beneficial owner of the Series 2008B State Contract Bonds. Without limiting the immediately preceding sentence, the Authority and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC participant or indirect DTC participant with respect to any beneficial ownership interest in the Series 2008B State Contract Bonds, (ii) the delivery to any DTC participant, indirect DTC participant, beneficial owner or any other person, other than DTC or Cede & Co., of any notice with respect to the Series 2008B State Contract Bonds, or (iii) the payment to any DTC participant, indirect DTC participant, beneficial owner or any other person, other than DTC or Cede & Co., of any amount with respect to the principal of, premium, if any, or interest on the Series 2008B State Contract Bonds. The Authority and the Trustee may treat DTC as, and deem DTC to be, the absolute registered Holder of the Series 2008B State Contract Bonds for the purpose of (i) payment of the principal of and interest on the Series 2008B State Contract Bonds, (ii) giving notices with respect to the Series 2008B State Contract Bonds, (iii) registering transfers with respect to the Series 2008B State Contract Bonds and (iv) for all other purposes whatsoever. The Trustee shall pay the principal of and interest on the Series 2008B State Contract Bonds only to or 25 26 upon the order of DTC, and all such payments shall be valid and effective to fully satisfy and discharge the Authority's obligations with respect to such principal and interest to the extent of the sum or sums so paid. No person other than DTC shall receive a Series 2008B State Contract Bond evidencing the obligation of the Authority to make payments of principal thereof and interest thereon pursuant to this Resolution. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the transfer provisions hereof, the words "Cede & Co." in this Resolution shall refer to such new nominee of DTC. (1) DTC may determine to discontinue providing its services with respect to the Series 2008B State Contract Bonds at any time by giving written notice to the Authority and discharging its responsibilities with respect thereto under applicable law. Upon receipt of such notice, the Authority shall promptly deliver a copy of same to the Trustee. (2) An Authorized Officer of the Authority (i) in its sole discretion and without the consent of any other person, may discontinue the use of the Book- Entry System through DTC (or a successor Securities Depository) with respect to the Series 2008B State Contract Bonds, in which event Series 2008B State Contract Bond certificates are required to be printed and delivered to DTC, and (ii) shall terminate the services of DTC with respect to the Series 2008B State Contract Bonds upon receipt by the Authority and the Trustee of written notice from DTC to the effect that DTC has received written notice from DTC participants or indirect DTC participants having interests, as shown in the records of DTC, in an aggregate principal amount of not less than fifty percent (50%) of the aggregate principal amount of the then Outstanding Series 2008B State Contract Bonds to the effect that (A) DTC is unable to discharge its responsibilities with respect to the Series 2008B State Contract Bonds, or (B) a continuation of the requirement that all the Outstanding Series 2008B State Contract Bonds be registered in the registration books kept by the Trustee in the name of Cede & Co., as nominee for DTC, is not in the best interest of the beneficial owners of the Series 2008B State Contract Bonds. (3) Upon the termination of the services of DTC with respect to all or any portion of the Series 2008B State Contract Bonds pursuant to Section 214(c)(2)(ii)(A), or upon the discontinuance or termination of the services of DTC with respect to all or any portion of the Series 2008B State Contract Bonds pursuant to Section 214(c)(i) or 214(c)(2)(ii)(B), after which no substitute securities depository willing to undertake the functions of DTC hereunder can be found that, in the opinion of the Authority, is willing and able to undertake such functions upon reasonable and customary terms, the Series 2008B State Contract Bonds (or the applicable portion thereof) shall no longer be restricted to being registered in the registration books kept by the Trustee in the name of Cede & Co., as nominee for DTC, but may be registered in whatever name or names Bondholders transferring or exchanging such Series 2008B State Contract Bonds shall designate, in accordance with the provisions of this Resolution. Upon the determination by any party authorized herein that the Series 2008B State Contract Bonds (or any portion thereof) shall no longer be limited to Book- Entry Form, an Authorized Officer of the Authority shall immediately advise the Trustee in writing of the procedures for transfer of such Series 2008B State Contract Bonds from Book-Entry Form to a fully registered form. 27 II-8 (b) Notwithstanding any other provision of this Resolution to the contrary, so long as any Series 2008B State Contract Bond is registered in the name of Cede & Co., as nominee for DTC, all payments with respect to the principal of and interest on, and all notices with respect to, such Series 2008B State Contract Bond shall be made and given, respectively, to DTC as provided in the Blanket Letter of Representations of the Authority addressed to DTC. (c) In connection with any notice or other communication to be provided to Holders of the Series 2008B State Contract Bonds pursuant to this Resolution by the Authority or the Trustee with respect to any consent or other action to be taken by such Bondholders, an Authorized Officer of the Authority or the Trustee, as the case may be, shall establish a record date for such consent or other action and give DTC notice of such record date not less than fifteen (15) calendar days in advance of such record date to the extent possible. (d) The Authority hereby authorizes the Treasurer, by and on behalf of the Authority, and in consultation with an Authorized Officer of the Authority, to determine from time to time, subject to confirmation and ratification by the Authority, whether or not it is advisable for the Authority to continue the Book-Entry System or to replace DTC with another qualified securities depository as successor to DTC. 215. Application of Proceeds of Series 2008B State Contract Bonds. The proceeds of the Series 2008B State Contract Bonds shall be applied simultaneously with the delivery of such Series 2008B State Contract Bonds as follows, all as more specifically set forth in the Series Certificate: (i) There shall be sent by wire transfer directly from the Manager to each provider of a policy of municipal bond insurance authorized pursuant to Section 211(d) an amount, if any, as shall be specified in the Series Certificate constituting the premium for such policy or policies; (ii) There shall be deposited in the Series 2008 Project Fund in a Costs of Issuance account established therein an amount as specified in the 2008 Series Certificate to be applied to pay costs of issuance of the Series 2008B Bonds. (iii) There shall be deposited in the escrow funds established pursuant to the Escrow Deposit Agreements the amounts specified in the respective Escrow Deposit Agreements to be applied to defease the Outstanding Bonded Indebtedness, as specified therein. (iv) The remaining balance of the proceeds of the Series 2008B Bonds shall be deposited, and any and all amounts remaining in the Cost of Issuance Account in the 2008 Project Fund after the application thereof to pay costs of issuance of the Series 2008B Bonds shall be transferred from such Cost of Issuance Account and deposited in, the 2008 Project Fund to be applied as set forth in the 2008 Series Certificate to pay costs of the 2008 Project. 28

216. Appointment of Trustee/Bond Registrar/Paying Agent. The Bank of New York Mellon, with offices in West Paterson, New Jersey, is hereby appointed Trustee, Bond Registrar and Paying Agent under this Resolution. 217. Form of Bonds and Trustee's Certificate of Authentication. Subject to the provisions of this Resolution, the form of the Bonds and the Trustee's Certificate of Authentication therefor shall be of substantially the following tenor, with such variations, omissions and insertions as are required or permitted by this Resolution. R- (Form of Bond) UNITED STATES OF AMERICA STATE OF NEW JERSEY NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY STATE CONTRACT BONDS (HOSPITAL ASSET TRANSFORMATION PROGRAM) SERIES 2008B THE STATE OF NEW JERSEY (THE STATE ) IS NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE STATE IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL OR REDEMPTION PRICE, IF ANY, OF OR INTEREST ON THE BONDS. THE BONDS ARE A SPECIAL, LIMITED OBLIGATION OF THE AUTHORITY, PAYABLE SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE AUTHORITY PLEDGED UNDER THE RESOLUTION AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THE RESOLUTION FOR THE PAYMENT OF THE BONDS. THE BONDS DO NOT NOW AND SHALL NEVER CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY. THE AUTHORITY HAS NO TAXING POWER. THE BONDS SHALL NOT BE A DEBT OR LIABILITY OF THE STATE OR ANY AGENCY OR INSTRUMENTALITY THEREOF (OTHER THAN THE AUTHORITY TO THE LIMITED EXTENT SET FORTH IN THE RESOLUTION), EITHER LEGAL, MORAL OR OTHERWISE, AND NOTHING IN THE ACT SHALL BE CONSTRUED TO AUTHORIZE THE AUTHORITY TO INCUR ANY INDEBTEDNESS ON BEHALF OF OR IN ANY WAY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. REGISTERED OWNER: PRINCIPAL SUM: INTEREST RATE: CEDE & CO. $ % MATURITY DATE: DATED DATE: CUSIP: Date of Delivery The NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY (hereinafter called the Authority ), a body corporate and politic with corporate 29 30 succession, constituting a political subdivision organized and existing under and by virtue of the laws of the State of New Jersey (the State ), acknowledges itself indebted and for value received hereby promises to pay to the Registered Owner named above, or registered assigns, on the Maturity Date stated above, upon presentation and surrender of this bond at the corporate trust office of the Trustee hereinafter mentioned, in lawful money of the United States of America, the Principal Sum set forth above and to pay interest thereon until the Principal Sum is paid from the most recent interest payment date next preceding the date of authentication hereof, unless the date of authentication hereof is an interest payment date, in which case from the date of authentication hereof, or unless the date of authentication hereof is prior to the first interest payment, in which case from, 20 or unless the date of authentication hereof is between a record date for such interest, which shall be the fifteenth (15th) day (whether or not a business day) of the calendar month next preceding an interest payment date, and the next succeeding interest payment date, in which case from such interest payment date, at the Interest Rate stated above, payable 1, 20, and semi-annually thereafter on the first day of and of each year. Payment of the interest on this bond shall be paid by check or draft and mailed to the registered owner hereof at the address of such registered owner as it shall appear on the registration books of the Authority, which shall be kept at the corporate trust office of the Trustee hereinafter mentioned, at the close of business on the record date for such interest, which shall be the fifteenth (15th) day (whether or not a business day) of the calendar month next preceding such interest payment date. The principal of this bond is payable upon surrender at the corporate trust office of,, New Jersey, the Trustee, Paying Agent and Bond Registrar, or such other office as may be designated by the Trustee. However, so long as the Bonds are registered in the name of Cede, the procedures of DTC shall govern repayment of principal of and interest on the Bonds. This bond is one of a duly authorized issue of bonds of the Authority designated New Jersey Health Care Facilities Financing Authority State Contract Bonds (Hospital Asset Transformation Program) Series 2008B (the Bonds ), which have been duly issued by the Authority under and pursuant to the laws of the State of New Jersey, particularly the New Jersey Health Care Facilities Financing Authority Law, P.L. 1972, c.29 N.J.S.A. 26:2I-1 et seq., as amended (the Act ) and pursuant to the Hospital Asset Transformation Program State Contract Bond Resolution (JFK Medical Center Obligated Group Issue) adopted by the Authority on October 23, 2008, as amended and supplemented from time to time (the Resolution ). This bond and the issue of which it is a part is a special and limited obligation of the Authority payable from, and secured as to payment of the principal and Redemption Price thereof, and interest thereon, in accordance with their terms and the provisions of the Resolution solely by, the Pledged Property, subject only to the provisions of the Resolution permitting the application thereof for the purposes and on the terms and conditions set forth in the Resolution. Pledged Property under the Resolution includes the State Contract, the Revenues and the amounts and Investment Securities on deposit in the Funds (other than the Project Fund and the Rebate Fund). ALL AMOUNTS PAYABLE UNDER THE STATE CONTRACT ARE SUBJECT TO AND DEPENDENT UPON APPROPRIATIONS BEING MADE FROM TIME TO TIME BY THE NEW JERSEY STATE LEGISLATURE (THE STATE LEGISLATURE ). THE STATE LEGISLATURE HAS NO LEGAL OBLIGATION TO MAKE ANY SUCH APPROPRIATIONS. 31 II-9 Reference to this Resolution and any and all resolutions supplemental thereto and any modifications and amendments thereof and to the Act is made for a description of the nature and extent of the security for the Bonds, the funds pledged for the payment thereof, the nature manner and extent of the enforcement of such pledge, the rights and remedies of the holders of the Bonds with respect thereto, the terms and conditions upon which the Bonds are issued and upon which they may be issued thereunder, and a statement of the rights, duties, immunities and obligations of the Authority and of the Trustee. Certified copies of the Resolution are on file in the principal corporate trust office of the Trustee and in the office of the Authority. This bond is one of an authorized issue of up to $, all of like date and tenor except as to number, interest rate, maturity date, denomination and redemption provisions, issued in connection with the Hospital Asset Transformation Program as set forth in the Act. Pursuant to the Resolution, the Authority may hereafter issue refunding bonds (herein called Refunding Bonds ) for the purposes, in the amounts and on the conditions prescribed in the Resolution. All bonds issued and to be issued under the Resolution, including Refunding Bonds, are and will be equally secured by the pledge of funds and Revenues provided in the Resolution except as otherwise provided in or pursuant to the Resolution. The Bonds maturing on or before 1, 20 will not be subject to redemption prior to their stated maturity dates. The Series 2008B State Contract Bonds maturing on 1, 20 or thereafter will be subject to redemption prior to their stated maturity dates at the option of an Authorized Officer of the Authority, on any date on or after 1, 20, either in whole or in part pro rata within a maturity from maturities selected by an Authorized Officer of the Authority, at a redemption price of percent ( %) of the redemption price thereof plus accrued interest thereon to the date fixed for redemption. [The Bonds are subject to mandatory sinking fund redemption.] A notice of redemption shall be given at least once not less than twentyfive (25) days prior to the redemption date. The Trustee, at the direction of an Authorized Officer of the Authority, shall mail a copy of such notice, postage prepaid, not less than twenty-five (25) days prior to such redemption date, to the Registered Owner of any Bonds all or a portion of which are to be redeemed, at his, her or its last address, if any, appearing upon the registration books of the Authority held by the Registrar. If notice of redemption shall have been given as aforesaid, the Bonds which are specified in said notice shall become due and payable at the applicable Redemption Price on the redemption date therein designated, and if, on the redemption date, moneys for payment of the Redemption Price of all of the Bonds which are to be redeemed, together with interest accrued thereon to the redemption date, shall be available for such payment on said date, then from and after the redemption date, interest on such Bonds shall cease to accrue and become payable to the holders who are entitled to receive payment thereof upon such redemption. To the extent and in the respects permitted by the Resolution, the provisions of the Resolution or any resolution amendatory thereof or supplemental thereto may be modified or amended by action taken on behalf of the Authority in the 32

manner and subject to the conditions and exceptions which are set forth in the Resolution. The pledge of moneys and securities and other obligations of the Authority under the terms of the Resolution may be discharged at or prior to the maturity or redemption of the Bonds upon the making of provision for the payment thereof on the terms set forth in the Resolution. This bond is transferable, as provided in the Resolution, only upon the registration books of the Authority which are kept and maintained for that purpose at the principal corporate trust office of the Bond Registrar, or its successor as Bond Registrar, by the Registered Owner hereof in person or by his, her or its attorney duly authorized in writing, upon surrender hereof together with a written instrument of transfer which is satisfactory to the Bond Registrar and which is duly executed by the Registered Owner or by such duly authorized attorney, together with the required signature guarantee, and thereupon the Authority shall issue in the name of the transferee a new registered bond or bonds, of the same aggregate principal amount and series, designation, maturity and interest rate as the surrendered bond as provided in the Resolution upon payment of the charges therein prescribed. The Authority, the Trustee, the Bond Registrar and any Paying Agent of the Authority may treat and consider the person in whose name this bond is registered as the Holder and absolute owner of this bond for the purpose of receiving payment of the principal or Redemption Price of and interest due thereon and for all other purposes whatsoever. The Authority is obligated to pay the principal or Redemption Price hereof and interest hereon only from the Revenues and other funds pledged under the Resolution. Neither the State nor any political subdivision thereof (except the Authority to the limited extent set forth in the Resolution) is obligated to pay the principal or Redemption Price hereof or interest hereon. Neither the faith and credit nor the taxing power of the State or of any political subdivision thereof is pledged to the payment of the principal or Redemption Price hereof or the interest hereon. No covenant or agreement contained in this bond shall be deemed to be the covenant or agreement of any member, officer, attorney, agent or employee of the Authority or the State in an individual capacity. No recourse shall be had for the payment of the principal of, premium, if any, and interest on this bonds against any member, officer, attorney, agent or employee of the Authority or the State, past, present or future, or any successor body or their heirs, personal representatives, successors, as such, either directly or through the Authority or the State, or any such successor body, whether by virtue of any constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, of such liability being hereby released as a condition of and as a consideration for the execution and delivery of this bond, as provided in the Resolution. OF THE AUTHORITY. THE AUTHORITY HAS NO TAXING POWER. THE BONDS SHALL NOT BE A DEBT OR LIABILITY OF THE STATE OR ANY AGENCY OR INSTRUMENTALITY THEREOF, EITHER LEGAL, MORAL OR OTHERWISE, AND NOTHING IN THE ACT SHALL BE CONSTRUED TO AUTHORIZE THE AUTHORITY TO INCUR ANY INDEBTEDNESS ON BEHALF OF OR IN ANY WAY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. THE INCURRENCE OF ANY OBLIGATION BY THE STATE OR THE TREASURER UNDER THE STATE CONTRACT, INCLUDING ANY AND ALL TRANSFERS AND PAYMENTS TO BE MADE THEREUNDER FROM THE GENERAL FUND OF THE STATE, SHALL BE SUBJECT TO AND DEPENDENT UPON APPROPRIATIONS BEING MADE FROM TIME TO TIME BY THE LEGISLATURE FOR THE PURPOSES SET FORTH THEREIN AND IN THE ACT. THE OBLIGATION OF THE STATE OR THE TREASURER TO PAY THE AMOUNTS PROVIDED FOR IN THE STATE CONTRACT SHALL NOT CONSTITUTE A DEBT OR LIABILITY OF THE STATE WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION OR A PLEDGE OF THE FAITH AND CREDIT OF THE STATE AND SHALL BE DEEMED EXECUTORY ONLY TO THE EXTENT OF MONEYS APPROPRIATED, AND NO LIABILITY SHALL BE INCURRED BY THE STATE OR THE TREASURER BEYOND THE MONEYS THEN APPROPRIATED. It is hereby certified, recited and declared by the Authority that all acts, conditions and things required by the constitution and statutes of the State of New Jersey and the Resolution to exist, to happen and to be performed precedent to and in the issuance of the Bonds of the issue of which this bond is a part in order to make them the legal, valid and binding obligations of the Authority in accordance with their terms, exist, have happened and have been performed in regular and due time, form and manner as required by law, and that the issuance of such Bonds does not exceed or violate any constitutional, statutory or other limitation upon the amount of the bonded indebtedness of the Authority. This bond shall not be entitled to any benefit under the Resolution or be valid or become obligatory for any purpose until this bond shall have been authenticated by the execution by the Trustee, or by any authenticating agent of the Trustee approved by an Authorized Officer of the Authority of the Trustee s Certificate of Authentication hereon. THE STATE IS NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE STATE IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL OR REDEMPTION PRICE, IF ANY, OF OR INTEREST ON THE BONDS. THE BONDS ARE A SPECIAL, LIMITED OBLIGATION OF THE AUTHORITY, PAYABLE SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE AUTHORITY PLEDGED UNDER THE RESOLUTION AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THE RESOLUTION FOR THE PAYMENT OF THE BONDS. THE BONDS DO NOT NOW AND SHALL NEVER CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT 33 34 IN WITNESS WHEREOF, the New Jersey Health Care Facilities Financing Authority has caused this bond to be executed in its name by the manual or facsimile signature of its Chairman or Vice Chairman and its corporate seal (or a facsimile thereof) to be hereunto affixed, imprinted, engraved or otherwise reproduced and attested by the manual or facsimile signature of its Executive Director or Assistant Secretary, all as of the Dated Date hereof. CERTIFICATE OF AUTHENTICATION This bond is one of the Bonds described in and secured by the within-mentioned Resolution., as Trustee [SEAL] NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY By: By: Authorized Signature Name: Date of Authentication: Title: ATTEST: By: Name: Title: 35 II-10 36

ARTICLE III ASSIGNMENT FOR VALUE RECEIVED, hereby sells, assigns and transfers unto the within Bond issued by the New Jersey Health Care Facilities Financing Authority, and all rights thereunder, hereby irrevocably appointing attorney to transfer said Bond on the bond register, with full power of substitution in the premises. Dated: Signature Guaranteed: Notice: The Assignor s signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular without alteration or any change whatever. GENERAL TERMS AND PROVISIONS OF BONDS AND OTHER OBLIGATIONS 301. Medium of Payment; Form and Date; Letters and Numbers. (a) The Bonds shall be payable, with respect to interest, principal and Redemption Price, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. (b) The Bonds of each Series may be issued only in the form of fully registered Bonds without coupons, and unless otherwise authorized by a Supplemental Resolution, the Bonds of each Series shall be in substantially the form set forth in Section 217 or substantially in the form set forth in the Supplemental Resolution authorizing such Series or Series Certificate relating thereto. (c) Each Bond shall be lettered and numbered as provided in this Resolution or the Supplemental Resolution authorizing the Series or Series Certificate relating thereto of which such Bond is a part and so as to be distinguished from every other Bond. (d) Except as may be otherwise provided for any Series of Bonds in the Supplemental Resolution authorizing such Series of Bonds or Series Certificate relating thereto, the Bonds of each Series shall be dated as of the Interest Payment Date next preceding the date of authentication thereof by the Trustee, unless such date of authentication shall be an Interest Payment Date, in which case they shall be dated as of such date of authentication; provided, however, that if, as shown by the records of the Trustee, interest on the Bonds of any Series shall be in default, the Bonds of such Series issued in lieu of Bonds surrendered for transfer or exchange may be dated as of the date to which interest has been paid in full on the Bonds surrendered; provided, further, that if the date of authentication shall be prior to the first Interest Payment Date for the Bonds of such Series, Bonds shall be dated as provided in the applicable Supplemental Resolution or Series Certificate. Bonds of each Series shall bear interest from their date. 302. Legends. The Bonds of each Series may contain or have endorsed thereon such provisions, specifications and descriptive words not inconsistent with the provisions of this Resolution as may be necessary or desirable to comply with custom, the rules of any securities exchange or commission or brokerage board, or otherwise, as may be determined by an Authorized Officer of the Authority prior to the authentication and delivery thereof. 303. Execution and Authentication. (a) The Bonds shall be executed in the name of the Authority by the manual or facsimile signature of its Chair or Vice Chair and its seal (or a facsimile thereof), if any, shall be impressed, imprinted, engraved or otherwise reproduced thereon and attested by the manual or facsimile signature of its Secretary or an 37 38 Assistant Secretary, or in such other manner as may be required or permitted by law. In case any one or more of the officers who shall have signed or sealed any of the Bonds shall cease to be such officers before the Bonds so signed and sealed shall have been authenticated and delivered by the Trustee, such Bonds may, nevertheless, be authenticated and delivered as herein provided, and may be issued as if the persons who signed or sealed such Bonds had not ceased to hold such offices. Any Bond may be signed and sealed on behalf of the Authority by such persons as at the time of the execution and authentication of such Bonds shall be duly authorized or hold the proper office in the Authority, although at the date borne by the Bonds of such Series such persons may not have been so authorized or have held such office. (b) The Bonds of each Series shall bear thereon a certificate of authentication, in the form set forth in Section 217, executed manually by the Trustee. Only such Bonds as shall bear thereon such certificate of authentication shall be entitled to any right or benefit under this Resolution, and no Bond shall be valid or obligatory for any purpose until such certificate of authentication shall have been duly executed by the Trustee. Such certificate of the Trustee upon any Bond executed on behalf of the Authority shall be conclusive evidence that the Bond so authenticated has been duly authenticated and delivered under this Resolution and that the Holder thereof is entitled to the benefits of this Resolution. 304. Exchange, Transfer and Registry. (a) The Bonds shall be transferable only upon the books of the Authority, which shall be kept for such purposes at the principal corporate trust office of the Bond Registrar, by the registered owner thereof in person or by such registered owner s attorney duly authorized in writing, upon surrender thereof together with a written instrument of transfer satisfactory to the Bond Registrar duly executed by the registered owner or such registered owner s duly authorized attorney. Upon the transfer of any Bond an Authorized Officer of the Authority shall issue in the name of the transferee a new Bond or Bonds of the same aggregate principal amount, Series and maturity as the surrendered Bond. (b) The registered owner of any Bond or Bonds of one or more denominations shall have the right to exchange such Bond or Bonds for a new Bond or Bonds of any denomination as the same aggregate principal amount and Series and maturity of the surrendered Bond or Bonds. Such Bond or Bonds shall be exchanged by an Authorized Officer of the Authority for a new Bond or Bonds upon the request of the registered owner thereof in person or by such registered owner s attorney duly authorized in writing, upon surrender of such Bond or Bonds together with a written instrument requesting such exchange satisfactory to the Bond Registrar duly executed by the registered owner or such registered owner s duly authorized attorney. (c) The Authority and each Fiduciary may deem and treat the person in whose name any Bond shall be registered upon the books of the Authority as the absolute owner of such Bond, whether such Bond shall be overdue or not, for the purpose of receiving payment of, or on account of, the principal and Redemption Price, if any, of and interest on such Bond and for all other purposes, and all such payments so made to any such registered owner or upon such registered owner s order shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of 39 II-11 the sum or sums so paid, and neither the Authority nor any Fiduciary shall be affected by any notice to the contrary. 305. Regulations with Respect to Exchanges and Transfers. In all cases in which the privilege of exchanging or transferring Bonds is exercised, an Authorized Officer of the Authority shall execute and the Trustee shall authenticate and deliver Bonds in accordance with the provisions of this Resolution. All Bonds surrendered in any such exchange or transfer shall forthwith be delivered to the Trustee and cancelled by the Trustee. For every such exchange or transfer of Bonds, whether temporary or definitive, the Authority or the Bond Registrar may make a charge sufficient to reimburse it for any tax, fee or other governmental charge required to be paid with respect to such exchange or transfer. Neither the Authority nor the Bond Registrar shall be required (a) to exchange or transfer Bonds of any Series for a period beginning on the Record Date next preceding an Interest Payment Date for Bonds of a particular Series and ending on such interest payment date, or for a period of fifteen days next preceding the date (as determined by the Trustee) of any selection of Bonds to be redeemed and thereafter until after the mailing of the notice of redemption, or (b) to transfer or exchange any Bonds called for redemption. 306. Bonds Mutilated, Destroyed, Stolen or Lost. If any Bond becomes mutilated or is lost, stolen or destroyed, an Authorized Officer of the Authority may execute and the Trustee shall authenticate and deliver a new Bond of like date of issue, maturity date, principal amount and interest rate per annum as the Bond so mutilated, lost, stolen or destroyed, provided that (i) in the case of such mutilated Bond, such Bond is first surrendered to the Authority, (ii) in the case of any such lost, stolen or destroyed Bond, there is first furnished evidence of such loss, theft or destruction satisfactory an Authorized Officer of the Authority together with indemnity satisfactory to an Authorized Officer of the Authority and the Trustee, (iii) all other reasonable requirements of an Authorized Officer of the Authority are complied with, and (iv) expenses in connection with such transaction are paid by the Holder. Any Bond surrendered for transfer shall be cancelled. Any such new Bonds issued pursuant to this Section in substitution for Bonds alleged to be destroyed, stolen or lost shall constitute original additional contractual obligations on the part of the Authority, whether or not the Bonds so alleged to be destroyed, stolen or lost be at any time enforceable by anyone, and shall be equally secured by and entitled to equal and proportionate benefits with all other Bonds issued under this Resolution, in any moneys or securities held by the Authority or any Fiduciary for the benefit of the Bondholders. 307. Temporary Bonds. (a) Until the definitive Bonds of any Series are prepared, an Authorized Officer of the Authority may execute, in the same manner as is provided in Section 303, and upon the request of an Authorized Officer of the Authority, the Trustee shall authenticate and deliver, in lieu of definitive Bonds, but subject to the same provisions, limitations and conditions as the definitive Bonds, one or more temporary Bonds substantially of the tenor of the definitive Bonds in lieu of which such temporary Bond or Bonds are issued, and with such omissions, insertions and variations as may be appropriate to temporary Bonds. The Trustee shall prepare and 40

an Authorized Officer of the Authority may execute and, upon the surrender of such temporary Bonds for exchange and the cancellation of such surrendered temporary Bonds, the Trustee shall authenticate and, without charge to the Holder thereof, deliver in exchange therefor, definitive Bonds of the same aggregate principal amount and Series and maturity as the temporary Bonds surrendered. Until so exchanged, the temporary Bonds shall in all respects be entitled to the same benefits and security as definitive Bonds authenticated and issued pursuant to this Resolution. (b) All temporary Bonds surrendered in exchange either for another temporary Bond or Bonds or for a definitive Bond or Bonds shall be forthwith cancelled by the Trustee. 308. Cancellation and Destruction of Bonds. All Bonds paid or redeemed, either at or before maturity, shall be delivered to the Trustee when such payment or redemption is made, and such Bonds, together with all Bonds redeemed or purchased pursuant to Section 506 which have been delivered to the Trustee, shall thereupon be promptly cancelled. Bonds so cancelled shall be destroyed by the Trustee, which shall execute a certificate of destruction in duplicate by the signature of one of its authorized officers describing the bonds so destroyed, and one executed certificate shall be filed with the Authority and the other executed certificate shall be retained by the Trustee. 309. Other Obligations. The general terms and provisions of any Other Obligations issued under this Resolution, including, but not limited to, any or all of the items set forth in this Article III with respect to the issuance of Bonds, shall be as set forth in the Supplemental Resolution or Series Certificate authorizing the issuance of such Other Obligations. ARTICLE IV REDEMPTION OF BONDS 401. Privilege of Redemption and Redemption Price. Bonds subject to redemption prior to maturity pursuant to a Supplemental Resolution or a Series Certificate shall be redeemable, upon notice as provided in this Article IV, at such times, at such Redemption Prices and upon such terms in addition to the terms contained in this Article IV as may be specified in the Supplemental Resolution or Series Certificate authorizing such Series. 402. Redemption at the Election or Direction of the Authority. In the case of any redemption of Bonds at the election or direction of an Authorized Officer of the Authority, an Authorized Officer of the Authority shall give written notice to the Trustee of its election or direction so to redeem, of the redemption date, of the Series, and of the principal amounts of the Bonds of each maturity of such Series to be redeemed (which Series, maturities and principal amounts thereof to be redeemed shall be determined by an Authorized Officer of the Authority in its sole discretion, subject to any limitations with respect thereto contained in this Resolution). Such notice shall be given at least forty (40) days prior to the redemption date or such shorter period as shall be acceptable to the Trustee. In the event notice of redemption shall have been given as in Section 405 provided, there shall be paid on or prior to the redemption date to the appropriate Paying Agents an amount which, in addition to other moneys, if any, available therefor held by such Paying Agents, will be sufficient to redeem on the redemption date at the Redemption Price thereof, plus interest accrued and unpaid to the redemption date, all of the Bonds to be redeemed. An Authorized Officer of the Authority shall promptly notify the Trustee in writing of all such payments by it to such Paying Agents. 403. Redemption Otherwise Than at the Authority s Election or Direction. Whenever by the terms of this Resolution the Trustee is required or authorized to redeem Bonds otherwise than at the election or direction of the Authority, the Trustee shall (i) select the Bonds or portions of Bonds to be redeemed, (ii) give the notice of redemption and (iii) pay out of moneys available therefor the Redemption Price thereof, plus interest accrued and unpaid to the redemption date, to the appropriate Paying Agents in accordance with the terms of this Article IV and, to the extent applicable, Section 506. 404. Selection of Bonds to be Redeemed. Unless otherwise provided in this Resolution, if less than all of the Bonds of like maturity of any Series shall be called for prior redemption, the particular Bonds or portions of Bonds to be redeemed shall be selected pro rata by the Trustee; provided, however, that the portion of any Bond of a denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000 or a multiple thereof, and that, in selecting portions of such Bonds for redemption, the Trustee shall treat each such Bond as representing that number of Bonds of $5,000 denomination which is 41 42 obtained by dividing by $5,000 the principal amount of such Bond to be redeemed in part. 405. Notice of Redemption. When the Trustee shall receive notice from an Authorized Officer of the Authority of its election or direction to redeem Bonds pursuant to Section 402, and when redemption of Bonds is authorized or required pursuant to Section 403, the Trustee shall give notice, in the name of the Authority, of the redemption of such Bonds, which notice shall specify the Series and maturities of the Bonds to be redeemed, the redemption date and the place or places where amounts due upon such redemption will be payable and, if less than all of the Bonds of any like Series and maturity are to be redeemed, the letters and numbers or other distinguishing marks of such Bonds so to be redeemed, and, in the case of Bonds to be redeemed in part only, such notice shall also specify the respective portions of the principal amount thereof to be redeemed. Such notice shall further state that on such date there shall become due and payable upon each Bond to be redeemed the Redemption Price thereof, or the Redemption Price of the specified portions of the principal thereof in the case of Bonds to be redeemed in part only, together with interest accrued to the redemption date, and that from and after such date interest thereon shall cease to accrue and be payable. Such notice shall be mailed by the Trustee, postage prepaid, not less than twenty-five (25) days prior to the redemption date, to the registered owners of any Bonds or portions of Bonds which are to be redeemed, at their last addresses, if any, appearing upon the registry books. Failure of the registered owner of any Bonds which are to be redeemed to receive any notice, or failure of the Authority to publish notices of redemption as provided in the immediately preceding sentence, shall not affect the validity of the proceedings for the redemption of the Bonds. 407. Adjustment of Sinking Fund Installments Upon Redemption of Bonds. Upon any purchase or redemption (other than mandatory sinking fund redemption) of less than all of the Bonds of any Series and maturity for which sinking fund redemption provisions shall have been established, there shall be credited toward each such sinking fund installment thereafter to become due an amount, unless otherwise designated by an Authorized Officer of the Authority, bearing the same ratio to such sinking fund installment as the total principal amount of Bonds of such Series and maturity being purchased or redeemed bears to the then Outstanding principal amount of Bonds of such Series and maturity. 408. Redemption or Prepayment of Other Obligations. Other Obligations shall be subject to redemption or prepayment at such times, if any, and subject to such terms and conditions as shall be set forth in the Supplemental Resolution or Series Certificate authorizing such Other Obligations. 406. Payment of Redeemed Bonds. Notice having been given in the manner provided in Section 405, the Bonds or portions thereof so called for redemption shall become due and payable on the redemption date so designated at the Redemption Price, plus interest accrued and unpaid to the redemption date, and, upon presentation and surrender thereof at the office specified in such notice, such Bonds, or portions thereof, shall be paid at the Redemption Price, plus interest accrued and unpaid to the redemption date. If there shall be called for redemption less than all of a Bond, an Authorized Officer of the Authority shall execute and the Trustee shall authenticate and the Paying Agent shall deliver, upon the surrender of such Bond, without charge to the owner thereof, for the unredeemed balance of the principal amount of the Bond so surrendered, Bonds of like Series and maturity in any authorized denominations. If, on the redemption date, moneys for the redemption of all of the Bonds or portions thereof of any like Series and maturity to be redeemed, together with interest to the redemption date, shall be held by the Paying Agents so as to be available therefor on said date and if notice of redemption shall have been given as aforesaid, then, from and after the redemption date interest on the Bonds or portions thereof of such Series and maturity so called for redemption shall cease to accrue and become payable. If said moneys shall not be so available on the redemption date, such Bonds or portions thereof shall continue to bear interest until paid at the same rate as they would have borne had they not been called for redemption. 43 II-12 44

ARTICLE V ESTABLISHMENT OF FUNDS AND APPLICATION THEREOF 501. The Pledge Effected by this Resolution. (a) The Bonds are special, limited obligations of the Authority payable solely from the Pledged Property. There is hereby pledged and assigned as security for the payment of the Authority s Bond Payment Obligations and, to the extent provided in Section 103 and any Supplemental Resolution authorizing a Series of Bonds, the Authority s Financing Facility Payment Obligations in accordance with the priorities set forth in Section 103 and the Supplemental Resolution authorizing such Series of Bonds, subject only to the provisions of this Resolution permitting the application thereof for the purposes and on the terms and conditions set forth in this Resolution, all of the Pledged Property and, with respect to each Series of Bonds with respect to which the Authority has obtained a Financing Facility, the applicable Financing Facility and Financing Facility Revenues. (b) All Pledged Property and Financing Facility Revenues shall immediately be subject to the lien of this pledge without any physical delivery thereof or further act, and the lien of this pledge shall be valid and binding as against all persons having claims of any kind in tort, contract or otherwise against the Authority, irrespective of whether such persons have notice thereof. (c) Nothing contained in this Section 501 shall be deemed a limitation upon the authority of the Authority to issue bonds, notes or other obligations under the Act secured by other income and funds other than the Pledged Property, including, without limitation, bonds, notes or other obligations secured by federal or State grants. (d) Notwithstanding the pledge effected by this Resolution or any provision of this Resolution, all amounts payable under the State Contract by the State or the Treasurer shall be subject to and dependent upon appropriations being made from time to time for such purposes by the New Jersey State Legislature. The State Legislature has no legal obligation to make such appropriations. THE STATE IS NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE STATE IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL OR REDEMPTION PRICE, IF ANY, OF OR INTEREST ON THE BONDS. THE BONDS ARE A SPECIAL, LIMITED OBLIGATION OF THE AUTHORITY, PAYABLE SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE AUTHORITY PLEDGED UNDER THIS RESOLUTION AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THIS RESOLUTION FOR THE PAYMENT OF THE BONDS. THE BONDS DO NOT NOW AND SHALL NEVER CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY. THE AUTHORITY HAS NO TAXING POWER. THE BONDS SHALL NOT BE A DEBT OR LIABILITY OF THE STATE OR ANY AGENCY OR INSTRUMENTALITY THEREOF, EITHER LEGAL, MORAL OR OTHERWISE, AND NOTHING IN THE ACT SHALL BE CONSTRUED TO AUTHORIZE THE AUTHORITY TO INCUR ANY INDEBTEDNESS ON BEHALF OF OR IN ANY WAY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. THE INCURRENCE OF ANY OBLIGATION BY THE STATE OR THE TREASURER UNDER THE STATE CONTRACT, INCLUDING ANY AND ALL TRANSFERS AND PAYMENTS TO BE MADE THEREUNDER FROM THE GENERAL FUND OF THE STATE, SHALL BE SUBJECT TO AND DEPENDENT UPON APPROPRIATIONS BEING MADE FROM TIME TO TIME BY THE LEGISLATURE FOR THE PURPOSES SET FORTH THEREIN AND IN THE ACT. THE OBLIGATION OF THE STATE OR THE TREASURER TO PAY THE AMOUNTS PROVIDED FOR IN THE STATE CONTRACT SHALL NOT CONSTITUTE A DEBT OR LIABILITY OF THE STATE WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION OR A PLEDGE OF THE FAITH AND CREDIT OF THE STATE AND SHALL BE DEEMED EXECUTORY ONLY TO THE EXTENT OF MONEYS APPROPRIATED, AND NO LIABILITY SHALL BE INCURRED BY THE STATE OR THE TREASURER BEYOND THE MONEYS THEN APPROPRIATED. 502. Establishment of Funds and Accounts. The following Funds and Accounts are hereby established: (1) Project Funds, (a) one for the Series 2008B-1 Bonds (the 2008B-1 Project Fund ) and (b) one for the Series 2008B-2 Bonds (the 2008B- 2 Project Fund ), each to be held by the Trustee. There shall be established in the each Project Fund a Cost of Issuance Account and there may be established in either Project Fund such other Accounts and/or subaccounts as set forth pursuant to a Supplemental Resolution; (2) Revenue Fund, to be held by the Trustee; (3) Debt Service Fund, to be held by the Trustee; and (4) Rebate Fund, to be held by the Trustee. 503. Project Fund; Application of Moneys Therein. (a) There shall be paid into each Project Fund the amounts required to be so paid by the provisions of this Resolution or Series Certificate, and there may be paid into either Project Fund, at the option of an Authorized Officer of the Authority, any moneys received by the Authority from any source, unless required to be otherwise applied as provided by this Resolution or Series Certificate. (b) As soon as practicable after the delivery of the Series 2008B Bonds, the Trustee shall apply moneys deposited in the respective Costs of Issuance Accounts within the 2008B-1 Project Fund and the 2008B-2 Project Fund to the payment of Costs of Issuance of the Series 2008B-1 Bonds and the Series 2008B-2 Bonds, respectively; provided, however, that moneys in the Costs of Issuance Account representing proceeds of the Series 2008B-1 Bonds which are applied to pay expenses described in Section 147(g) of the Code shall not exceed two percent (2%) of the proceeds of the Series 2008B-1 Bonds. (c) Moneys deposited in the Project Fund shall be applied to the payment of the Costs associated with the 2008 Project, including the costs construction, renovation and capital improvement portions of the 2008 Project 45 46 described in clause (1) of the definition of 2008 Project (for purposes of this Section 503, the Capital Improvement Projects ). (d) Any moneys remaining (i) in the Costs of Issuance Account six (6) months after the date of issuance of the Series 2008B Bonds (or such later date as may be directed by an Authorized Officer of the Authority) and not needed to pay Costs of Issuance of the Series 2008B Bonds or reserved for such purpose in a written direction of an Authorized Officer of the Authority or (ii) in the Project Fund three (3) years and six (6) months after the date of issuance of the Series 2008B Bonds (or such later date, not exceeding four (4) years after the date of issuance of the Series 2008B Bonds, as may be directed by an Authorized Officer of the Authority), shall be transferred into a special account to be created within the Debt Service Fund (the Unexpected Excess Proceeds Account ) and applied to pay Debt Service on the Series 2008B Bonds, whether at maturity or prior redemption. On the first Payment Date on which the Series 2008B Bonds are subject to redemption at the option of the Authority without premium (the "Par Call Date"), at the written direction of an Authorized Officer of the Authority, the Trustee shall apply the excess, if any, of the amount then on deposit in the Unexpected Excess Proceeds Account within the Debt Service Fund over the amount of regularly scheduled principal, including sinking fund installments, and interest on the Series 2008B Bonds coming due and payable on such Payment Date to pay the Redemption Price of an amount of Series 2008B Bonds which equals (as nearly as possible) the amount of such excess. On the first day of the second month next preceding the Par Call Date, the Trustee shall send the Authority a notice setting forth the amount, if any, then on deposit in the Unexpected Excess Proceeds Account, the amount required to pay regularly scheduled principal, including sinking fund installments, and interest coming due on the 2008 Series Bond, and the amount which is available to be applied to redeem Series 2008B Bonds on the Par Call Date. Notwithstanding anything to the contrary contained in this Resolution, amounts on deposit in the Unexpected Excess Proceeds Account within the Debt Service Fund shall be applied to pay Debt Service on the Series 2008B Bonds prior to any other amounts on deposit in the Debt Service Fund being applied for such purpose. (e) Payments pursuant to paragraph (b) of this Section shall be made in accordance with a requisition or requisitions signed by an Authorized Officer of the Borrower and an Authorized Officer of the Authority stating the names of the payees, the purpose of each payment in terms sufficient for identification and the respective amounts of each such payment. Payments pursuant to paragraph (c) of this Section shall be made in accordance with a requisition or requisitions signed by an Authorized Officer of the Borrower and an Authorized Officer of the Authority in substantially the form of Exhibit A attached hereto. Notwithstanding anything to the contrary contained in this Resolution, moneys in the Project Fund shall not be applied to the payment of Costs of any portion of the Capital Improvement Projects until (1) there has been delivered to the Authority evidence acceptable to an Authorized Officer of the Authority that all surety bonds (in the amounts required as set forth in Section 4.3 of the Loan Agreement) relating to that portion of the Capital Improvement Projects for which funds are being requisitioned and 47 II-13 all insurance policies required as set forth in Section 4.4 of the Loan Agreement relating to the applicable construction contract(s) and the contractor(s) for whom funds are being requisitioned or reimbursed to the Borrowers have been obtained; and (2) there has been delivered to the Authority evidence acceptable to an Authorized Officer of the Authority that the plans and specifications relating to that portion of the Capital Improvement Projects for which funds are being requisitioned, have been approved by the New Jersey Department of Community Affairs; and (3) there has been delivered to the Authority a certificate of an Authorized Officer of the Borrower that all State and local governmental approvals necessary to commence construction of such applicable portion of the Capital Improvement Projects have been obtained. 504. Deposit of Revenues. All Revenues shall be promptly deposited by the Authority upon receipt thereof into the Revenue Fund. All amounts deposited in the Revenue Fund shall be used and applied by the Authority in accordance with the Act, this Resolution and any Supplemental Resolution or Series Certificate. 505. Payments into Certain Funds. (a) On or before each Payment Date with respect to each Series of Bonds, the Authority shall pay, credit or transfer from the Revenue Fund to the Trustee the following amounts to be applied as follows in the following order of priority: (1) for deposit to the Debt Service Fund, the amount, if any, required so that the balance in said Fund shall equal the sum of the amounts of Debt Service on all Series of Bonds coming due on such Payment Date; and (2) for deposit into the Debt Service Fund, the amount of any Financing Facility Payment Obligations on or before the due dates thereof. (b) Reserved. (c) Notwithstanding the foregoing, all Financing Facility Revenues shall be deposited in the Debt Service Fund and applied as provided in the Supplemental Resolution or Series Certificate applicable to the Series of Bonds for which such Financing Facility is applicable. (d) An Authorized Officer of the Authority and the Trustee shall transfer to the Rebate Fund such amounts, from such Funds and Accounts and at such times as set forth in a certificate by the Authority as necessary to comply with the provisions of the Code. 506. Debt Service Fund. (a) The Trustee shall pay out of the Debt Service Fund to the respective Paying Agents (i) on or before each Interest Payment Date for any of the Bonds, the amount required for the interest payable on such date; (ii) on or before the date when the principal of any Bonds shall become due, the amount of principal coming due on such date; and (iii) on or before any redemption date for the Bonds, the amount required for the payment of the Redemption Price of and interest on the Bonds 48

then to be redeemed. The Trustee shall also pay out of the Debt Service Fund the accrued interest included in the purchase price of Bonds purchased for retirement. (b) Amounts may be deposited by the Authority, in its sole discretion in the Debt Service Fund with respect to the Bonds of any Series and maturity to be applied by the Trustee, if so directed by an Authorized Officer of the Authority, on the date specified by an Authorized Officer of the Authority, which date shall be at least twenty-five (25) days (or such shorter period as shall be acceptable to the Trustee or authorized in the applicable Supplemental Resolution or Series Certificate) prior to the maturity date of any Bonds of such Series, to (i) the purchase of Bonds of such Series and maturity or (ii) the redemption at the applicable Redemption Price of such Bonds, if then redeemable by their terms. All purchases of any Bonds pursuant to this subsection (b) shall be made at prices not exceeding the applicable Redemption Price of such Bonds plus accrued interest, and such purchases shall be made by the Trustee as directed in writing from time to time by an Authorized Officer of the Authority. (c) The amount, if any, deposited in the Debt Service Fund from the proceeds of each Series of Bonds representing capitalized interest on such Bonds shall be set aside in such Fund and applied to the payment of interest on the Bonds of such Series as the same become due and payable. (d) In the event of the refunding of any Bonds, the Trustee shall, if an Authorized Officer of the Authority so directs, withdraw from the Debt Service Fund all, or any portion of, the amounts accumulated therein with respect to Debt Service on the Bonds being refunded and deposit such amounts with itself as Trustee to be held for the payment of the principal or Redemption Price, if applicable, of and interest on the Bonds being refunded; provided that such withdrawal shall not be made unless immediately thereafter the Bonds being refunded shall be deemed to have been paid pursuant to subsection (b) of Section 1201. (e) The Trustee shall establish within the Debt Service Fund a separate Account for each Series of Bonds. In addition, if provided in the Supplemental Resolution or Series Certificate authorizing any Series of Bonds with respect to which the Authority or the Trustee enters into or obtains a Financing Facility, the Trustee shall establish separate subaccounts within the Account established for the Bonds of such Series in the Debt Service Fund for the receipt and/or application of Financing Facility Revenues and the payment of the applicable Financing Facility Payment Obligations as soon as reasonably practicable. 507. Deposit to Debt Service Fund Upon Sale of Muhlenberg Regional Medical Center Hospital. (a) Upon the sale of Muhlenberg Regional Medical Center Hospital, as contemplated pursuant to Section 6.13 of the Loan Agreement, unless otherwise provided in the 2008 Series Certificate, the sale proceeds shall be transferred into a special account to be created within the Debt Service Fund (the Muhlenberg Sale Proceeds Account ) and applied to pay Debt Service on the Series 2008B Bonds, whether at maturity or prior redemption. (b) Unless otherwise provided in the 2008 Series Certificate, on any date upon which the Series 2008B-2 Bonds allocable to the Muhlenberg Regional Medical Center Hospital Facilities are callable, at the written direction of an Authorized Officer of the Authority, the Trustee shall apply the excess, if any, of the amount then on deposit in the Muhlenberg Sale Proceeds Account within the Debt Service Fund over the amount of regularly scheduled principal, including sinking fund installments, and interest on such Series 2008B-2 Bonds coming due and payable on such Payment Date to pay the Redemption Price of an amount of such Series 2008B-2 Bonds which equals (as nearly as possible) the amount of such excess. (c) Subject only to Section 503(d) hereof, unless otherwise provided in the 2008 Series Certificate, amounts on deposit in the Muhlenberg Sale Proceeds Account within the Debt Service Fund shall be applied to pay Debt Service on the Series 2008B-2 Bonds prior to any other amounts on deposit in the Debt Service Fund being applied for such purpose. 508. Rebate Fund. (a) The Rebate Fund established pursuant to Section 502 shall constitute a special trust fund to be held by the Trustee, which Fund shall be used for the purpose of paying to the United States of America the amount required to be rebated with respect to the Tax-Exempt Bonds pursuant to Section 148(f) of the Code, which Rebate Fund shall be held by the Trustee separate and apart from all other Funds and Accounts established under the Resolution and from all other moneys of the Trustee. The Rebate Fund shall be maintained until the later of (i) the date sixty (60) days after the retirement of the Tax-Exempt Bonds issued under the Resolution, or (ii) the date the Trustee is informed by an Authorized Officer of the Authority that 100% of the aggregate amount required to be rebated to the United States of America has been paid. All amounts in the Rebate Fund, including income earned from investment of amounts in the Rebate Fund, shall be held by the Trustee free and clear of the lien of the Resolution. (b) The Trustee shall maintain records of the investment of all Funds and Accounts under the Resolution. Such records shall specify the account, subaccount or fund to which each investment (or portion thereof) held by the Trustee is to be allocated and shall set forth, in the case of each investment, (i) the purchase price of the investment, including accrued interest, (ii) identifying information including the par amount, coupon rate and payment dates, (iii) the amount received at maturity or sale price, including accrued interest, (iv) the amounts and dates of any payments made with respect to the investment, and (v) the date of acquisition and disposition or maturity. (c) The Authority agrees to prepare and file (or engage a Rebate Consultant to prepare and file) with the Trustee a report setting forth the amount required to be rebated to the United States determined in accordance with, and at the times required by the tax compliance certificate delivered by the Borrower in connection with the issuance of the Tax-Exempt Bonds (the Tax Compliance Certificate ). The Authority shall deposit amounts in the Rebate Fund sufficient to satisfy such requirements in accordance with the Tax Compliance Certificate, but only to the extent of moneys pledged hereunder for that purpose. (d) Notwithstanding anything to the contrary contained in the Resolution, an Authorized Officer of the Authority shall direct the Trustee to withdraw from the Rebate Fund or any other Fund or Account under the Resolution and pay over to the United States of America the amount required to be rebated with respect to the Tax-Exempt Bonds pursuant to Section 148(f) of the Code at the times and in the amounts specified in the Tax Compliance Certificate. Each payment to the United States of America shall be sent to the location described in the Tax 49 50 Compliance Certificate and shall be accompanied by any information required by the Tax Compliance Certificate. (e) The Trustee shall retain records of the determinations of the amounts required to be deposited in the Rebate Fund, the proceeds of any investment of moneys in the Rebate Fund, and of the amounts paid to the United States of America with respect to the Tax-Exempt Bonds, until the date six (6) years after such Bonds have been retired. (f) The provisions of this Section 508 are intended to comply with Section 148 of the Code and if, as a result of a change in such Section of the Code or the Treasury Regulations thereunder, a change in this Section 508 shall be necessary, then an Authorized Officer of the Authority shall be empowered to amend this Section 508, without the consent of the Bondholders or the Trustee, to the extent permitted, necessary or desirable to comply with the provisions of Section 148 of the Code; provided, however, that an Authorized Officer of the Authority or Trustee shall require, prior to the effectiveness of any such amendment, an Opinion of Bond Counsel to the effect that either (i) such amendment is required to maintain the exclusion from gross income under Section 103 of the Code of interest paid or payable on the Tax-Exempt Bonds, or (ii) such amendment shall not adversely affect the exclusion from gross income under Section 103 of the Code of interest paid or payable on any Tax-Exempt Bonds. (g) The Trustee shall have no responsibility for the computation of amounts required to be rebated to the United States of America or the verification of amounts required to be rebated to the United States of America calculated by or on behalf of the Authority. (h) The Trustee shall have no further obligation for the preparation of the rebate calculation or the filing or payment thereof. IN CONNECTION WITH ITS RESPONSIBILITIES SET FORTH IN THIS SECTION 508, AN AUTHORIZED OFFICER OF THE AUTHORITY MAY ENGAGE A REBATE CONSULTANT TO ASSIST THE AUTHORITY IN CONNECTION WITH THE CALCULATION OF ANY AMOUNTS DUE TO THE INTERNAL REVENUE SERVICE HEREUNDER. ANY COSTS INCURRED BY THE AUTHORITY WITH RESPECT TO THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS SECTION 508 SHALL CONSTITUTE AN ADMINISTRATIVE EXPENSE. ARTICLE VI SECURITY FOR DEPOSITS AND INVESTMENT OF FUNDS 601. Moneys Held as Trust Funds. All moneys held by the Trustee under the provisions of this Resolution shall constitute trust funds. All moneys deposited under the provisions of this Resolution with the Trustee shall be held in trust and applied only in accordance with the provisions of this Resolution, and each of the Funds and Accounts established by this Resolution shall be a trust fund for the purposes thereof. 51 II-14 602. Deposits. (a) All Revenues, Financing Facility Revenues, and moneys held by the Trustee under this Resolution may be placed on demand or time deposit, if and as directed by an Authorized Officer of the Authority, provided that such deposit shall permit the moneys so held to be available for use at the time when needed. The Trustee shall allow and credit on such moneys such interest, if any, as it customarily allows upon similar funds of similar size and under similar conditions or as required by law. (b) All moneys held under this Resolution by the Trustee shall be held in such manner as may then be required by applicable Federal or State of New Jersey laws and regulations and applicable state laws and regulations of the state in which the Trustee is located. (c) All moneys deposited with the Trustee shall be credited to the particular Fund or Account to which such moneys belong and, except as provided with respect to the investment of moneys in Investment Securities in Section 603 hereof, the moneys credited to each particular Fund or Account shall be kept separate and apart from, and not commingled with, any moneys credited to any other Fund or Account or any other moneys deposited with the Trustee. 603. Investment of Certain Funds. (a) Moneys held in the Debt Service Fund shall be invested and reinvested by the Trustee to the fullest extent practicable in Federal Securities which mature not later than such times as shall be necessary to provide moneys when needed for payments to be made from such Fund. Moneys held in the Project Fund may be invested and reinvested in Investment Securities which mature not later than such times as shall be necessary to provide moneys when needed for payments to be made from such Fund. The Trustee shall make all such investments of moneys held by it in accordance with written instructions from time to time received from any Authorized Officer of the Authority. In making any investment in any Investment Securities with moneys in any Fund or Account established under this Resolution, an Authorized Officer of the Authority may instruct the Trustee to combine such moneys with moneys in any other Fund or Account, but solely for purposes of making such investment in such Investment Securities. Interest (net of that which represents a return of accrued interest paid in connection with the purchase of any investment) earned or any gain realized on any moneys or investments in such Funds or Accounts shall be held for the benefit of the Debt Service Fund and shall be paid into, or remain in, the Debt Service Fund on a periodic basis at least quarterly as shall be directed by an Authorized Officer of the Authority. (b) Nothing in this Resolution shall prevent any Investment Securities acquired as investments of or security for funds held under this Resolution from being issued or held in book-entry form on the books of the Department of the Treasury of the United States. (c) Nothing in this Resolution shall preclude the Trustee from investing or reinvesting moneys through its bond department; provided, however, that an 52

Authorized Officer of the Authority may, in its discretion, direct in writing that such moneys be invested or reinvested in a manner other than through such bond department. 604. Valuation and Sale of Investments. (a) Obligations purchased as an investment of moneys in any Fund or Account created under the provisions of this Resolution shall be deemed at all times to be a part of such Fund or Account and any profit realized from the liquidation of such investment shall be credited to such Fund or Account, and any loss resulting from the liquidation of such investment shall be charged to the respective Fund or Account. (b) In computing the amount in any Fund or Account created under the provisions of this Resolution for any purpose provided in this Resolution, obligations purchased as an investment of moneys therein shall be valued at the amortized cost thereof. The accrued interest paid in connection with the purchase of any obligation shall be included in the value thereof until interest on such obligation is paid. Such computation shall be determined as of January 1 in each year and at such other times as an Authorized Officer of the Authority shall determine. (c) Except as otherwise provided in this Resolution, the Trustee shall use its best efforts to sell at the best price obtainable, or present for redemption, any obligation so purchased as an investment whenever it shall be requested in writing by an Authorized Officer of the Authority so to do. Whenever it shall be necessary, or upon direction of an Authorized Officer of the Authority in accordance with this Resolution, in order to provide moneys to meet any payment or transfer from any Fund or Account held by the Trustee, the Trustee shall use its best efforts to sell at the best price obtainable or present for redemption such obligation or obligations designated by an Authorized Officer of the Authority necessary to provide sufficient moneys for such payment or transfer. (d) Neither the Trustee nor the Authority shall be liable or responsible for any loss resulting from any such investment, sale or presentation for investment made in the manner provided above. 605. Swap Agreements; Financing Facilities. Prior to entering into any Swap Agreement or obtaining any Financing Facility, the Authority must first receive the prior written consent of the State Treasurer. ARTICLE VII PARTICULAR COVENANTS OF THE AUTHORITY The Authority covenants and agrees with the Trustee and the Bondholders as follows: 701. Payment of Bonds. The Authority shall duly and punctually pay or cause to be paid, but solely from the Pledged Property, (a) the principal or Redemption Price of every Bond and the interest thereon, at the dates and places and in the manner provided in the Bonds, according to the true intent and meaning thereof, (b) the amount of every Financing Facility Payment Obligation as and when the same become due. 702. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase or funding of such Bonds or claims for interest or by any other arrangement, and in case the maturity of any of the Bonds or the time for payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default under this Resolution, to the benefit of this Resolution or to any payment out of Revenues or Funds established by this Resolution, including the investments, if any, thereof, pledged under this Resolution or the moneys (except moneys held in trust for the payment of particular Bonds or claims for interest pursuant to this Resolution) held by the Fiduciaries, except subject to the prior payment of the principal of all Bonds Outstanding the maturity of which has not been extended and of such portion of the accrued interest on the Bonds as shall not be represented by such extended claims for interest. Nothing herein shall be deemed to limit the right of the Authority to issue Refunding Bonds and such issuance shall not be deemed to constitute an extension of maturity of Bonds. 703. Offices for Servicing Bonds. The Authority hereby appoints the Trustee as Bond Registrar, and the Trustee shall at all times maintain one or more agencies where Bonds may be presented for registration or transfer and where notices, demands and other documents may be served upon the Authority in respect of the Bonds or of this Resolution, and the Trustee shall continuously maintain or make arrangements to provide such services. The Authority hereby appoints the Paying Agent or Agents in such cities as its respective agents to maintain such agencies for the payment or redemption of Bonds. 704. Further Assurance. At any and all times the Authority shall, as far as it may be authorized by law, comply with any reasonable request of the Trustee to pass, make, do, execute, acknowledge and deliver all and every such further resolutions, acts, deeds, conveyances, assignments, transfers and assurances as may be necessary or desirable for the better assuring, conveying, granting, pledging, assigning and 53 54 confirming all and singular the rights, Revenues and other moneys, securities and funds hereby pledged, or intended so to be, or which the Authority may become bound to pledge. 705. Power to Issue Bonds, Pledge of Pledged Property. The Authority is duly authorized under all applicable laws to create and issue the Bonds and to adopt this Resolution and to pledge the Pledged Property in the manner and to the extent provided in this Resolution. The Pledged Property so pledged is and will be free and clear of any pledge, lien, charge or encumbrance thereon or with respect thereto prior to, or of equal rank with the pledge and assignment created by this Resolution, and all action on the part of the Authority to that end has been and will be duly and validly taken. The Bonds and the provisions of this Resolution are and will be the valid and legally binding obligations of the Authority. The Authority shall at all times, to the extent permitted by law, defend, preserve and protect the pledge of the Pledged Property pledged under this Resolution and all the rights of the Bondholders under this Resolution against all claims and demands of all persons whomsoever. 706. Creation of Liens. The Authority shall not issue any bonds, notes, debentures or other evidences of indebtedness of similar nature, other than the Bonds, payable out of or secured by a pledge or assignment of the Pledged Property held or set aside by the Trustee under this Resolution and shall not create or cause to created any lien or charge on the Pledged Property, provided, however, that nothing contained in this Resolution shall prevent the Authority from issuing, if and to the extent permitted by law evidences of indebtedness payable out of or secured by a pledge and assignment of the Pledged Property on and after such date as the pledge of the Pledged Property provided in this Resolution shall be discharged and satisfied as provided in Section 1201. 707. State Contract. The Authority shall collect and forthwith cause to be deposited with the Trustee all amounts, if any, payable to it pursuant to the State Contract. The Authority shall enforce the provisions of the State Contract and agreements thereunder. The Authority will not consent or agree to or permit any amendment, change or modification to any State Contract which would reduce the amounts payable to the Authority or extend the times when such payments are to be made thereunder. A copy of the State Contract certified by an Authorized Officer of the Authority shall be filed with the Trustee, and a copy of any amendment thereto certified by an Authorized Officer of the Authority shall be filed with the Trustee. 708. Accounts and Reports. (a) The Trustee shall keep or cause to be kept proper books of record and account (separate from all other records and accounts) in accordance with generally accepted accounting principles in which complete and correct entries shall be made of its transactions relating to the amount of Revenues and the application thereof and each Fund or Account established under this Resolution. 55 II-15 (b) The Trustee shall advise the Authority as soon as practicable after the end of each month of the respective transactions during such month relating to each Fund or Account held by it under this Resolution. (c) The reports, statements and other documents required to be furnished to the Trustee pursuant to any provisions of this Resolution shall be available for the inspection of Bondholders at the office of the Trustee and shall be mailed to each Bondholder who shall file a written request therefor with the Authority. The Authority and the Trustee may charge to each Bondholder requesting such reports, statements and other documents a reasonable fee to cover reproduction, handling and postage. 709. Compliance with Resolution and Act and Other Matters. Upon the date of authentication and delivery of any of the Bonds, all conditions, acts and things required by law and this Resolution to exist, to have happened and to have been performed precedent to and in the issuance of such Bonds shall exist, have happened and have been performed, and the issue of such Bonds, together with all other obligations of the Authority, shall comply in all respects with the applicable laws of the State of New Jersey. 710. Swap Agreements and Financing Facilities. Subject to Section 711, the Authority shall maintain in full force and effect, and duly and punctually perform its obligations under, any Swap Agreement or agreement entered into by it in connection with the issuance of any Financing Facility, including the payment when due, but solely from the Pledged Property, of all Financing Facility Payment Obligations and Swap Payment Obligations. 711. Obligation to Enforce Swap Agreements and Financing Facilities. Irrespective of whether an Event of Default shall have occurred or be continuing, the Trustee shall take any and all action necessary or appropriate to enforce, on behalf of the Authority and for the benefit of the Bondholders, all rights of the Authority under any Financing Facility to which the Authority or the Trustee is a party, and notwithstanding anything to the contrary contained herein, the Authority shall have no obligation whatsoever to take any action to enforce the provisions of any such Financing Facility. In the event of the transfer, assignment or other conveyance of any Swap Agreement in accordance with its terms by the Swap Provider thereof or the substitution of a new Financing Facility Provider for any then existing Financing Facility Provider, the Trustee shall promptly notify the Authority and the Rating Agencies of the name and address of the new Financing Facility Provider and any modifications, amendments or supplements to the terms of the existing Financing Facility. 56

Resolution: ARTICLE VIII EVENTS OF DEFAULT; REMEDIES OF BONDHOLDERS 801. Events of Default. (a) The following events shall constitute an Event of Default under this (1) If default shall be made in the due and punctual payment of the principal or Redemption Price of any Bond when and as the same shall become due and payable, whether at maturity or by call for redemption, or otherwise for a reason other than by reason of an Event of Non-Appropriation; (2) If default shall be made in the due and punctual payment of any installment of interest on any Bond when and as such interest shall become due and payable for a reason other than by reason of an Event of Non-Appropriation; (3) Reserved; (4) If default shall be made by the Authority in the performance or observance of any other covenants, agreements or conditions on its part in this Resolution or in the Bonds contained, and such default shall continue for a period of sixty (60) days after written notice thereof to the Authority by the Trustee or to the Authority and to the Trustee by the Holders of not less than twenty-five percent (25%) in principal amount of the Bonds Outstanding; (5) Reserved; (6) Reserved; or (7) If, pursuant to the terms of any Financing Facility, the Trustee shall receive a written notice from the issuer of such Financing Facility stating that an event of default has occurred in respect of the Authority s obligations under such Financing Facility and directing the Trustee to declare the principal of and interest on the applicable Bonds to be immediately due and payable, other than by reason of an Event of Non-Appropriation. (b) Upon the occurrence of an Event of Default, and so long as such Event of Default shall not have been remedied, unless the principal of all the Bonds shall have already become due and payable, the Trustee may, and at the written request of the Holders of not less than twenty-five percent (25%) in principal amount of the Bonds Outstanding shall, declare the principal of all the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and be immediately due and payable, anything in this Resolution or in any of the Bonds contained to the contrary notwithstanding. The right of the Trustee to make any such declaration as aforesaid, however, is subject to the condition that if, at any time after such declaration, but before the Bonds shall have matured by their terms, all overdue installments of principal, Redemption Price and interest upon the Bonds, together with interest on such overdue installments to the extent permitted by law and the reasonable and proper fees, charges, expenses and liabilities of the Trustee, and all other sums then payable by the Authority under this Resolution (except the principal of, and interest accrued since the next preceding Payment Date on the Bonds due and payable solely by virtue of such declaration) shall either by paid by or for the account of the Authority or provision satisfactory to the Trustee shall be made for such payment, and all defaults under the Bonds or under this Resolution (other than the payment of principal and interest due and payable solely by reason of such declaration) shall be made good or be secured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall be made therefor, then and in every such case the Holders of twenty-five percent (25%) in principal amount of the Bonds Outstanding, by written notice to the Authority and the Trustee, may rescind such declaration and annul such default in its entirety, or, if the Trustee shall have acted itself, and if there shall not have been theretofore delivered to the Trustee written direction to the contrary by the Holders of twenty-five percent (25%) in principal amount of the Bonds Outstanding, then any such declaration shall ipso facto be deemed to be rescinded and any such default shall ipso facto be deemed to be annulled, but no such rescission or annulment shall extend to or affect any subsequent default or impair or exhaust any right or power consequent thereon. (c) Notwithstanding the provisions of this Section 801, and unless otherwise provided in the applicable Supplemental Resolution, if an Event of Default described in subsection (b) above shall occur by reason of the failure by any Swap Provider to make any payment to the Authority or to the Trustee when due as required pursuant to the terms of the applicable Swap Agreement, neither the Trustee nor the Bondholders shall have any right to declare an acceleration of the Bonds as aforesaid unless and until there shall occur an early termination of the applicable Swap Agreement. If such Event of Default is cured (including, to the extent permitted by law, the payment of interest on overdue payments to the extent provided in the applicable Swap Agreement) prior to such early termination date (or on such date if the cure is effected by entering into a substitute Swap Agreement), no acceleration shall be declared with respect to such Event of Default and the Bonds shall remain Outstanding and in full force and effect. (d) An Event of Non-Appropriation with respect to the Bonds shall be deemed to have occurred under the State Contract, if the State Legislature shall fail to appropriate funds for any Fiscal Year in an amount sufficient to pay when due its obligations under the State Contract. Notwithstanding anything contained in this Section 801 to the contrary, a failure by the Authority to pay when due any Bond Payment Obligations or Financing Facility Payment Obligations required to be made under this Resolution or the Bonds, or a failure by the Authority to observe and perform any covenant, condition or agreement on its part to be observed or performed under this Resolution or the Bonds, resulting from the occurrence of an Event of Non- Appropriation shall not constitute an Event of Default under this Section 801. 57 58 802. Reserved. 803. Application of Pledged Property After Default. (a) The Authority covenants that if an Event of Default shall occur and shall not have been remedied, the Authority, upon the demand of the Trustee, shall pay over or cause to be paid over to the Trustee (i) forthwith, all Pledged Property then held by the Authority under this Resolution, and (ii) all Revenues which are not paid directly to the Trustee as promptly as practicable after receipt thereof. (b) During the continuance of an Event of Default, the Trustee shall apply the Pledged Property, including all moneys, securities, funds and Revenues received by the Trustee pursuant to any right given or action taken under the provisions of this Article together with all Funds held by the Trustee under this Resolution (other than the Rebate Fund) as follows and in the following order: (1) Expenses of Fiduciaries -- to the payment of the reasonable and proper fees (including reasonable attorney s fees), charges, expenses and liabilities of the Fiduciaries; (2) Principal or Redemption Price and Interest -- to the payment of the interest and principal or Redemption Price then due on the Bonds, as follows: (A) unless the principal of all of the Bonds shall have become or have been declared due and payable, First: To the payment of interest then due on the Bonds and Financing Facility Obligations in the order of the maturity of the installments thereof then due, and, if the amount available shall not be sufficient to pay in full any installment or installments of interest or Financing Facility Obligations maturing on the same date, then to the payment thereof ratably, according to the amounts due in respect of each Bond, and Financing Obligations without priority or preference of any Bond or Financing Facility Obligations over any other; Second: To the payment, to the extent permitted by law, of interest on the amounts described in Paragraph First of this Section 803 at the rate in effect on the applicable Bonds or Financing Facility Obligations, from the last Payment Date to which interest has been paid; and Third: To the payment of the unpaid principal amount or Redemption Price of any Bonds or Financing Facility Obligations which shall have become due, whether at maturity or by call for mandatory sinking fund redemption, in the order of their due dates, and, if the amount available shall not be sufficient to pay in full all Bonds or Financing Facility Obligations due on any date, then to the payment 59 II-16 thereof ratably, according to the amounts due in respect of each Bond or Financing Facility Obligation, without priority or preference of any Bond or Financing Facility over any other. (B) if the principal of all of the Bonds shall have become or have been declared due and payable, to the payment of the principal and interest then due and unpaid upon 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 except as to any difference in the respective rates of interest specified in the Bonds; provided, however, that with respect to any Related Swap Bonds, interest shall be calculated at the fixed rate of interest (as set forth in the applicable Series Certificate and Swap Agreement) to be used in determining the Authority s Bond Payment Obligations in respect of the Related Swap Bonds and shall be applied, together with all amounts which would otherwise be payable in respect of the principal of any Related Swap Bonds, pro rata, to the payment of the principal of and interest on such Related Swap Bonds at the actual rate of interest then in effect and Swap Payment Obligations (including Swap Termination Payments) under such Swap Agreement. (C) Notwithstanding the foregoing, to the extent provided in the applicable Supplemental Resolution or Series Certificate, Financing Facility Revenues shall be applied to the payment of principal or Redemption Price of, and interest on, the Bonds to which such Financing Facility relate, and amounts which would otherwise be paid to the holders of such Bonds shall be paid to the applicable Financing Facility Provider. (c) Reserved. (d) If and whenever all overdue installments of principal or Redemption Price of, and interest on, all Bonds and Financing Facility Payment Obligations, together with the reasonable and proper charges, fees (including reasonable attorneys fees), expenses and liabilities of the Trustee, and all other sums payable by the Authority under this Resolution, including the principal and Redemption Price of and accrued unpaid interest on all Bonds which shall then be payable, by declaration or otherwise shall either be paid by or for the account of the Authority, or provisions satisfactory to the Trustee shall be made for such payment, and all defaults under this Resolution or the Bonds shall be made good or secured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall be made therefor, the Trustee shall pay over to the Authority all moneys, securities and funds then remaining unexpended in the hands of the Trustee (except moneys, securities and funds deposited or pledged, or required by the terms of this Resolution to be deposited or pledged, with the Trustee), and thereupon the Authority and the Trustee shall be 60

restored, respectively, to their former positions and rights under this Resolution. No such payment over to the Authority by the Trustee nor such restoration of the Authority and the Trustee to their former positions and rights shall extend to or affect any subsequent default under this Resolution or impair any right consequent thereon. 804. Application of Pledged Property After Event of Non-Appropriation. From and after the occurrence of an Event of Non-Appropriation, and provided that there shall not have occurred and then be continuing any Default, all applicable Pledged Property received by the Trustee shall be applied as follows: First, to the payment of any prior applicable Bond Payment Obligations which remain unpaid by reason of the occurrence of such Event of Non-Appropriation in the order in which such prior Bond Payment Obligations became due and payable, and, if the amount available shall not be sufficient to pay in full all the applicable Bond Payment Obligations due on any date, then to the payment thereof ratably, according to the amounts of principal or Redemption Price and interest due on such date, to the Persons entitled thereto, without discrimination or preference; and Second, to the payment, to the extent permitted by law, of interest on the amounts described in Paragraph 1 above at the rate in effect on the applicable Bonds, from the last Payment Date to which interest has been paid. 805. Proceedings Brought by Trustee. (a) If an Event of Default shall happen and shall not have been remedied, then and in every such case, the Trustee, by its agents and attorneys, may proceed, and upon written request of the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds Outstanding shall proceed, to protect and enforce its rights and the rights of the Holders of the Bonds under this Resolution forthwith by a suit or suits in equity or at law, whether for the specific performance of any covenant herein contained, or in aid of the execution of any power herein granted, or for an accounting against the Authority as if the Authority were the trustee of an express trust, or in the enforcement of any other legal or equitable right as the Trustee, being advised by counsel, shall deem most effectual to enforce any of its rights or to perform any of its duties under this Resolution. (b) All rights of action under this Resolution may be enforced by the Trustee without the possession of any of the Bonds or the production thereof at the trial or other proceedings, and any such suit or proceedings instituted by the Trustee shall be brought in its name. (c) The Holders of not less than a majority in principal amount of the Bonds at the time Outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, provided that the Trustee shall have the right to decline to follow any such direction if the Trustee shall be advised by counsel that the action or proceeding so directed may not lawfully be taken, or if the Trustee in good faith shall determine that the action or proceeding so directed would involve the Trustee in personal liability or be unjustly prejudicial to the Bondholders not parties to such direction. (d) Upon commencing a suit in equity or upon other commencement of judicial proceedings by the Trustee to enforce any right under this Resolution, the Trustee shall be entitled to exercise any and all rights and powers conferred in this Resolution and provided to be exercised by the Trustee upon the occurrence of any Event of Default. (e) Regardless of the happening of an Event of Default, the Trustee shall have power to, but unless requested in writing by the Holders of twenty-five percent (25%) in principal amount of the Bonds then Outstanding and furnished with reasonable security and indemnity, shall be under no obligation to, institute and maintain such suits and proceedings as it may be advised shall be necessary or expedient to prevent any impairment of the security under this Resolution by any acts which may be unlawful or in violation of this Resolution, 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. 806. Restrictions on Bondholder s Action. 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 provision of this Resolution or the execution of any trust under this Resolution or for any remedy under this Resolution, unless such Holder shall have previously given to the Trustee written notice of the happening of an Event of Default, as provided in this Article, and the Holders of at least twenty-five percent (25%) in 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 this Resolution or by the Act or by the laws of the State of New Jersey 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, fees (including reasonable attorney s fees), 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, her, its or their action to affect, disturb or prejudice the pledge created by this Resolution, or to enforce any right under this Resolution, except in the manner therein provided; and that all proceedings at law or in equity to enforce any provision of this Resolution shall be instituted, had and maintained in the manner provided in this Resolution and for the equal benefit of all Holders of the Outstanding Bonds, subject only to the provisions of Section 702. 807. Remedies Not Exclusive. No remedy by the terms of this Resolution conferred upon or reserved to the Trustee or the Bondholders is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Resolution or existing at law or in equity or by statute on or after the date of execution and delivery of this Resolution. 61 62 808. Effect of Waiver and Other Circumstances. (a) No delay or omission of the Trustee or any Bondholder to exercise any right or power arising upon the happening of an Event of Default shall impair any right or power or shall be construed to be a waiver of any such Event of Default or be an acquiescence therein; and every power and remedy given by this Article to the Trustee or to the Bondholders may be exercised from time to time and as often as may be deemed expedient by the Trustee or by the Bondholders. (b) Prior to the declaration of maturity of the Bonds as provided in Section 801, the Holders of not less than a majority in principal amount of the Bonds at the time Outstanding, or their attorneys-in-fact duly authorized, may on behalf of the Holders of all of the Bonds waive any past default under this Resolution and its consequences, except a default in the payment of interest on or principal of or premium (if any) on any of the Bonds. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon. 809. Notice of Default. The Trustee shall promptly mail written notice of the occurrence of any Event of Default to each registered owner of Bonds then Outstanding at such registered owner s address, if any, appearing upon the registry books of the Authority and to the Authority and each Financing Facility Provider. 810. Rights of Financing Facility Providers. To the extent provided in the applicable Supplemental Resolution or Series Certificate, any rights granted to the holders of the Bonds pursuant to this Article VIII may, instead, be exercised on behalf of the Financing Facility Provider with respect to the Bonds to which such Financing Facility relates. ARTICLE IX CONCERNING THE FIDUCIARIES 901. Trustee; Acceptance of Duties. The Trustee shall signify its acceptance of the duties and obligations imposed upon it by this Resolution and such Supplemental Resolution or Series Certificate by executing and delivering to the Authority a written acceptance thereof, and by executing such acceptance the Trustee shall be deemed to have accepted such duties and obligations with respect to all Bonds issued under this Resolution, but only, however, upon the terms and conditions set forth in this Resolution and such Supplemental Resolution or Series Certificate. 902. Paying Agents; Appointment and Acceptance of Duties. (a) The Authority may at any time or from time to time appoint one or more other Paying Agents, in addition to, or in substitution for, The Bank of New York Mellon. All Paying Agents appointed shall have the qualifications set forth in Section 913 for a successor Paying Agent. The Trustee may be appointed a Paying Agent. (b) Each Paying Agent shall signify its acceptance of the duties and obligations imposed upon it by this Resolution by executing and delivering to the Authority and to the Trustee a written acceptance thereof. (c) Unless otherwise provided, the principal corporate trust offices of the Paying Agents are designated as the respective offices or agencies of the Authority for the payment of the interest on and principal or Redemption Price of the Bonds. 903. Responsibilities of Fiduciaries. 63 II-17 (a) The recitals of fact herein and in the Bonds contained shall be taken as the statements of the Authority and no Fiduciary assumes any responsibility for the correctness of the same. No Fiduciary makes any representations as to the validity or sufficiency of this Resolution or of any Bonds issued thereunder or as to the security afforded by this Resolution, and no Fiduciary shall incur any liability in respect thereof. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. No Fiduciary shall be under any responsibility or duty with respect to the application of any moneys paid by such Fiduciary in accordance with the provisions of this Resolution to the Authority or any other Fiduciary. No Fiduciary shall be under any obligation or duty to perform any act which would involve it in expense or liability or to institute or defend any suit in respect thereof, or to advance any of its own moneys, unless properly indemnified. Subject to the provisions of subsection (b) of this Section 903, no Fiduciary shall be liable in connection with the performance of its duties hereunder except for its own negligence or misconduct. (b) The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Resolution. In case an Event of Default has occurred (which has not been cured) the Trustee shall 64

exercise such of the rights and powers vested in it by Resolution, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. Any provision of this Resolution relating to action taken or to be taken by the Trustee or to evidence upon which the Trustee may rely shall be subject to the provisions of this Section 903 and Section 904. 904. Evidence on Which Fiduciaries May Act. (a) Each Fiduciary, upon receipt of any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document furnished to it pursuant to any provision of this Resolution, shall examine such instrument to determine whether it conforms to the requirements of this Resolution and shall be protected in acting upon any such instrument believed by it to be genuine and to have been signed or presented by the proper party or parties. Each Fiduciary may consult with counsel, who may or may not be counsel to the Authority, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it under this Resolution in good faith and in accordance therewith. (b) Whenever any Fiduciary shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under this Resolution, such matter (unless other evidence in respect thereof be therein specifically prescribed) may be deemed to be conclusively proved and established by a certificate of an Authorized Officer of the Authority, and such certificate shall be full warrant for any action taken or suffered in good faith under the provisions of this Resolution upon the faith thereof; but in its discretion the Fiduciary may in lieu thereof accept other evidence of such fact or matter or may require such further or additional evidence as it may deem reasonable. (c) Except as otherwise expressly provided in this Resolution, any request, order, notice or other direction required or permitted to be furnished pursuant to any provision thereof by the Authority to any Fiduciary shall be sufficiently executed in the name of the Authority when signed by an Authorized Officer of the Authority. 905. Compensation. (a) The Authority shall pay to each Fiduciary from time to time reasonable compensation for all services rendered under this Resolution, and also all reasonable expenses, charges, counsel fees and other disbursements, including without limitation those of its attorneys, agents and employees, incurred in and about the performance of their powers and duties under this Resolution, in accordance with the agreements made from time to time between the Authority and the Fiduciary. (b) The Authority hereby agrees to the extent permitted by law to reimburse each Fiduciary for any and all claims, damages, losses, liabilities, costs or reasonable expenses whatsoever which such Fiduciary may incur in connection with the performance by such Fiduciary of its obligations under the Resolution; provided, however, that the Authority shall not be required to reimburse any Fiduciary for any claims, damages, losses, liabilities, costs or expenses caused in whole or in part by such Fiduciary's negligence, bad faith, breach of contract or misconduct arising out of or as a result of such Fiduciary's performing its obligations under the Resolution or undertaking any transaction contemplated by the Resolution; and further provided, that the foregoing is subject to the limitations of the provisions of the New Jersey Tort Claims Act, N.J.S.A. 59:2-1 et seq. and the New Jersey Contractual Liability Act, N.J.S.A. 59:13-1 et seq. (c) Each Fiduciary, by accepting its appointment as such under this Resolution, agrees that such Fiduciary (i) shall give the Authority prompt notice in writing of any actual or potential claim described above, and the institution of any suit or action; (ii) shall not adjust, settle or compromise any such claim, suit or action without the consent of the Authority; and (iii) shall permit the Authority, at the sole discretion of an Authorized Officer of the Authority, to assume full control of the adjustment, settlement, compromise or defense of each such claim, suit or action. (d) While the New Jersey Contractual Liability Act, N.J.S.A. 59:13-1 et seq. is not applicable by its terms to claims arising under contracts with the Authority, each Fiduciary, by accepting its appointment as such under this Resolution, agrees that such statute (except N.J.S.A. 59:13-9) shall be applicable to all claims against the Authority arising under this Section 905. (e) The reimbursement obligation provided in this Section 905 does not apply to or extend to any indemnification which may be given by any Fiduciary to any other person. (f) The provisions of this Section 905 shall survive the removal or resignation of any Fiduciary and the payment of the Bonds. 906. Certain Permitted Acts. Any Fiduciary, individually or otherwise, may become the owner of any Bonds, with the same rights it would have if it were not a Fiduciary. To the extent permitted by law, any Fiduciary may act as depositary for, and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bondholders or to effect or aid in any reorganization arising out of the enforcement of the Bonds or this Resolution, whether or not any such committee shall represent the Holders of a majority in principal amount of the Bonds then Outstanding. 907. Resignation of Trustee. The Trustee may at any time resign and be discharged of the duties created by this Resolution by giving no less than ninety (90) days written notice to the Authority, and mailing notice thereof to the Holders of Bonds then Outstanding, specifying the date when such resignation shall take effect, and such resignation shall take effect upon the date specified in such notice unless (i) previously a successor shall have been appointed by the Authority or the Bondholders as provided in Section 909, in which event such resignation shall take effect immediately on the appointment of such successor, or (ii) a successor shall not have been appointed by the Authority or the Bondholders as provided in Section 909 on such date, in which event such resignation shall not take effect until a successor is appointed. 65 66 908. Removal of the Trustee. The Trustee may be removed at any time with or without cause by an instrument or concurrent instruments in writing, filed with the Trustee, and signed by the Holders of a majority in principal amount of the Bonds then Outstanding or their attorneys-in-fact duly authorized, excluding any Bonds held by or for the account of the Authority. In addition, so long as no Event of Default, or an event which, with notice or passage of time, or both, would become an Event of Default, shall have occurred and be continuing, the Trustee may be removed at any time with or without cause by a resolution of the Authority filed with the Trustee. 909. Appointment of Successor Trustee. (a) In case at any time the Trustee shall resign or shall be removed or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or if a receiver, liquidator or conservator of the Trustee, or of its property, shall be appointed, or if any public officer shall take charge or control of the Trustee, or of its property or affairs, a successor Trustee may be appointed by the Authority by a duly executed written instrument signed by an Authorized Officer of the Authority, but if the Authority does not appoint a successor Trustee within sixty (60) days then by the Holders of a majority in principal amount of the Bonds then Outstanding, excluding any Bonds held by or for the account of the Authority, by an instrument or concurrent instruments in writing signed and acknowledged by such Bondholders or by their attorneys-in-fact duly authorized and delivered to such successor Trustee, notification thereof being given to the Authority and the predecessor Trustee. After such appointment of a successor Trustee, the Authority shall mail notice of any such appointment by it or the Bondholders to the registered owners of the Bonds then Outstanding. (b) If no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Section within 120 days after the Trustee shall have given to the Authority written notice as provided in Section 907 or after a vacancy in the office of the Trustee shall have occurred by reason of its inability to act, removal, or for any other reason whatsoever, the Trustee (in the case of its resignation under Section 907) or the Holder of any Bond (in any case) may apply to any court of competent jurisdiction to appoint a successor Trustee. Said court may thereupon, after such notice, if any, as such court may deem proper, appoint a successor Trustee. (c) Any Trustee appointed under the provisions of this Section 909 in succession to the Trustee shall be a bank or trust company organized under the laws of any state or a national banking association and shall have capital stock, surplus and undivided earnings aggregating at least $50,000,000 if there be such a bank or trust company or national banking association willing and able to accept the office on reasonable and customary terms and authorized by law to perform all the duties imposed upon it by this Resolution. 910. Transfer of Rights and Property to Successor Trustee. Any successor Trustee appointed under this Resolution shall execute, acknowledge and deliver to its predecessor Trustee, and also to the Authority, an instrument accepting such appointment, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become fully vested with all moneys, 67 II-18 estates, properties, rights, powers, duties and obligations of such predecessor Trustee, with like effect as if originally named as Trustee; but the Trustee ceasing to act shall nevertheless, on the written request of the Authority or of the successor Trustee, execute, acknowledge and deliver such instrument of conveyance and further assurance and do such other things as may reasonably be required for more fully and certainly vesting and confirming in such successor Trustee all the right, title and interest of the predecessor Trustee in and to any property, rights, interests and estates held by it under this Resolution, and shall pay over, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Should any deed, conveyance or instrument in writing from the Authority be required by such successor Trustee for more fully and certainly vesting in and confirming to such successor Trustee any such estates, rights, powers and duties, any and all such deed, conveyances and instruments in writing shall, on request, and so far as may be authorized by law, be executed, acknowledged and delivered by the Authority. Any such successor Trustee shall promptly notify the Paying Agents of its appointment as Trustee. 911. Merger or Consolidation. Any company into which any Fiduciary may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which any Fiduciary may sell or transfer all or substantially all of its corporate trust business, provided such company shall be a bank or trust company organized under the laws of any state of the United States or a national banking association and shall be authorized by law to perform all the duties imposed upon it by this Resolution, shall be the successor to such Fiduciary without the execution or filing of any paper or the performance of any further act. 912. Adoption of Authentication. In case any of the Bonds contemplated to be issued under this Resolution shall have been authenticated but not delivered, any successor Trustee may adopt the certificate of authentication of any predecessor Trustee so authenticating such Bonds and deliver such Bonds so authenticated; and in case any of the said Bonds shall not have been authenticated, any successor Trustee may authenticate such Bonds in the name of the predecessor Trustee, or in the name of the successor Trustee, and in all such cases such certificate shall have the full force which it is anywhere in said Bonds or in this Resolution provided that the certificate of the Trustee shall have. 913. Resignation or Removal of Paying Agent and Appointment of Successor. (a) Any Paying Agent may at any time resign and be discharged of the duties and obligations created by this Resolution by giving at least sixty (60) days written notice to the Authority, the Trustee and the other Paying Agents. Any Paying Agent may be removed at any time by an instrument filed with such Paying Agent and the Trustee and signed by an Authorized Officer of the Authority. Any successor Paying Agent shall be appointed by the Authority with the approval of the Trustee and shall be a bank or trust company organized under the laws of any state of the United States or a national banking association, having capital stock, surplus and undivided 68

earnings aggregating at least $50,000,000, and willing and able to accept the office on reasonable and customary terms and authorized by law to perform all the duties imposed upon it by this Resolution. (b) In the event of the resignation or removal of any Paying Agent, such Paying Agent shall pay over, assign and deliver any moneys held by it as Paying Agent to its successor, or if there be no successor, to the Trustee. In the event that for any reason there shall be a vacancy in the office of any Paying Agent, the Trustee shall act as such Paying Agent. ARTICLE X SUPPLEMENTAL RESOLUTIONS 1001. Supplemental Resolutions Effective Upon Filing With the Trustee. For any one or more of the following purposes and at any time or from time to time, a Supplemental Resolution of the Authority may be adopted, which, upon the filing with the Trustee of a copy thereof certified by an Authorized Officer of the Authority, shall be fully effective in accordance with its terms: (1) To authorize Refunding Bonds of a Series and, in connection therewith, specify and determine the matters and things referred to in Article II, and also any other matters and things relative to such Refunding Bonds which are not contrary to or inconsistent with this Resolution as theretofore in effect, or to amend, modify or rescind any such authorization, specification or determination at any time prior to the first authentication and delivery of such Bonds; (2) To add to the covenants and agreements of the Authority in this Resolution, other covenants and agreements to be observed by the Authority which are not contrary to or inconsistent with this Resolution as theretofore in effect; (3) To add to the limitations and restrictions in this Resolution, other limitations and restrictions to be observed by the Authority which are not contrary to or inconsistent with this Resolution as theretofore in effect; (5) To confirm, as further assurance, any pledge or assignment under, and the subjection to any security interest, pledge or assignment created or to be created by, this Resolution of the Pledged Property or the creation of a debt service reserve fund and the limitations of the pledge of any amounts therein to a particular Series of Bonds and to pledge any additional revenues, moneys, securities, Financing Facilities, Swap Agreements or other agreements; and (6) To modify any of the provisions of this Resolution in any other respect whatever, provided that (i) such modification shall be, and be expressed to be, effective only after all Bonds of each Series Outstanding at the date of the adoption of such Supplemental Resolution shall cease to be Outstanding, and (ii) such Supplemental Resolution shall be specifically referred to in the text of all Bonds of any Series authenticated and delivered after the date of the adoption of such Supplemental Resolution and of Bonds issued in exchange therefor or in place thereof. 1002. Supplemental Resolutions Effective Upon Consent of Trustee. For any one or more of the following purposes and at any time or from time to time, a Supplemental Resolution may be adopted, which, upon (i) the filing with 69 70 the Trustee of a copy thereof certified by an Authorized Officer of the Authority, and (ii) the filing with the Authority of an instrument in writing made by the Trustee consenting thereto, shall be fully effective in accordance with its terms: (1) To cure any ambiguity, supply any omission, or correct any defect or inconsistent provision in this Resolution; which may be therein contained, and the Trustee, in taking such action, shall be fully protected in relying on an opinion of Bond Counsel that such Supplemental Resolution is authorized or permitted by the provisions of this Resolution. (d) No Supplemental Resolution shall change or modify any of the rights or obligations of any Fiduciary without its written assent thereto. (2) To insert such provisions clarifying matters or questions arising under this Resolution as are necessary or desirable and are not contrary to or inconsistent with this Resolution as theretofore in effect; or (3) To make such other amendments and supplements to the Resolution as the Authority and State Treasurer may deem advisable and as shall not impair the security of the applicable Series of Bonds or adversely affect such Bondholders. 1003. Supplemental Resolutions Effective with Consent of Bondholders. At any time and from time to time, a Supplemental Resolution may be adopted subject to consent by (a) Bond holders in accordance with and subject to the provisions of Article XI, and (b) any Financing Facility Provider the consent of which is required by the applicable Financing Facility, which Supplement Resolution, upon the filing with the Trustee of a copy thereof certified by an Authorized Officer of the Authority and upon compliance with the provisions of said Article XI, shall become fully effective in accordance with its terms as provided in said Article XI. 1004. General Provisions. (a) This Resolution shall not be modified or amended in any respect except as provided in and in accordance with and subject to the provisions of this Article X and Article XI. Nothing contained in this Article X or Article XI shall affect or limit the right or obligation of the Authority to adopt, make, do, execute, acknowledge or deliver any resolution, act or other instrument pursuant to the provisions of Section 704 or the right or obligation of the Authority to execute and deliver to any Fiduciary any instrument which elsewhere in this Resolution it is provided shall be delivered to said Fiduciary. (b) Any Supplemental Resolution referred to and permitted or authorized by Sections 1001 or 1002 may be adopted by the Authority without the consent of any of the Bondholders, but shall become effective only on the conditions, to the extent and at the time provided in said Sections, respectively. The copy of every Supplemental Resolution when filed with the Trustee shall be accompanied by an opinion of Bond Counsel stating that such Supplemental Resolution has been duly and lawfully adopted in accordance with the provisions of this Resolution, is authorized or permitted by this Resolution, and is valid and binding upon the Authority and enforceable in accordance with its terms subject to any applicable bankruptcy, insolvency or other laws affecting creditors rights generally. (c) The Trustee is hereby authorized to accept the delivery of a certified copy of any Supplemental Resolution referred to and permitted or authorized by Section 1001, 1002 or 1003 and to make all further agreements and stipulations 71 II-19 72

1101. Mailing. ARTICLE XI AMENDMENTS Any provision in this Article for the mailing of a notice or other paper to Bondholders shall be fully complied with if it is mailed postage prepaid only (i) to each registered owner of Bonds then Outstanding at such registered owner s address, if any, appearing upon the registry books of the Authority, and (ii) to the Trustee. 1102. Powers of Amendment. Any modification or amendment of this Resolution and of the rights and obligations of the Authority and of the Holders of the Bonds thereunder, in any particular, may be made by a Supplemental Resolution with the written consent, given as provided in Section 1103, of the Holders of at least forty percent (40%) in principal amount of the Bonds Outstanding at the time such consent if given; provided, however, that if such modification or amendment will, by its terms, not take effect so long as any Bonds of any specified like Series and maturity remain Outstanding, the consent of the Holders of such Bonds shall not be required and such Bonds shall not be deemed to be Outstanding for the purpose of any calculation of Outstanding Bonds under this Section. No such modification or amendment shall permit a change in the terms of redemption or maturity of the principal of any Outstanding Bond or of any installment of interest thereon or a reduction in the principal amount or the Redemption Price thereof or in the rate of interest thereon without the consent of the Holder of such Bond, or shall reduce the percentages or otherwise affect the classes of Bonds the consent of the Holders of which is required to effect any such modification or amendment, or shall change or modify any of the rights or obligations of any Fiduciary without its written assent thereto. For the purpose of this Section, a Series shall be deemed to be affected by a modification or amendment of this Resolution if the same adversely affects or diminishes the rights of the Holders of Bonds of such Series. The Trustee may in its discretion determine whether or not, in accordance with the foregoing powers of amendment, Bonds of any particular Series or maturity would be affected by any modification or amendment of this Resolution and any such determination shall be binding and conclusive on the Authority and all Holders of Bonds. 1103. Consent of Bondholders. The Authority may at any time adopt a Supplemental Resolution making a modification or amendment permitted by the provisions of Section 1102 to take effect when and as provided in this Section 1103. A copy of such Supplemental Resolution (or brief summary thereof or reference thereto in form approved by the Trustee), together with a request to Bondholders for their consent thereto in form satisfactory to the Trustee, shall be mailed by the Authority to Bondholders (but failure to mail such copy and request shall not affect the validity of the Supplemental Resolution when consented to as in this Section 1103 provided). Such Supplemental Resolution shall not be effective unless and until (i) there shall have been filed with the Trustee (a) the written consents of Holders of the percentages of Outstanding Bonds specified in Section 1102, (b) the written consent of any Financing Facility Provider the consent of which is required pursuant to the applicable Financing Facility and (c) an opinion of 73 Bond Counsel stating that such Supplemental Resolution has been duly and lawfully adopted and filed by the Authority in accordance with the provisions of this Resolution, is authorized or permitted by this Resolution, and is valid and binding upon the Authority and enforceable in accordance with its terms, subject to any applicable bankruptcy, insolvency or other laws affecting creditors rights generally, and (ii) a notice shall have been given as hereinafter in this Section 1103 provided. Each such 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, which proof shall be such as is permitted by Section 1202. A certificate or certificates executed by the Trustee and filed with the Authority stating that it has examined such proof and that such proof is sufficient in accordance with Section 1202 shall be conclusive that the consents have been given by the Holders of the Bonds described in such certificate or certificates of the Trustee. Any such consent shall be binding upon the Holder of the Bonds giving such consent and, anything in Section 1202 to the contrary notwithstanding, 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 with the Trustee, prior to the time when the written statement of the Trustee hereinafter in this Section 1103 provided for is filed, such revocation and, if such Bonds are transferable by delivery, proof that such Bonds are held by the signer of such revocation in the manner permitted by Section 1202 hereof. The fact that a consent has not been revoked may likewise be proved by a certificate of the Trustee filed with the Authority to the effect that no revocation thereof is on file with the Trustee. At any time after the Holders of the required percentages of Bonds shall have filed their consents to the Supplemental Resolution, the Trustee shall make and file with the Authority a written statement that the Holders of such required percentages of Bonds have filed such consents. Such written statements shall be conclusive that such consents have been so filed. At any time thereafter, notice stating in substance that the Supplemental Resolution (which may be referred to as a Supplemental Resolution adopted by the Authority on a stated date, a copy of which is on file with the Trustee) has been consented to by the Holders of the required percentages of Bonds and will be effective as provided in this Section 1103, may be given to Bondholders by the Authority by mailing such notice to Bondholders (but failure to mail such notice shall not prevent such Supplemental Resolution from becoming effective and binding as in this Section 1103 provided). The Authority shall file with the Trustee proof of the mailing thereof. A record, consisting of the certificates or statements required or permitted by this Section 1103 to be made by the Trustee, shall be proof of the matters therein stated. Such Supplemental Resolution making such amendment or modification shall be deemed conclusively binding upon the Authority, the Fiduciaries and the Holders of all Bonds at the expiration of forty (40) days after the filing with the Trustee of the proof of the mailing of such last mentioned notice, except in the event of a final decree of a court of competent jurisdiction setting aside such Supplemental Resolution in a legal action or equitable proceeding for such purpose commenced within such forty (40) day period; provided, however, that any Fiduciary and the Authority during such forty (40) day period and any such further period during which any such action or proceeding may be pending shall be entitled in their absolute discretion to take such action, or to refrain from taking such action, with respect to such Supplemental Resolution as they may deem expedient. 74 1104. Modifications by Unanimous Consent. The terms and provisions of this Resolution and the rights and obligations of the Authority and of the Holders of the Bonds thereunder may be modified or amended in any respect upon the adoption and filing by the Authority of a Supplemental Resolution and the consent of (a) the Holders of all of the Bonds then Outstanding, and (b) any Financing Facility Provider the consent of which is required by the applicable Financing Facility, such consents to be given as provided in Section 1103 except that no notice to Bondholders shall be required; provided, however, that no such modification or amendment shall change or modify any of the rights or obligations of any Fiduciary without the filing with the Trustee of the written assent thereto of such Fiduciary in addition to the consent of the Bondholders. 1105. Exclusion of Bonds. Bonds owned or held by or for the account of the Authority shall not be deemed Outstanding for the purpose of consent or other action or any calculation of Outstanding Bonds provided for in this Article XI, and the Authority shall not be entitled with respect to such Bonds to give any consent or take any other action provided for in this Article. At the time of any consent or other action taken under this Article, the Authority shall furnish the Trustee a certificate of an Authorized Officer of the Authority, upon which the Trustee may rely, describing all Bonds so to be excluded. 1106. Notation on Bonds. Bonds authenticated and delivered after the effective date of any action taken as in Article X or this Article XI provided may, and, if the Trustee so determines, shall, bear a notation by endorsement or otherwise in form approved by an Authorized Officer of the Authority and the Trustee as to such action, and in that case upon demand of the Holder of any Bond Outstanding at such effective date and presentation of his, her or its Bond for the purpose at the corporate trust office of the Trustee or upon any transfer or exchange of any Bond Outstanding at such effective date, suitable notation shall be made on such Bond or upon any Bond issued upon any such transfer or exchange by the Trustee as to any such action. If an Authorized Officer of the Authority or the Trustee shall so determine, new Bonds so modified as in the opinion of the Trustee and the Authority to conform to such action shall be prepared, authenticated and delivered, and upon demand of the Holder of any Bond then Outstanding shall be exchanged, without cost to such Bondholder, for Bonds of the same Series and maturity then Outstanding, upon surrender of such Bonds. 75 II-20 1201. Defeasance. ARTICLE XII MISCELLANEOUS (a) If the Authority shall pay or cause to be paid, or there shall otherwise be paid, to the Holders of all Bonds the principal or Redemption Price, if applicable, and interest due or to become due thereon, at the times and in the manner stipulated in the Bonds and in this Resolution, then the pledge of the Pledged Property, any Revenues, and other moneys and securities pledged under this Resolution and all covenants, agreements and other obligations of the Authority to the Bondholders, shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall cause an accounting for such period or periods as shall be requested by an Authorized Officer of the Authority to be prepared and filed with the Authority and, upon the request of an Authorized Officer of the Authority, shall execute and deliver to the Authority all such instruments as may be desirable to evidence such discharge and satisfaction, and the Fiduciaries shall pay over or deliver to the Authority the Pledged Property, including all moneys or securities held by them pursuant to this Resolution which are not required for the payment of principal or Redemption Price, if applicable, and interest on Bonds not theretofore surrendered for such payment or redemption. If the Authority shall pay or cause to be paid, or there shall otherwise be paid, to the Holders of the Outstanding Bonds of a particular Series, or of a particular maturity or particular Bonds within a maturity within a Series, the principal or Redemption Price, if applicable, and interest due or to become due thereon, at the times and in the manner stipulated therein and in this Resolution, such Bonds shall cease to be entitled to any lien, benefit or security under this Resolution, and all covenants, agreements and obligations of the Authority to the Holders of such Bonds shall thereupon cease, terminate and become void and be discharged and satisfied. (b) Bonds or interest installments for the payment or redemption of which moneys shall have been set aside and shall be held in trust by the Paying Agents (through deposit by the Authority of funds for such payment or redemption or otherwise) at the maturity or redemption date thereof shall be deemed to have been paid within the meaning and with the effect expressed in subsection (a) of this Section. Subject to the provisions of subsection (c) through subsection (f) of this Section, any Outstanding Bonds shall prior to the maturity or redemption date thereof be deemed to have been paid within the meaning and with the effect expressed in subsection (a) of this Section if (i) in case any of said Bonds are to be redeemed on any date prior to their maturity, an Authorized Officer of the Authority shall have given to the Trustee irrevocable instructions to mail as provided in Article IV notice of redemption of such Bonds (other than Bonds which have been purchased by the Trustee at the direction of an Authorized Officer of the Authority or purchased or otherwise acquired by the Authority and delivered to the Trustee as hereinafter provided prior to the mailing of such notice of redemption ) on said date, (ii) there shall have been deposited with the Trustee either moneys (including moneys withdrawn and deposited pursuant to subsection (a) of Section 506) in an amount which shall be sufficient, or Federal Securities (including any Federal Securities issued or held in book-entry form on the books of the Department of the Treasury of the United States) the principal of and the interest on which when due will provide moneys which, together with the moneys, if 76

any, deposited with the Trustee at the same time, shall be sufficient, to pay when due the principal or Redemption Price, if applicable, and interest due and to become due on said Bonds on or prior to the redemption date or maturity date thereof, as the case may be, and (iii) in the event said Bonds are not by their terms subject to redemption within the next succeeding sixty (60) days, an Authorized Officer of the Authority shall have given the Trustee irrevocable instructions to mail a notice to the Holders of such Bonds that the deposit required by (ii) above has been made with the Trustee and that said Bonds are deemed to have been paid in accordance with this Section 1201 and stating such maturity or redemption date upon which moneys are expected, subject to the provisions of subsection (f) of this Section 1201, to be available for the payment of the principal or Redemption Price, if applicable, of and accrued and unpaid interest on said Bonds (other than Bonds which have been purchased by the Trustee at the written direction of an Authorized Officer of the Authority or purchased or otherwise acquired by the Authority and delivered to the Trustee as hereinafter provided prior to the mailing of the notice of redemption referred to in subclause (i) of subsection (b) hereof). Any notice of redemption mailed pursuant to the preceding sentence with respect to Bonds which constitute less than all of the Outstanding Bonds of any maturity within a Series shall specify the letter and number or other distinguishing mark of each such Bond. The Trustee shall, as and to the extent necessary, apply moneys held by it pursuant to this Section 1201 to the payment when due of the principal or Redemption Price of and interest on such Bonds, all in the manner provided in this Resolution. The Trustee shall, if so directed by an Authorized Officer of the Authority (i) prior to the maturity date of Bonds deemed to have been paid in accordance with this Section 1201 which are not to be redeemed prior to their maturity date or (ii) prior to the mailing of the notice of redemption referred to in subclause (i) of subsection (b) above with respect to any Bonds deemed to have been paid in accordance with this Section 1201 which are to be redeemed on any date prior to their maturity, apply moneys deposited with the Trustee in respect of such Bonds and redeem or sell Federal Securities so deposited with the Trustee and apply the proceeds thereof to the purchase of such Bonds and the Trustee shall immediately thereafter cancel all such Bonds so purchased; provided, however, that the moneys and Federal Securities remaining on deposit with the Trustee after the purchase and cancellation of such Bonds shall be sufficient to pay when due the principal or Redemption Price, if applicable, of, and interest due or to become due on all Bonds, in respect of which such moneys and Federal Securities are being held by the Trustee on or prior to the redemption date or maturity date thereof, as the case may be. If, at any time (i) prior to the maturity date of Bonds deemed to have been paid in accordance with Section 1201 which are not to be redeemed prior to their maturity date or (ii) prior to the mailing of the notice of redemption referred to in clause (a) with respect to any Bonds deemed to have been paid in accordance with this Section 1201 which are to be redeemed on any date prior to their maturity, the Authority shall purchase or otherwise acquire any such Bonds and deliver such Bonds to the Trustee prior to their maturity date or redemption date, as the case may be, the Trustee shall immediately cancel all such Bonds so delivered; such delivery of Bonds to the Trustee shall be accompanied by written directions from an Authorized Officer of the Authority to the Trustee as to the manner in which such Bonds are to be applied against the obligation of the Trustee to pay or redeem Bonds deemed paid in accordance with this Section 1201. The directions given by an Authorized Officer of the Authority to the Trustee referred to in the preceding sentence shall also specify the portion, if any, of such Bonds so purchased or delivered and cancelled to be applied against the obligation of the Trustee to pay Bonds deemed paid in accordance with this Section 1201 upon their maturity date or dates and the portion, if any, of such Bonds so purchased or delivered and cancelled to be applied against the obligation of the Trustee to redeem Bonds deemed paid in accordance with this Section 1201 on any date or dates prior to their maturity. In the event that on any date as a result of any purchases, acquisitions and cancellations of Bonds as provided in this Section 1201 the total amount of moneys and Federal Securities remaining on deposit with the Trustee under this Section 1201 is in excess of the total amount which would have been required to be deposited with the Trustee on such date in respect of the remaining Bonds in order to satisfy subclause (ii) of this subsection (b) of Section 1201, the Trustee shall, if requested in writing by an Authorized Officer of the Authority, pay the amount of such excess to the Authority free and clear of any trust, lien, pledge or assignment securing said Bonds or otherwise existing under this Resolution. Except as otherwise provided in this subsection (b) of Section 1201 and in subsection (c) through subsection (f) of this Section 1201, neither Federal Securities nor moneys deposited with the Trustee pursuant to this Section nor principal or interest payments on any such Federal Securities shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal or Redemption Price, if applicable, of, and interest on said Bonds; provided that any cash received from such principal or interest payments on such Federal Securities deposited with the Trustee, (A) to the extent such cash will not be required at any time for such purpose, at the written direction of an Authorized Officer of the Authority, shall be paid over to the Authority as received by the Trustee, free and clear of any trust, lien or pledge securing said Bonds or otherwise existing under this Resolution, and (B) to the extent such cash will be required for such purpose at a later date, shall, to the extent practicable, be reinvested, at the written direction of an Authorized Officer of the Authority, in Federal Securities maturing at times and in amounts sufficient to pay when due the principal or Redemption Price, if applicable, and interest to become due on said Bonds on or prior to such redemption date or maturity date thereof, as the case may be, and interest earned from such reinvestments shall be, at the written direction of an Authorized Officer of the Authority, paid over to the Authority, as received by the Trustee, free and clear of any trust, lien, pledge or assignment securing said Bonds or otherwise existing under this Resolution. For the purposes of this Section, Federal Securities shall mean and include only (A) Federal Securities which shall not be subject to redemption prior to their maturity other than at the option of the holder thereof, (B) Federal Securities as to which an irrevocable notice of redemption of such securities has been given and such securities are not otherwise subject to redemption prior to such specified date other than at the option of the Holder thereof, or (C) upon compliance with the provisions of subsection (e) of this Section 1201, Federal Securities which are subject to redemption prior to maturity at the option of the issuer thereof on a specified date or dates. (c) Federal Securities described in subclause (iii) of subsection (b) of Section 1201 may be included in the Federal Securities deposited with the Trustee in order to satisfy the requirements of clause (ii) of subsection (b) of Section 1201 only if the determination as to whether the moneys and Federal Securities to be deposited with the Trustee in order to satisfy the requirements of such clause (b) would be sufficient to pay when due either on the maturity date thereof or, in the case of any Bonds to be redeemed prior to the maturity date thereof, on the redemption date or dates specified in any notice of redemption to be mailed by the Trustee in accordance with subsection (b) of Section 1201, the principal and Redemption Price, if applicable, and interest on the Bonds which will be deemed to have been paid as provided in 77 78 subsection (b) of Section 1201 is made both (i) on the assumption that the Federal Securities described in clause (C) were not redeemed at the option of the issuer prior to the maturity date thereof and (ii) on the assumptions that such Federal Securities would be redeemed by the issuer thereof at its option on each date on which such option could be exercised, that as of such date or dates interest ceased to accrue on such Federal Securities and that the proceeds of such redemption would not be reinvested by the Trustee. (d) In the event that after compliance with the provisions of subsection (d) of Section 1201, the Federal Securities described in subclause (iii) of subsection (b) of Section 1201 are included in the Federal Securities deposited with the Trustee in order to satisfy the requirements of subclause (ii) of subsection (b) of Section 1201 and any such Federal Securities are actually redeemed by the issuer thereof prior to their maturity date, then the Trustee at the written direction of an Authorized Officer of the Authority, provided that the aggregate of the moneys and Federal Securities to be held by the Trustee, taking into account any changes in redemption dates or instructions to give notice of redemption given to the Trustee by an Authorized Officer of the Authority in accordance with subsection (f) of Section 1201, shall at all times be sufficient to satisfy the requirements of subclause (ii) of subsection (b) of Section 1201, shall reinvest the proceeds of such redemption in Federal Securities. (e) Any notice of redemption to be mailed by the Trustee and any set of instructions relating to a notice of redemption given to the Trustee may provide, at the option of an Authorized Officer of the Authority, that any redemption date or dates in respect of all or any portion of the Bonds to be redeemed on such date or dates may at the option of an Authorized Officer of the Authority be changed to any other permissible redemption date or dates and that redemption dates may be established for any Bonds deemed to have been paid in accordance with this Section 1201 upon their maturity date or dates at any time prior to the actual mailing of any applicable notice of redemption. (f) Reserved. (g) Related Swap Bonds and the Authority s Swap Payment Obligations under the applicable Swap Agreements shall be deemed to have been paid for purposes of Section 1201 above if (a) there shall have been deposited with the Trustee moneys and Federal Securities of the type described in Section 1201(b) in an amount which, together with amounts due and to become due from the Swap Provider under the applicable Swap Agreement, shall be sufficient to pay when due (i) during the term of the applicable Swap Agreement, the Authority s Bond Payment Obligations, Related Swap Bond Payment Obligations and Swap Payment Obligations (other than Swap Termination Payments) in respect of such Related Swap Bonds and (ii) thereafter, all principal of and premium, if any, and interest on such Bonds to maturity or prior redemption and (b) an Authorized Officer of the Authority shall have given to the Trustee irrevocable written instructions directing the Trustee to pay, during the term of the applicable Swap Agreement to the applicable Paying Agent or Swap Provider, as the case may be, the amount required to pay the Authority s Bond Payment Obligations, Related Swap Bond Payment Obligations and Swap Payment Obligations in respect of such Related Swap Bonds. Neither moneys nor Federal Securities deposited with the Trustee pursuant to this Section 1201(h) nor principal or interest payments on any such Federal Securities shall be withdrawn or used for any 79 II-21 purpose other than, and shall be held in trust for, the payments to be made pursuant to subsections (i) and (ii) above; provided that any cash received from such principal or interest payments on such Federal Securities deposited with the Trustee, if not then needed for such purpose, shall to the extent practicable, be reinvested, at the written direction of an Authorized Officer of the Authority, in Federal Securities maturing at the times and in amounts sufficient, together with other moneys available for the purpose, to make the payments set forth in subsections (i) and (ii) above, and interest earned from such reinvestments shall, at the written direction of an Authorized Officer of the Authority, be paid over to the Authority, as received by the Trustee, free and clear of any trust, lien or pledge, and provided, further that any Federal Securities may be sold, transferred, redeemed or otherwise disposed of and the proceeds thereof applied to the purchase of other Federal Securities of the type permitted for this purpose, the principal of and interest on which, when due, together with moneys and other Federal Securities then held by the Trustee for such purpose, shall be sufficient to make the payments set forth in subsections (i) and (ii) above. Notwithstanding the defeasance of any Bonds and discharge of the lien of this Resolution pursuant to this Section 1201, during the term of any Swap Agreement for which the Related Swap Bonds have been defeased, the Trustee shall, subject to the foregoing provisions of this Section 1201, hold and apply (i) the Federal Securities deposited with it pursuant to this Section as provided in Section 505, and (ii) all payments from the Swap Provider under the applicable Swap Agreement as Swap Revenues pursuant to Section 506. If any portion of the moneys deposited with the Trustee for the payment of the amounts set forth in subsection (a) above is not required for such purpose, the Trustee shall pay the amount of such excess as an Authorized Officer of the Authority shall direct in writing. 1202. Evidence of Signatures of Bondholders and Ownership of Bonds. (a) Any request, consent, revocation of consent or other instrument which this Resolution may require or permit to be signed and executed by the Bondholders may be in one or more instruments of similar tenor, and shall be signed or executed by such Bondholders in person or by their attorneys appointed in writing. Proof of (i) the execution of any such instrument, or of any instrument appointing any such attorney, or (ii) the holding by any person of the Bonds shall be sufficient for any purpose of this Resolution (except as otherwise therein expressly provided) if made in the following manner, or in any other manner satisfactory to the Trustee, which may nevertheless in its discretion require further or other proof in cases where it deems the same desirable: (1) The fact and date of the execution by any Bondholder or such Bondholder s attorney of such instruments may be proved by a guarantee of the signature thereon by a bank or trust company or by the certificate of any notary public or other officer authorized to take acknowledgments of deeds, that the person signing such request or other instrument acknowledged to him or her the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. Where such execution is by an officer of a corporation or association or a member of a partnership, on behalf of such corporation, association or partnership, such signature, guarantee, certificate or affidavit shall also constitute sufficient proof of his authority. 80

(2) The amount of Bonds transferable by delivery held by any person executing any instrument as a Bondholder, the date of such person s holding such Bonds, and the numbers and other identification thereof, may be proved by a certificate, which need not be acknowledged or verified, in form satisfactory to the Trustee, executed by the Trustee or by a member of a financial firm or by an officer of a bank, trust company, insurance company, or financial corporation or other depository wherever situated, showing at the date therein mentioned that such person exhibited to such member or officer or had on deposit with such depositary the Bonds described in such certificate. Such certificate may be given by a member of a financial firm or by an officer of any bank, trust company, insurance company or financial corporation or depositary with respect to Bonds owned by it, if acceptable to the Trustee. In addition to the foregoing provisions, the Trustee may from time to time make such reasonable regulations as it may deem advisable permitting other proof of holding of Bonds transferable by delivery. (b) The ownership of Bonds registered otherwise than to bearer and the amount, numbers and other identification, and date of holding the same shall be proved by the registry books. (c) Any request or consent by the owner of any Bond shall bind all future owners of such Bond in respect of anything done or suffered to be done by the Authority or any Fiduciary in accordance therewith. 1203. Moneys Held for Particular Bonds. The amounts held by any Fiduciary for the payment of the interest, principal or Redemption Price due on any date with respect to particular Bonds shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Holders of the Bonds entitled thereto. 1204. Preservation and Inspection of Documents. All documents received by any Fiduciary under the provisions of this Resolution shall be retained in its possession and shall be subject at all reasonable times to the inspection of the Authority, any other Fiduciary, and any Bondholder and their agents and their representatives, any of whom may make copies thereof. 1205. Parties Interested Herein. Nothing in this Resolution expressed or implied is intended or shall be construed to confer upon, or to give to, any person or corporation, other than the Authority, the Fiduciaries, the Holders of the Bonds and any Financing Facility Providers, any right, remedy or claim under or by reason of this Resolution or any covenant, condition or stipulation thereof; and all the covenants, stipulations, promises and agreements in this Resolution contained by and on behalf of the Authority shall be for the sole and exclusive benefit of the Authority, the Fiduciaries, the Holders of the Bonds and any Financing Facility Provider. 1206. No Recourse on the Bonds. No recourse shall be had for the payment of the principal of or interest on the Bonds or the Financing Facility Payment Obligations for any claim based thereon or on this Resolution against any member or officer of the Authority or any person executing the Bonds or any Financing Facility. 1207. Publication of Notice; Suspension of Publication. (a) Any publication to be made under the provisions of this Resolution in successive weeks or on successive weeks or on successive dates may be made in each instance upon any business day of the week and need not be made in the same Authorized Newspaper for any or all of the successive publications but may be made in a different Authorized Newspaper. (b) If, because of the temporary or permanent suspension of the publication or general circulation of any Authorized Newspaper or for any other reason, it is impossible or impractical to publish any notice pursuant to this Resolution in the manner herein provided, then such publication in lieu thereof as shall be made with the approval of the Trustee shall constitute a sufficient publication of such notice. 1208. Severability of Invalid Provisions. If any one or more of the covenants or agreements provided in this Resolution on the part of the Authority or any Fiduciary to be performed should be contrary to law, then such covenant or covenants or agreement or agreements shall be deemed severable from the remaining covenants and agreements, and shall in no way affect the validity of the other provisions of this Resolution. 1209. Holidays. Except with respect to the computation of a Record Date, if the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Resolution, shall be a legal holiday or a day on which banking institutions in the city in which is located the principal office of the Trustee or the operational office of the Authority are authorized by law to remain closed, such payment may be made or act performed or right exercised on the next succeeding day not a legal holiday or a day on which such banking institutions are authorized by law to remain closed, with the same force and effect as if done on the nominal date provided in this Resolution, and no interest shall accrue for the period after such nominal date. 1210. Registration or Qualification of Series 2008B State Contract Bonds Under Blue Sky Laws of Various Jurisdictions. The Authorized Officers of the Authority are authorized on behalf of the Authority to take any and all action that they deem necessary or advisable in order to effect the registration or qualification (or exemption therefrom) of the Series 2008B State Contract Bonds for issue, offer, sale or trade under the blue sky or securities laws of any of the states of the United States of America and, in connection therewith, to execute, acknowledge, verify, deliver, file or cause to be published any applications, reports (except consents to service of process) and other papers and instruments that 81 82 may be required under such laws, and to take any and all further action that they may deem necessary or advisable in order to maintain any such registration or qualification for as long as they deem necessary or as required by law or by the Underwriters. 1211. Escheat Provision. Anything in the Resolution to the contrary notwithstanding, any moneys held by a fiduciary in trust for the payment and discharge of any of the Bonds which remain unclaimed after the date when such Bonds have become due and payable, either at their stated maturity dates or by call for earlier redemption, if such moneys were held by the fiduciaries at such date, or after the date of deposit of such moneys if deposited with the fiduciaries after the said date when such Bonds became due and payable, shall, be applied, when and as provided in the Uniform Unclaimed Property Act, N.J.S.A. 46:30B-1 et seq., and the fiduciary shall thereupon be released and discharged with respect thereto and the Bondholders shall have such rights as are provided in said Uniform Unclaimed Property Act. ARTICLE XIII BOND FORM AND EFFECTIVE DATE 1301. Form of Bonds, Trustee s Certificate of Authentication. Subject to the provisions of this Resolution, the form of Bonds of each Series and the Trustee s Certificate of Authentication shall be in substantially the form set forth in Section 217 hereof. 1302. Effective Date. This Resolution shall take effect immediately upon its adoption in accordance with the Act. 83 II-22 84

EXHIBIT A FORM OF REQUISITION NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY PROJECT FUND PAYMENT ORDER (the Institution ) Requisition No. _ (Consecutive) Date Dear Sirs: You, as trustee, are hereby requested to make disbursements of funds from the Project Fund established pursuant to the New Jersey Health Care Facilities Financing Authority (the "Authority") Hospital Asset Transformation Program State Contract Bond Resolution (JFK Medical Center Obligated Group Issue), adopted by the Authority on October 23, 2008, as supplemented by a certificate executed by an Authorized Officer of the Authority and approved in writing by the Treasurer of the State of New Jersey making certain determinations in connection with the issuance of the Series 2008B State Contract Bonds (together, the Authorizing Resolution ; capitalized terms used but not defined herein shall have the meanings given them in the Authorizing Resolution), for a Project described in the Loan Agreement between the Authority and the Institution named above. Such disbursements are to be made for the following purposes: Payee & Address Purpose of Payment Amount to be paid Unpaid Balance In connection therewith, we certify that: 1. the above obligation(s) was (were) properly incurred on behalf of the Authority, in connection with the Project and are proper charges against the Project Fund, and 2. such obligation(s) meet(s) the definition of "project cost" or "health care organization project costs" as defined in N.J.S.A. 26:21-3, New Jersey Health Care Facilities Financing Authority Law, and complies in all respects with the terms of the Hospital Asset Transformation Program as set forth at N.J.S.A. 26:2I-7(g), and 3. the amount of the obligation(s) are due and unpaid. DATE: New Jersey Health Care Facilities Financing Authority By: Authorized Officer DATE: The Community Hospital Group, Inc., t/a JFK Medical Center By: Authorized Officer II-23

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APPENDIX III Form of State Contract

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CONTRACT IMPLEMENTING FUNDING PROVISIONS OF THE NEW JERSEY HEALTH CARE FINANCING AUTHORITY LAW, P.L. 1972, c. 29, as amended and supplemented by and between THE TREASURER OF THE STATE OF NEW JERSEY and the NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY STATE CONTRACT BONDS (HOSPITAL ASSET TRANSFORMATION PROGRAM) SERIES 2009 A Dated as of June 18, 2009 III-1

Table of Contents ARTICLE I...3 DEFINITIONS...3 1.1 Definitions....3 ARTICLE II...7 FUNDS AND ACCOUNTS; PAYMENTS...7 2.1 Establishment and Maintenance of Funds; Investment of Funds....7 2.2 Notice to Treasurer....7 2.3 Payments from General Fund...7 2.4 Redemption, Defeasance or Purchase of Bonds...7 2.5 Administrative Expenses-Initial....8 2.6 Rebate Fund...8 2.7 Accounts and Records....8 ARTICLE III...9 ISSUANCE OF BONDS; APPROVALS OF TREASURER...9 3.1 Approvals of Treasurer...9 3.2 Additional Covenants of Authority....9 3.3 Additional Covenants of Treasurer...9 3.4 Authorized Designees...10 ARTICLE IV...11 AUTHORIZED PROJECTS...11 4.1 Authorized Project...11 ARTICLE V...12 SECURITY FOR THE BONDS...12 5.1 Pledge of Agreement Payments...12 5.2 Transfer of Fund Balances...12 ARTICLE VI...13 STATE OBLIGATION SUBJECT TO APPROPRIATIONS...13 6.1 State Obligation Subject to Appropriations...13 ARTICLE VII...14 MISCELLANEOUS...14 7.1 Severability of Invalid Provisions....14 7.2 Governing Law...14 7.3 Amendments and Supplements....14 7.4 Counterparts....14 7.5 Effective Date...15 7.6 Termination....15 7.7 No Personal Liability...15 7.8 Notices...15 7.9 Transfer To Treasurer of Amounts Received from the Borrowers and Held in Trust by the Authority for Benefit of the State....15 Page III-2

CONTRACT IMPLEMENTING FUNDING PROVISIONS OF THE NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY LAW THIS CONTRACT IMPLEMENTING FUNDING PROVISIONS OF THE NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY LAW (the Agreement ) is made as of June 18, 2009, by and between the Treasurer of the State of New Jersey (the Treasurer ) and the New Jersey Health Care Facilities Financing Authority (the Authority ), a public body corporate and politic of the State of New Jersey (the State ) created and existing pursuant to the New Jersey Health Care Facilities Financing Authority Law, P.L. 1972, c.29, N.J.S.A. 26:2I-1 et seq., as heretofore or hereafter from time to time amended and supplemented (the Act ). BACKGROUND WHEREAS, pursuant to the provisions of the Act, the Hospital Asset Transformation Program was created to provide financial assistance by the Authority to nonprofit hospitals in the State in connection with the termination of the provision of hospital acute care services at a specific location or locations that may no longer be necessary or useful for this purpose (the Hospital Asset Transformation Program ); and WHEREAS, the Authority is authorized, subject to the approval of the State Treasurer and pursuant to subsection g of Section 7 of the Act, to issue bonds and refunding bonds secured, in whole or in part, by moneys received pursuant to subsection a. of section 6 of P.L. 2000, c. 98 (C.26:2I-7.1), in order to provide, in connection with the Hospital Asset Transformation Program, any nonprofit health care organization in the State with the funds to satisfy the outstanding bonded indebtedness or any other outstanding indebtedness of any hospital in the State; pay the costs of transitioning a general hospital to a nonprofit, non-acute care health care-related facility, including, but not limited to, construction, renovation, equipment, information technology and working capital; pay the costs related to transitioning acute care and related services from the hospital at which inpatient acute care services are to be terminated to an existing nonprofit general hospital, including, but not limited to, construction, renovation, equipment, information technology and working capital; pay the costs associated with the closure of a general hospital; pay the costs of the acquisition of a general hospital in the State for the purpose of either (i) moving an existing general hospital s services into the acquired hospital and closing the acquirer s inpatient acute care services, or (ii) closing its inpatient acute care services; pay capitalized interest; fund a debt service reserve fund; pay the costs associated with the issuance of any bonds for any of the aforementioned purposes; or pay other costs specifically related to the closure or transition of inpatient acute care services as identified in the contract with the Treasurer; and WHEREAS, The Community Hospital Group, Inc., t/a JFK Medical Center, Hartwyck at Oak Tree, Inc. and Muhlenberg Regional Medical Center, Inc. (each a Borrower and, collectively, the Borrowers ) have determined to undertake (1) various capital improvements to the JFK Medical Center Facilities, including, but not limited to, expansion of inpatient bed capacity and unit renovations, emergency room expansion, operating room renovations and expansion, and other necessary expansions, renovations and improvements, (2) the payment of capitalized interest on a portion of the Series 2009 A Bonds and (3) the refinancing of various series of bonds issued on behalf of, and other indebtedness of, JFK Medical Center, Hartwyck at Oak Tree and Muhlenberg Regional Medical Center, all in connection with the termination of the provision of hospital acute care services at the Muhlenberg Regional Medical Center Hospital Facilities and pursuant to the State s Hospital Asset Transformation Program (the 2009 Project ). III-3

WHEREAS, the Borrowers have applied to the Authority for financial assistance to finance a portion of the costs of the 2009 Project; and WHEREAS, pursuant to the Act and the Authority s Hospital Asset Transformation Program State Contract Bond Resolution (JFK Medical Center Obligated Group Issue), adopted by the Authority on October 23, 2008, as the same may be amended and supplemented from time to time (the Resolution ), the Authority has determined to issue its $152,925,000 State Contract Bonds (Hospital Asset Transformation Program) Series 2009 A (the Series 2009 A Bonds ) and, together with any Refunding Bonds issued under the Resolution, the Bonds ) to (i) provide funds to the Borrowers to pay a portion of the costs of the 2009 Project and (ii) pay the costs of issuing the Series 2009 A State Contract Bonds (collectively, the Project ); and WHEREAS, pursuant to the Act and in order to provide for the payment of debt service on the Bonds issued pursuant to the Resolution, the Authority is authorized to enter into a Contract with the State Treasurer providing for the payment, subject to available legislative appropriations from time to time, of the debt service on such Bonds. NOW, THEREFORE, in consideration of the mutual covenants, undertakings and agreements set forth herein and intending to be legally bound, the Authority and the Treasurer hereby covenant and agree as follows: III-4

ARTICLE I DEFINITIONS 1.1 Definitions. Capitalized terms used but not defined in this Agreement shall have the meanings given to them in the Resolution or the Act, unless a different meaning clearly appears from the context. In addition, the following terms shall have the meanings set forth below. Act shall mean the New Jersey Health Care Facilities Financing Authority Law Act, P.L. 1972, c. 29 as heretofore or hereafter from time to time amended and supplemented. Administrative Expenses-Initial shall mean any Administrative Expenses Ordinary to be paid at the closing for a Series from the proceeds of such Series. Administrative Expenses Ordinary shall mean ordinary costs, liabilities and expenses incurred by the Authority to undertake the Project, including, but not limited to, the fees and expenses of the Trustee, accounting and other usual administrative costs, in an amount pursuant to the budget prepared by the Authority and approved by the Treasurer; provided however that Administrative Expenses Ordinary shall not include the Annual Administrative Fee which shall be paid by the Borrowers under the Loan Agreement.. Authority shall mean the New Jersey Health Care Facilities Financing Authority, a public body corporate and politic constituting an instrumentality of the State, created and existing under and by virtue of the Act, exercising governmental functions, and any body, board, authority, agency or political subdivision or other instrumentality of the State which shall hereafter succeed to the powers, duties and functions thereof. Bond or Bonds shall mean any bonds, including Refunding Bonds, authorized to be issued pursuant to subsection g of Section 7 of the Act (N.J.S.A. 26:2I-7(g)) and authenticated and delivered under and pursuant to the Resolution. Bondholder or Holder of Bonds or Holder shall mean any person who shall be the registered owner of any Bond or Bonds. A Financing Facility Provider which owns Bonds by purchase or is subrogated to the rights of Bondholders is a Bondholder for purposes hereof. Bond Payment Obligations shall mean the Authority s obligation to pay the principal or Redemption Price of and interest on the Bonds, including Bonds held by Financing Facility Providers. Borrower shall have the meaning set forth in the preamble hereto. Borrowers shall have the meaning set forth in the preamble hereto. Debt Service Fund shall mean any Debt Service Fund established in Section 502 of the Resolution. Debt Service Requirements shall mean, with respect to a Payment Date, all Bond Payment Obligations and Financing Facility Payment Obligations coming due and payable on such Payment Date. III-5

Financing Facility shall mean any revolving credit agreement, agreement establishing a line of credit or letter of credit, reimbursement agreement, interest rate exchange agreement, currency exchange agreement, interest rate floor or cap, options, puts or calls to hedge payment, currency, rate, spread or similar exposure or similar agreements, float agreements, forward agreements, insurance contracts, surety bonds, commitments to purchase or sell bonds, purchase or sale agreements, or commitments or other contracts or agreements and other security agreements, including Swaps, approved by an Authorized Officer of the Authority and the Treasurer in connection with the Bonds. Financing Facility Payment Obligations shall mean all payment and reimbursement obligations of the Authority to a Financing Facility Provider in connection with any Financing Facility securing or entered into in connection with all or a portion of any Series of Bonds, and which do not constitute Bond Payment Obligations. Financing Facility Provider shall mean the issuer or provider of a Financing Facility. First Supplemental Indenture shall mean the First Supplemental Indenture dated as of June 1, 2009, by and between JFK Medical Center, on behalf of itself and the other Members of the Obligated Group, and the Master Trustee. General Fund shall mean the General Fund of the State. Loan Agreement shall mean the Loan Agreement dated as of June 1, 2009 between the Authority and the Borrowers, relating to the Bonds, as the same may be amended and supplemented from time to time. Master Indenture shall mean the Master Trust Indenture dated as of June 1, 2009, by and between JFK Medical Center, on behalf of itself and the other Members of the Obligated Group, and the Master Trustee, as supplemented or amended from time to time, including, without limitation, the First Supplemental Indenture. Master Trustee shall mean The Bank of New York Mellon, Woodland Park, New Jersey, as Master Trustee. Obligated Group shall mean all Obligated Issuers (as defined in the Master Indenture). Payment Date shall mean each Interest Payment Date and each date upon which any principal or Redemption Price of any Bonds Outstanding or any payment of a Financing Facility Payment Obligation shall become due and payable. Project shall have the meaning set forth in the preamble hereto. Project Fund shall mean any Project Fund established in Section 502 of the Resolution. Rebate Fund shall mean the Rebate Fund established in Section 502 of the Resolution. Redemption Price shall mean, with respect to any Bond, the principal amount thereof plus the applicable premium, if any, payable upon redemption thereof pursuant to such Bond or the Resolution. Refunding Bonds shall mean all Bonds, whether issued in one or more Series, authenticated and delivered on original issuance pursuant to Section 203 of the Resolution, and any Bonds thereafter III-6

authenticated and delivered in lieu of or in substitution for such Bonds pursuant to Article III or Section 406 or Section 1106 of the Resolution. Resolution shall mean the Authority s Hospital Asset Transformation Program State Contract Bond Resolution (JFK Medical Center Obligated Issue) as from time to time amended or supplemented by Supplemental Resolutions and Series Certificates in accordance with its terms and any resolution, indenture, agreement, or other instrument adopted or entered into by the Authority which provides for the security and payment of the Bonds. Revenue Fund shall mean the Revenue Fund established in Section 502 of the Resolution. Series shall mean all of the Bonds authenticated and delivered on original issuance and identified pursuant to the Supplemental Resolution authorizing such Bonds as a separate Series of Bonds, and any Bonds thereafter authenticated and delivered in lieu of or in substitution for such Bonds pursuant to Article III or Section 406 or Section 1106 of the Resolution, regardless of variations in maturity, interest rate, redemption provisions or other provisions. Series Certificate shall mean a certificate executed by an Authorized Officer of the Authority making certain determinations in connection with the issuance of a Series of Bonds providing for, among other items, the issuance of such Series of Bonds. Each Series Certificate, upon execution and delivery, shall be deemed to be a part of the Resolution. Series 2009 A Bonds shall mean the $152,925,000 initial aggregate principal amount of the Authority s State Contract Bonds (Hospital Asset Transformation Program), Series 2009 A. Series 2009 A State Contract Bonds shall mean the Series 2009 A Bonds. State shall mean the State of New Jersey. State Contract shall mean this Agreement. State Fiscal Year shall mean the fiscal year of the State, being the twelve (12) month period beginning on July 1 of each year and ending on June 30 of the succeeding year. Supplemental Resolution shall mean any resolution supplemental to or amendatory of the Resolution adopted by the Authority in accordance with Article X of the Resolution. Swap or Swap Agreement shall mean any agreement between the Authority and a Swap Provider confirming a transaction which is a rate swap transaction, basis swap, forward rate transaction, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, corridor transaction, currency swap transaction, cross-currency rate swap transaction; currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of such transactions, approved by an Authorized Officer of the Authority and the Treasurer in connection with the Bonds. Swap Provider shall mean the Authority s or the Trustee s counterparty under a Swap Agreement. Treasurer shall mean the Treasurer of the State of New Jersey. Trustee shall mean the Trustee appointed pursuant to the Resolution. III-7

2009 Project shall have the meaning set forth in the preamble hereto. III-8

ARTICLE II FUNDS AND ACCOUNTS; PAYMENTS 2.1 Establishment and Maintenance of Funds; Investment of Funds. The Authority shall establish and maintain with the Trustee the Funds and Accounts required by the Resolution. The Authority and the Treasurer agree that from and after the date of issuance of the Bonds and so long thereafter as any Bonds shall be Outstanding or any Financing Facility Payment Obligations remain unpaid and outstanding, such Funds and Accounts shall be maintained by the Trustee (other than the Program Fund, which shall be held and maintained by the Authority) and shall be held and applied as provided in the Resolution. Such Funds and Accounts shall be invested at the direction of the Treasurer in accordance with the provisions of the Resolution. 2.2 Notice to Treasurer. Promptly following the issuance of each Series of Bonds, the Trustee shall provide the Treasurer with a schedule showing the Debt Service Requirements with respect to such Series and shall provide the Treasurer with written notice at least 20 days prior to each Payment Date setting forth the amount required under the Resolution to be deposited in the Debt Service Fund established thereunder so that the amounts held in such Fund on such Payment Date shall equal the Debt Service Requirements for such Payment Date. 2.3 Payments from General Fund. On or before each Payment Date, the Treasurer shall pay from the General Fund to the Trustee for deposit to the Revenue Fund, to be applied pursuant to the Resolution, the amount required so that the amounts held under the Resolution and available for such purpose shall equal the Debt Service Requirements therefore on such Payment Date. The Treasurer may discharge all or a portion of the obligation to make payments relating to Bond Payment Obligations by delivering to the Trustee for cancellation on or before a Payment Date, the Bonds or a portion thereof on which Bond Payment Obligations are due on such Payment Date. 2.4 Redemption, Defeasance or Purchase of Bonds. The Treasurer on behalf of the State may, at any time in his sole discretion, make payments to the Authority for the purpose of (i) redeeming Bonds pursuant to the exercise by the Authority of any option it may have under the Resolution, or (ii) defeasing Bonds prior to their maturity or redemption date as permitted by and in accordance with the procedures for defeasance set forth in the Resolution, including amounts to pay the expenses of any such redemption or defeasance. Any payments made by the Treasurer to the Authority for the purposes set forth in this section shall, subject to the provisions of the Resolution, be applied by the Authority to such purpose, and, if so directed herein or in the Resolution, shall be deposited in a Fund or Account established under the Resolution or set aside with the Trustee, as shall be provided in the Resolution. Upon payment to the account of the Authority of the amount required therefor and direction by the Treasurer to the Authority to do so, the Authority shall exercise any option it may have under the Resolution to redeem all or any portion of the Bonds and take such other action as may be necessary to effectuate the redemption or defeasance of such Bonds. III-9

2.5 Administrative Expenses-Initial. At the closing of each Series of Bonds, the Trustee shall pay to the Authority from the proceeds of such Series the amount of Administrative Expenses-Initial with respect to such Series. 2.6 Rebate Fund. From time to time, the Treasurer shall pay from the General Fund to the Trustee for deposit to the Rebate Fund the amounts required to make rebate payments to the United States pursuant to Section 148 of the Internal Revenue Code of 1986 (the Rebate Payments ), all as provided in the arbitrage and tax compliance or similar certificates delivered in connection with the issuance of each Series of Bonds or as otherwise advised in writing by Bond Counsel. The Authority shall be responsible for the calculation of Rebate Payments. 2.7 Accounts and Records. The Authority agrees to keep or cause to be kept accounts and records which clearly identify the purposes for which monies received by the Authority, including the proceeds of Bonds and monies received by the Authority pursuant to this Agreement, have been expended. The Authority agrees to make available or cause to be made available for inspection by the Treasurer its accounts and records as may be determined necessary or desirable by the Treasurer. III-10

3.1 Approvals of Treasurer. ARTICLE III ISSUANCE OF BONDS; APPROVALS OF TREASURER No Resolution shall be adopted by the Authority or otherwise made effective authorizing the issuance of Bonds or Refunding Bonds pursuant to subsection g of Section 7 of the Act without the prior written approval of the Treasurer. The issuance of the Series 2009 A State Contract Bonds, any Series of Refunding Bonds, and the approval by the Authority of any Financing Facility shall be subject to the prior written approval of the Treasurer. The Authority shall not, without the prior written approval of the Treasurer, take any of the following actions with respect to any Bonds: (a) (b) (c) (d) (e) (f) (g) (h) (i) exercise any option to redeem Bonds; defease any Bonds; refund any Bonds; adopt any Supplemental Resolution; remove any Trustee or other fiduciary appointed under the Resolution, or appoint any successor trustee or other successor fiduciary under the Resolution; enter into, amend or modify the terms of any Financing Facility; amend or modify the terms of the Loan Agreement; amend or modify the terms of the Master Indenture; and/or approve the Borrowers incurrence of Additional Indebtedness under the Master Indenture. 3.2 Additional Covenants of Authority. The Authority agrees to use its best efforts to take whatever action the Treasurer deems necessary or desirable to effectuate the purposes and provisions of the Act and to request from the Treasurer any approval which is required to be obtained by the Authority pursuant to the Act, the Resolution and this Agreement. 3.3 Additional Covenants of Treasurer. The Treasurer agrees to cooperate with the Authority in the event that it is necessary for the Authority to supplement or amend the Official Statement prepared with respect to the Series 2009 A State Contract Bonds or any other Series of Bonds. III-11

3.4 Authorized Designees. The persons holding the offices listed on Exhibit A attached hereto and made a part hereof are authorized to execute and deliver on behalf of the Treasurer any of the approvals, directions and notices required to be given by the Treasurer under this Agreement or the Resolution. III-12

ARTICLE IV AUTHORIZED PROJECTS 4.1 Authorized Project. The project to be financed or refinanced, in whole or in part, by the Bonds shall be the Project and any Refunding Bonds issued to finance the Project. III-13

5.1 Pledge of Agreement Payments. ARTICLE V SECURITY FOR THE BONDS The parties hereto acknowledge that the Authority intends to pledge and assign this Agreement and all amounts payable hereunder (except amounts in respect of Administrative Expenses and Rebate Payments) to the Trustee for the benefit and security as set forth in the Resolution and to provide in the Resolution terms and provisions upon which the Trustee may enforce the provisions of this Agreement. The Treasurer consents to such pledge and assignment and acknowledges the obligation of the Trustee to enforce the provisions of this Agreement as set forth in the Resolution. 5.2 Transfer of Fund Balances. When provision has been made for the payment of all Bond Payment Obligations, Financing Facility Payment Obligations and all other amounts due under the Resolution in accordance with the Resolution, an Authorized Officer of the Authority shall direct the Trustee to pay over to the State any available balances in the Funds held by the Trustee under the Resolution. III-14

ARTICLE VI STATE OBLIGATION SUBJECT TO APPROPRIATIONS 6.1 State Obligation Subject to Appropriations. IT IS EXPRESSLY UNDERSTOOD BY THE PARTIES HERETO (AND ANY ASSIGNEES) THAT THE INCURRENCE OF ANY OBLIGATION BY THE STATE OR THE TREASURER UNDER THIS AGREEMENT, INCLUDING ANY AND ALL TRANSFERS AND PAYMENTS TO BE MADE HEREUNDER FROM THE GENERAL FUND OF THE STATE, SHALL BE SUBJECT TO AND DEPENDENT UPON APPROPRIATIONS BEING MADE FROM TIME TO TIME BY THE NEW JERSEY STATE LEGISLATURE (THE LEGISLATURE ) FOR THE PURPOSES SET FORTH HEREIN AND IN SUBSECTION g of SECTION 7 OF THE ACT. THE OBLIGATION OF THE STATE OR THE TREASURER TO PAY THE AMOUNTS HEREIN PROVIDED FOR SHALL NOT CONSTITUTE A DEBT OR LIABILITY OF THE STATE WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION OR A PLEDGE OF THE FAITH AND CREDIT OF THE STATE. FOR ALL PURPOSES OF THIS AGREEMENT, THE REFERENCES TO THE STATE SHALL INCLUDE, WITHOUT LIMITATION, THE PRESENT AND ALL FUTURE LEGISLATURES OF THE STATE AND THE MEMBERS THEREOF. III-15

7.1 Severability of Invalid Provisions. ARTICLE VII MISCELLANEOUS If any one or more of the covenants, representations or agreements provided in this Agreement to be performed on the part of the Authority or the Treasurer shall be deemed contrary to law, then such covenant, covenants, representation, representations, agreement or agreements shall be deemed severable from the remaining covenants, representations and agreements contained herein and shall not in any way affect the validity of the other provisions of this Agreement. 7.2 Governing Law. Jersey. This Agreement shall be construed and governed in accordance with the laws of the State of New 7.3 Amendments and Supplements. This Agreement may be amended or supplemented from time to time in writing by the Authority and the Treasurer without the consent of the Trustee, the Bondholders, or any Financing Facility Provider for the following purposes: (a) to cure any ambiguity, supply any omission or cure or correct any other defect or inconsistent provision in this Agreement. (b) to insert such provisions clarifying matters or resolving questions under this Agreement as are necessary or desirable and are not contrary to or consistent with the Agreement as theretofore in effect; (c) to provide such matters as are required in connection with the issuance of Bonds under the Resolution; or (d) to effect any other change which does not materially adversely affect the Pledged Property or the interests of the Bondholders or any Financing Facility Provider. All other amendments to this Agreement shall be made in accordance with the procedures set forth in Article XI of the Resolution; provided, however, that no amendments to this Agreement shall be made which in any manner are contrary to the intent and purpose of this Agreement as theretofore in effect or of the Act as in effect at the time of any proposed amendment. 7.4 Counterparts. This Agreement may be executed and approved in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. III-16

7.5 Effective Date. This Agreement shall become effective immediately upon execution and delivery by the parties. 7.6 Termination. This Agreement shall terminate on the date next following the earlier of (i) the latest maturity date of the Bonds; or (ii) redemption or defeasance of all of the Bonds Outstanding; provided that there shall be no termination on that date unless the Authority shall have paid or made provision for payment in accordance with the terms of the Resolution all payment obligations under the Resolution and all other requirements of the Resolution shall have been satisfied, and the lien of the Resolution has been defeased and discharged. 7.7 No Personal Liability. None of the signatories to this Agreement shall have any personal liability or accountability as a result of their execution of this Agreement. 7.8 Notices. Any notice to, or other instrument to be filed with, or demand upon the Trustee may be served, presented or made by being hand-delivered or sent by registered or certified United States mail or overnight courier service addressed to the principal corporate trust office of the Trustee at 385 Rifle Camp Road, Woodland Park, New Jersey or such other address as shall then serve as its principal corporate trust office. Any notice to, or other instrument to be filed with, or demand upon the Authority shall be deemed to have been sufficiently given or served, presented or made by the Trustee or others for all purposes by being hand-delivered or sent by registered or certified United States mail or overnight courier service addressed to the Authority at Station Plaza Building #4, 22 South Clinton Avenue, Trenton, New Jersey, or at such other address as may be filed in writing by an Authorized Officer of the Authority with the Trustee. Any notice to, or other instrument to be filed with, or demand upon the Treasurer shall be deemed to have been sufficiently given or served, presented or made by the Trustee or others for all purposes by being hand-delivered or sent by registered or certified United States mail or overnight courier service addressed to the Treasurer in care of the Office of Public Finance at 50 West State Street, 5 th Floor, P.O. Box 005, Trenton, New Jersey 08625, or at such other address as may be filed in writing by the Treasurer with the Trustee; except that service of process upon the Treasurer shall be made upon the Attorney General of New Jersey pursuant to New Jersey Court Rule 4:4-4(a). 7.9 Transfer To Treasurer of Amounts Received from the Borrowers and Held in Trust by the Authority for Benefit of the State. The Authority shall transfer to the Treasurer, not less than fifteen (15) days prior to each Payment Date, for deposit into the General Fund, amounts (if any) received by the Authority from the Borrowers pursuant to Section 5.3(a) and 5.4(c) of the Loan Agreement; provided, however, that such transfer shall not reduce the obligations of the Treasurer hereunder. All amounts received by the Authority from the Borrowers pursuant to Section 5.3(a) and 5.4(c) of the Loan Agreement shall be held by the Authority in a separate trust fund account for the exclusive benefit of the State. Interest earnings on such amounts shall be credited against payments to be made by the Borrowers to the Authority pursuant to the terms of the Loan Agreement. Notwithstanding anything to the contrary contained herein or in the Resolution, the amounts paid to the State by the Authority under this provision do not constitute Pledged Property under the Resolution. III-17

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first written above. TREASURER, STATE OF NEW JERSEY R. David Rousseau State Treasurer NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY By: Mark E. Hopkins Executive Director [SIGNATURE PAGE TO CONTRACT IMPLEMENTING FUNDING PROVISIONS OF THE NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY LAW] III-18

EXHIBIT A AUTHORIZED DESIGNEES OF STATE TREASURER Deputy State Treasurer Director, Office of Public Finance III-19

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APPENDIX IV Form of Continuing Disclosure Agreement

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CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the Disclosure Agreement ) is made as of the 18th day of June, 2009 by and among the Treasurer of the State of New Jersey (the Treasurer ), the New Jersey Health Care Facilities Financing Authority (the Authority ), a public body corporate and politic of the State of New Jersey (the State ) and The Bank of New York Mellon, as Dissemination Agent (the Dissemination Agent ), in its capacity as trustee under the Hospital Asset Transformation Program State Contract Bond Resolution (JFK Medical Center Obligated Group Issue) adopted by the Authority on October 23, 2008, as amended and supplemented from time to time (the Resolution ). This Disclosure Agreement is entered into in connection with the issuance and sale of the Authority s $152,925,000 State Contract Bonds (Hospital Asset Transformation Program), Series 2009 A (the Series 2009 A Bonds ). SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered for the benefit of the holders and beneficial owners of the Series 2009 A Bonds (collectively, the "Bondholders") and in compliance with Rule 15c2-12(b)(5) of the Securities and Exchange Commission (the SEC )), as it may be amended from time to time, including administrative or judicial interpretations thereof, as it applies to the Series 2009 A Bonds. SECTION 2. Definitions. In addition to the definitions set forth above and in the Resolution, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined herein, the following capitalized terms shall have the following meanings: Central Post Office shall mean, in accordance with the SEC Interpretive Letter, an internetbased filing system where issuers of tax-exempt bonds and other filers on behalf of such issuers can upload for immediate transmission to the Repositories information and notices required to be filed with the Repositories pursuant to continuing disclosure undertakings designed to assist underwriters in complying with the Rule. Continuing Disclosure Information shall mean, collectively, (i) each Treasurer s Annual Report, (ii) any notice required to be filed with the Repositories and the MSRB pursuant to Section 3(c) of this Disclosure Agreement, and (iii) any notice of a Listed Event required to be filed with the Repositories or the MSRB pursuant to Section 5(c) of this Disclosure Agreement. Effective Date shall mean the effective date of any amendment to the Rule adopted by the SEC which would require the Continuing Disclosure Information to be submitted to or filed with the MSRB in lieu of filing such Continuing Disclosure Information with the Repositories or the Central Post Office as set forth in this Disclosure Agreement. As of the date of this Disclosure Agreement, the Rule has been amended pursuant to SEC Release No. 34-59062 to require that, from and after July 1, 2009, the Continuing Disclosure Information must be electronically submitted to the MSRB in lieu of filing such Continuing Disclosure Information with the Repositories or the Central Post Office. Listed Events shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. MSRB shall mean the Municipal Securities Rulemaking Board. National Repository shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. As of the date of this Disclosure Agreement, the following are National Repositories: IV-1

Bloomberg Municipal Repository 100 Business Park Drive Skillman, New Jersey 08558 Phone: 609.279.3225 Fax: 609.279.5962 Email: munis@bloomberg.com www.bloomberg.com/markets/rates/municontacts.html Interactive Data Pricing and Reference Data, Inc. Attn: NRMSIR 100 William Street, 15th Floor New York, NY 10038 Phone: 212-771-6999; 800-689-8466 Fax: 212-771-7390 Email: nrmsir@interactivedata.com www.interactivedata-prd.com DPC Data, Inc. One Executive Drive Fort Lee, New Jersey 07024 Phone: 201.346.0701 Fax: 201.947.0107 Email: nrmsir@dpcdata.com www.munifilings.com Standard & Poor's Securities Evaluations, Inc. 55 Water Street 45th Floor New York, NY 10041 Phone: (212) 438-4595 Fax: (212) 438-3975 Email: nrmsir_repository@sandp.com www.disclosuredirectory.standardandpoors.com "Opinion of Counsel" shall mean a written opinion of counsel expert in federal securities law acceptable to both the Treasurer and the Authority. "Repository" shall mean each National Repository and each State Depository, if any. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the SEC under the Securities Exchange Act of 1934, as it may be amended from time to time, including administrative or judicial interpretations thereof, as it applies to the Series 2009 A Bonds. SEC means the Securities and Exchange Commission. SEC Interpretive Letter shall mean the SEC s Interpretive Letter dated September 7, 2004 regarding www.disclosureusa.org - Texas Municipal Advisory Council s Central Post Office, Disclosure USA. 2008. SEC Release No. 34-59062 shall mean Release No. 34-59062 of the SEC dated December 5, State Depository shall mean any public or private depository or entity designated by the State as a state depository for the purpose of the Rule. As of the date of this Disclosure Agreement, there is no State Depository. Treasurer s Annual Report shall mean the Treasurer's Annual Report provided pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. IV-2

SECTION 3. Provision of the Treasurer s Annual Report. (a) The Treasurer shall, no later than March 15, 2010 and March 15 of each year during which any of the Series 2009 A Bonds remain Outstanding, provide to the Dissemination Agent the Treasurer's Annual Report prepared for the fiscal year of the State ending the immediately preceding June 30 or if the fiscal year of the State shall end on any date other than June 30, the Treasurer shall provide the Treasurer s Annual Report to the Dissemination Agent not later than the fifteenth day of the ninth month next following the end of such other fiscal year; provided, however, that the audited financial statements of the State may be submitted separately from the Treasurer s Annual Report and later than the date required herein for the filing of the Treasurer s Annual Report if such audited financial statements are not available by such date, but only if the unaudited financial statements are included in such respective Treasurer s Annual Report. Each Treasurer s Annual Report provided to the Dissemination Agent by the Treasurer shall comply with the requirements of Section 4 of this Disclosure Agreement but may be submitted as a single document or as separate documents comprising a package. In addition, prior to the Effective Date, each Treasurer s Annual Report may cross-reference other information which has been submitted to the Repositories, and, if the document incorporated by reference is a final official statement, it must be available from the MSRB. On or after the Effective Date, each Treasurer s Annual Report may cross-reference other information which is available to the public on the MSRB s internet website or which has been filed with the SEC. (b) The Dissemination Agent, promptly on receiving the Treasurer's Annual Report, and, in any event, not later than April 1 in each year (or if the fiscal year of the State shall end on any date other than June 30, not later than the first day of the tenth month next following the end of such other fiscal year), shall submit such Treasurer s Annual Report received by it to each Repository. (c) If the Treasurer fails to submit the Treasurer s Annual Report to the Dissemination Agent by the date required in subsection (a) of this Section 3, the Dissemination Agent shall send a notice to the Treasurer and the Authority advising of such failure. Whether or not such notice is given or received, if the Treasurer thereafter fails to submit the Treasurer s Annual Report to the Dissemination Agent by the last Business Day of the month in which such Treasurer s Annual Report was due, the Dissemination Agent shall promptly send a notice to (i) each National Repository and the MSRB, and (ii) the State Depository, if any, in substantially the form attached as Exhibit A hereto. (d) (i) Notwithstanding anything to the contrary contained in this Disclosure Agreement, in order to expedite the transmission of the Treasurer s Annual Report to the Repositories, as set forth in subsections (a), (b) and (c) of this Section 3, the Treasurer shall have the option, but shall not be obligated, to submit the Treasurer s Annual Report directly to the Repositories not later than March 15 in each year (or if the fiscal year of the State shall end on any date other than June 30, not later than the fifteenth day of the ninth month next following the end of such other fiscal year). In the event that the Treasurer elects to submit the Treasurer s Annual Report directly to the Repositories, the Treasurer shall, at the same time, submit the Treasurer s Annual Report to the Dissemination Agent together with evidence that such Treasurer s Annual Report has been forwarded by the Treasurer to the Repositories, upon which evidence the Dissemination Agent may rely. In the event that the Treasurer elects not to submit the Treasurer s Annual Report directly to the Repositories, the Treasurer shall provide the Treasurer s Annual Report to the Dissemination Agent within the time period specified in subsection (a) of this Section 3. (ii) If the Dissemination Agent does not receive notice that the Treasurer has submitted the Treasurer s Annual Report directly to the Repositories as permitted in subsection (d)(i) of this Section 3 by the last Business Day of the month in which such Treasurer s Annual Report was due, the Dissemination Agent shall promptly send a notice to (i) each National Repository and the MSRB, and (ii) the State Depository, if any, in substantially the form attached as Exhibit A hereto. IV-3

SECTION 4. Contents of the Treasurer s Annual Report. (a) Treasurer s Annual Report means: (i) information pertaining to the finances and operating data of the State substantially of the type captioned as follows in Appendix I to the Official Statement of the Authority circulated in connection with the issuance of the Series 2009 A Bonds: "STATE FINANCES", "FINANCIAL RESULTS AND ESTIMATES", "OUTSTANDING BONDED INDEBTEDNESS OF THE STATE", "TAX AND REVENUE ANTICIPATION NOTES", "OBLIGATIONS SUPPORTED BY STATE REVENUE SUBJECT TO ANNUAL APPROPRIATION", MORAL OBLIGATION FINANCING, "STATE EMPLOYEES", "FUNDING PENSION PLANS," FUNDING POST- RETIREMENT MEDICAL BENEFITS and "LITIGATION", and (ii) "COMPREHENSIVE ANNUAL FINANCIAL REPORT", being the audit report prepared annually by the Office of the State Auditor with respect to the State's general purpose financial statements for each year, as set forth in Appendix A attached to such Appendix I described above, all such financial information included in clause (ii) above being prepared using the accounting standards set forth in subsection (b) of this Section 4. (b) The State prepares its financial statements in accordance with the provisions of Statements No. 34 and No. 35 of the Governmental Accounting Standards Board. SECTION 5. Reporting of Significant Events. (a) This Section 5 shall govern the giving of notices of the occurrence of any of the following listed events, if material (the "Listed Events"), if material: (1) Principal and interest payment delinquencies; (2) Non-payment related defaults; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; (4) Unscheduled draws on credit enhancements reflecting financial difficulties; (5) Substitution of credit or liquidity providers, or their failure to perform; (6) Adverse tax opinions or events affecting the tax-exempt status of the Series 2009 A Bonds; (7) Modification to rights of Bondholders; (8) Bond calls, other than mandatory, scheduled sinking fund redemptions, not otherwise contingent upon the occurrence of an event, the terms of which are set forth in the final official statement of the Authority circulated in connection with the issuance of the Series 2009 A Bonds and notice of which is provided to the Owners of the Series 2009 A Bonds pursuant to the Resolution; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the Series 2009 A Bonds; and (11) Rating changes. IV-4

(b) The Treasurer shall promptly upon obtaining actual knowledge from the Authority or otherwise, of the occurrence of any of the Listed Events which are material (except events listed in subsections (a)(8) or (9) of this Section 5 which shall be deemed hereby to be material), notify the Dissemination Agent in writing to report the event pursuant to subsection (c) of this Section 5. The Authority shall promptly upon obtaining actual knowledge of the occurrence of any of the Listed Events which are material (except events listed in subsections (a)(8) or (9) of this Section 5 which shall be deemed hereby to be material), notify the Treasurer in writing of the occurrence of such event, but shall not be required to give any such notice to the Dissemination Agent. In determining the materiality of any of the Listed Events specified in subsection (a) of this Section 5, the Treasurer and the Authority may, but shall not be required to, rely conclusively on an Opinion of Counsel. (c) If the Dissemination Agent has been instructed in writing by the Treasurer to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with (i) each National Repository or with the MSRB, and (ii) the State Depository, if any, within five (5) Business Days of the receipt of such instruction. In addition, notice of Listed Events described in subsections (a)(8) and (9) of this Section 5 shall be given by the Dissemination Agent under this subsection simultaneously with the giving of the notice of the underlying event to Holders of affected Series 2009 A Bonds pursuant to the Resolution. (d) Notwithstanding anything to the contrary in this Disclosure Agreement, in order to expedite the transmission of the occurrence of Listed Events as set forth in this Section 5, the Treasurer shall have the option, but shall not be obligated to, file timely notice directly with (i) each National Repository or with the MSRB, and (ii) the State Depository, if any, copying the Dissemination Agent on any such notice. SECTION 6. Termination of Reporting Obligation. The respective obligations of the Treasurer and the Authority under this Disclosure Agreement shall terminate upon the defeasance, prior redemption or payment in full of all of the Series 2009 A Bonds, or when the Treasurer or the Authority is no longer an Obligated Person (as defined in the Rule) with respect to the Series 2009 A Bonds. SECTION 7. Amendment; Waiver. Notwithstanding any other provisions of this Disclosure Agreement, the Authority and the Treasurer may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, if such amendment or waiver is supported by an Opinion of Counsel addressed to the Treasurer, the Authority and the Dissemination Agent to the effect that such amendment or waiver will not, in and of itself, cause the undertakings herein to violate the Rule. No amendment to this Disclosure Agreement shall change or modify the rights or obligations of the Dissemination Agent without its written assent thereto. SECTION 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Treasurer or the Authority from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Treasurer s Annual Report or notice of occurrence of a Listed Event, as the case may be, in addition to that which is required by this Disclosure Agreement. If the Treasurer or the Authority chooses to include any information in any Treasurer s Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, it shall not have any obligation under this Disclosure Agreement to update or continue to provide such information or include it in any future Treasurer s Annual Report or notice of occurrence of a Listed Event. SECTION 9. Default. (a) In the event of a failure of the Treasurer or the Authority to comply with any provision of this Disclosure Agreement, the Dissemination Agent may (and, at the written request of the Holders of at least 25% in aggregate principal amount of Outstanding Bonds affected by such failure, shall), or any Bondholder may take such actions as may be necessary and appropriate to cause the Treasurer or the Authority, to comply with its obligations under this Disclosure Agreement; provided, however, that no person or entity shall be entitled to recover monetary damages hereunder under any circumstances. Notwithstanding IV-5

the foregoing, the right of any Bondholder to challenge the adequacy of information provided pursuant to this Disclosure Agreement shall be limited in the same manner as enforcement rights are limited under the Resolution. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosure Agreement in the event of any failure of the Treasurer or the Authority to comply with this Disclosure Agreement shall be an action to compel performance. (b) For purposes of this Disclosure Agreement, in making determinations under applicable securities law, the Treasurer or the Authority may, but shall not be required to, rely on an Opinion of Counsel with respect to matters of a legal nature. SECTION 10. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Dissemination Agent and the Bondholders, and each Bondholder is hereby declared to be a third party beneficiary of this Disclosure Agreement. Except as provided in the immediately preceding sentence, this Disclosure Agreement shall create no rights in any other person or entity. SECTION 11. Reimbursement of the Dissemination Agent. The provisions of Section 905 of the Resolution relating to reimbursement of the Dissemination Agent, shall apply to the performance by the Dissemination Agent of its obligations as Dissemination Agent under this Disclosure Agreement. SECTION 12. Central Post Office. Notwithstanding anything herein contained to the contrary, but subject to the provisions of Section 13 of this Disclosure Agreement, the Treasurer may file, or cause to be filed, with the Central Post Office, by transmitting such filing to the Texas Municipal Advisory Council as provided at http://www.disclosureusa.org, the Treasurer s Annual Report and any notices necessary to be filed hereunder in lieu of making such filings with the Repositories for so long as the filing of the Treasurer s Annual Reports and notices with the Central Post Office is an undertaking described in paragraph (b)(5)(i) of the Rule, as determined by the SEC in the SEC Interpretive Letter and such interpretive advice shall not have been withdrawn or revoked by the SEC. The Dissemination Agent may assume that the SEC Interpretive Letter is in full force and effect unless (i) advised by the Treasurer or the Authority to the contrary or (ii) the Dissemination Agent has actual knowledge that the SEC Interpretive Letter has been withdrawn or revoked. SECTION 13. Submission of Information to MSRB. Notwithstanding anything herein contained to the contrary, from and after the Effective Date, (i) any Continuing Disclosure Information required or permitted to be filed by the Treasurer and/or the Dissemination Agent with any Repository or the Central Post Office pursuant to the terms of this Disclosure Agreement shall, in lieu of being filed with any Repository or the Central Post Office, be electronically submitted to, or otherwise filed with, the MSRB as required or as may be permitted by the Rule, and (ii) any references in this Disclosure Agreement to the filing of any Continuing Disclosure Information with any Repository or the Central Post Office shall be deemed null and void and no longer of any force or effect and shall be deemed to refer to the MSRB. Any Continuing Disclosure Information filed with the MSRB in accordance with the preceding sentence shall be in an electronic format as shall be prescribed by the MSRB or such other format as the Rule may require or permit, and shall be accompanied by such identifying information as shall be prescribed by the MSRB or as may otherwise be required by the Rule. SECTION 14. Notices. All notices and other communications required or permitted under this Disclosure Agreement shall be in writing and shall be deemed to have been duly given, made and received only when delivered (personally, by recognized national or regional courier service, or by other messenger, for delivery to the intended addressee) or when deposited in the United States mail, registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below: IV-6

(i) If to the Authority: New Jersey Health Care Facilities Financing Authority P.O. Box 366 Trenton, New Jersey 08625-0366 Attn: Mark Hopkins, Executive Director (ii) If to the Treasurer: New Jersey Department of the Treasury c/o Office of Public Finance 50 West State Street, 5 th Floor P.O. Box 005 Trenton, New Jersey 08625 Attn: Director, Office of Public Finance (iii) If to the Dissemination Agent: The Bank of New York Mellon 385 Rifle Camp Road Woodland Park, New Jersey 07424 Attn: Corporate Trust Any party may alter the address to which communications are to be sent by giving notice of such change of address in conformity with the provisions of this Section 14 for the giving of notice. SECTION 15. Successors and Assigns. All of the covenants, promises and agreements contained in this Disclosure Agreement by or on behalf of the Treasurer, the Authority or the Dissemination Agent shall bind and inure to the benefit of their respective successors and assigns, whether so expressed or not. SECTION 16. Headings for Convenience Only. The descriptive headings in this Disclosure Agreement are inserted for convenience of reference only and shall not control or affect the meaning or construction of any of the provisions hereof. SECTION 17. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 18. Severability. If any provision of this Disclosure Agreement, or the application of any such provision in any jurisdiction or to any person or circumstance, shall be held invalid or unenforceable, the remaining provisions of this Disclosure Agreement, or the application of such provision as is held invalid or unenforceable in jurisdictions or to persons or circumstances other than those in or as to which it is held invalid or unenforceable, shall not be affected thereby. SECTION 19. Governing Law and Venue. This Disclosure Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey. The parties hereto agree that the Authority, the Treasurer or the State may be sued, pursuant to Section 9 hereof, only in a State court in the County of Mercer, in the State of New Jersey. SECTION 20. Compliance with L. 2005, c. 271. The Dissemination Agent hereby acknowledges that it has been advised of its responsibility to file an annual disclosure statement on political contributions with the New Jersey Election Law Enforcement Commission ( ELEC ) pursuant to N.J.S.A. 19:44A-20.13 (L. 2005, c. 271, section 3) if the Dissemination Agent enters into agreements or contracts, IV-7

such as this Disclosure Agreement, with a public entity, such as the Authority, and receives compensation or fees in excess of $50,000 or more in the aggregate from public entities, such as the Authority, in a calendar year. It is the Dissemination Agent s responsibility to determine if filing is necessary. Failure to do so can result in the imposition of financial penalties by ELEC. Additional information about this requirement is available from ELEC at 888-313-3532 or at www.elec.state.nj.us. SECTION 21. Compliance with L. 2005, c. 92. In accordance with L. 2005, c. 92, the Dissemination Agent agrees that all services performed under this Disclosure Agreement or any subcontract awarded under this Disclosure Agreement shall be performed within the United States of America. IV-8

IN WITNESS WHEREOF, the parties hereto have caused this Disclosure Agreement to be executed and delivered by their proper and duly authorized officers as of the day and year first above written. TREASURER, STATE OF NEW JERSEY R. David Rousseau Treasurer, State of New Jersey NEW JERSEY HEALTH CARE FACILITIES FINANCING AUTHORITY By: Mark E. Hopkins Executive Director THE BANK OF NEW YORK MELLON, Dissemination Agent By: Christopher J. Grell Vice President [SIGNATURE PAGE TO CONTINUING DISCLOSURE AGREEMENT] IV-9

EXHIBIT A NOTICE OF FAILURE TO FILE AN ANNUAL REPORT Name of Authority: Name of Bond issue affected: New Jersey Transportation Trust Fund Authority $150,925,000 State Contract Bonds (Hospital Asset Transformation Program), Series 2009 A Date of Issuance of the affected Bond issue: June 18, 2009 NOTICE IS HEREBY GIVEN that the Treasurer of the State of New Jersey has not provided a Treasurer s Annual Report with respect to the above named Bond issue as required by Section 3 of the Continuing Disclosure Agreement dated June 18, 2009, among the Treasurer, the Authority and the Dissemination Agent. [TO BE INCLUDED ONLY IF THE DISSEMINATION AGENT HAS BEEN ADVISED OF THE EXPECTED FILING DATE - The Treasurer anticipates that the specified Treasurer s Annual Report will be filed by.] Dated: [DISSEMINATION AGENT] cc: State Treasurer Executive Director IV-10

APPENDIX V Form of Bond Counsel Opinion

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[Closing Date] New Jersey Health Care Facilities Financing Authority 22 South Clinton Avenue Trenton, NJ 08609 The Honorable R. David Rousseau Treasurer, State of New Jersey State House Trenton, New Jersey 08625 RE: New Jersey Health Care Facilities Financing Authority $152,925,000 State Contract Bonds (Hospital Asset Transformation Program), Series 2009 A Ladies and Gentlemen: We have served as Bond Counsel to the New Jersey Health Care Facilities Financing Authority (the Authority ) in connection with the issuance by the Authority of its $152,925,000 State Contract Bonds (Hospital Asset Transformation Program), Series 2009A (the Bonds ). The Bonds are being issued under and pursuant to the Constitution and laws of the State of New Jersey (the State ) including, particularly, the New Jersey Health Care Facilities Financing Act, constituting Chapter 29 of the Pamphlet Laws of 1972 of the State, as amended and supplemented (the Act ), and pursuant to the Hospital Asset Transformation Program State Contract Bond Resolution (JFK Medical Center Obligated Group Issue), adopted by the Authority on October 23, 2008 (the Authorizing Resolution ), and a certificate executed by an Authorized Officer of the Authority and approved in writing by the Treasurer of the State of New Jersey (the Treasurer ) making certain determinations in connection with the issuance of the Bonds (the Series 2009 Certificate and, together with the Authorizing Resolution, the Resolution ; capitalized terms used but not defined herein shall have the meanings given them in the Resolution). The Bonds bear interest at the fixed rates, mature and are subject to redemption prior to maturity as set forth in the Official Statement, dated June 11, 2009, relating to the Bonds (the Official Statement ). The Bonds are being issued only as fully registered bonds in denominations of $5,000 or any integral multiple thereof. The Bonds are being issued for the purpose of providing funds under the Hospital Asset Transformation Program for the costs of a certain project (the Project ) consisting of: (1) various capital V-1

New Jersey Health Care Facilities Financing Authority Treasurer, State of New Jersey [Closing Date] Page 2 improvements to the JFK Medical Center Facilities, including, but not limited to, expansion of inpatient bed capacity and unit renovations, emergency room expansion, operating room renovations and expansion, and other necessary expansions, renovations and improvements, (2) the payment of capitalized interest on a portion of the Bonds, (3) the refinancing of various series of bonds issued on behalf of, and other indebtedness of, JFK Medical Center, Hartwyck at Oak Tree and Muhlenberg Regional Medical Center, all in connection with the termination of the provision of hospital acute care services at the Muhlenberg Regional Medical Center Hospital Facilities and pursuant to the State s Hospital Asset Transformation Program and (4) costs of issuance of the Bonds. The proceeds of the Bonds will be loaned by the Authority to The Community Hospital Group, Inc., t/a JFK Medical Center, a New Jersey nonprofit corporation, Hartwyck at Oak Tree, Inc., a New Jersey nonprofit corporation, and Muhlenberg Regional Medical Center, Inc., a New Jersey nonprofit corporation (collectively the Borrowers ) for the purpose of undertaking the Project, pursuant to a Loan Agreement, dated as of June 1, 2009, by and between the Authority and the Borrowers (the Loan Agreement ). The Authority and the Treasurer (the Treasurer ) of the State of New Jersey (the State ) have entered into a Contract Implementing Funding Provisions of the New Jersey Health Care Facilities Financing Authority Law, P.L. 1972, c. 29, as amended and supplemented, dated as of June 1, 2009 (the State Contract ), pursuant to which the Treasurer is obligated to make payments from the General Fund of the State to the Authority in amounts sufficient to pay the principal or Redemption Price of and interest on the Bonds (including Bonds held by financing facility providers), when due, subject to and dependent upon appropriations being made from time to time by the Legislature of the State (the State Legislature ) for such purpose. The Authority has transferred and assigned to The Bank of New York Mellon, as trustee for the Bonds (the Trustee ) all of its right, title and interest in the Pledged Property (as defined in the Resolution) which includes payments to be made in respect of debt service on the Bonds by the Treasurer under the State Contract. We have examined the proceedings relating to the authorization and issuance of the Bonds, including, among other things: (a) the Act and the Articles of Incorporation and By-Laws of the Authority; (b) a copy of the Resolution; (c) executed counterparts of the Series 2009 Certificate, the Loan Agreement and the State Contract; (d) the opinion(s) of McCarter & English, LLP, counsel to the Borrowers on which we have relied, among other things, as to the Borrowers qualification as organizations described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the Code ), and the regulations promulgated thereunder; (e) certificates executed by the Authority and the Trustee as to the execution and authentication of the Bonds; (f) various other certificates executed by the Authority and the Borrower, including certificates with regard to Sections 103 and 141 through 150 of the Code; and (g) the Form 8038, Information Return for Private Activity Bond Issues of the Authority with respect to the Bonds. In rendering our opinion, we have not undertaken to verify the factual matters set forth in such opinion, agreements, certificates and other documents by independent investigation and have relied on the covenants, warranties and representations made by the Authority and the Borrowers in such certificates and in the Resolution, the Loan Agreement, the State Contract, the Series 2009 Certificate and other financing documents. V-2

New Jersey Health Care Facilities Financing Authority Treasurer, State of New Jersey [Closing Date] Page 3 Based on the foregoing and as set forth below, we are of the opinion that: 1. The Authority is a public body, corporate and politic, constituting an instrumentality of the State, is duly created and validly existing under the Act, and has full power and authority under the Act to adopt the Resolution and to enter into the State Contract, to perform its obligations thereunder, and to issue and sell the Bonds. 2. The Resolution has been duly adopted by the Authority, is in full force and effect and constitutes the legal, valid and binding obligation of the Authority enforceable in accordance with its terms, except as such enforcement may be limited by laws relating to bankruptcy, insolvency, reorganization, arrangement, moratorium or similar laws affecting creditors rights generally and subject to limitations on legal remedies against public entities in the State, to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and to the exercise of judicial discretion in appropriate cases. 3. The Resolution creates the valid pledge which it purports to create of the Pledged Property, including all payments made to the Authority by the Treasurer from the General Fund of the State as provided in the Act and the State Contract, subject to and dependent upon appropriations being made from time to time by the State Legislature for such purpose. 4. The Bonds have been duly and validly authorized, executed, issued and delivered by the Authority in accordance with the Constitution and the statutes of the State, including the Act and the Resolution, and are entitled to the benefit and security of the Act and the Resolution. The Bonds are legal, valid and binding, special obligations of the Authority enforceable in accordance with their terms. 5. The State Contract has been validly authorized, executed and delivered by the Authority and the Treasurer, is in full force and effect and constitutes the legal, valid and binding obligation of the Authority and the Treasurer, enforceable in accordance with its terms. The Bonds are entitled to the benefit of the State Contract. Payments to the Authority by the Treasurer pursuant to the State Contract are subject to and dependent upon appropriations being made from time to time by the State Legislature for such purpose. The State Legislature has no legal obligation to make such appropriations. 6. The Internal Revenue Code of 1986, as amended (the "Code") establishes certain requirements which must be met subsequent to the issuance and delivery of the Bonds in order that interest on the Bonds be and remain excludable from the gross income of the owners thereof for federal income tax purposes. These requirements include, but are not limited to, requirements relating to use and expenditure of proceeds, yield and other restrictions on investments of gross proceeds, and the arbitrage rebate requirement that certain excess earnings on investments of gross proceeds of the Bonds be rebated to the Federal government. The failure to comply with such provisions may cause interest on the Bonds to be or become includable in gross income for federal income tax purposes retroactive to the date of issuance and delivery of the Bonds. In their respective Arbitrage and Tax Certificates (each a "Tax Certificate" and, collectively, the Tax Certificates ), which are delivered in connection with the issuance of the Bonds, the Authority has represented that it expects and intends to be able to comply with, and will, to the extent V-3

New Jersey Health Care Facilities Financing Authority Treasurer, State of New Jersey [Closing Date] Page 4 permitted by law, comply with, and the Borrowers have covenanted that they will comply with, the provisions and procedures set forth in their respective Tax Certificates and do and perform all acts and things necessary or desirable in order to assure that, under the Code as presently in effect, interest on the Bonds will, for purposes of Federal income taxation, be excludable from the gross income of the recipients thereof. In rendering the opinion set forth in this Paragraph 6, we have assumed the Authority's and the Borrowers compliance with the applicable provisions of their respective Tax Certificates. We have also assumed the Treasurer s compliance with Section 2.6 of the State Contract (relating to the calculation and payment of Rebate Payments). Pursuant to the applicable provisions of the Code and related rulings, regulations and judicial decisions, interest on the Bonds is not included in gross income for Federal income tax purposes and is not an item of tax preference to be included in calculating alternative minimum taxable income under the Code for purposes of the alternative minimum tax imposed with respect to individuals and corporations. We are also of the opinion that, pursuant to the American Recovery and Reinvestment Act of 2009, P.L. 111-5, interest on the Bonds held by corporate taxpayers is not included in "adjusted current earnings" in calculating alternative minimum taxable income for purposes of the federal alternative minimum tax imposed on corporations. We are further of the opinion that the difference between the principal amount of the Bonds maturing on October 1 in each of the years 2024 and 2031 (the Discount Bonds ) and their respective initial offering prices to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which prices a substantial amount of such Discount Bonds of the same maturity was sold, constitutes original issue discount which is excluded from gross income for Federal income tax purposes to the same extent as interest on the Discount Bonds. Further, such original issue discount accrues actuarially on a constant interest rate basis over the term of each Discount Bond, and the basis of each Discount Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount. The Bonds maturing October 1, 2013 (the Premium Bonds ) are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over such Premium Bond s term using constant yield principles, based on the purchaser s yield to maturity or, in the case of Premium Bonds callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser s yield to the call date and giving effect to the call premium. As premium is amortized, it offsets the interest allocable to the corresponding payment period and the purchaser s basis in such Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser s basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult with their tax advisors with respect to the determination and treatment of amortizable premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. No opinion is expressed, however, as to the extent the accrual or receipt of interest on the Bonds V-4

New Jersey Health Care Facilities Financing Authority Treasurer, State of New Jersey [Closing Date] Page 5 may otherwise affect the federal income tax liability of or other consequences to the recipients thereof, which will depend on each recipient's particular tax status and other items of income or deduction. We are also of the opinion that, under existing law, interest on and any gain realized on the sale of any Bonds are not includable in gross income under the existing New Jersey Gross Income Tax Act. The foregoing opinions are qualified to the extent that the enforceability of the Resolution, the State Contract, the Bonds and all related obligations of the various parties thereto may be limited as to remedies by any applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium and similar laws of general application at the time in effect and by judicial decisions and principles of equity affecting creditors rights generally and judicial discretion. In addition, we wish to advise you that no opinion is being rendered as to the availability of any particular remedy under the Resolution, the State Contract or the Bonds. From and after the date hereof, certain requirements and procedures contained or referred to in the Resolution or the Tax Certificates and other relevant documents may be changed and certain actions may be taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of other counsel. We express no opinion as to any Bond if any such change occurs or action is taken upon the advice or approval of such other counsel. This opinion is issued as of the date hereof, and we assume no obligation to update, revise or supplement this opinion to reflect any facts or circumstances that may come to our attention after the date of this opinion, or any changes in law or interpretations thereof that may occur after the date of this opinion, or for any reason whatsoever. Very truly yours, V-5