37445000 County of San Diego the Salk Institute For

RATING: Moody’s: “A1” NEW ISSUE – BOOK-ENTRY ONLY See “RATING” herein

In the opinion of Orrick, Herrington & Sutcliffe LLP, Special Counsel to the County, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, the interest component of the Installment Payments to be paid by the County under the Purchase Agreement and received by the Beneficial Owners is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Special Counsel, such interest component is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. Special Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest with respect to, the Certificates, including whether the interest component of the Installment Payments to be paid by the County under the Purchase Agreement and received by the Beneficial Owners is included in adjusted current earnings when calculating corporate alternative minimum taxable income. See “TAX MATTERS” herein. $37,445,000 Certificates of Participation Evidencing Proportionate Interests of the Holders Thereof in Installment Payments to be Paid by the COUNTY OF SAN DIEGO from Purchase Payments to be Received from THEALK S INSTITUTE FOR BIOLOGICAL STUDIES, SAN DIEGO, CALIFORNIA Dated: Date of Delivery Due: July 1, as on inside cover The Certificates of Participation (the “Certificates”) represent undivided proportionate interests in the right to receive Installment Payments (the “Installment Payments”) to be paid by the County of San Diego (the “County”) under an Installment Purchase Agreement, dated as of May 1, 2010 (the “Purchase Agreement”), by and between The Salk Institute for Biological Studies, San Diego, California (the “Corporation”) and the County. The obligation of the County to make Installment Payments under the Purchase Agreement is a limited obligation of the County, payable solely from Revenues (as described herein) consisting primarily of purchase payments (the “Purchase Payments”) to be made by the Corporation under an Installment Sale Agreement, dated as of May 1, 2010 (the “Sale Agreement”), by and between the Corporation and the County. Interest with respect to the Certificates is payable on January 1 and July 1 of each year, commencing January 1, 2011. The Certificates will be delivered in fully registered form only and, when executed and delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the Certificates. Purchases of beneficial interests in the Certificates will be made in book-entry only form and purchasers will not receive physical certificates representing their interest in the Certificates. Individual purchases will be in denominations of $5,000 and any integral multiples thereof. Disbursement of principal and interest with respect to the Certificates will be paid by The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), directly to DTC as the registered owner thereof, and disbursements of such payments to the beneficial owners is the responsibility of DTC Participants and Indirect Participants, as more fully described herein. Any beneficial owner of a Certificate must maintain an account with a broker or dealer who is, or acts through, a DTC Participant to receive payment of the principal and interest with respect to such Certificates. See “THE CERTIFICATES – Use of Book-Entry Only System” and APPENDIX F – “BOOK-ENTRY ONLY SYSTEM” herein. The proceeds of the sale of the Certificates will be used to (i) finance the construction, improvement, renovation, furnishing, equipping of buildings, laboratories, offices, and other related facilities of the Corporation, including but not limited to the renewal and expansion of the central plant and electrical distribution infrastructure and the acquisition and installation of photovoltaic panels for the benefit of the Corporation, (ii) refinance certain outstanding indebtedness of the Corporation, and (iii) pay certain delivery costs of the Certificates. The Certificates are subject to optional, mandatory and extraordinary prepayment prior to their respective certificate payment dates as described herein. See “THE CERTIFICATES – Prepayment or Purchase” herein. MATURITY SCHEDULE See Inside Cover Page THE COUNTY SHALL NOT BE OBLIGATED TO PAY THE INSTALLMENT PAYMENTS OR OTHERWISE THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST WITH RESPECT TO THE CERTIFICATES, EXCEPT FROM REVENUES (AS DEFINED IN THE SALE AGREEMENT) RECEIVED BY THE COUNTY, AND THE FAITH AND CREDIT OF THE COUNTY IS NOT PLEDGED TO THE PAYMENT OF THE INSTALLMENT PAYMENTS OR OTHERWISE TO THE PAYMENT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST WITH RESPECT TO THE CERTIFICATES. NEITHER THE OBLIGATION OF THE COUNTY TO MAKE THE INSTALLMENT PAYMENTS NOR THE CERTIFICATES CONSTITUTE A DEBT OF THE COUNTY OR THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION. This cover page contains information for general reference only, and is not a summary of the security or terms of this issue. Investors must read the entire Official Statement, including the section entitled “RISK FACTORS,” for a discussion of special factors which should be considered, in addition to the other matters set forth herein, in considering the investment quality of the Certificates. The Certificates will be offered when, as and if executed and delivered, and received by the Underwriter, subject to the approval as to their legality by Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Special Counsel, and the approval of certain matters for the County by the County Counsel, for the Corporation by Allen Matkins Leck Gamble Mallory & Natsis LLP, Los Angeles, California, and for the Underwriter by its counsel, Hawkins Delafield & Wood LLP, Los Angeles, California. It is expected that the Certificates will be available for delivery through the facilities of DTC in New York, New York, on or about May 27, 2010. BofA Merrill Lynch

Dated: May 20, 2010 MATURITY SCHEDULE

$37,445,000 Certificates of Participation Evidencing Proportionate Interests of the Holders Thereof in Installment Payments to be Paid by the COUNTY OF SAN DIEGO From Purchase Payments to be Received from THE SALK INSTITUTE FOR BIOLOGICAL STUDIES, SAN DIEGO, CALIFORNIA

$8,595,000 Serial Certificates

Maturity Date Principal Interest CUSIP† (July 1) Amount Rate Yield (797391) 2011 $ 360,000 3.000% 1.050% P52 2012 430,000 3.000 1.600 P60 2013 440,000 3.000 2.020 P78 2014 455,000 5.000 2.410 P86 2015 475,000 3.000 2.880 P94 2016 490,000 4.000 3.260 Q28 2017 510,000 3.500 3.510 Q36 2018 530,000 4.000 3.760 Q44 2019 550,000 4.000 4.000 Q51 2020 570,000 4.000 4.150 Q69 2021 590,000 4.000 4.250 Q77 2022 620,000 4.250 4.400 Q85 2023 645,000 4.250 4.480 Q93 2024 670,000 4.250 4.560 R27 2025 1,260,000 4.500 4.640 R35

$7,320,000 5.250% Term Certificates due July 1, 2030 Yield 5.000%*; CUSIP†: 797391R43 $21,530,000 5.125% Term Certificates due July 1, 2040 Yield 5.250%; CUSIP†: 797391R50

† Copyright 2010, American Bankers Association. CUSIP data herein is provided by Standard & Poor’s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. CUSIP data herein is set forth herein for convenience of reference only. None of the County, the Corporation or the Underwriter assumes responsibility for the accuracy of such information. * Yield reflects pricing to an assumed call at par on July 1, 2020. No dealer, broker, salesperson or other person has been authorized by the County, the Corporation or the Underwriter to give any information or to make any representations other than those contained herein 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 Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the Certificates. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.

The information set forth herein under the caption “THE COUNTY” has been furnished by the County. All other information set forth herein has been obtained from the Corporation and other sources (other than the County) that are believed to be reliable, but the adequacy, accuracy or completeness of such information is not guaranteed by, and is not to be construed as a representation of, the County or the Underwriter. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibility to investors under the federal securities law as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

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 County or the Corporation since the date hereof.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL CERTIFICATES TO CERTAIN DEALERS (INCLUDING DEALERS DEPOSITING CERTIFICATES INTO INVESTMENT TRUSTS) AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. COUNTY OF SAN DIEGO

BOARD OF SUPERVISORS

Pam Slater-Price, Chairwoman, Third District Bill Horn, Vice Chairman, Fifth District Gregory Cox, First District Dianne Jacob, Second District Ron Roberts, Fourth District

______

COUNTY OFFICIALS

Walter F. Ekard, Chief Administrative Officer Dan McAllister, Treasurer-Tax Collector Donald Steuer, Chief Financial Officer Tracy M. Sandoval, Assistant Chief Financial Officer – Auditor & Controller John J. Sansone, County Counsel

______

SPECIAL SERVICES

Orrick, Herrington & Sutcliffe LLP Los Angeles, California Special Counsel to the County

Allen Matkins Leck Gamble Mallory & Natsis LLP Los Angeles, California Counsel to Corporation

The Bank of New York Mellon Trust Company, N.A. Los Angeles, California Trustee

Prager, Sealy & Co., LLC New York, New York Financial Advisor to Corporation TABLE OF CONTENTS

Page

INTRODUCTION ...... 1 THE COUNTY...... 2 THE CORPORATION ...... 2 THE FINANCING PLAN ...... 3 ESTIMATED SOURCES AND USES OF FUNDS ...... 4 DEBT SERVICE REQUIREMENTS...... 5 THE CERTIFICATES...... 5 General ...... 5 Prepayment or Purchase...... 6 Exchange and Transfer of Certificates...... 8 Use of Book-Entry Only System ...... 8

SECURITY FOR THE CERTIFICATES...... 9 General ...... 9 Gross Revenue Fund Pledge ...... 9 Payment of Purchase Payments ...... 11 Deed of Trust ...... 12 Additional Indebtedness...... 13 No Reserve Fund ...... 13

RISK FACTORS ...... 13 Limited Obligation for Certificates...... 13 Maintenance of Tax-Exempt Status...... 14 Environmental Laws and Regulations ...... 15 Factors That Could Affect the Enforceability of the Sale Agreement ...... 15 Bankruptcy...... 16 Insurance...... 17 Seismic Hazard ...... 17 Investment of Funds Risk ...... 17

ABSENCE OF MATERIAL LITIGATION...... 17 VERIFICATION...... 18 TAX MATTERS...... 18 CONTINUING DISCLOSURE...... 20 APPROVAL OF LEGALITY...... 21

i TABLE OF CONTENTS (continued) Page

FINANCIAL ADVISOR ...... 22 INDEPENDENT AUDITORS...... 22 RATING ...... 22 UNDERWRITING ...... 22 MISCELLANEOUS ...... 23

APPENDIX A – INFORMATION CONCERNING THE CORPORATION...... A-1 APPENDIX B – AUDITED FINANCIAL STATEMENTS OF THE CORPORATION...... B-1 APPENDIX C – SUMMARY OF PRINCIPAL LEGAL DOCUMENTS...... C-1 APPENDIX D – FORM OF CONTINUING DISCLOSURE AGREEMENT ...... D-1 APPENDIX E – FORM OF FINAL OPINION OF SPECIAL COUNSEL ...... E-1 APPENDIX F – BOOK-ENTRY ONLY SYSTEM...... F-1

ii OFFICIAL STATEMENT

INTRODUCTION

This Official Statement, including the cover page, the inside cover page and appendices hereto (the “Official Statement”), is provided to furnish information with respect to (i) the sale and delivery of $37,445,000 aggregate principal amount of Certificates of Participation (the “Certificates”) evidencing proportionate interests of the registered holders thereof in the right to receive certain installment payments (the “Installment Payments”) to be made by the County of San Diego (the “County”) from purchase payments to be received from The Salk Institute for Biological Studies, San Diego, California (the “Corporation”), pursuant to an Installment Purchase Agreement, dated as of May 1, 2010 (the “Purchase Agreement”), by and between the Corporation and the County. The Certificates are being executed and delivered pursuant to the terms of a Trust Agreement dated as of May 1, 2010 (the “Trust Agreement’), by and among the County, the Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”).

Pursuant to the Purchase Agreement, the Corporation will sell certain real property and improvements (the “Real Property”) to the County, in consideration for which the County will agree to make Installment Payments. Simultaneously therewith, the County will sell the Real Property back to the Corporation pursuant to an Installment Sale Agreement, dated as of May 1, 2010, by and between the County and the Corporation (the “Sale Agreement”), in consideration for which the Corporation will agree to make purchase payments (the “Purchase Payments”) for the Real Property.

The proceeds of the sale of the Certificates will be used to (i) finance the construction, improvement, renovation, furnishing, equipping of buildings, laboratories, offices, and other related facilities of the Corporation, including but not limited to the renewal and expansion of the central plant and electrical distribution infrastructure and the acquisition and installation of photovoltaic panels for the benefit of the Corporation, (ii) refinance certain outstanding indebtedness of the Corporation, and (iii) pay certain delivery costs of the Certificates. See “THE FINANCING PLAN” and “ESTIMATED SOURCES AND USES OF FUNDS.”

The obligation of the County to make Installment Payments under the Purchase Agreement is a limited obligation of the County payable solely from Revenues. “Revenues” as defined in the Sale Agreement, consist primarily of Purchase Payments.

THE COUNTY SHALL NOT BE OBLIGATED TO PAY THE INSTALLMENT PAYMENTS OR OTHERWISE THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST WITH RESPECT TO THE CERTIFICATES, EXCEPT FROM REVENUES (AS DEFINED IN THE SALE AGREEMENT) RECEIVED BY THE COUNTY, AND THE FAITH AND CREDIT OF THE COUNTY IS NOT PLEDGED TO THE PAYMENT OF THE INSTALLMENT PAYMENTS OR OTHERWISE TO THE PAYMENT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST WITH RESPECT TO THE CERTIFICATES. NEITHER THE OBLIGATION OF THE COUNTY TO MAKE THE INSTALLMENT PAYMENTS NOR THE CERTIFICATES CONSTITUTE A DEBT OF THE

1 COUNTY OR THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION.

For a discussion of certain risks associated with ownership of the Certificates see “RISK FACTORS.”

The descriptions and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive and reference is made to each document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. For definitions of certain words and terms used, but not otherwise defined, herein, see APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – Definitions.”

Copies of the documents described herein will be available at the office of the Trustee, The Bank of New York Mellon Trust Company, N.A., 700 South Flower Street, Suite 500, Los Angeles, California 90017.

THE COUNTY

The County is the southernmost major metropolitan area in the State of California. The County covers 4,255 square miles, extending 70 miles along the Pacific Coast from the Mexican border to Orange County, and inland 75 miles to Imperial County. Riverside and Orange Counties form the northern boundary. The County was incorporated on February 18, 1850, and functions under a charter adopted in 1933, as subsequently amended from time to time. The County is governed by a five-member Board of Supervisors elected to four-year terms in district nonpartisan elections. The Board of Supervisors appoints the Chief Administrative Officer and the County Counsel. The Chief Administrative Officer appoints the Chief Financial Officer. Elected officials include the Assessor/Recorder/County Clerk, District Attorney, Sheriff and Treasurer-Tax Collector.

THE CORPORATION

The Corporation. The Corporation is a California nonprofit public benefit corporation, exempt from federal income taxation under Section 501(a) of the Internal Revenue Code of 1986, as amended (the “Code”), as an organization described in Section 501(c)(3) of the Code. The Corporation’s research facilities are located in the La Jolla area of the City of San Diego, California. The Corporation was established in 1960 by Jonas M. Salk, with the support of the March of Dimes Birth Defects Foundation, for fundamental studies in life sciences and their application to human health and well being. The Corporation is dedicated to full-time biomedical research. The corporate members of the Corporation include certain individuals who are faculty members in addition to each of the members of the Board of Trustees of the Corporation. THE CERTIFICATES WILL NOT BE SECURED BY THE ASSETS OF ITS CORPORATE MEMBERS AND SUCH CORPORATE MEMBERS WILL NOT BE PERSONALLY LIABLE WITH RESPECT TO THE PURCHASE PAYMENTS.

For further information concerning the Corporation, see Appendix A – “INFORMATION CONCERNING THE CORPORATION” and APPENDIX B – “FINANCIAL STATEMENTS OF THE CORPORATION.”

Financial Condition of the Corporation. For the fiscal year ended June 30, 2009, the Corporation had Total Revenues, Gains and Other Support of $102.7 million and Total Expenses of $100.8 million. At June 30, 2009, the aggregate of all Corporation net assets was $229.9 million. Information concerning the operations and financial condition of the Corporation is set forth in Appendix A – “INFORMATION

2 CONCERNING THE CORPORATION” and in the Corporation’s financial statements and notes thereto set forth in Appendix B, all of which should be carefully reviewed.

Parity Debt. The Corporation’s obligations under the Sale Agreement will be on a parity with the Corporation obligation under the Loan Agreement, dated as of August 1, 2005, as amended (the “2005 Loan Agreement”). The 2005 Loan Agreement was executed and delivered in connection with the issuance by the California Statewide Communities Development Authority (the “Authority”) of $25,135,000 aggregate principal amount of Revenue Bonds (The Salk Institute for Biological Studies) Series 2005 (the “2005 Bonds”) pursuant to a Trust Indenture, dated as of August 1, 2005 (the “Indenture”), between the Authority and The Bank of New York Trust Company, N.A., as trustee (the “2005 Trustee”). As of the date hereof, $21,035,000 aggregate principal amount of the 2005 Bonds remains outstanding. As part of the plan of finance herein, the Corporation’s parity obligation with respect to the outstanding Refunded Certificates (as defined below) are expected to be refunded and defeased upon the execution and delivery of the Certificates and prepaid from escrowed funds on July 1, 2010. See “THE FINANCING PLAN” below.

Covenants of the Corporation. The Corporation has agreed to certain covenants for the protection of the Owners, including certain financial covenants, covenants related to the incurring of additional indebtedness, covenants related to the provision of insurance and covenants not to take any action that would impair the tax-exempt status of interest with respect to the Certificates. These and other covenants of the Corporation are discussed further in APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – SALE AGREEMENT.”

THE FINANCING PLAN

Refinancing of Existing Indebtedness. A portion of the proceeds of the Certificates will be used for the purpose of prepaying the Certificates of Participation executed and delivered for the benefit of the Corporation on April 13, 2000 in the principal amount of $15,000,000, of which $12,920,000 is currently outstanding (the “Refunded Certificates”). See “ESTIMATED SOURCES AND USES OF FUNDS.”

The Refunded Certificates will be called and prepaid pursuant to an Escrow Deposit Agreement (the “Escrow Agreement”), dated as of May 1, 2010, by and among the County, the Corporation and The Bank of New York Mellon Trust Company, N.A., as escrow bank (the “Escrow Bank”). A portion of the proceeds of the Certificates, together with certain other moneys, will be invested in direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America) or obligations the timely payment of the principal of and interest on which are fully guaranteed by the United States of America and held in an escrow fund by the Escrow Bank (the “Escrow Fund”) for the benefit of the owners of the Refunded Certificates. The amounts deposited in the Escrow Fund will be sufficient to pay the scheduled principal and interest payments with respect to the Refunded Certificates and the prepayment price of the Refunded Certificates on July 1, 2010. The moneys held under the Escrow Agreement will be pledged to payment of the Refunded Certificates. No moneys in the Escrow Fund will be available for payments with respect to the Certificates. See “VERIFICATION.”

New Project. A portion of the proceeds of the Certificates will be used for the purpose of financing the construction, improvement, renovation, furnishing, equipping of buildings, laboratories, offices, and other related facilities of the Corporation, including but not limited to the renewal and expansion of the central plant and electrical distribution infrastructure and the acquisition and installation of photovoltaic panels for the benefit of the Corporation. See APPENDIX A – “INFORMATION CONCERNING THE CORPORATION – PLANT AND EQUIPMENT – Facilities” for a description of the Corporation’s current facilities. See also “ESTIMATED SOURCES AND USES OF FUNDS.”

3 ESTIMATED SOURCES AND USES OF FUNDS

The following table sets forth the estimated sources and uses of funds related to the Certificates.

Sources: Principal Amount of Certificates $37,445,000.00 Less Net Original Issue Discount (237,050.65) Other Sources of Funds (1) 593,161.80 Total Sources of Funds $37,801,111.15

Uses: Deposit to Project Fund $23,742,247.00 Deposit to Escrow Fund (2) 13,535,181.87 Deposit to Costs of Delivery Fund (3) 523,682.28 Total Uses of Funds $37,801,111.15 ______(1) Includes amounts released from funds related to the Refunded Certificates. (2) Amount to be applied to prepay the Refunded Certificates. (3) Includes Underwriter’s discount, legal, printing, rating agency, Trustee and County fees, fees of the financial advisor to the Corporation and other miscellaneous costs of delivery.

[Remainder of Page Intentionally Left Blank.]

4 DEBT SERVICE REQUIREMENTS

The following table sets forth, for each year ending July 1, the amounts required to be made available for the payment of principal due with respect to the Certificates, at their final Certificate Payment Date or by mandatory sinking account payment and for the payment of interest with respect to the Certificates.

Year Total Debt (July 1) Principal Interest Service 2011 $ 360,000.00 $ 2,000,206.67 $ 2,360,206.67 2012 430,000.00 1,816,800.02 2,246,800.02 2013 440,000.00 1,803,900.02 2,243,900.02 2014 455,000.00 1,790,700.02 2,245,700.02 2015 475,000.00 1,767,950.02 2,242,950.02 2016 490,000.00 1,753,700.02 2,243,700.02 2017 510,000.00 1,734,100.02 2,244,100.02 2018 530,000.00 1,716,250.02 2,246,250.02 2019 550,000.00 1,695,050.02 2,245,050.02 2020 570,000.00 1,673,050.02 2,243,050.02 2021 590,000.00 1,650,250.02 2,240,250.02 2022 620,000.00 1,626,650.02 2,246,650.02 2023 645,000.00 1,600,300.02 2,245,300.02 2024 670,000.00 1,572,887.52 2,242,887.52 2025 1,260,000.00 1,544,412.52 2,804,412.52 2026 1,320,000.00 1,487,712.52 2,807,712.52 2027 1,390,000.00 1,418,412.52 2,808,412.52 2028 1,460,000.00 1,345,437.52 2,805,437.52 2029 1,535,000.00 1,268,787.52 2,803,787.52 2030 1,615,000.00 1,188,200.02 2,803,200.02 2031 1,700,000.00 1,103,412.52 2,803,412.52 2032 1,790,000.00 1,016,287.50 2,806,287.50 2033 1,880,000.00 924,550.00 2,804,550.00 2034 1,975,000.00 828,200.00 2,803,200.00 2035 2,080,000.00 726,981.26 2,806,981.26 2036 2,185,000.00 620,381.26 2,805,381.26 2037 2,295,000.00 508,400.00 2,803,400.00 2038 2,415,000.00 390,781.26 2,805,781.26 2039 2,540,000.00 267,012.50 2,807,012.50 2040 2,670,000.00 136,837.50 2,806,837.50 $37,445,000.00 $38,977,600.85 $76,422,600.85

THE CERTIFICATES

General

The Certificates will be delivered in the form of fully registered Certificates in denominations of $5,000 and any integral multiples thereof. The Certificates will be registered initially in the name of “Cede & Co.,” as nominee of The Depository Trust Company, New York, New York (“DTC”) and will be evidenced by one certificate for each Certificate Payment Date. For so long as the Certificates are registered in the name of Cede & Co., the transfer and exchange of Certificates will be made only as provided in APPENDIX F – “BOOK-ENTRY ONLY SYSTEM.”

5 The principal components of, or Prepayment Price with respect to, the Certificates will be payable by check in lawful money of the United States of America at the Corporate Trust Office of the Trustee. Interest with respect to the Certificates is payable on January 1 and July 1 of each year, commencing January 1, 2011, and continuing to and including their final stated Certificate Payment Dates or the date of prior prepayment or purchase thereof. Said interest represents the sum of those portions of the Installment Payments designated as interest coming due on the Interest Payment Dates in each year. Payment of the interest component with respect to any Certificate will be made to the person whose name appears on the Certificate registration books of the Trustee as the Holder thereof as of the close of business on the Record Date (being the fifteenth day of the calendar month preceding such Interest Payment Date) for each Interest Payment Date, such interest to be paid by check mailed by first class mail to such Holder at its address as it appears on such registration books, or, upon the written request of any Holder of at least $1,000,000 in aggregate principal amount of Certificates, submitted to the Trustee at least one Business Day prior to the Record Date, by wire transfer in immediately available funds to an account within the United States designated by such Holder no later than the applicable Record Date. As long as Cede & Co. is the Holder of all of the Certificates, said interest payments will be made by wire transfer in immediately available funds. CUSIP number identification is required to accompany all payments of interest, principal and premiums, if any, whether by check or by wire transfer. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Certificate Holder on such Record Date and will be paid to the person in whose name the Certificate is registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice whereof being given by first class mail to the Certificate Holders not less than ten (10) days prior to such Special Record Date.

Prepayment or Purchase

Optional Prepayment or Purchase. The Certificates having a Certificate Payment Date on or after July 1, 2021, are subject to prepayment or purchase by the Corporation prior to their stated Certificate Payment Dates on and after July 1, 2020, as a whole or in part on any date, in such amounts and of such Certificate Payment Dates, respectively, as may be specified by the Corporation (or if the Corporation fails to designate such Certificate Payment Dates, in inverse order of Certificate Payment Date) and by lot among Certificates with the same Certificate Payment Date, at the option of the County (to be exercised as directed in writing by the Corporation, and which direction must be received by the Trustee at least 45 days (or such shorter period as agreed to in writing by the Trustee) prior to the prepayment or purchase date) from moneys derived from optional prepayments of Installment Payments by the County and deposited in the Optional Prepayment Account or from any other source of available funds, at the principal amount of Certificates called for prepayment or purchase (without premium), plus accrued interest with respect thereto to the date fixed for prepayment or purchase.

Mandatory Sinking Account Prepayment. The Certificates having a Certificate Payment Date of July 1, 2030 are also subject to prepayment prior to their stated Certificate Payment Date, in part, by lot, from Mandatory Sinking Account Payments deposited in the Sinking Account on any July 1 on or after July 1, 2026, at the principal amount and interest accrued with respect thereto to the date fixed for prepayment without premium, as set forth below:

6 Date Mandatory Sinking (July 1) Account Payment 2026 $1,320,000 2027 1,390,000 2028 1,460,000 2029 1,535,000 2030† 1,615,000 ______† Maturity.

The Certificates having a Certificate Payment Date of July 1, 2040 are also subject to prepayment prior to their stated Certificate Payment Date, in part, by lot, from Mandatory Sinking Account Payments deposited in the Sinking Account on any July 1 on or after July 1, 2031, at the principal amount and interest accrued with respect thereto to the date fixed for prepayment without premium, as set forth below:

Date Mandatory Sinking (July 1) Account Payment 2031 $1,700,000 2032 1,790,000 2033 1,880,000 2034 1,975,000 2035 2,080,000 2036 2,185,000 2037 2,295,000 2038 2,415,000 2039 2,540,000 2040† 2,670,000 ______† Maturity.

Extraordinary Prepayment. The Certificates are subject to prepayment prior to their stated Certificate Payment Date as a whole or in part on any date, at the option of the County (to be exercised as directed in writing by the Corporation), from Insurance and Condemnation Proceeds the Corporation elects to use to prepay Certificates pursuant to the Sale Agreement, at the principal amount and interest accrued with respect thereto to the date fixed for prepayment without premium.

Selection of Certificates for Prepayment or Purchase. Whenever provision is made for the prepayment or purchase of less than all of the Certificates or any given portion thereof, subject to the provisions of the Trust Agreement, the Trustee is required to select the Certificates to be prepaid or purchased, from all Certificates subject to prepayment or purchase or such given portion thereof equal to a multiple of $5,000 or any integral multiple thereof not previously called for prepayment or purchase, in any manner which the Trustee in its sole discretion deems appropriate and fair. The Trustee will promptly notify the County and the Corporation in writing of any prepayment or purchase of Certificates and of the Certificates or portions thereof so selected for prepayment or purchase.

Notice of Prepayment or Purchase. Notice of prepayment or purchase is required to be mailed by first-class mail by the Trustee, not less than thirty (30) nor more than sixty (60) days prior to the prepayment or purchase date, to (i) the respective Holders of any Certificates designated for prepayment

7 or purchase at their addresses appearing on the registration books of the Trustee, and (ii) if the Certificates are no longer held by DTC, to the Securities Depositories and the Information Services.

If any of the Certificates are prepaid pursuant to an advance refunding, notice of such advance refunding and prepayment is required to be given in the same manner as above provided, and within the same time period with respect to the actual prepayment date.

Notice of prepayment or purchase of Certificates will be given by the Trustee, at the expense of the Corporation. Conditional notice of prepayment may be given at the direction of the Corporation and will be given if funds sufficient to prepay the Certificates are not then on deposit with the Trustee.

Failure by the Trustee to give notice to any one or more of the Information Services or Securities Depositories will not affect the sufficiency of the proceedings for prepayment or purchase. Failure by the Trustee to mail notice of prepayment or purchase to any one or more of the respective Holders of any Certificates designated for prepayment or purchase will not affect the sufficiency of the proceedings for prepayment or purchase with respect to the Holder or Holders to whom such notice was mailed.

Partial Prepayment or Purchase of Certificates. Upon surrender of any Certificate to be prepaid or purchased in part only, the Trustee will execute and deliver to the Holder thereof, at the expense of the Corporation, a new Certificate or Certificates of authorized denominations, and having the same Certificate Payment Date, equal in aggregate principal amount to the unprepaid or unpurchased portion of the Certificate surrendered.

Effect of Prepayment. Notice of prepayment having been duly given as provided in the Trust Agreement and as described above, and moneys for payment of the Prepayment Price of, together with interest accrued to the prepayment date with respect to, the Certificates (or portions thereof) so called for prepayment being held by the Trustee, on the prepayment date designated in such notice, the Certificates (or portions thereof) so called for prepayment will become due and payable at the Prepayment Price specified in such notice and interest accrued with respect thereto to the prepayment date, interest with respect to the Certificates so called for prepayment will cease to accrue, said Certificates (or portions thereof) will cease to be entitled to any benefit or security under the Trust Agreement, and the Holders of said Certificates will have no rights in respect thereof except to receive payment of said Prepayment Price and accrued interest.

Exchange and Transfer of Certificates

Subject to the requirements of the book-entry only system set forth in Appendix F, Certificates may be exchanged or transferred at the Corporate Trust Office of the Trustee for a like aggregate principal amount of Certificates of other authorized denominations having the same Certificate Payment Date. The Trustee will require the Certificate Holder requesting such exchange or transfer to pay any tax or other governmental charge required to be paid with respect to such exchange or transfer.

The Trustee will not be required to exchange or transfer: (i) any Certificate during the fifteen (15) days preceding the date on which notice of prepayment or purchase of Certificates is given; or (ii) any Certificate selected for prepayment or purchase.

Use of Book-Entry Only System

When executed and delivered, the Certificates will be registered in the name of Cede & Co., as nominee for DTC. The County, the Trustee and the Corporation have no responsibility or obligation with respect to the accuracy of the records of DTC, Cede & Co. or any DTC Participant (as defined herein) in

8 connection with the delivery to any DTC Participant of any notice with respect to the Certificates, including any notice of prepayment, or the payment to any DTC Participant of any amount with respect to principal, premium, if any, or interest with respect to the Certificates. As long as Cede & Co. is the Holder of the Certificates as nominee of DTC, references herein to the Certificate Holders, Holders, owners or registered owners will mean Cede & Co., as aforesaid and will not mean the Beneficial Owners of the Certificates. For more information concerning the use of the book-entry system, see APPENDIX F – “BOOK-ENTRY ONLY SYSTEM.”

SECURITY FOR THE CERTIFICATES

General

The Certificates are limited obligations of the County payable solely from Revenues (as defined below), which consist primarily of Purchase Payments required to be paid by the Corporation to the Trustee (as assignee of the County) under the Sale Agreement and from certain other funds held under the Trust Agreement. In the Sale Agreement, the Corporation agrees to make payments to the Trustee (as assignee of the County) which, in the aggregate, are required to be in an amount sufficient for the payment in full of all amounts payable with respect to the Certificates, including the total interest payable with respect to the Certificates to their stated Certificate Payment Dates, the principal amount of the Certificates, any prepayment or purchase premiums, and certain other fees and expenses (consisting generally of reasonable fees and charges of the Trustee, taxes, accountants’ fees and reasonable fees and expenses of the County in connection with the Certificates) (the “Supplemental Payments”), less any amounts available for such payment as provided in the Trust Agreement.

The County’s obligations under the Purchase Agreement to make Installment Payments are limited obligations of the County, payable solely from Revenues derived from Purchase Payments and not from any other County fund or source. The County’s obligations under the Purchase Agreement do not constitute general obligations or indebtedness of the County and are not payable in any manner from taxation.

THE COUNTY SHALL NOT BE OBLIGATED TO PAY THE INSTALLMENT PAYMENTS OR OTHERWISE THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST WITH RESPECT TO THE CERTIFICATES, EXCEPT FROM REVENUES RECEIVED BY THE COUNTY, AND THE FAITH AND CREDIT OF THE COUNTY IS NOT PLEDGED TO THE PAYMENT OF THE INSTALLMENT PAYMENTS OR OTHERWISE TO THE PAYMENT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST WITH RESPECT TO THE CERTIFICATES. NEITHER THE OBLIGATION OF THE COUNTY TO MAKE THE INSTALLMENT PAYMENTS NOR THE CERTIFICATES CONSTITUTE A DEBT OF THE COUNTY OR THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION.

For a further description of the provisions of the Trust Agreement, the Sale Agreement and the Purchase Agreement, including covenants which secure the Certificates, see APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.”

Gross Revenue Fund Pledge

As provided in the 2005 Loan Agreement, the Corporation has pledged, and to the extent permitted by law, granted a security interest to the 2005 Trustee (as assignee of the Authority) in all of its Gross Revenues and the proceeds thereof, to secure the obligations of the Corporation under the 2005 Loan Agreement. “Gross Revenues” is defined under the 2005 Loan Agreement to mean all moneys,

9 fees, rates, receipts, rentals, charges, issues and income received for, received by or derived from, the Corporation, the operation of the Corporation or the Real Property (as defined in the 2005 Loan Agreement) or any other source whatsoever including without limitation gifts, bequests, grants, devises, contributions, moneys received from the operation of the Corporation’s business or the possession of its properties, indirect cost recovery payments under research grant agreements, insurance proceeds or condemnation awards, and all rights to receive the same, whether in the form of accounts, accounts receivable, contract rights or other rights, and the proceeds of the same whether now owned or held or hereafter coming into being. The term “Gross Revenues” does not include: (i) gifts, grants, devises, bequests and contributions designated by the maker to a specific purpose inconsistent with their use for the payment of principal of, premium, if any, and interest on Indebtedness (as defined in the 2005 Loan Agreement) or for the payment of operating expenses, and (ii) any income (including without limitation royalty or license income) for which the Corporation has a contractual obligation to pay to other Persons. As provided in the 2005 Loan Agreement, Gross Revenues may be pledged on a parity basis to support any of the Corporation’s permitted additional debt. The Corporation has already included, and pursuant to the 2005 Loan Agreement may in the future incur, other indebtedness which has a claim on Gross Revenues, thus reducing the amount of Gross Revenues available for the payment of the Certificates.

In the event of a default by the Corporation under the Sale Agreement, control of the Gross Revenues will be transferred to the Trustee, and the Trustee will be obligated use such funds to make the Purchase Payments and any parity payments including, without limitation, the loan payments to be made by the Corporation to the Authority pursuant to the 2005 Loan Agreement, and any other payments required to be made by the Corporation under the Sale Agreement and 2005 Loan Agreement.

Pursuant to the Sale Agreement, the Corporation pledges and grants a security interest (to the extent permitted by law) to the Trustee, as assignee of the County (for the benefit of the Certificateholders and the holders of any Parity Debt, as and to the extent provided in the Sale Agreement), in the Gross Revenue Fund and all of the Gross Revenues to secure the payment of the Purchase Payments and Supplemental Payments and the performance by the Corporation of its other obligations under the Sale Agreement and the payment and performance of all obligations of the Corporation under any agreement securing Parity Debt.

Under the Sale Agreement, “Revenues” are defined as all amounts received by the County or the Trustee for the account of the County under the Trust Agreement pursuant or with respect to the Sale Agreement, including, without limiting the generality of the foregoing, Installment Payments and Purchase Payments (including both timely and delinquent payments, any late charges, and regardless of source), prepayments, insurance proceeds, condemnation proceeds, and all interest, profits or other income derived from the investment of amounts in any fund or account established pursuant to the Trust Agreement, but not including any Administrative Fees and Expenses or amounts received or on deposit in the Rebate Fund. “Administrative Fees or Expenses” means any application, commitment, financing or similar fee charged, or reimbursement for administrative or other expenses incurred, by the County or the Trustee, including Supplemental Payments.

Pursuant to the Trust Agreement, all of the interests of the County and the Corporation in the Revenues and any other amounts (including proceeds of the sale of Certificates) held in any fund or account established pursuant to the Trust Agreement, other than the Rebate Fund, Supplemental Payments paid by the Corporation pursuant to the Sale Agreement and any other amounts paid by the Corporation pursuant to the Sale Agreement relating to indemnification or certain expenses, are pledged to secure the payment of the principal and interest components of the Certificates. The Trust Agreement provides that said pledge will constitute a lien on and security interest in such assets and will attach, be perfected and be valid and binding from and after delivery by the Trustee of the Certificates, without any physical delivery thereof or further act. Pursuant to the Trust Agreement, the County transfers in trust, grants a

10 security interest in and assigns to the Trustee, for the benefit of the Holders from time to time of the Certificates, all of its interests in the Revenues and other assets so pledged and all of the right, title and interest of the County in the Sale Agreement (except Supplemental Payments, any rights of the County to indemnification paid by the Corporation and the obligation of the Corporation to make deposits to the Rebate Fund). The Trustee is entitled to and will collect and receive all of the Revenues.

In the event that the Corporation is delinquent for more than one (1) Business Day in the payment or required prepayment of any Purchase Payment or any payment with respect to Parity Debt, the Trustee is required to notify the Corporation, the County and the Depository Bank(s) of such delinquency, and, unless such Purchase Payment or payment with respect to Parity Debt is paid within five (5) days after receipt of such notice, the Corporation is required to cause the Depository Bank(s) to transfer the Gross Revenue Fund to the name and credit of the Trustee, as assignee of the County. All Gross Revenues will continue to be deposited in the Gross Revenue Fund until the amounts on deposit in such fund are sufficient to pay in full, or have been used to pay in full, all Purchase Payments in default and payments required with respect to Parity Debt in default and until all other Sale Agreement Defaults and events of default with respect to Parity Debt known to the Trustee have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate has been made therefor whereupon the Gross Revenue Fund (except for Gross Revenues required to make such payments or cure such defaults) will be transferred by the Depository Bank(s) automatically back to the name and credit of the Corporation. During any period that the Gross Revenue Fund is held in the name and to the credit of the Trustee, the Trustee is required to use and withdraw from time to time amounts in such fund to make Purchase Payments, Supplemental Payments and the other payments required of the Corporation under the Sale Agreement or with respect to any Parity Debt as such payments become due (whether by maturity, prepayment, acceleration or otherwise) and, if such amounts are not sufficient to pay in full all such payments due on any date, then to the payment of Purchase Payments and debt service on such Parity Debt, ratably according to the amounts due respectively for Purchase Payments and such debt service, without any discrimination or preference, and to such other payments in the order which the Trustee, in sole its discretion, determines to be in the best interests of the Holders of the Certificates and such Parity Debt, without discrimination or preference. During any period that the Gross Revenue Fund is held in the name and to the credit of the Trustee, the Corporation will not be entitled to use or withdraw any of the Gross Revenues unless and to the extent the Trustee, in its sole discretion, so directs for the payment of current or past due operating expenses of the Corporation; provided that the Corporation will be entitled to use or withdraw any amounts in the Gross Revenue Fund which do not constitute Gross Revenues.

Payment of Purchase Payments

Pursuant to the Sale Agreement, the Corporation agrees to make the Purchase Payments in an amount sufficient for the payment in full of all obligations to the Holders of the Certificates from time to time Outstanding under the Trust Agreement, including (i) the total interest components due and payable with respect to the Installment Payments of the County under the Purchase Agreement, (ii) the total principal components of the Installment Payments, and (iii) the prepayment or purchase premium, if any, that will be payable upon the prepayment or purchase of the Certificates prior to their stated Certificate Payment Dates; less the amount of other funds available for such payment as provided in the Trust Agreement. The Corporation is required to pay the Purchase Payments to the Trustee, as assignee of the County, for deposit in the Interest Account and Principal Account. The Purchase Payments are due and payable on or prior to the fifth (5th) day next preceding each Interest Payment Date. Each Purchase Payment is required to be held, invested, disbursed and applied by the Trustee as provided in the Trust Agreement. The Corporation is required to make each such Purchase Payment directly to the Trustee in satisfaction of the County’s Installment Payment obligations under the Purchase Agreement.

11 The obligations of the Corporation to make the Purchase Payments and Supplemental Payments required under the Sale Agreement and to perform and observe the other agreements on its part contained therein constitute a general obligation of the Corporation and is absolute and unconditional, and will not be abated, rebated, set-off, reduced, abrogated, terminated, waived, diminished, postponed or otherwise modified in any manner or to any extent whatsoever, while any Certificates remain Outstanding or any Supplemental Payments remain unpaid, regardless of any contingency, act of God, event or cause whatsoever, including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, the taking by eminent domain or destruction of or damage to the Facilities or the Real Property, commercial frustration of purpose, any change in the laws of the United States of America or of the State or any political subdivision thereof or in the rules or regulations of any governmental authority, or any failure of the County to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Sale Agreement, the Purchase Agreement or the Trust Agreement. As used herein, the term “Facilities” means (i) the Real Property; (ii) all buildings, structures, fixtures and improvements to the Real Property; and (iii) all personal property owned by the Corporation and used in, around or about the Real Property, whether now existing or hereafter constructed, installed or acquired; provided, however, that any property of any nature that is financed under a separate financing arrangement with respect to Subordinate Debt or Non-recourse Debt shall not be part of the Facilities.

Deed of Trust

In order to secure the payment of the principal of, premium, if any, and interest on the 2005 Bonds and the 2000 Certificates, and the performance of the Corporation’s other obligations with respect to the 2005 Bonds and the 2000 Certificates, the Corporation and the Trustee previously executed and delivered a Deed of Trust with Assignment of Rents and Fixture Filing, dated as of March 1, 1994, as amended by the First Confirmatory Amendment to Deed of Trust with Assignment of Rents and Fixture Filing, dated as of April 1, 2000 (the “First Amendment”), and a Second Confirmatory Amendment to Deed of Trust with Assignment of Rents and Fixture Filing, dated as of August 1, 2005 (the “Second Amendment”).

In order to further secure the payment of the principal, premium, if any, and interest with respect to the Certificates and the 2005 Bonds, and the performance of the Corporation’s other obligations with respect to the Certificates and the 2005 Bonds, the Corporation and the Trustee will execute and deliver a Third Confirmatory Amendment to Deed of Trust with Assignment of Rents and Fixture Filing, dated as of May 1, 2010 (the “Third Amendment” and the Deed of Trust with Assignment of Rents and Fixture Filing as so amended, the “Deed of Trust”).

Pursuant to the Deed of Trust, the Corporation will grant, for the benefit of the Trustee, and the trustee and insurer for the 2005 Bonds, a first lien on and security interest in substantially all of the property consisting of the Corporation main campus (as more particularly described in the Deed of Trust), subject to Permitted Encumbrances. See APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – SALE AGREEMENT.

See APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – DEED OF TRUST.” Upon the request of the Corporation, the Deed of Trust may be amended or terminated at any time without the necessity of obtaining the consent of the Trustee, the County, the Holders of the Certificates or the holders of Parity Debt. A CLTA title insurance policy on certain of the Corporation’s facilities in an amount not less than the principal amount with respect to the Certificates will be delivered at the time of delivery of the Certificates. See APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – DEED OF TRUST.”

12 Additional Indebtedness

The Corporation may not issue Parity Debt expect as provided in the Sale Agreement. See APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – SALE AGREEMENT.

The Corporation may issue or incur Non-recourse Debt without limitation in such principal amount as determined by the Corporation.

The Corporation may issue or incur Subordinate Debt without limitation in such principal amount as determined by the Corporation.

See APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – SALE AGREEMENT – Parity Debt; Additional Indebtedness” for a summary of additional financial covenants.

No Reserve Fund

There has been no reserve fund established for the Certificates and there is no requirement under the Trust Agreement for the establishment of any reserve fund for the Certificates.

RISK FACTORS

This Official Statement discusses many matters, any one of which may have an impact on the security for the Certificates, the ability of the Corporation to make timely Purchase Payments to the County under the Sale Agreement, subsequent ratings on the Certificates, or the market value thereof. An investor must therefore read the entire Official Statement to judge the risks inherent in an investment in the Certificates. This section highlights certain risks inherent in the transaction, but is not intended to be, and does not purport to be, a complete list or discussion of the risks associated with this transaction. The following factors, along with all other information in this Official Statement in its entirety, should be considered by potential investors in evaluating the Certificates.

Limited Obligation for Certificates

The Certificates are payable solely from Installment Payments to be made by the County under the Purchase Agreement which Installment Payments are payable solely from Revenues derived primarily from Purchase Payments made by the Corporation to the County under the Sale Agreement and not from any other fund or source. The Corporation substantially relies on grants and donations from public and private donors and on investment earnings from its endowments for its operating expenses and its debt service payments. No representation or assurance can be made or given that sufficient revenues will be generated in the future by the Corporation to make the Purchase Payments necessary to pay the principal, premium, if any, and interest components with respect to the Certificates. The payment of the Purchase Payments is a general obligation of the Corporation, secured by a pledge of Gross Revenues. The Sale Agreement allows the Corporation to provide its assets as collateral security for future borrowings. See “SECURITY FOR THE CERTIFICATES.” See APPENDIX A – “INFORMATION CONCERNING THE CORPORATION” and the Corporation’s audited financial statements for its Fiscal Year ended June 30, 2009 attached hereto as Appendix B.

Future revenues and expenses of the Corporation will be affected by events and conditions relating generally to, among other things: the extent of funding through National Institute of Health (“NIH”) research grants; research grants from other sources; the Corporation’s ability to maintain or increase investment returns and to raise funds, to maintain and solicit donations and to develop privately sponsored research and other programs; the success of its patent and licensing program; the continued excellence of its research personnel and the relevance of their research programs; management

13 capabilities; economic developments; and the Corporation’s ability to control expenses and maintain good relations with the NIH and private sponsors of research, competition, costs and governmental legislation and regulation. Research statutes and regulations will change, funded researchers may leave or join the Corporation and unanticipated events and circumstances may occur, which could cause material variations in future revenues. These factors, among others, may affect, in a positive or negative manner, the level of the Corporation’s revenues and its financial condition. See Appendix A for further discussion of the sources of revenues and funding of the Corporation. There can be no assurance that the financial condition of the Corporation will not be adversely affected, and there can be no guaranty there will be sufficient revenue to make payments with respect to the Certificates. See APPENDIX A – ‘INFORMATION CONCERNING THE CORPORATION – FINANCIAL OPERATIONS” herein for a discussion of process through which the Corporation receives and administers research grants, and the impact on such grants of a lead investigator leaving the Corporation.

With respect to the financial condition of the Corporation for the year ended June 30, 2009, see the audited financial statements of the Corporation attached hereto as Appendix B.

Maintenance of Tax-Exempt Status

Federal Income Tax Exemption. The tax-exempt status of the Certificates presently depends upon the Corporation’s maintenance of its status as an organization described in the Code. The maintenance of such status is contingent on compliance with general rules promulgated in the Code and related regulations regarding the organization and operation of tax-exempt entities, including its operation for charitable purposes and its avoidance of transactions which may cause its assets to inure to the benefit of private individuals. As these general principles were developed primarily for public charities which do not conduct large-scale technical operations and business activities, they often do not directly address the myriad of operations and transactions entered into by a modern research organization. Although specific activities of such organizations have been the subject of interpretations by the Internal Revenue Service (“IRS”) in the form of Private Letter Rulings, many activities or categories of activities have not been addressed in any official opinion, interpretation, or policy of the IRS.

In recent years, the IRS has increased the frequency and scope of its audit of tax-exempt organizations. The primary penalty available to the IRS under the Code is revocation of tax-exempt status. Following suggestions from the United States Treasury, Congress adopted sanctions which are less onerous than full revocation of tax-exempt status. While the IRS has not frequently revoked the Section 501(c)(3) tax-exempt status of nonprofit corporations in the past, there can be no assurance that it will not do so in the future or that it will not direct enforcement activities at the Corporation. It is possible that loss of tax-exempt status by the Corporation could result in loss of tax exemption of the Certificates and of other tax-exempt debt of the Corporation, and defaults in covenants regarding the Certificates and other related tax-exempt debt would likely be triggered. Such an event could have material adverse consequences on the financial condition of the Corporation taken as a whole.

The IRS has additional powers to use against nonprofit organizations that violate federal tax laws. The additional authority for dealing with 501(c)(3) organizations comes in the form of an “intermediate sanction,” which will allow the IRS to impose penalties on 501(c)(3) corporations without resorting to the revocation of the tax exempt status of the nonprofit entity and thus its bonds or certificates of participation. Under this law, the IRS can impose an excise tax to recover any “excess profits” 501(c)(3) corporations earn from the transfer of its assets to other, noncharitable parties.

State Income Tax Exemption and Local Property Tax Exemption. In the event of the loss by the Corporation of federal tax exemption, such a loss might trigger a challenge to the State tax exemption of the Corporation. Depending on circumstances, such an event could be adverse and material.

14 In recent years, state, county, and local taxing authorities have been undertaking audits and reviews of the operations of tax-exempt organizations with respect to its real property tax exemption. The The Facilities and the Real Property are exempt from real property taxation. Although the real property tax exemption with respect to the facilities of the Corporation (including the proposed capital projects) is not, to the knowledge of management of the Corporation, under challenge by such authorities, an investigation or audit could lead to a challenge that, if successful, could adversely affect the real property tax exemption with respect to the facilities of the Corporation.

Unrelated Business Income. In recent years, the IRS and state, county and local taxing authorities have been undertaking audits and reviews of the operations of tax-exempt organizations with respect to its exempt activities and the generation of unrelated taxable business income (“UBI”). In some cases, the tax-exempt status of the organizations has been questioned. The Corporation participates in activities which may generate UBI. The Corporation has historically not received any UBI, and management believes it has properly accounted for its revenues; nevertheless, an investigation or audit could lead to a challenge which could ultimately affect the tax-exempt status of the Corporation as well as the exclusion from gross income for federal income tax purposes of the interest payable with respect to the Certificates.

Environmental Laws and Regulations

Biological research facilities are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations which address, among other things, operations or facilities and properties owned or operated by such organizations. Among the types of regulatory requirements faced by research facilities are air and water quality control requirements, waste management requirements, specific regulatory requirements applicable to asbestos, polychlorinated biphenyls and radioactive substances, requirements for providing notice to employees and members of the public about hazardous materials and wastes, and other requirements.

Typical research operations include, but are not limited to, in various combinations, the handling, use, treatment, storage, transportation, disposal and/or discharge of hazardous, infectious, toxic, radioactive and flammable materials, wastes, pollutants or contaminants. As such, research operations are particularly susceptible to the practical, financial and legal risks associated with the obligations imposed by applicable environmental laws and regulations. Such risks may result in damage to individuals, property or the environment; may interrupt operations and/or increase their cost; may result in legal liability, damages, injunctions or fines; may result in investigations, administrative proceedings, civil litigation, criminal prosecution, penalties or other governmental agency actions; and may not be covered by insurance. There can be no assurance that the Corporation will not encounter such risks in the future, and such risks may result in material adverse consequences to the operations or financial condition of the Corporation. In addition, in their role as owner of properties or facilities, biological research organizations may be subject to liability for investigating and remedying contamination caused by any hazardous substances which have come to be located on the property, including contamination caused by any such substances that may have migrated off of the property.

At the present time, management of the Corporation is not aware of any pending or threatened claim, investigation or enforcement action regarding such environmental issues, or any instance of contamination, which, if determined adversely to the Corporation would have material adverse consequences to the Corporation.

Factors That Could Affect the Enforceability of the Sale Agreement

The legal right and practical ability of the Trustee to enforce its rights and remedies against the Corporation under the Sale Agreement and related documents may be limited by laws relating to

15 bankruptcy, insolvency, reorganization, fraudulent conveyance or moratorium and by other similar laws affecting creditors’ rights. In addition, the Trustee’s ability to enforce such terms will depend upon the exercise of various remedies specified by such documents which may in many instances require judicial actions that are often subject to discretion and delay or that otherwise may not be readily available or may be limited.

Bankruptcy

The ability of the Trustee to enforce the obligations of the Corporation under the Sale Agreement may be limited by laws relating to bankruptcy, insolvency, reorganization or moratorium and by other similar laws affecting creditors rights, including equitable principles. In addition, the Trustee’s ability to enforce such agreements will depend upon the exercise of various remedies specified by such documents which may in many instances require judicial actions that are often subject to discretion, delay and substantial costs or that otherwise may not be readily available or may be limited.

The various legal opinions to be delivered concurrently with the delivery of the Certificates will be qualified as to the enforceability of the various legal instruments by limitations imposed by State and federal laws, rulings and decisions affecting remedies, and by bankruptcy, reorganization or other laws of general application affecting the enforcement of creditors’ rights, including equitable principles.

In the event of bankruptcy of the Corporation, the rights and remedies of the Certificate Holders are subject to various provisions of the federal Bankruptcy Code. If the Corporation were to file a petition in bankruptcy, payments made by the Corporation during the 90-day (or possibly one-year if related to an insider, as provided as in the Bankruptcy Code) period immediately preceding the filing of such petition may be avoidable as preferential transfers to the extent such payments allow the recipients thereof to receive more than they would have received in the event of the Corporation’s liquidation. Security interests and other liens granted to the Trustee and perfected during such preference period may also be avoided as preferential transfers to the extent such security interest or other lien secures obligations that arose prior to the date of such perfection. Such a bankruptcy filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the Corporation and its property and as an automatic stay of any act or proceeding to enforce a lien upon or to otherwise exercise control over its property as well as various other actions to enforce, maintain or enhance the rights of the Trustee. If the bankruptcy court so ordered, the property of the Corporation could be used for the financial rehabilitation of the Corporation, despite any security interest of the Trustee therein. The rights of the Trustee to enforce its security interest could be delayed during the pendency of the rehabilitation proceeding.

The Corporation could file a plan for the adjustment of its debts in any such proceeding which could include provisions modifying or altering the rights of creditors generally, or any class of them, secured or unsecured. The plan, when confirmed by a court, binds all creditors who had notice or knowledge of the plan and, with certain exceptions, discharges all claims against the debtor to the extent provided for in the plan. No plan may be confirmed unless certain conditions are met, among which are that the plan is feasible and has been accepted by each class of claims impaired thereunder. Each class of claims has accepted the plan if at least two-thirds in dollar amount and more than one-half in number of the class cast votes in its favor. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly.

The Trustee’s security interest in the Revenues under the Trust Agreement may be subordinated to the interest and claims of others in several instances. Some examples of cases of subordination of prior claims are (i) statutory liens, (ii) rights arising in favor of the United States of America or any agency

16 thereof, (iii) present or future prohibitions against assignment in any statutes or regulations, (iv) constructive trusts, equitable liens or other rights impressed or conferred by any state or federal court in the exercise of its equitable jurisdiction, (v) federal or state bankruptcy or insolvency laws that may affect the enforceability of the Sale Agreement or pledge of Revenues, (vi) rights of third parties in Revenues converted to cash and not in the possession of the Trustee or a depository bank, (vii) commingling of proceeds of Revenues with other moneys of the Corporation not subject to the security interest in the Revenues; and (viii) claims that might arise if appropriate financing or continuation statements are not filed in accordance with the California Uniform Commercial Code as from time to time in effect.

Insurance

The Corporation purchases insurance for employee medical benefits and workers’ compensation benefits from commercial insurers licensed to sell insurance in the State of California. The Corporation also purchases insurance covering liability and physical damage to the Corporation’s facilities subject to customary deductibles. See APPENDIX A – “INFORMATION CONCERNING THE CORPORATION – OTHER MATTERS – Insurance” for a discussion of the Corporation’s current insurance coverage.

Seismic Hazard

The facilities of the Corporation are located in a seismically active region of southern California. The occurrence of severe seismic activity in the area could result in substantial damage to the facilities of the Corporation and could have a material, adverse impact on the Corporation’s finances. The Sale Agreement does not require the Corporation to maintain earthquake insurance for its facilities. For information concerning insurance currently maintained by the Corporation, see APPENDIX A – “INFORMATION CONCERNING THE CORPORATION” attached hereto.

Investment of Funds Risk

All funds and accounts held under the Trust Agreement are required to be invested in Investment Securities as provided under the Trust Agreement. See Appendix C attached hereto for a summary of the definition of “Investment Securities.” See the financial statements of the Corporation attached as Appendix B for a summary of the investments of the Corporation as of the date of such financial statements. All investments, including the Investment Securities and other investments made by the Corporation, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected, loss of market value and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held under the Trust Agreement or by the Corporation could have a material adverse effect on the security of the Certificates.

ABSENCE OF MATERIAL LITIGATION

The Corporation. There is no controversy or litigation of any nature now pending against the Corporation, or to the knowledge of its officers threatened, restraining or enjoining the execution, sale and delivery of the Certificates, in any way contesting or affecting the validity of the Certificates, in any way contesting the corporate existence or powers of the Corporation, or challenging any proceedings of the Corporation taken concerning the execution, sale and delivery thereof or the pledge or application of any moneys or security provided for the payment of the Certificates which, if determined adversely to the Corporation, might materially adversely affect the consummation of the transactions contemplated by this Official Statement or the financial condition, assets or properties of the Corporation. See also, APPENDIX A – “INFORMATION CONCERNING THE CORPORATION – OTHER MATTERS - Litigation.”

17 The County. To the knowledge of the County, there is no controversy or litigation of any nature now pending against the County, threatened, restraining or enjoining the execution, sale and delivery of the Certificates, or in any way contesting or affecting the validity of the Certificates, any proceedings of the County taken concerning the execution, sale and delivery thereof, the pledge or application of any moneys or security provided for the payment of the Certificates, or the existence or powers of the County relating to the execution, sale or delivery of the Certificates.

VERIFICATION

Upon delivery of the Certificates, Causey Demgen & Moore Inc., a firm of independent public accountants, will deliver a report on the mathematical accuracy of certain computations based upon certain information and assertions provided to them by the Underwriter relating to (a) the adequacy of the maturing principal and interest on the federal securities in the Escrow Fund to pay all of the principal, interest and prepayment premium on the Refunded Certificates and (b) the computations of yield of the Certificates and the federal securities in the Escrow Fund which support Special Counsel’s opinion that the interest with respect to the Certificates is excluded from gross income for federal income tax purposes.

TAX MATTERS

In the opinion of Orrick, Herrington & Sutcliffe LLP, Special Counsel to the County (“Special Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, the interest component of the Installment Payments to be paid by the County under the Purchase Agreement and received by the Beneficial Owners of the Certificates is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and is exempt from State of California personal income taxes. Special Counsel is of the further opinion that such interest component evidenced by the Certificates is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. Special Counsel expresses no opinion on whether the interest component of the Installment Payments to be paid by the County under the Purchase Agreement and received by the Beneficial Owners of the Certificates is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Special Counsel is set forth in Appendix E hereto.

To the extent the issue price of any maturity of the Certificates is less than the amount to be paid at maturity of such Certificates (excluding amounts stated to be interest and payable at least annually over the term of such Certificates), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest evidenced by the Certificates which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Certificates is the first price at which a substantial amount of such maturity of the Certificates is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Certificates accrues daily over the term to maturity of the Certificates on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Certificates to determine taxable gain or loss upon disposition (including sale, prepayment, or payment on maturity) of such Certificates. Beneficial Owners should consult their own tax advisors with respect to the tax consequences of ownership of Certificates with original issue discount, including the treatment of Beneficial Owners who do not purchase such Certificates in the original offering to the public at the first price at which a substantial amount of such Certificates is sold to the public.

18 Certificates purchased, whether at original execution and delivery or otherwise, for an amount higher than their principal evidenced thereby payable at maturity (or, in some cases, at their earlier prepayment date) (“Premium Certificates”) will be treated as having amortizable premium. No deduction is allowable for the amortizable premium in the case of obligations, like those evidenced by the Premium Certificates, the interest with respect to which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner’s basis in a Premium Certificate, will be reduced by the amount of amortizable premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Certificates should consult their own tax advisors with respect to the proper treatment of amortizable premium in their particular circumstances.

The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Certificates. The County and the Corporation have made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that the interest portion of the Installment Payments received by the Beneficial Owners will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in such interest component being included in gross income for federal income tax purposes, possibly from the date of original execution and delivery of the Certificates. The opinion of Special Counsel assumes the accuracy of these representations and compliance with these covenants. Special Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Special Counsel’s attention after the date of execution and delivery of the Certificates may adversely affect the value of, or the tax status of the interest portion of the Installment Payments evidenced by, the Certificates.

In addition, Special Counsel has relied, among other things, on the opinion of Allen Matkins Leck Gamble Mallory & Natsis LLP, Counsel to the Corporation, regarding the current qualification of the Corporation as an organization described in Section 501(c)(3) of the Code and the intended operation of the facilities to be financed by the Certificates as substantially related to the Corporation’s charitable purpose under Section 513(a) of the Code. Such opinion is subject to a number of qualifications and limitations. Furthermore, Counsel to the Corporation cannot give and has not given any opinion or assurance about the future activities of the Corporation, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or changes in enforcement thereof by the IRS. Failure of the Corporation to be organized and operated in accordance with the IRS’s requirements for the maintenance of its status as an organization described in Section 501(c)(3) of the Code, or to operate the facilities financed by the Certificates in a manner that is substantially related to the Corporation’s charitable purpose under Section 513(a) of the Code, may result in the interest portion of the Installment Payments to be paid by the County under the Purchase Agreement and received by the Beneficial Owners being included in federal gross income, possibly from the date of the original execution and delivery of the Certificates.

Although Special Counsel is of the opinion that the interest component of the Installment Payments to be paid by the County and received by the Beneficial Owners is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest evidenced by, the Certificates may otherwise affect a Beneficial Owners’ federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the Beneficial Owner’s particular tax status and other items of income or deduction. Special Counsel expresses no opinion regarding any such other tax consequences.

Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause the interest component of the Installment Payments to be paid by the County and received by the Beneficial Owners to be subject, directly or indirectly, to federal income taxation or to be subject to

19 exempted from state income taxation otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest component. The introduction or enactment of any such future legislative proposals, clarification of the Code or court decisions may also affect the market price for, or marketability of, the Certificates. Prospective purchasers of the Certificates should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Special Counsel expresses no opinion.

The opinion of Special Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Special Counsel’s judgment as to the proper treatment of the Certificates for federal income tax purposes. It is not binding on the IRS or the courts. Furthermore, Special Counsel cannot give and has not given any opinion or assurance about the future activities of the County or the Corporation, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The County and the Corporation have covenanted, however, to comply with the requirements of the Code.

Special Counsel’s engagement with respect to the Certificates ends with the execution and delivery of the Certificates, and, unless separately engaged, Special Counsel is not obligated to defend the County, the Corporation or the Beneficial Owners regarding the tax-exempt status of the Certificates in the event of an audit examination by the IRS. Under current procedures, parties other than the County, the Corporation and their appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the County or the Corporation legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Certificates for audit, or the course or result of such audit, or an audit of obligations presenting similar tax issues may affect the market price for, or the marketability of, the Certificates, and may cause the County, the Corporation or the Beneficial Owners to incur significant expense.

CONTINUING DISCLOSURE

The County has determined that no financial or operating data concerning the County is material to an evaluation of the offering of the Certificates or to any decision to purchase, hold or sell the Certificates, and the County will not provide any such information. The Corporation has undertaken all responsibilities for any continuing disclosure to Holders of the Certificates as described below, and the County will have no liability to the Holders of the Certificates or any other person with respect to Rule 15c2-12 promulgated by the Securities and Exchange Commission (the “Rule”).

The Corporation will enter into a Continuing Disclosure Agreement simultaneously with the execution and delivery of the Certificates (the “Continuing Disclosure Agreement”) for the benefit of the holders of the Certificates with Digital Assurance Certification, L.L.C. (“DAC”), under which the Corporation will designate DAC as Disclosure Dissemination Agent (the “Disclosure Dissemination Agent”). Pursuant to the Continuing Disclosure Agreement, the Corporation will covenant for the benefit of the holders and beneficial owners of the Certificates to provide (i) certain financial information and operating data relating to the Corporation by not later than 180 days following the end of the Corporation’s Fiscal Year (which Fiscal Year presently ends on June 30) (the “Annual Report”), commencing with the report for Fiscal Year 2009-10, (ii) certain financial information following the end of each fiscal quarter (the “Quarterly Report”), and (iii) to provide notices of the occurrence of certain enumerated events, if material. Each Quarterly Report and Annual Report will be filed by the Corporation through the Electronic Municipal Market Access (“EMMA”) website of the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934 (the “MSRB”), or any other entity designated or authorized by the Securities and Exchange

20 Commission to receive reports pursuant to the Rule. The notices of material events will be filed by the Corporation through the EMMA website. The specific nature of the information to be contained in the Annual Report and the notice of material events is set forth in APPENDIX D – “FORM OF CONTINUING DISCLOSURE AGREEMENT.” These covenants are made in order to assist the Underwriter in complying with the Rule. The Corporation has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events.

The Corporation will reserve the right to amend the Continuing Disclosure Agreement, and to obtain the waiver of non-compliance with any provision of the Continuing Disclosure Agreement, as may be necessary or appropriate to achieve the Corporation’s compliance with any applicable federal securities law or rules, to cure any ambiguity, inconsistency or formal defect or omission, and to address any change in circumstances arising from a change in legal requirements or change in law. Any such amendment or waiver will not be effective unless the Continuing Disclosure Agreement (as amended or taking into account such waiver) would have complied with the requirements of the Rule at the time of the primary offering of the Certificates, after taking into account any applicable amendments to or official interpretations of the Rule, as well as any change in circumstances, and until the Corporation shall have received either (i) a written opinion of bond or other qualified independent special counsel selected by the Corporation that the amendment or waiver would not materially impair the interest of Holders or Book- Entry Interest Owners of the Certificates, or (ii) the written consent to the amendment, or waiver, by the Holders of at least a majority of the aggregate outstanding principal amount of the applicable Certificates.

The Disclosure Dissemination Agent will have only the duties specified in the Continuing Disclosure Agreement. The Disclosure Dissemination Agent’s obligation to deliver the information at the times and with the contents described in the Continuing Disclosure Agreement is limited to the extent the Corporation has provided that information to the Disclosure Dissemination Agent as required by the Continuing Disclosure Agreement. The Disclosure Dissemination Agent will have no duty with respect to the content of any disclosures or notice made pursuant to the terms of the Continuing Disclosure Agreement or duty or obligation to review or verify any information in the Annual Report, Audited Financial Statements, notice of Notice Event or Voluntary Report (all as defined in the Continuing Disclosure Agreement), or any other information, disclosure or notices provided to it by the Corporation, and the Disclosure Dissemination Agent will not be deemed to be acting in any fiduciary capacity for the Corporation, the holders of the Certificates or any other party. The Disclosure Dissemination Agent will have no responsibility for any failure to report to the Disclosure Dissemination Agent a Notice Event or a duty to determine the materiality thereof, as to determine or liability for failing to determine whether the Corporation has complied with the Continuing Disclosure Agreement, and the Disclosure Dissemination Agent may conclusively rely upon certification of the Corporation at all times.

APPROVAL OF LEGALITY

Certain legal matters incident to the delivery of the Certificates are subject to the approving opinion of Orrick Herrington & Sutcliffe LLP, Los Angeles, California, Special Counsel. A copy of the proposed form of opinion of Special Counsel is set forth in APPENDIX E – “FORM OF FINAL OPINION OF SPECIAL COUNSEL.” Certain other legal matters will be passed upon for the County by the County Counsel, for the Corporation by Allen Matkins Leck Gamble Mallory & Natsis LLP, Los Angeles, California, and for the Underwriter by its counsel, Hawkins Delafield & Wood LLP, Los Angeles, California. Payment of the fees of Special Counsel are contingent upon the execution and delivery of the Certificates. Special Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement.

21 FINANCIAL ADVISOR

The Corporation has retained Prager, Sealy & Co., LLC as financial advisor to the Corporation (the “Financial Advisor”) in connection with the execution and delivery of the Certificates. The Financial Advisor has reviewed the Official Statement but makes no guaranty, warranty or other representation respecting accuracy and completeness of the information contained in the Official Statement.

INDEPENDENT AUDITORS

The financial statements of the Corporation as of and for the year ended June 30, 2009 (with summarized comparative information for the year ended June 30, 2008), included in this Official Statement in Appendix B have been audited by Moss Adams LLP, independent auditors, as stated in their report appearing in Appendix B to this Official Statement. No review or investigation with respect to subsequent events has been undertaken in connection with such financial statements by Moss Adams LLP.

RATING

Moody’s has assigned its municipal bond rating of “A1” to the Certificates. Such rating reflects only the views of the rating agency and does not constitute a recommendation to buy, sell or hold the Certificates. An explanation of the significance of such rating may be obtained only from Moody's Investors Service, 7 World Trade Center at 250 Greenwich Street, New York, NY 10007. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of the rating agency circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Certificates.

UNDERWRITING

The Underwriter, Merrill Lynch, Pierce, Fenner & Smith Incorporated, has agreed to purchase the Certificates at a purchase price of $37,010,098.54, calculated as the principal amount of the Certificates, less net original issue discount of $237,050.65, and less an underwriting discount of $197,850.81. The Certificate Purchase Contract provides that the Underwriter will purchase all of the Certificates, if any are purchased, and contains the agreement of the Corporation to indemnify the Underwriter and the County against certain liabilities. The Underwriter intends to offer the Certificates to the public initially at the prices and/or yields set forth on the inside cover page of this Official Statement, which prices or yields may subsequently change without any requirement of prior notice by the Underwriter. TheUnderwriterreservestherighttojoinwithdealersandotherunderwritersinofferingthe Certificates to the public. The Underwriter may offer and sell Certificates to certain dealers (including dealers depositing Certificates into investment trusts) at prices lower than the public offering prices stated on the inside cover page hereof and such public offering prices may be changed from time to time by the Underwriter.

In reoffering Certificates to the public, the Underwriter may overallot or effect transactions which stabilize or maintain the market prices for Certificates at levels above those which might otherwise prevail. Such stabilization, if commenced, may be discontinued at any time.

22 MISCELLANEOUS

The foregoing and subsequent summaries or description of provisions of the Certificates, the Trust Agreement, the Sale Agreement, the Purchase Agreement and the Deed of Trust, and all references to other materials not purporting to be quoted in full, are only brief outlines of some of the provisions thereof and do not purport to summarize or describe all of the provisions thereof, and reference is made to said documents for full and complete statements of their provisions. The appendices attached hereto are a part of this Official Statement. Copies, in reasonable quantity, of the Trust Agreement, the Sale Agreement and the Purchase Agreement may be obtained during the offering period upon request directed to the Underwriter and thereafter upon request directed to the Trustee.

This Official Statement has been approved by the County and the Corporation. This Official Statement is not to be considered as a contract or agreement between the County or the Corporation, and the purchasers or Holders of any of the Certificates.

COUNTY OF SAN DIEGO

By /s/ Donald F. Steuer Chief Financial Officer

THE SALK INSTITUTE FOR BIOLOGICAL STUDIES, SAN DIEGO, CALIFORNIA

By /s/ William R. Brody, M.D., Ph.D. President

23 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX A

INFORMATION CONCERNING THE INSTITUTE

The information contained herein as Appendix A to this Official Statement has been obtained from The Salk Institute for Biological Studies, San Diego, California [THIS PAGE INTENTIONALLY LEFT BLANK] TABLE OF CONTENTS

Page

HISTORY AND BACKGROUND………………………………………………………. A-2

GOVERNANCE AND MANAGEMENT………………………………………………. A-3

FACULTY AND AWARDS……………………………………………………………… A-8

SCIENTIFIC PROGRAMS……………………………………………………………... A-10

PLANT AND EQUIPMENT…………………………………………………………….. A-13

FINANCIAL OPERATIONS……………………………………………………………. A-13

MANAGEMENT’S DISCUSSION AND ANALYSIS…………………………………. A-18

OTHER MATTERS……………………………………………………………………… A-23 HISTORY AND BACKGROUND

The Salk Institute for Biological Studies (“Salk” or the "Institute"), a California non-profit public benefit organization, is one of the world's pre-eminent basic research institutions, where internationally renowned faculty probe fundamental life science questions in a unique, collaborative, and creative environment. Since 1960, when Dr. Jonas Salk, the developer of the polio vaccine, founded his world-renowned Institute, scientists at the Institute have actively pursued innovative basic research that has led to a string of seminal papers with enormous impact toward a better understanding of human health and disease. Focused both on discovery and on mentoring future generations of researchers, Salk scientists have made groundbreaking contributions to the understanding of cancer, aging, Alzheimer's disease, diabetes, and infectious diseases by studying neuroscience, genetics, cell and plant biology, and related disciplines.

Dr. Salk’s goal was to establish an institute that would explore questions about the basic principles of life. He wanted to make it possible for biologists and others to work together in a collaborative environment that would encourage them to consider the wider implications of their discoveries for the future of humanity. In December 1959, Dr. Salk and architect Louis Kahn began a unique partnership to design the Institute, which Dr. Salk envisioned as “a facility worthy of a visit by Picasso”. Kahn, a devoted artist before he became an architect, was able to respond to this challenge. In 1960, the City of San Diego granted Dr. Salk a gift of land on the Torrey Pines Mesa overlooking the Pacific Ocean.

When the first laboratory was opened in 1963, there were five senior scientists and their research teams. This distinguished group of fellows formed members of Salk’s first faculty group and in addition to Jonas Salk included Jacob Bronowski, Melvin Cohn, Renato Dulbecco, Edwin Lennox, and Leslie Orgel. The first Non-Resident Fellows (appointed scientists from other institutions) selected were Francis Crick, Salvador Luria, Jacques Monod, Leo Szilard, and Warren Weaver. During the next few years, as the Institute expanded, resident fellows (now generally regarded as professors) and Non-Resident Fellows together advised Dr. Salk about future scientific directions. The organization of the Institute has evolved with time to its present structure which consists of a Board of Trustees (the “Board”), a President (the “President”), an Academic Council, and a Chair of the Faculty.

The Salk Institute’s major areas of study are focused on molecular biology and genetics, the neurosciences, plant biology, and infectious disease. Today, the Salk Institute conducts its biomedical research in 24 laboratories. At present, the faculty numbers 60, with a scientific staff of more than 850. This latter group consists of visiting scientists, some 285 postdoctoral trainees, approximately 130 graduate and rotation students, and more than 90 undergraduate students. Although not a degree-granting institution, the Salk has trained more than 2,300 scientists; many have gone on to positions of leadership in other prominent research centers worldwide. Five of the scientists trained at the Institute have won the Nobel Prize. Three of the Institute’s current resident faculty members and four Non-Resident Fellows are Nobel Laureates.

The Institute has been supported over the years by funds awarded to its faculty in the form of research grants, most from the National Institutes of Health (“NIH”), and from private foundations and individuals. Especially important has been the continued support of the March

A-2 of Dimes Foundation which, in addition to funds for the original structure, has contributed significantly every year to the Institute’s financial needs.

GOVERNANCE AND MANAGEMENT

Governance of the Institute is vested in the Institute’s Board of Trustees (the “Board”) which provides policy and management oversight. The Non-Resident Fellows provide the Board, the Institute’s President (the “President”), and faculty with insight into long-range scientific program planning and direction.

Board of Trustees The Board of Trustees is composed of proven leaders from the world’s business and non-profit communities who bring a range of skills and perspectives to the Institute. They are committed to science, innovation and high-quality research, and support the Institute’s mission. Trustees are charged with monitoring Institute operations to ensure the organization fulfills its scientific and training efforts while operating in a financially responsible manner.

Trustees are elected by the Board to serve three-year terms, staggered to ensure organizational continuity. Elected Trustees may not serve more than three consecutive full terms, but shall be eligible to serve again for a single three-year term after an absence of at least one year.

The Board is currently chaired by Irwin Mark Jacobs, Sc.D. Dr. Jacobs has been Chairman of the Institute’s Board since November 2006. Dr. Jacobs is co-founder (1985) and director of QUALCOMM Incorporated, previously serving as its chairman and chief executive officer. He served as chief executive officer of QUALCOMM until July 2005 and led the successful development and commercialization of Code Division Multiple Access (“CDMA”) technology for cellular phones. Dr. Jacobs holds 13 CDMA patents. In 1969, Dr. Jacobs co-founded LINKABIT Corporation. The company merged with M/A-Com in 1980 and he remained as executive vice president of M/A-Com until 1985. Over 35 San Diego companies trace their roots to LINKABIT. Dr. Jacobs was an assistant and associate professor of electrical engineering at Massachusetts Institute of Technology (“MIT”) from 1959 to 1966 before moving to San Diego in 1966 to help establish the Electrical Engineering department at UCSD. He served as professor for Information and Computer Science until 1972. While at MIT, he coauthored Principles of Communication Engineering, the first text book on digital communications. Dr. Jacobs earned his bachelor’s of science degree in electrical engineering from Cornell University, and his master’s and doctorate of science degrees in electrical engineering from MIT.

As of April 23, 2010, the Trustees are:

Trustee Affiliation

Charles H. Brandes Chairman, Brandes Investment Partners

William R. Brody, M.D., Ph.D. President, The Salk Institute for Biological Studies

Kim Campbell Former Prime Minister of Canada

A-3 Trustee Affiliation

Linda L. Chester Owner, Linda Chester Literary Agency

Joanne Chory, Ph.D. Professor and Director, Plant Molecular & Cellular Biology Laboratory, The Salk Institute

Frederick J. Dotzler Managing Director, De Novo Ventures

Richard C. Helmstetter Former President, Callaway Golf Company

Jennifer L. Howse, Ph.D. President, March of Dimes Foundation

Irwin Mark Jacobs, Sc.D. (Chair) Director, QUALCOMM Incorporated

Greg E. Lemke, Ph.D. Professor, Molecular Neurobiology Laboratory, The Salk Institute

Nancy Lukitsh Former Senior Vice President, Partner, and Director of Marketing, Wellington Management

Corinne Mentzelopoulos Chairman and Chief Executive Officer, Château Margaux

Howard H. Newman, Ph.D. President and Chief Executive Officer, Pine Brook Partners, LLC

Gerald L. Parsky Chairman, Aurora Capital Group

Frederik Paulsen, Ph.D. Chairman, Ferring International Center S.A.

Caryl Philips President, Jesse & Caryl Philips Foundation

Ernest S. Rady Founder and Chairman of the Board, American Assets, Inc.

Mary Jane Salk Author and philanthropist

Carla J. Shatz, Ph.D. Professor of Biology and Neurobiology, Stanford University Director, Bio-X at the James H. Clark Center

Darlene Marcos Shiley President, The Shiley Foundation

Jerre L. Stead Chairman and Chief Executive Officer, IHS Inc.

David M. Stone Chairman, Western National Group

A-4 Trustee Affiliation

Geoffrey M. Wahl, Ph.D. Professor, Gene Expression Laboratory, The Salk Institute

Theodore W. Waitt (Vice Chair) Chairman, Avalon Capital Group, Inc. and The Waitt Family Foundation

Harvey P. White Chairman, (SHW)2 Enterprises

Marna C. Whittington, Ph.D. Chief Executive Officer, Nicholas-Applegate Capital Management

M. Faye Wilson Principal and Co-Founder, Wilson Boyles & Company

The Board meets a minimum of two times a year; the Executive Committee also meets a minimum of two times a year. In the intervals between meetings of the Board, the Executive Committee possesses and exercises the powers and authority of the Board in the management of the business and affairs of the Institute. There are seven standing committees in addition to the Executive Committee: the Audit Committee, the Development Committee, the Finance Committee, the Governance Committee, the Intellectual Property and Technology Transfer Committee, the Investment Committee, and the Science Committee.

The California Nonprofit Integrity Act of 2004 (the “California Act”) was passed in October 2004 and the Institute is currently in compliance with the requirements of the California Act. While the Sarbanes-Oxley Act of 2002 (“SOX”) does not currently apply to non-profit, tax- exempt entities, the Institute voluntarily complies with certain SOX provisions, such as having an independent Audit Committee separate from its Finance Committee, a whistleblower policy, and conflict of interest policies to avoid the potential for real or perceived conflicts.

Non-Resident Fellows The Non-Resident Fellows provide the faculty, President, and Board with input on scientific issues. The Non-Resident Fellows are comprised of scientists of distinction from research institutions in the United States and abroad who identify new research trends at an early stage and ensure that the Institute maintains the highest scientific standards. Below is a roster of the Institute’s Non-Resident Fellows as of March 31, 2010.

A-5 DAVID BALTIMORE, Ph.D. ERIC LANDER, Ph.D. President Emeritus and Robert Andrews Millikan President and Director, Broad Institute of Harvard Professor of Biology, California Institute of and MIT Technology Co-chair, President’s Council of Advisors on U.S. National Academy of Sciences Science and Technology Fellow, American Academy of Arts & Sciences MacArthur Foundation Prize Fellowship Foreign Member, Royal Society of London and Gairdner Award French Academy of Sciences Member, National Academy of Sciences Gairdner Award Member, Institute of Medicine Nobel Prize in Physiology or Medicine, 1975 National Medal of Science, 1999

ELIZABETH H. BLACKBURN, Ph.D. CARLA J. SHATZ, Ph.D. Professor, Department of Biochemistry and Professor of Biology and Neurobiology, Stanford Biophysics, University of California, San Francisco University Foreign Associate, National Academy of Sciences Director, Bio-X, James H. Clark Center Fellow, American Academy of Arts & Sciences Fellow, American Academy of Arts and Sciences Fellow, Royal Society of London Fellow, European Academy of Sciences and Arts Fellow, American Academy of Microbiology Member, National Academy of Sciences Member, Institute of Medicine Member, American Philosophical Society Nobel Prize in Physiology or Medicine, 2009 Member, Institute of Medicine

GERALD R. FINK, Ph.D. IRVING L. WEISSMAN, M.D. Founding Member of the Whitehead Institute for Director, Institute for Stem Cell Biology and Biomedical Research Regenerative Medicine Member, National Academy of Sciences Virginia and D.K. Ludwig Professor for Clinical Fellow, American Academy of Arts & Sciences Investigation and Cancer Research, Stanford Member, Institute of Medicine School of Medicine Member, American Philosophical Society Member, National Academy of Sciences Member, Institute of Medicine

THOMAS M. JESSELL, Ph.D. ROBERT H. WURTZ, Ph.D. Investigator, Howard Hughes Medical Institute NIH Distinguished Investigator Professor, Biochemistry and Molecular Biophysics, Laboratory of Sensorimotor Research, National Columbia University Eye Institute, National Institutes of Health Member, Center for Neurobiology and Behavior, Member, National Academy of Sciences Columbia University Fellow, American Academy of Arts & Sciences Foreign Associate, U.S. National Academy of Member, Institute of Medicine Sciences National Eye Institute Director’s Award Member, Institute of Medicine Dan David Prize – Brain Sciences, 2004 Member, Royal Society of London

Executive Management The President creates the plan and sets the direction of the Institute based on the policies established by the Board with input from the faculty and Non-Resident Fellows; executive management carries out this plan. The Board appoints the President and, with recommendation of the President, appoints the other officers. Background information on the President, Executive

A-6 Vice President and Chief Operating Officer, Senior Vice President and Chief Financial Officer, and General Counsel is provided below.

William R. Brody, M.D., Ph.D., President. William Brody became President of the Institute in March 2009. Prior to leading the Institute, Dr. Brody was the 13th president of The Johns Hopkins University. Immediately prior to assuming that position, Dr. Brody was the provost of the Academic Health Center at the University of Minnesota. From 1987 to 1994, he was the Martin Donner Professor and director of the Department of Radiology, professor of electrical and computer engineering, and professor of biomedical engineering at Johns Hopkins, and radiologist-in-chief of The Johns Hopkins Hospital. Dr. Brody received his B.S. and M.S. degrees in electrical engineering from the Massachusetts Institute of Technology, and his M.D. and Ph.D., also in electrical engineering, from Stanford University. Following post-graduate training in cardiovascular surgery and radiology at Stanford, the National Institutes of Health, and the University of California, San Francisco, Dr. Brody was professor of radiology and electrical engineering at Stanford University (1977-1986). He has been a co-founder of three medical device companies, and served as the president and chief executive officer of Resonex Inc. from 1984 to 1987. He has over 100 publications and two U.S. patents in the field of medical imaging and has made contributions in medical acoustics, computed tomography, digital radiography, and magnetic resonance imaging.

Marsha A. Chandler, Ph.D., Executive Vice President and Chief Operating Officer. Marsha Chandler became Executive Vice President and Chief Operating Officer of the Institute in July 2007. Dr. Chandler provides academic leadership along with President Brody, and manages the fiscal and administrative functions of the Institute. Reporting to Dr. Chandler are the Vice Presidents for Academic and Administrative Services, Development and Communications, Scientific Services, the Chief Financial Officer, and the General Counsel. Prior to joining the Institute, Dr. Chandler served for ten years as Senior Vice Chancellor for Academic Affairs at the University of California, San Diego (UCSD). As UCSD's chief academic officer, she was responsible for the policies and decisions relating to all academic programs and faculty appointments and performance, including faculty in the Schools of Arts and Science, the Graduate School, Engineering, Business, International Relations and Pacific Studies, Medicine, and Pharmacy and Pharmaceutical Science. In addition, Dr. Chandler managed the full range of fiscal and human resources within Academic Affairs. Prior to her tenure at UCSD, from 1990 to 1997, Dr. Chandler served as Dean of Arts and Science at the University of Toronto. In that capacity, she was responsible for 30 academic departments spread across two campuses. Dr. Chandler received her doctorate from The University of North Carolina at Chapel Hill. She has more than 25 years of successful academic leadership and management experience. In 2004, she completed the Advanced Management Program at Harvard University Business School.

Kim E. Witmer, CPA, Senior Vice President and Chief Financial Officer. Kim Witmer has served as Chief Financial Officer since 2001 overseeing all financial activities of the Institute including financial reporting and treasury functions, preparation of the annual budget, procurement, and endowment/investment management. Prior to joining the Institute, Ms. Witmer served in both the audit and tax departments of the international accounting firm of Deloitte & Touche. She is active in the Association of Independent Research Institutes (AIRI) serving on

A-7 committees and the board, and is currently serving as AIRI President. She is a Certified Public Accountant and holds a B.S. in business administration from San Diego State University.

Julia A. Miller, J.D., General Counsel. Julia Miller joined the Institute in January 2010 as General Counsel and oversees a wide range of legal matters associated with the administration and management of the Institute including business contracts, legal proceedings, corporate governance, intellectual property, and employment matters. Prior to joining the Institute, Ms. Miller was an attorney in the San Diego office of Paul, Hastings, Janofsky & Walker LLP, practicing in the Corporate Department, with particular focus on business transactions and intellectual property matters for life science and technology clients. She also represented clients in patent infringement litigation, patent license disputes, and trade secret theft claims. Ms. Miller is registered to practice before the United States Patent & Trademark Office and is a member of the State Bar of California, the U.S. Patent and Trademark Office, the San Diego Intellectual Property Law Association, and the Licensing Executives Society. She received a J.D., magna cum laude, from Boston University School of Law, where she served as executive editor of Boston University Law Review, and a B.A. in cell biology and biochemistry from the University of California, San Diego. Prior to attending law school, Ms. Miller performed scientific research at the University of California, San Diego where she studied cancer genetics, and Gen-Probe, Inc. where she developed DNA-based diagnostic assay products.

FACULTY AND AWARDS

As of March 31, 2010, the Institute’s faculty numbers 60, with a scientific staff of more than 850. The scientific staff consists of visiting scientists, some 285 postdoctoral trainees, approximately 130 graduate and rotation students, and more than 90 undergraduate students. The Institute plays a major role in training scientists, whether graduate students from nearby universities, postdoctoral fellows, or more experienced investigators who come from around the world to learn new fields and research techniques developed by Institute scientists.

The excellence of Salk’s faculty has been recognized through countless awards and honors including election to the National Academy of Sciences and the National Academy of Medicine; Howard Hughes Medical Institute Investigatorships; Sloan Research Fellowships; NIH New Innovator awards; Beckman Young Investigator awards; the Krieg Cortical Discoverer Prize; the Pearl Meister Greengard Prize, an international award that recognizes outstanding women scientists; the Vilcek Foundation prize in biomedical science, awarded annually to foreign-born individuals for their extraordinary contributions to society in the United States; and the Keio Medical Science Prize, awarded by Japan’s Keio University to recognize stellar scientific research in the life sciences.

In addition, papers authored by Salk researchers often are noted for the number of times they are cited in other publications. In 2009, the Institute garnered the top discovery spot in international ranking in the category "Neuroscience and Behavior" by Science Watch, a scientific organization that measures the citation impact of research published worldwide. Citations are an important measure of the value and influence of scientists' work and reflect the impact made by that work on scientific understanding.

A-8 Below is a listing of the Institute’s faculty as of March 31, 2010; all hold doctorates, and four hold both M.D. and Ph.D. degrees.

Distinguished Professors Renato Dulbecco, M.D. Roger Guillemin, M.D., Ph.D.

Senior Distinguished Fellow of the Crick-Jacobs Center Sydney Brenner, Ph.D.

Professors Thomas Albright, Ph.D. Martyn Goulding, Ph.D. Samuel Pfaff, Ph.D. Ursula Bellugi, Ed.D. Stephen Heinemann, Ph.D. Catherine Rivier, Ph.D. Suzanne Bourgeois, Ph.D. Tony Hunter, Ph.D. Jean Rivier, Ph.D. William R. Brody, M.D., Ph.D. Juan Carlos Izpisúa Belmonte, Ph.D. Paul Sawchenko, Ph.D. Edward Callaway, Ph.D. Katherine Jones, Ph.D. David Schubert, Ph.D. Senyon Choe, Ph.D. Christopher Kintner, Ph.D. Terrence Sejnowski, Ph.D. Joanne Chory, Ph.D. Richard Krauzlis, Ph.D. Charles Stevens, M.D., Ph.D. Melvin Cohn, Ph.D. Kuo-Fen Lee, Ph.D. John Thomas, Ph.D. Joseph Ecker, Ph.D. Greg Lemke, Ph.D. Wylie Vale, Ph.D. Walter Eckhart, Ph.D. Vicki Lundblad, Ph.D. Inder Verma, Ph.D. Beverly Emerson, Ph.D. Marc Montminy, M.D., Ph.D. Geoffrey Wahl, Ph.D. Ronald Evans, Ph.D. Joseph Noel, Ph.D. John Young, Ph.D. Fred Gage, Ph.D. Dennis O'Leary, Ph.D.

Associate Professors E.J. Chichilnisky, Ph.D. Martin Hetzer, Ph.D. John Reynolds, Ph.D. Andrew Dillin, Ph.D. Jan Karlseder, Ph.D. Paul Slesinger, Ph.D. Sascha du Lac, Ph.D. Jeffrey Long, Ph.D. Matthew Weitzman, Ph.D.

Assistant Professors Sreekanth Chalasani, Ph.D. Satchidananda Panda, Ph.D. James Umen, Ph.D. Leanne Jones, Ph.D. Tatyana Sharpee, Ph.D. Lei Wang, Ph.D. Björn Lillemeier, Ph.D. Reuben Shaw, Ph.D. Ye Zheng, Ph.D. Clodagh O’Shea, Ph.D.

A-9 The table below shows, for each of the past five years, the number of faculty hired and departed, and their total number.

2005 2006 2007 2008 2009 2010* Number faculty hired 3 2 2 0 0 4 Number faculty departed 2 0 4 2 0 0 Total faculty 58 60 58 56 56 60

* Through March 31, 2010.

The Institute, similar to comparable institutions, experiences a modest, but certain, annual turnover of faculty. The Institute’s ability to meet its long-term objectives depends significantly upon the identification, recruitment, and retention of faculty of the highest caliber. The Institute intends to continue its aggressive efforts to recruit additional faculty to replace those who depart.

SCIENTIFIC PROGRAMS

The Institute’s scientists maintain working relationships with clinical centers throughout the world to facilitate practical applications of the Institute’s basic science discoveries. These discoveries have the overall objective of discerning the molecular biology and genetic basis of human development and disease so that targeted treatments or cures may be formulated for a wide variety of health problems. Groundbreaking discoveries by Salk scientists have helped shed light on the molecular underpinnings of many devastating conditions including cancer, diabetes, Alzheimer’s disease, obesity, and anomalies of the brain. Several of the Institute’s scientific initiatives are summarized below:

Aging. Aging is a biological phenomenon that affects virtually every living organism. But diseases associated with age will compromise the quality of life and economic well-being of many. As we age, the risk of developing Type II diabetes increases; we lose bone and muscle mass, leading to frailty; and three-quarters of all cancers are diagnosed after age 55. An estimated 4.5 million Americans have Alzheimer’s disease, and approximately 60,000 new cases of Parkinson’s disease are diagnosed each year, usually after age 65. As the average age of the U.S. population climbs, the number of people ravaged by diseases related to aging will continue to rise. Salk researchers seek to understand the basic molecular mechanisms that drive the aging process and to contribute scientific discoveries that can promote healthy aging. The Institute’s Center of Aging Research and Mechanistic Analysis (CARMA) focuses on understanding the cascade of events that accompany the aging process.

Biophotonics. Science thrives on new technologies and nothing embodies this better than light microscopy. The convergence of technological advances in several areas – faster cameras, new light-emitting dyes, and enough computing power to handle images that occupy up to a terabyte of storage space – puts the formerly unthinkable within the grasp of scientific inquiry. Being able to detect single photons allows scientists to follow molecules throughout the cell, understand how single molecules and cells function in real time, and decipher what goes wrong when they

A-10 malfunction. One of the foremost goals of Salk researchers is to understand the basic molecular and biochemical principles that guide the function and behavior of living organisms and the individual cells within. This knowledge will allow Institute scientists to contribute answers to questions such as: How does Alzheimer’s disease work? How does a cancer cell become a tumor cell? Why are some cancer cells resistant to therapy while others respond? A $20 million gift from Institute Trustee Ted Waitt and the Waitt Family Foundation established the Waitt Advanced Biophotonics Center at the Salk Institute, a state-of the art imaging center with innovative technology in optics, engineering, computer programming, and image processing to take full advantage of recent and future technological advances in the field of biophotonics.

Immunobiology and Microbial Pathogenesis. An increasing number of reports show that chronic inflammation is the culprit behind the most common illnesses of middle and old age. It is capable of bursting plaques in coronary arteries leading to heart attacks and damaging nerve cells in Alzheimer patients. It drives autoimmune disorders and is intricately linked with the early- stage development of cancer and diabetes. The view of inflammation as the driving force behind a wide-ranging variety of diseases has turned immunological research into one of the hottest and most promising areas of medical research. A gift of $11.5 million, received on behalf of the Nomis Foundation, a European foundation established by former Trustee G.H. Thyssen- Bornemisza, helped establish the Nomis Laboratory of Immunobiology and Microbial Pathogenesis at the Salk Institute. The lab’s goal is to shed light on the molecular mechanisms that cause infectious diseases, define key molecules involved in the body’s response to injury or infection, and understand why inflammatory processes spin out of control under some circumstances. The benefits of bringing together a critical mass of internationally outstanding researchers in inflammation research, synergizing with experts in both microbial pathogenesis and cellular immunology, are potentially enormous. It will enable Salk researchers to make a major contribution to preventing and treating the cause of a majority of deaths in the United States and worldwide.

Metabolism. The prevalence of adult obesity has increased an alarming 75% since 1980, rendering one-third of all men and women obese in the U.S. Increased body weight is associated with a slew of metabolic disorders including glucose intolerance, insulin resistance, high cholesterol, and high blood pressure, all of which are well-established risk factors for cardiovascular disease and Type II diabetes. Obesity increases the risk for certain cancers and lowers life expectancy. Consistent with its central place in biology, the study of metabolism extends to a number of fields such as aging, cancer, neuroscience, and immunology. A goal at the Institute is to develop new approaches to understanding how metabolism is affected by food intake, age, and gender, as well as to identify new targets for pharmacological interventions with the potential to control weight gain, and to diminish diabetic and cardiovascular complications of metabolic syndrome. Recent discoveries by Salk researchers working in such disparate fields as aging, biological chemistry, cancer, and steroid hormone receptors have led them to the great “metabolic intersection”, putting the Salk Institute in a unique position to unravel the body’s network of metabolic regulators.

Neuroscience. Our brains perform millions of complex computations every second allowing us to understand language, recognize faces, and schedule our day. We need to know how the brain’s neural circuits form, connect, and function to allow us in turn to understand the brain’s ability to

A-11 adapt and rewire, as well as its remarkable capacity to learn and remember. The key to decoding the brain – in both healthy and diseased states – lies in exploiting technical and intellectual advances at every level – from single molecules to large-scale recording technologies – and linking them with sophisticated behavioral testing. A goal of Salk researchers is to discover how the 100 billion neurons that make up the brain are produced, grow, and organize into an intricate, functionally active network that controls how we perceive, behave, and remember. Ultimately, Salk researchers want to understand the brain’s development, structure, and mature function in sufficient detail to be able to intervene therapeutically in devastating neurological diseases such as Alzheimer’s and Parkinson’s diseases, and for treating strokes, addiction, schizophrenia, etc.

Plant Biology. All of our lives depend on plants’ ability to harvest the sun’s energy, but the importance of plant biology is often overshadowed by medical research. Yet, securing the world’s food supply in a changing climate may be one of the biggest challenges we face this century. Every day 18,000 children under age five die of hunger and malnutrition; almost all of them live in developing countries, the very countries expected to be most affected by climate change. Worldwide fertilizer shortages, rising energy costs, growth of protein-rich diets in developing countries, an increasing demand for biofuels, and market speculation all add to the current global food crisis. Understanding the molecular underpinnings of how plants adapt to challenging environments and defend themselves against insects and fungal infections will be crucial to ensuring the world’s food supply into the future, making basic plant research more important than ever. The Salk Institute is home to some of the world’s leading plant biologists whose ground-breaking research profoundly impacts many areas of science, from agriculture to stem cell research, from tumor biology to drug development.

Stem Cell Research. Every single cell in our body, from beating muscle cells in our heart to information-processing neurons in our brains, from supple skin fibroblasts to bone-producing osteoblasts, can trace its origin to a handful of embryonic stem cells. This is why the amazing versatility of embryonic stem cells holds the tantalizing promise of supplying the body with stem cell transplants to regenerate diseased tissue. But, before Salk scientists can harness the power of stem cells, they need to learn more about the molecular mechanisms that give cells their plasticity. A goal at the Salk Institute is to understand how stem cells give rise to all the different cell types in the body; how they reprogram themselves to become a different cell type; and how they come together to form tissues and organs. Importantly, Salk researchers will use these remarkable cells to model human diseases and determine the underlying molecular mechanisms, and then use this knowledge to develop new therapies for those diseases.

Systems Biology. The complexity of even a single cell can be overwhelming. To break down the Herculean task, traditional biologists reduced biological systems into individual components and studied them gene by gene, protein by protein. But analyzing single cells or aspects of an organism, such as the cells of the immune system or sugar metabolism, will not reveal how the human body functions as a whole. For the first time, scientists can now attempt to view organisms as integrated and interacting networks of genes, proteins, and biochemical reactions that give rise to life. This unprecedented ability is possible with the help of the genetic “parts catalog” provided by the Human Genome Project, the development of powerful new research technology, more efficient computing power, and the ease of storing and distributing massive amounts of data over the Internet. Scientists can only hope to understand the fundamental

A-12 working principles of life by studying the interactions of all the parts that comprise a whole organism. The growing understanding of how genes and proteins work enables scientists at the Institute to take an increasingly global approach to addressing biological questions. This will lead to rapid advances in understanding disease-causing alterations in the molecular networks underlying metabolic, physiological, and behavioral processes.

PLANT AND EQUIPMENT

Facilities The Institute’s campus consists of a 26-acre site and four buildings, two of which each consist of 212,000 gross square feet of space, and two which consist of 113,000 gross square feet at 10010 North Torrey Pines Road in La Jolla, California. The original site of the Institute’s facilities was deeded to the Institute by the citizens of San Diego and is adjacent to the campus of the University of California, San Diego. This location provides ready access to the University as well as to other members of San Diego's research community including The Scripps Research Institute and Sanford/Burnham Medical Research Institute, and is home to one of the largest concentrations of biotechnology companies in the United States. The buildings were designed specifically for the scientific work of the Institute by architect Louis Kahn in conjunction with Jonas Salk.

Technical Support Activities The research activities of Institute scientists require significant technical support including core facilities such as the Razavi Newman Center for Bioinformatics, the Center of Cytometry and Molecular Imaging, the Functional Genomics Core, the Peptide Synthesis Facility, The Vincent J. Coates Foundation Mass Spectometry Center, the Stem Cell Core Facility, the Transgenic Core, and many other specialized facilities devoted to collaborative research.

FINANCIAL OPERATIONS

Grants Grants provide the major source of revenue for the Institute's research activities. In the fiscal year ended June 30, 2009, the Institute received approximately $71 million of government and other private and public grants and contracts, including $55 million from the federal government, primarily from the NIH. Other grantors include California Institute for Regenerative Medicine, Sanofi-Aventis, National Science Foundation, University of California, Clayton Foundation, Leona M. & Harry B. Helmsley Trust, James S. McDonnell Foundation, American Cancer Society, and Harold & Leila Mathers Charitable Foundation.

A-13 The Salk Institute Sources of Grants Revenue

Fiscal Years Ended June 30, 2005 2006 2007 2008 2009

NIH 76% 79% 75% 74% 70% Other Federal Agencies 8% 8% 8% 6% 7% State of California 1% 1% 1% 4% 5% Foundations and Voluntary Health Agencies 15% 12% 15% 15% 16% Corporations and Other 0% 0% 1% 1% 2% Total 100% 100% 100% 100% 100%

Source: The Institute

Grant funding for the first nine months of fiscal year 2010, is 10% or $5 million higher than the same period in fiscal year 2009, with grants from corporations and other and from the State of California increasing $3 million and $1 million, respectively. Through March 31, 2010, grants from the NIH and from all other sources increased slightly.

NIH Funding Process The NIH utilizes a competitive process to award the funds available to its research programs. The Institute's scientists submit grant applications that are reviewed and rated through the NIH peer review process. NIH officials make the final award decision based on the percentile ranking assigned to the application relative to all other applications. While the awards are generally for a period of four to five years and provide for a budget to cover direct and indirect costs, some of the Institute's senior scientists are recipients of NIH Merit Awards that provide funding for a period of seven to ten years.

Direct and Indirect Costs The Institute's research programs are supported by two types of costs:

1. Direct Costs are directly charged to a research project and include wages of scientists and technicians, supplies and grant-specific equipment; and

2. Indirect Costs are also incurred in the performing of research, but they have been incurred for purposes common to some or all of the research programs and include interest on long-term debt, depreciation, utilities, occupancy and facility costs, and general management and administrative services such as accounting, purchasing, human resources and the library.

The federal Office of Management and Budget ("OMB") has established indirect cost

A-14 reimbursement recovery principles and procedures to ensure that the federal government bears a fair share of the total costs associated with research programs. While the cost principles are intended to provide for sharing and allocation of indirect costs, certain costs are not allowable. For example, fundraising and other specified miscellaneous costs are not reimbursable.

Each year, the Institute negotiates, prospectively, an indirect cost rate with the U.S. Department of Health and Human Services. The indirect costs that are recovered with respect to any individual grant are determined by applying the negotiated indirect cost rate to the total of that grant's direct costs which are subject to indirect cost reimbursement.

Although institutional authorizations for grants from federal agencies have been funded in past years, they are subject to annual congressional appropriations and payment. No assurance can be given that such appropriations or payments will be made in the future or that the various forms of federal grant programs will continue at current levels. A loss or significant reduction of such programs could have a material adverse effect on the Institute's activities and financial position. The Institute's management is not currently aware that any such programs will be discontinued or materially reduced.

Other Research Support Another source of research funding at the Institute is the Howard Hughes Medical Institute ("HHMl"). HHMI is an operating foundation that conducts research at the Institute's facilities by virtue of the First Amended and Restated Collaboration Agreement with the Institute dated January 15, 1991, as amended by the First Amendment dated September 1, 1993 (the "Collaboration Agreement"). The Collaboration Agreement provides that the Institute and HHMI will conduct a research program in the fields of neuroscience and plant biology funded by HHMl, in space at the Institute's facility, by specified scientists. Since the costs of such research program are borne directly by HHMI, the direct costs of this research are not included in the financial statements of the Institute. Under the Collaboration Agreement, HHMI pays the Institute a fee for occupancy, utilities, and services. In the fiscal year ended June 30, 2009, those direct costs were approximately $7 million. As of June 30, 2009, HHMI had seven investigators who are members of the Faculty of the Institute and they operate in approximately 24,400 net usable square feet of laboratory space.

Fund Raising Programs The Institute has enjoyed considerable success in fundraising in past years and anticipates fundraising will continue to provide a significant source of revenue. The Institute has or is receiving funding from the major foundations involved in biomedical research, including: Howard Hughes Medical Institute; Bill and Melinda Gates Foundation; Joan and Irwin Jacobs Fund of the Jewish Community Foundation; Waitt Family Foundation; Leona M. and Harry B. Helmsley Charitable Trust; Glenn Foundation for Medical Research; G. Harold & Leila Mathers Charitable Foundation; the H.A. and Mary K. Chapman Charitable Trust; the Clayton Medical Research Foundation, Inc.; the Nomis Foundation; the Larry L. Hillblom Foundation; Skirball Foundation; Henry L. Guenther Foundation; Hearst Foundation; the H.N. and Frances C. Berger Foundation; W. M Keck Foundation; Pew Charitable Trusts; the James S. McDonnell Foundation; the Alfred P. Sloan Foundation; the Kohlberg Foundation, Inc., The Samuel Roberts

A-15 Nobel Foundation, Inc., the Christopher Reeve Foundation; and the Hilton Foundation. In addition, the March of Dimes Birth Defects Foundation provides in excess of $1 million annually. Attracting and retaining these sources of support, with the assistance of the Board, is the responsibility of the President, Development Office, the Faculty, and other members of the executive management.

Technology Transfer Activities The Institute and its scientists are responsible for many commercially relevant discoveries. The passage of the Bayh-Dole Act in 1980 permits the Institute and all NIH grantees to retain title to and manage the commercialization of intellectual property generated with NIH funding. Under federal law, the U.S. Government has a right to take over the licensing effort with respect to a given invention under certain circumstances. To date, the U.S. Government has not exercised this right. While the Institute has been successful in its licensing efforts to date, there is no certainty that such efforts will be successful in the future.

Since the early 1980s, the Institute has entered into research funding agreements with for-profit pharmaceutical and biotechnology firms that have provided funding in exchange for options to license Institute technology. Most recently, the Institute has entered into strategic alliances with two worldwide pharmaceutical companies to work on collaborations to translate Institute basic science into potential human therapeutics and diagnostics. The Institute has also entered into technology license agreements with for-profit entities. These license agreements have provided a vehicle to transfer the Institute's basic research findings into commercial products. There are approximately 250 active license agreements. The Institute has held over 1,000 United States and foreign patents, of which 480 are active and approximately 250 are pending United States and foreign patent applications. Over the years, thirty-one companies have been formed based on Institute discoveries. Revenues from license agreements accounted for approximately 3% of total revenues in the last five fiscal years.

A-16 Statement of Activities The following table is a summary statement of activities for each of the years in the five-year period ended June 30, 2009.

The Salk Institute Statement of Activities (In Thousands)

Fiscal Years Ended June 30, 2005 2006 2007 2008 2009 REVENUES, GAINS, AND OTHER SUPPORT: Grants$71,911 73,801 $70,532$$71,736 71,158 $ Contributions 16,933 12,959 15,799 29,416 13,315 Investment return designated for current operations 6,090 6,250 6,620 6,900 5,707 Other 6,233 5,079 4,824 6,883 11,942 (a) Total Revenues, Gains, and Other Support$96,199 103,057 $97,775$$102,700 114,357 $

EXPENSES: Research$79,265 79,812 $78,800$$77,728 78,233 $ Management and general 18,211 17,070 19,715 18,601 19,857 Fundraising 3,126 2,960 2,561 2,363 3,266 Total Expenses$99,295 101,149 $$ 101,076 $100,851 99,197 $

EXCESS (DEFICIENCY) OF REVENUES, GAINS, AND OTHER SUPPORT OVER (UNDER) EXPENSES$ 1,908 $ (3,096) $ (3,301) $1,849 15,160 $

Investment Return (Losses) in Excess of Amount Designated for Current Operations Under Spending Policy 7,756 6,119 23,602 (16,030) (34,864) (b)

Write-Off of Bond Issuance Costs from Refinancing Debt - (1,007) - - -

Postretirement Benefit Changes Other Than Net Periodic Benefit Cost - - 475 79 186

CHANGE IN NET ASSETS 9,664 2,016 20,776 (791) (32,829)

NET ASSETS: Beginning of year 164,136 173,800 175,816 196,592 195,801 End of year$175,816 173,800 $$ 196,592 $162,972 195,801 $

Source: Audited financial statements of the Institute for fiscal years ended June 30, 2005 through 2009.

(a) Other revenues for 2009 include approximately $6.4 million related to a license dispute settlement. (b) Significant investment losses in 2008 and 2009 occurred as result of the global economic crisis.

A-17 Sources of Revenue The following table sets forth the percentage of total revenues, gains and other support of the Institute by funding source for each of the years in the five-year period ended June 30, 2009.

The Salk Institute Detail of Revenues, Gains, and Other Support

Fiscal Years Ended June 30, 2005 2006 2007 2008 2009 REVENUES, GAINS, AND OTHER SUPPORT: Grants 72% 75% 72% 62% 70% Contributions 16% 13% 16% 26% 13% Investment return designated for current operations 6% 7% 7% 6% 5% Other 6% 5% 5% 6% 12% Total Revenue, Gains, and Other Support 100% 100% 100% 100% 100%

Source: Audited financial statements of the Institute for fiscal years ended June 30, 2005 through 2009.

For the first nine months of fiscal year 2010, grant revenues and contributions represent 68% and 23%, respectively, of total revenues, gains, and other support. Investment return designated for current operations represents 5% of total revenues, and other income comprise the remaining 4%.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The Institute is a nonprofit public benefit corporation. Operations are managed to produce sufficient resources to allow the Institute to meet its operating goals and its commitment to the scientific community, to generate funds for the future development of new programs, and to provide operating flexibility. The following highlights some of the key trends in the items comprising revenue, support and expenditures.

Grants and Contracts Since fiscal year 2005, grants and contracts for research have remained steady in the range of $70.5 million to $73.8 million as congressional appropriations to the NIH have leveled out since 2004. Management attributes the Institute’s ability to maintain its grant funding level to its success in attracting and retaining researchers who are successful in obtaining funding from the NIH and other sources. The Institute has an average award rate for grant applications of 30.4%. According to NIH reports, the average national success rate for the NIH is only 20.6%.

Grants – Indirect Cost Reimbursement Variations in the Institute's total indirect cost reimbursements from year to year are a function of the total amount of actual indirect costs, the level of direct research, the NIH-approved indirect cost rate, and the mix of funding sources. Since 2005, the Institute's NIH-approved indirect cost rate has remained relatively constant within a range of 87% to 89.5%. The current provisional rate for fiscal year 2010 is 90.5%.

A-18 Research Expenditures Research expenditures closely coincide with direct and indirect research revenues and support. Budgeting and cost controls of grant expenditures and departmental administrative expenses have enabled the Institute to maintain a balanced budget or minimize operating deficits in each of the last five years. In the event external support diminishes, the Institute has the ability to reduce the number of its personnel through attrition and thereby contain operating costs.

Investment Return Designated for Current Operations The Board has designated a portion of the Institute's cumulative investment return to be used for support of current operations. Under the Institute's spending policy, 5% of the average of the market value of the Institute's investment balances for the previous three years is appropriated to support current operations. In general, these funds provide discretionary resources for the support of programs and projects not reimbursed by a grantor. Unrestricted investment income provides discretionary resources for the support of fundraising, recruiting commitments and other activities for which grant support is not available.

Investment Return (Shortfall) in Excess of Amount Designated for Current Operations The investment return (shortfall) in excess of the amount designated for current operations fluctuated significantly over the last five fiscal years and suggests the importance and volatility of investment income. The Institute's ability to continue to generate investment income is dependent, in part, on market conditions and the allocation of the investment portfolio. The value of the Institute's investments has fluctuated from time to time and is expected to fluctuate in the future. Variations in market performance may impact the Institute's level of earnings from its investments. See "Investments-Investment Policy" below.

A-19 Investments in Securities The following table sets forth the fair value of the Institute’s investments as of June 30 for each of the five years in the period ended June 30, 2009.

The Salk Institute Investments (In Thousands)

Fiscal Years Ended June 30, 2005 2006 2007 2008 2009

Cash and cash equivalents$6,691 2,142 $3,150$$14,868 9,675 $ Equity securities 88,885 77,900 99,212 78,044 54,917 Fixed income securities 8,691 19,111 20,084 9,128 9,427 Mutual funds 4,264 4,703 5,578 5,205 4,145 Alternative investments: Distressed debt funds 13,459 14,951 18,386 22,901 21,403 Long/short equity securities 25,886 28,533 31,820 26,195 19,931 Fixed income funds 10,749 10,547 Private equity - 798 Total Investments$151,889 143,327 $$ 178,230 $136,036 161,897 $

Source: Audited financial statements of the Institute for fiscal years ended June 30, 2005 through 2009.

As of March 31, 2010, the fair value of the Institute’s investments is $157,343,000, with 61% in equities, 15% in fixed income, 15% in special situations, and 9% in cash.

Investment Policy and Strategy To provide guidance and direct oversight of the investment management of the Institute, the Board of Trustees has appointed the Investment Committee (the "Committee") to oversee the investments of the Institute. The Committee has established investment objectives and operating policies and procedures. The objectives and guidelines serve as a basis for communication among the Board, the Committee, staff, investment managers and investment consultants involved in the management of the Institute's assets.

The Institute retains outside investment professionals to assist in the management of the investments. Professional investment advisors manage the Institute's investments, while an independent investment consulting firm recommends long-term asset allocation strategies, provides professional performance evaluation, identifies potential investment managers, monitors performance of investment managers and performs other services for the Institute's long-term investment portfolio. The Committee approves the asset allocation, monitors portfolio performance and replaces investment managers in accordance with the Investment Policy approved by the Board.

The investment philosophy of the Institute combines the goal of total return and preservation of capital with prudent risk tolerance in order to achieve investment results consistent with the

A-20 financial goals and objectives of the Institute. Diversification is achieved through investments in domestic and international common stocks, bonds, mutual funds, cash equivalents, limited partnerships in marketable alternative strategies and other investments. Additional diversification is achieved by allocating assets to various investment styles within asset classes and retaining investment managers with complementary investment philosophies, styles and approaches. The allocation to alternative investments includes long/short equity, distressed/special situations and absolute return strategies. Management is not aware of any non-compliance with the policies.

The Institute’s investment allocation targets as of March 31, 2010, are 70% equities (domestic equity – 25%, global/international equity – 20%, long/short equity – 20%, and private equity – 5%), 15% fixed income, 15% special situations, and 5% cash.

The Institute’s investment portfolio does not include direct investments in derivatives, swaps, securities from distressed firms, or liquidity facilities. The Institute’s exposure to risk from such investment types is limited to its investments in commingled funds which may invest in such investment vehicles.

Debt Coverage The table below sets forth the Institute's income available for debt service and the maximum annual debt service requirements of the Institute for the five fiscal years ended June 30, 2009. The Salk Institute Debt Coverage (In Thousands)

FiscalYears Ended June 30, 2005 2006 2007 2008 2009

Change in unrestricted net assets$(6,844) 221 $$ 8,856 $ (12,249) $ (21,429) Less: Unrealized (gains) losses (5,706) (1,484) (11,838) 19,527 16,579 Less: (Gains) losses not the ordinary course of business 1,007 Add: Interest expense 2,488 2,062 1,769 1,727 1,683 Add: Depreciation and amortization 10,414 9,988 8,907 8,381 8,161 Revenues available for debt service 7,417 4,729 7,694 17,386 4,994 Maximum annual debt service 3,468 3,172 3,002 3,002 3,002 Long-term debt service coverage ratio 2.14 1.49 2.56 5.79 1.66

Source: The Institute.

The revenues available for debt service and long-term debt service coverage ratio for the fiscal year ended June 30, 2009, as shown in the table above, were computed by application of the methodology under the Sale Agreement and the 2005 Loan Agreement (each as defined in this Official Statement), notwithstanding the terms of the July 1, 2009 amendments to the Installment Sales Agreement for the 2000 Certificates and the 2005 Loan Agreement as then in effect. Such methodology is applicable with respect to the execution and delivery of the Certificates and hereafter.

A-21 As of May 1, 2010, the Institute had outstanding $21,035,000 aggregate principal amount of obligations in connection with the California Statewide Communities Development Authority Revenue Bonds (The Salk Institute for Biological Studies) Series 2005 and $12,920,000 aggregate principal amount of obligations in connection with certificates of participation executed and delivered by the County of San Diego for the benefit of the Corporation in 2000 (the “2000 Certificates”). As set forth in the forepart of this Official Statement, depending on market conditions, all or a portion of the Institute’s obligations with respect to the 2000 Certificates may be prepaid with proceeds of the Certificates.

Statement of Financial Position The following table shows the balance sheet of the Institute as of June 30 of each of the years in the five-year period ended June 30, 2009.

The Salk Institute Statement of Financial Position (In Thousands)

June 30 2005 2006 2007 2008 2009 ASS ET S Cash and cash equivalents$4,445 1,249 $$ 2,365 $ 5,728 $ 8,854 Receivables and other assets, net 11,081 10,799 10,639 13,870 13,555 Contributions receivable, net 8,176 5,012 3,733 17,599 12,535 Funds held by trustee 4,823 2,325 2,171 2,179 2,171 Investments 143,327 151,889 178,230 161,897 136,036 Property, net 73,372 65,450 61,849 60,385 56,826 TOTAL ASSETS$ 242,028 $ 239,920 $ 258,987 $ 261,658 $ 229,977

LIABILITIES Accounts payable and accrued expenses$ 14,002 $ 13,718 $ 14,396 $ 15,602 $ 15,345 Unexpended advances 6,174 4,847 4,166 7,554 10,249 Retirement obligations 6,052 5,791 5,491 5,629 5,660 Debt 42,000 39,748 38,342 37,072 35,751 TOTALLIABILITIES 68,228 64,104 62,395 65,857 67,005

NET ASSETS Unrestricted 80,258 73,414 82,270 70,021 48,592 Temporarily restricted 25,771 32,552 43,319 54,492 42,190 Permanently restricted 67,771 69,850 71,003 71,288 72,190 TOTALNET ASSETS 173,800 175,816 196,592 195,801 162,972

TOTALLIABILITIES AND NET ASSETS$ 242,028 $ 239,920 $ 258,987 $ 261,658 $ 229,977

Source: Audited financial statements of the Institute for fiscal years ended June 30, 2005 through 2009.

A-22 Capitalization The following table sets forth the capitalization for all funds of the Institute at June 30, 2009, and as adjusted to reflect the execution and delivery of the Certificates of Participation, computed as if such issuance had occurred on that date. As of June 30, 2009 Actual As Adjusted (In Thousands)

Debt $ 35,751 58,480 Total net assets 162,972 162,972 TOTAL CAPITALIZATION $ 198,723 $ 221,452

Percentage of Debt to Total Capitalization 18.0% 26.4%

Source: The Institute.

OTHER MATTERS

Future Financing Plans Other than the financing described in the forepart of this official statement, the Institute has no current plans to borrow funds for facilities and other capital expenditures. Management believes that capital requirements will be satisfied through cash flow from reimbursements from the NIH and other grantors, contributions, investment income and royalty income.

Insurance The Institute maintains commercial general liability insurance with a limit of $1,000,000 for each occurrence and $5,000,000 in the annual aggregate. Excess liability coverage is provided through an umbrella policy with a limit of $15,000,000 for each occurrence and in the annual aggregate. The Institute also maintains property damage insurance on a blanket, all risks, extended-coverage basis in the amount of $180,300,000, with a deductible of $5,000 and boiler and machinery insurance in the amount of $25,000,000 with deductibles of $5,000 or $10,000, depending on the event. Other insurance includes business interruption, directors' and officers' liability, automobile, and employee dishonesty coverage. All such insurance is obtained from commercial carriers.

Employees As of February 28, 2010, the Institute had a total of 1,044 employees, including 806 full-time employees and 238 graduate students, undergraduate students, and other temporary personnel. Of the 1,044 total employees, 727 are laboratory/scientific staff, with 391 holding Ph.D. or M.D. (or both) degrees. Three employees are currently represented by a collective bargaining agreement. Management considers relations with employees to be satisfactory.

A-23 Pension Plan and Other Benefits The Institute offers regular employees (excluding doctoral trainees) a noncontributory defined contribution retirement plan, which is in compliance with the Employee Retirement Income Security Act of 1974. Employees who have attained 21 years of age with two years of service and whose regularly scheduled hours equal or exceed 1000 hours during the plan year are eligible to participate in the plan.

The Institute provides a comprehensive benefits package for its regular employees. Doctoral trainees are eligible for a choice of health insurance plans, dental insurance, and travel accident insurance. On a voluntary basis, they may participate in a tax deferred annuity plan, dependent care assistance benefits plan, and supplemental life insurance. In addition to the aforementioned benefits, all other regular employees are eligible for long term disability, life and accidental death and dismemberment insurance, and tuition assistance benefits.

The Institute sponsors a plan that provides for retirees' health and related benefits. Employees hired prior to June 30, 1993, may become eligible for these post-retirement benefits upon attainment of age 60 with ten years of service. It is the Institute's policy to fund these benefits through a secular trust. Included in total assets at June 30, 2009, are assets of the trust of $4,145,000. As of June 30, 2009, the projected benefit obligation was $5,660,000. The net periodic post-retirement benefit cost was $384,000 for fiscal year 2009 and is $341,000 for fiscal year 2010.

Litigation The Institute is a party to certain legal and other actions arising from the ordinary course of its business activities. In the opinion of management, if any such action were to be decided adversely to the Institute's interests, any liability that might result would either be adequately covered by insurance or not significant and would not affect the ability of the Institute to meet its obligations with respect to the certificates.

A-24 APPENDIX B

FINANCIAL STATEMENTS OF THE CORPORATION [THIS PAGE INTENTIONALLY LEFT BLANK]

THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

INDEPENDENT AUDITOR’S REPORT AND FINANCIAL STATEMENTS

JUNE 30, 2009 AND 2008

C O N T E N T S

Page

INDEPENDENT AUDITOR’S REPORT 1

FINANCIAL STATEMENTS Statements of Financial Position 2 Statements of Activities 3 and 4 Statements of Cash Flows 5 Notes to Financial Statements 6 – 23

CERTIFIED PUBLIC ACCOUNTANTS | BUSINESS CONSULTANTS

INDEPENDENT AUDITOR’S REPORT

Board of Trustees The Salk Institute for Biological Studies

We have audited the accompanying statements of financial position of The Salk Institute for Biological Studies (Institute) as of June 30, 2009 and 2008 and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Institute’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Institute’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Salk Institute for Biological Studies as of June 30, 2009 and 2008, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

San Diego, California October 29, 2009

THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

STATEMENTS OF FINANCIAL POSITION JUNE 30, 2009 AND 2008 (In Thousands)

2009 2008 ASSETS Cash and cash equivalents$ 8,854 $ 5,728 Receivables and other assets, net 13,555 13,870 Contributions receivable, net 12,535 17,599 Funds held by trustee 2,171 2,179 Investments 136,036 161,897 Property, net 56,826 60,385 Total assets$ 229,977 $ 261,658

LIABILITIES AND NET ASSETS Liabilities Accounts payable and accrued expenses$ 15,345 $ 15,602 Unexpended advances 10,249 7,554 Retirement obligations 5,660 5,629 Debt 35,751 37,072 Total liabilities 67,005 65,857

Commitments and Contingencies (Note 10) Net Assets Unrestricted 48,592 70,021 Temporarily restricted 42,190 54,492 Permanently restricted 72,190 71,288 Total net assets 162,972 195,801 Total liabilities and net assets$ 229,977 $ 261,658

See accompanying notes. 2 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2009 (In Thousands)

Temporarily Permanently Unrestricted Restricted Restricted Total

REVENUES, GAINS, AND OTHER SUPPORT Grants $ 71,736 $ - $ - $ 71,736 Contributions 3,039 7,554 2,722 13,315 Other 11,942 - - 11,942 Investment return designated for current operations 3,891 1,816 - 5,707 Net assets released from restrictions 11,033 (9,693) (1,340) - Total revenues, gains, and other support 101,641 (323) 1,382 102,700

EXPENSES Research 77,728 - - 77,728 Management and general 19,857 - - 19,857 Fundraising 3,266 - - 3,266 Total expenses 100,851 - - 100,851

EXCESS (DEFICIENCY) OF REVENUES, GAINS, AND OTHER SUPPORT OVER (UNDER) EXPENSES 790 (323) 1,382 1,849

INVESTMENT LOSSES IN EXCESS OF AMOUNT DESIGNATED FOR CURRENT OPERATIONS UNDER SPENDING POLICY (22,405) (11,979) (480) (34,864)

POSTRETIREMENT BENEFIT CHANGES OTHER THAN NET PERIODIC BENEFIT COST 186 - - 186

CHANGE IN NET ASSETS (21,429) (12,302) 902 (32,829)

NET ASSETS Beginning of year 70,021 54,492 71,288 195,801 End of year$ 48,592 $ 42,190 $ 72,190 $ 162,972

See accompanying notes. 3 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

STATEMENT OF ACTIVITIES YEARS ENDED JUNE 30, 2008 (In Thousands)

Temporarily Permanently Unrestricted Restricted Restricted Total

REVENUES, GAINS, AND OTHER SUPPORT Grants $ 71,158 $ - $ - $ 71,158 Contributions 5,059 24,072 285 29,416 Other 6,883 - - 6,883 Investment return designated for current operations 4,100 2,800 - 6,900 Net assets released from restrictions 9,116 (9,116) - - Total revenues, gains, and other support 96,316 17,756 285 114,357

EXPENSES Research 78,233 - - 78,233 Management and general 18,601 - - 18,601 Fundraising 2,363 - - 2,363 Total expenses 99,197 - - 99,197

EXCESS (DEFICIENCY) OF REVENUES, GAINS, AND OTHER SUPPORT OVER (UNDER) EXPENSES (2,881) 17,756 285 15,160

INVESTMENT LOSSES IN EXCESS OF AMOUNT DESIGNATED FOR CURRENT OPERATIONS UNDER SPENDING POLICY (9,447) (6,583) - (16,030)

POSTRETIREMENT BENEFIT CHANGES OTHER THAN NET PERIODIC BENEFIT COST 79 - - 79

CHANGE IN NET ASSETS (12,249) 11,173 285 (791)

NET ASSETS Beginning of year 82,270 43,319 71,003 196,592 End of year$ 70,021 $ 54,492 $ 71,288 $ 195,801

See accompanying notes. 4

THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

STATEMENTS OF CASH FLOWS YEAR ENDED JUNE 30, 2009 AND 2008 (In Thousands)

2009 2008 OPERATING ACTIVITIES Change in net assets$ (32,829) $ (791) Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 8,131 8,381 Contributions restricted for long-term assets (469) (267) Contribution of property - (600) Net loss on investments 31,871 10,532 Changes in assets and liabilities: Receivables and other assets 251 (3,294) Contributions receivable 4,780 (15,250) Accounts payable and accrued expenses (257) 1,206 Unexpended advances 2,695 3,388 Retirement obligations 31 138 Net cash provided by operating activities 14,204 3,443

INVESTING ACTIVITIES Purchases of property (4,540) (6,285) Purchases of investments (51,387) (69,674) Proceeds from sales of investments 45,385 75,467 Net cash used in investing activities (10,542) (492)

FINANCING ACTIVITIES Proceeds from contributions restricted for: Investment in perpetuity 524 623 Investment in plant 230 1,029 Payments on debt (1,290) (1,240) Net cash (used in) provided by financing activities (536) 412

NET INCREASE IN CASH AND CASH EQUIVALENTS 3,126 3,363

CASH AND CASH EQUIVALENTS Beginning of year 5,728 2,365 End of year $ 8,854 $ 5,728

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash payments for interest $ 1,683 $ 1,748 Contribution of equipment $ - $ 600

See accompanying notes. 5 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 1 – Nature of the Institute

The Salk Institute for Biological Studies, San Diego, California (the “Institute”), conducts basic biomedical research funded primarily with grants and contributions from agencies of the United States government, foundations, and the general public.

The Institute is a California not-for-profit public benefit corporation exempt from federal income taxes under section 501(c)(3) of the Internal Revenue Code and section 23701(d) of the California Revenue and Taxation Code. Income determined to be unrelated business income is taxable, when present.

Note 2 – Significant Accounting Policies

General: The financial statements have been prepared on the accrual basis of accounting and in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Net assets and activities are presented as unrestricted, temporarily restricted, and permanently restricted based on related donor restrictions or lack of such restrictions. Unrestricted net assets represent expendable funds available for operations, which are not otherwise limited by donor restrictions. Temporarily restricted net assets consist of contributed funds whose use is limited by donor-imposed restrictions that either expire by passage of time or can be fulfilled and removed by actions of the Institute pursuant to the stipulations. Permanently restricted net assets are subject to irrevocable donor restrictions requiring the assets be maintained in perpetuity, usually for the purpose of generating investment income to fund current operations.

The costs of providing the program and other activities are summarized on a functional expense basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited.

Revenue Recognition

Grants: Grant revenue is recognized as unrestricted revenue when the related research costs are incurred, up to the maximum grant amount. Unspent grant funds received in advance of the related expenditures are reported as unexpended advances. Reimbursement for indirect expenses on certain research grants is based on a fixed rate applied to allowable direct expenses.

Contributions: Contributions are recorded as revenue at their fair value when unconditionally pledged or when received, whichever is earlier. Contributions subject to donor-imposed restrictions for use in a future period or for a specific purpose are reported as either temporarily or permanently restricted depending on the nature of the donor’s restriction. When a donor restriction expires or is fulfilled, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions.

Contributions of equipment or other long-lived assets are recognized when pledged or received, whichever is earlier, and recorded at the fair value of the contributed asset at the time of donation. If donors stipulate how long the assets must be used, the contributions are recorded as restricted support. In the absence of such stipulations, contributions of property and equipment are recorded as unrestricted support.

6 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 2 – Significant Accounting Policies (Continued)

Cash and Cash Equivalents: Cash and cash equivalents are defined as cash on hand and in banks, plus highly liquid investments, which fund the daily operating activities of the Institute and have a maturity, at the date of purchase, of three months or less. Cash and cash equivalents held within the investment portfolio as part of the Institute’s investment strategy are included in investments on the statement of financial position.

Receivables and Other Assets: Receivables and other assets include amounts billed and unbilled on grants and other agreements through June 30. An allowance for estimated uncollectible accounts is recorded based on past experience and on an analysis of current receivable balances. Accounts are written off against the allowance when deemed uncollectible. Management has determined that an allowance of $70 and $80 is necessary at June 30, 2009 and 2008, respectively.

Also included in receivables and other assets is the Institute’s beneficial interest in split-interest agreements which provide for the payment of distributions to the donor or other designated beneficiaries over the split-interest agreement’s term (usually the beneficiary’s lifetime). At the end of a split-interest agreement’s term, the remaining assets are available for use by the Institute for the purpose specified by the donor. The portion of the assets attributable to the fair value of the future benefits to be received by the Institute is recorded in the statement of activities as temporarily or permanently restricted contribution revenue in the year the split-interest agreement is established. The fair value of the Institute’s beneficial interest in split-interest agreements is calculated based on a discounted cash flow model using applicable mortality tables and discount rates of 2.8 percent and 3.8 percent at June 30, 2009 and 2008, respectively. The fair value of the Institute’s beneficial interest in split-interest agreements totaled $2,123 and $2,754 at June 30, 2009 and 2008, respectively.

At June 30, 2009 and 2008, $1,900 and $2,082, respectively, in notes receivable from employees of the Institute for relocation expenses are included in receivables and other assets. The notes bear interest at rates ranging from 0 percent to 6 percent, are secured by second priority deeds of trust, and are forgiven or repaid over terms of 2 to 12 years, subject to continued employment and service to the Institute.

Contributions Receivable: Contributions receivable consists of unconditional promises to give. Unconditional promises to give that are expected to be collected in future years are recorded at fair value when the promise is made based on a discounted cash flow model. The discounts on these amounts are computed using risk-free rates established at the time those promises are received. The discount rate for the contributions receivable range from .9 percent to 4.5 percent and from 2.0 percent to 4.5 percent for fiscal years 2009 and 2008, respectively. Amortization of the discounts is included in contributions. Conditional promises to give are not recorded as revenue until the conditions are substantially met. An allowance for estimated uncollectible contributions receivable is recorded based on management’s judgment and analysis of the creditworthiness of the donors, past collection experience, and other relevant factors. Accounts are written off against the allowance when deemed uncollectible. Management has determined that no allowance for uncollectible contributions receivable is necessary as of June 30, 2009 and 2008.

7 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 2 – Significant Accounting Policies (Continued)

Investments: Investments in marketable equity securities and all investments in debt securities are carried at their fair values based on quoted market prices. Non-marketable securities for which quoted market prices are not available are valued at fair value by third-party fund managers or the general partners of the related investment partnerships, based on factors deemed relevant by the general partners including, but not limited to, market conditions, purchase price, estimated liquidation value, restrictions on transfer, and meaningful third-party transactions in the private market. The Institute reviews and evaluates the values provided by third-party fund managers and general partners and agrees with the valuation methods and assumptions used in determining the fair value of non-marketable securities, including alternative investments. For these investments, the Institute uses the net asset value (“NAV”) provided by the investment fund managers to evaluate the fair value of the investments. The NAV may be adjusted based on liquidity factors or other information about the investments that management considers significant to the valuation of the investments.

Realized and unrealized gains and losses are included in the change in net assets in the accompanying statement of activities.

The Institute’s portfolio is managed by independent professional investment managers subject to direction and oversight by a committee of the Board of Trustees. Certain of these managers are authorized to invest a limited portion of the Institute’s portfolio in alternative investments to increase portfolio diversification and return and reduce volatility.

Funds Held by Trustee: Funds held by trustee are amounts required to be held in a separate account under the Certificates of Participation agreements (Note 6) and are comprised of cash and cash equivalents.

Property: Property is carried at cost. Donated property is recorded at its fair value as determined at the time of contribution. The Institute capitalizes acquisitions of property of $5 or more. Depreciation and amortization are recorded using the straight-line method over the estimated useful lives of the assets ranging from 3 to 50 years.

Impairment of Long-lived Assets: The Institute evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down will be recorded to reduce the related asset to its estimated fair value. To date, no such write-downs have occurred.

Endowments: The Institute’s endowment consists of approximately 60 individual funds established for a variety of purposes. The endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. Net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.

8 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 2 – Significant Accounting Policies (Continued)

In August 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position FAS 117-1, Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act and Enhanced Disclosures for All Endowment Funds (“FSP FAS 117-1”). FSP FAS 117-1 provides guidance on the net asset classification of donor-restricted endowment funds for a not-for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (“UPMIFA”).

Effective January 1, 2009, the State of California enacted a version of UPMIFA, the provisions of which apply to endowment funds existing on or established after that date. The Institute has considered the effects of and implemented UPMIFA during the year ended June 30, 2009.

A key component of FSP FAS 117-1 is an interpretation by the FASB that there is a requirement to classify the portion of a donor-restricted endowment fund that is not classified as permanently restricted net assets as temporarily restricted net assets until those funds have been appropriated for expenditure. The Institute has reviewed its net assets to identify the cumulative amount of unspent endowment earnings that had not yet been appropriated for expenditure as of January 1, 2009, and determined that no reclassification of net assets from unrestricted to temporarily restricted was necessary.

The Board of Trustees of the Institute has interpreted California’s enacted version of UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds, absent explicit donor stipulations to the contrary. As a result of this interpretation, the Institute classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Institute in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Institute considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds:

1) The duration and preservation of the fund; 2) The purposes of the Institute and the donor-restricted endowment fund; 3) General economic conditions; 4) The possible effect of inflation and deflation; 5) The expected total return from income and the appreciation of investments; 6) Other resources of the Institute; and 7) The investment policies of the Institute.

The Institute has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs and activities supported by its endowment while seeking to maintain the purchasing power of the endowment assets. The Institute’s spending and investment policies work together to achieve this objective. The investment policy establishes an achievable return objective through diversification of asset classes. The current long-term return objective is a total return, over rolling ten-year periods, which exceeds inflation by an average of 5.5 percent per year. Actual returns in any given year may vary from this amount.

9 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 2 – Significant Accounting Policies (Continued)

To satisfy its long-term rate-of-return objectives, the Institute relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Institute targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints.

The Institute has a policy of appropriating for distribution each year a percentage of its endowment funds’ average fair value over the prior 12 quarters through the calendar year-end preceding the fiscal year in which the distribution is planned. The percentage distribution is determined annually by the Board in the budget approval process and was 5 percent for each of the years ended June 30, 2009 and 2008. In establishing this policy, the Institute considered the long-term expected return on its endowment. Accordingly, over the long term, the Institute expects the current spending policy to allow its endowment to grow at an average of .5 percent over inflation annually. This is consistent with the Institute’s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return.

Use of Estimates: The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments: The Institute carries certain assets at fair value as described in Note 9. The Institute has determined the fair value of these assets in accordance with the provisions of Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (“SFAS No. 157”) which provides a framework for measuring fair value under GAAP. SFAS No. 157 has been applied prospectively as of the beginning of fiscal year 2009.

The carrying values of cash and cash equivalents, receivables, and accounts payable approximate their fair values due to the relatively short period of time between origination of the instruments and their expected realization.

Risks and Uncertainties: The Institute invests in various types of securities which are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near-term and such changes could materially affect the amounts reported in the statement of financial position.

In 2009 and 2008, there has been significant volatility in the domestic and international investment markets, primarily as a result of liquidity issues in credit markets. Consequently, the fair value of the Institute’s investments is exposed to higher than typical price volatility which could result in a substantial reduction in the fair value of certain investments from the amounts reported as of June 30, 2009.

10 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 2 – Significant Accounting Policies (Continued)

Subsequent Events: Subsequent events are events or transactions that occur after the statement of financial position date but before financial statements are issued. The Institute recognizes in the financial statements the effects of all significant subsequent events that provide additional evidence about conditions that existed at the date of the statement of financial position, including the estimates inherent in the process of preparing the financial statements. The Institute’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the statement of financial position but arose after the statement of financial position date and before financial statements are available to be issued. The Institute has evaluated subsequent events through October 29, 2009, which is the date the financial statements are issued.

Note 3 – Contributions Receivable

Contributions receivable are summarized as follows at June 30:

2009 2008 Contributions receivable to be paid in: Less than one year$ 5,634 $ 7,903 One to five years 7,236 10,313 More than five years 500 550 13,370 18,766 Less unamortized discount (835) (1,167) Total contributions receivable, net$ 12,535 $ 17,599

At June 30, 2009 and 2008, net pledges receivable of $3,558 and $1,340, respectively, are from members of the Board of Trustees of the Institute.

In 2008, the Institute received two conditional promises to give from members of the Board of Trustees. One of the conditional gifts is a promise to give $1,000 for each $2,000 endowed chair established by other donors, up to a maximum of $10,000. A pledge for $2,000 was received in 2009, and the related matching pledge of $1,000 was recorded. The second conditional gift is a promise to match up to $20,000 in contributions for any purpose resulting from a specific development plan over five years ending April 30, 2013. The promised matching funds are restricted for the creation of a biophotonics center. An advance payment of $3,000 was received from the donor in May 2008 and recorded as a refundable advance. Contributions of $2,146 and $150 were received in response to the development plan in 2009 and 2008, respectively. As a result, $2,296 of the refundable advance has been recognized as temporarily restricted contributions, and the remaining $704 is included in unexpended advances in the statement of financial position as of June 30, 2009.

In late 2009, the Institute received a conditional promise to give from a member of the Board of Trustees to match up to $1,000 raised to fund a specific capital project.

11 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 4 – Investments

Investments are summarized as follows at June 30:

2009 2008 Equity securities$ 54,917 $ 78,044 Cash and cash equivalents 14,868 9,675 Fixed income securities 9,427 9,128 Mutual funds 4,145 5,205 Alternative investments Distressed debt funds 21,403 22,901 Long/short equity securities 19,931 26,195 Fixed income funds 10,547 10,749 Private equity 798 - Total investments$ 136,036 $ 161,897

At June 30, 2009 and 2008, investments include $4,145 and $5,205, respectively, held in a rabbi trust to fund the Institute’s retiree health benefits plan (Note 8).

Investments include endowments funds and general funds of the Institute. The Board of Trustees has designated a portion of the Institute’s cumulative investment return on general funds to be used for support of current operations. Under the Institute’s spending policy, 5 percent of the average of the fair value of the Institute’s general fund investment balances for the previous three years is appropriated to support current operations.

The composition of investment return includes the following for the years ended June 30:

2009 Temporarily Permanently Unrestricted Restricted Restricted Total

Interest and dividends$ 1,639 $ 1,075 $ - $ 2,714 Net losses (20,153) (11,238) (480) (31,871)

Investment return (18,514) (10,163) (480) (29,157) Investment return designated for current operations (3,891) (1,816) - (5,707)

Investment losses in excess of amounts designated for current operations$ (22,405) $ (11,979) $ (480) $ (34,864)

12 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 4 – Investments (Continued)

2008 Temporarily Permanently Unrestricted Restricted Restricted Total

Interest and dividends$ 834 $ 568 $ - $ 1,402 Net losses (6,181) (4,351) - (10,532)

Investment return (5,347) (3,783) - (9,130) Investment return designated for current operations (4,100) (2,800) - (6,900) Investment losses in excess of amounts designated for current operations$ (9,447) $ (6,583) $ -$ (16,030)

Note 5 – Property

Property is summarized as follows at June 30:

2009 2008 Land$ 1,154 $ 1,154 Buildings and improvements 115,309 114,063 Laboratory equipment 43,117 42,423 Computer and other equipment 5,940 5,780 Construction in progress 655 673 166,175 164,093 Less accumulated depreciation and amortization (109,349) (103,708) Total property, net$ 56,826 $ 60,385

Included in total expenses is depreciation expense of $8,099 and $8,349 for the years ended June 30, 2009 and 2008, respectively.

Note 6 – Debt

In 2000, the Institute issued Certificates of Participation through the County of San Diego totaling $15,000 to fund the construction of a new research building. The certificates consisted of $4,230 in serial certificates due from July 1, 2002 through July 1, 2015 at interest rates ranging from 4.15 percent to 5.40 percent, $3,570 in 5.75 percent term certificates due on July 1, 2022, and $7,200 in 5.75 percent term certificates due on July 1, 2031.

13 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 6 – Debt (Continued)

In July 2005, the Institute issued revenue bonds through the California Statewide Communities Development Authority totaling $25,135 to prepay, together with other available moneys, $26,940 aggregate principal amount of the outstanding Certificates of Participation issued in 1994 to fund the construction of the research buildings expansion project. The 2005 bonds consist of $25,135 in serial bonds due from July 1, 2007 through July 1, 2024 at interest rates ranging from 3.00 percent to 5.25 percent. At June 30, 2009, a premium of $471 on the bonds is being amortized over the life of the bonds.

As of June 30, 2009, future annual principal payments under the Certificates of Participation and revenue bonds are as follows:

Years ending June 30, 2010$ 1,325 2011 1,370 2012 1,425 2013 1,480 2014 1,530 Thereafter 28,150 $ 35,280

The Institute’s debt is collateralized by all of the revenue of the Institute and further secured by a deed of trust on the Institute’s main campus. The fair value of the debt as of June 30, 2009 and 2008 is approximately $34,715 and $36,959, respectively, based on current interest rates for obligations with similar terms.

Issuance costs related to the Certificates of Participation and revenue bonds are included in receivables and other assets in the accompanying statements of financial position and are being amortized over the life of the certificates; the unamortized balance of such costs is $873 and $935 at June 30, 2009 and 2008, respectively. Amortization expense related to the issuance costs was $62 for each of the years ended June 30, 2009 and 2008.

Interest expense related to the Certificates of Participation and revenue bonds was $1,683 and $1,727 for the years ended June 30, 2009 and 2008, respectively.

Under the terms of the Certificates of Participation and revenue bonds, the Institute is subject to compliance with certain covenants, including restrictions on additional indebtedness.

14 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 7 – Net Assets

Net assets at June 30 are summarized as follows:

2009 2008 Unrestricted $ 48,592 $ 70,021

Temporarily Restricted Research 40,146 51,820 Building projects 2,044 2,672 Total temporarily restricted 42,190 54,492

Permanently Restricted Research 54,585 53,291 Unrestricted use 17,605 17,997 Total permanently restricted 72,190 71,288

Total net assets$ 162,972 $ 195,801

Net assets were released from restrictions by satisfying donor restrictions for the following purposes during the years ended June 30:

Temporarily Restricted Research$ 9,284 $ 9,097 Building projects 409 19 Total temporarily restricted 9,693 9,116

Permanently Restricted Research 90 - Other 1,250 - Total permanently restricted 1,340 -

Total releases from restriction$ 11,033 $ 9,116

During the year ended June 30, 2009, two donors allowed the Institute to release from permanent restriction investment gains which had been added to the corpus of their endowments in earlier years. In addition, another donor directed the Institute to use a portion of his endowment’s corpus to fund the related endowed activities in years in which the endowment’s market value is less than the original gift amount.

15 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 7 – Net Assets (Continued)

The net asset composition of the Institute’s donor-restricted and board-designated endowments is as follows at June 30:

Temporarily Permanently Unrestricted Restricted Restricted Total Endowment Net Assets

2009 Donor-restricted$ (3,673) $ 1,943 $ 72,190 $ 70,460 Board-designated 901 - - 901 Total$ (2,772) $ 1,943 $ 72,190 $ 71,361

2008 Donor-restricted$ - $ 10,625 $ 71,288 $ 81,913 Board-designated 1,136 - - 1,136 Total$ 1,136 $ 10,625 $ 71,288 $ 83,049

16 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 7 – Net Assets (Continued)

The changes in endowment net assets for the years ended June 30, 2009 and 2008, are as follows:

Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets at July 1, 2007$ 1,246 $ 17,434 $ 71,003 $ 89,683

Investment return Interest and dividends 10 542 - 552 Net losses (75) (4,551) - (4,626) Total investment return (65) (4,009) - (4,074)

Contributions - - 285 285

Amounts appropriated for expenditure (45) (2,800) - (2,845)

Endowment net assets at July 1, 2008 1,136 10,625 71,288 83,049

Investment return Interest and dividends 18 1,071 - 1,089 Net losses (3,884) (9,187) (480) (13,551) Total investment return (3,866) (8,116) (480) (12,462)

Contributions - - 2,722 2,722

Amounts appropriated for expenditure (42) (1,816) (90) (1,948)

Other changes - 1,250 (1,250) -

Endowment net assets at June 30, 2009$ (2,772) $ 1,943 $ 72,190 $ 71,361

From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the Institute to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature are reported in unrestricted. As of June 30, 2009 and 2008, respectively, these deficiencies totaled $3,673 and $80. These deficiencies resulted from unfavorable financial market conditions over the past year.

17 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 8 – Employee Benefit Plans

Retirement Plans: The Institute has an Employee Retirement Plan and a Professor and Executive Officer Retirement Plan for certain of its employees. Both plans are defined contribution plans under which the Institute contributes a percentage of the participant’s annual compensation. The Institute’s contributions are made in accordance with section 403(b) of the Internal Revenue Code. Total contributions expense related to both plans was $4,096 and $4,070 for the years ended June 30, 2009 and 2008, respectively.

Retiree Health Benefits Plan: The Institute sponsors a defined benefit plan (the “Plan”) that provides for retirees’ health and related benefits. Employees hired prior to June 30, 1993 may become eligible for these postretirement benefits upon attainment of age 60 with 10 years of service. The Plan contains cost- sharing features such as deductibles, coinsurance, and contributions, which can be adjusted annually, and the Institute’s policy is to fund these benefits through a rabbi trust. The Institute uses a June 30 measurement date for the Plan.

The changes in the accumulated postretirement benefit obligation for the Plan are as follows:

2009 2008 Benefit obligation, beginning of year$ 5,629 $ 5,491 Service cost 34 34 Interest cost 334 330 Actuarial gain (170) (52) Benefits paid (167) (174) Benefit obligation, end of year$ 5,660 $ 5,629

Funded status of Plan, end of year$ (5,660) $ (5,629)

The components of the net periodic postretirement benefit cost are:

Service cost$ 34 $ 34 Interest cost 334 330 Amortization of transition obligation 117 117 Amortization of net gain (101) (90)

Net periodic postretirement benefit cost$ 384 $ 391

18 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 8 – Employee Benefit Plans (Continued)

The deferred transition obligation and deferred actuarial gains and losses are not reflected in net periodic postretirement benefit cost and are included in unrestricted net assets at June 30. The changes in the deferred amounts are as follows:

2009 2008 Deferred Transition Deferred Transition Gain Obligation Gain Obligation

Balance, beginning of year$ 1,370 $ (816) $ 1,408 $ (933) Actuarial gain 170 - 52 - Amortization Deferred transition obligation - 117 - 117 Deferred actuarial loss (101) - (90) -

Balance, end of year$ 1,439 $ (699) $ 1,370 $ (816)

The amounts of the transition obligation and the net actuarial gain included in unrestricted net assets at June 30, 2009 that are expected to be recognized in net periodic postretirement benefit cost during the fiscal year ending June 30, 2010 are ($117) and $103, respectively.

The benefits expected to be paid from the Plan in each of the next five years and in the aggregate for the following five years are as follows:

Years ending June 30, 2010$ 391 2011 411 2012 410 2013 404 2014 413 2015-2019 2,092 $ 4,121

Contributions to the Plan are expected to equal benefit payments. For the years ended June 30, 2009 and 2008, employer contributions were $167 and $174, respectively, and participant contributions were $98 and $100, respectively.

The Plan’s weighted-average assumptions used to determine net periodic postretirement benefit cost for the years ended June 30 were as follows:

2009 2008 Discount rate 6.25% 6.25% Rate of compensation increase 5.00% 5.00%

19 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 8 – Employee Benefit Plans (Continued)

The amounts reported are affected by the healthcare trend assumptions. The assumed healthcare cost trend rate used in measuring the accumulated benefit obligation was 10 percent for 2009 and 2008 and is assumed to decrease gradually to 5 percent in 2020 and remain at that level thereafter. If the healthcare cost trend assumptions were increased by 1 percent, the accumulated postretirement benefit obligation at June 30, 2009 and 2008 would be increased by approximately $104 and $100, respectively. The effect of this change would increase the aggregate of the service and interest cost components of the net periodic postretirement benefit cost by approximately $6 in each of the years ended June 30, 2009 and 2008. If the healthcare cost trend assumptions were decreased by 1 percent, the accumulated postretirement benefit obligation as of June 30, 2009 and 2008 would be decreased by approximately $93 and $91, respectively. The effect of this change would reduce the aggregate of the service and interest cost components of the net periodic postretirement benefit cost by approximately $6 and $5 for the years ended June 30, 2009 and 2008, respectively.

Note 9 – Fair Value of Financial Instruments

SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 – quoted prices in active markets for identical assets or liabilities; Level 2 – inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly, including inputs in markets that are not considered to be active; and Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table presents information about each major category of the Institute’s financial assets measured at fair value on a recurring basis as of June 30, 2009:

FairValueMeasurementatJune 30, 2009 (Level 1) (Level 2) (Level 3) Total

Marketable securities $ 83,357 $ - $ - $ 83,357 Alternative investments - - 52,679 52,679 Funds held by trustee 2,171 - - 2,171 Beneficial interest in split-interest agreements - - 2,123 2,123 $ 85,528 $ - $ 54,802 $ 140,330

20 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 9 – Fair Value of Financial Instruments (Continued)

The following table presents the summary of changes in the fair value of the Institute’s Level 3 classified assets for 2009:

Beneficial Interest in Alternative Split-Interest Investments Agreements Total

Balance, July 1, 2008$ 59,845 $ 2,754 $ 62,599 Realized and unrealized losses (7,023) - (7,023) Change in value of beneficial interest - (590) (590) Net purchases and sales (143) (41) (184) Balance, June 30, 2009$ 52,679 $ 2,123 $ 54,802

Realized and unrealized losses of $7,023 are reported in the statement of activities as a component of investment losses in excess of amount designated for current operations. The change in the value of the beneficial interest in split-interest agreements is included in contributions on the statements of activities. Of the total fiscal year 2009 net losses that are included in investment losses in excess of amount designated for current operations, $6,196 are due to unrealized gains and losses from Level 3 assets still held at June 30, 2009.

See Note 2 for the valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying statements of financial position. The Institute had no liabilities required to be reported at fair value at June 30, 2009.

Note 10 – Commitments and Contingencies

Commitments: At June 30, 2009, contractual commitments on construction and purchases pending or in process are $6,503. In addition, the Institute has a capital commitment of $3,120 for a private equity investment at June 30, 2009.

Leases: The Institute has entered into operating leases for building space and equipment that expire through March 2014. Rent expense totaled $683 and $709 for the years ended June 30, 2009 and 2008, respectively.

Future minimum rental payments required under non-cancelable operating leases that have remaining lease terms in excess of one year as of June 30, 2009, are as follows:

Years ending June 30, 2010$ 675 2011 360 2012 100 2013 49 2014 8 Total$ 1,192

21 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 10 – Commitments and Contingencies (Continued)

Workers’ Compensation Claims: The Institute self-insures for workers’ compensation claims to a maximum of $250 per claim for years prior to fiscal year 2007. Under an arrangement with an insurance carrier, amounts in excess of this level are the responsibility of the insurer. The Institute maintains an accrual reflecting its expected claims obligation under this arrangement that is adjusted in future periods as claims are finalized. The Institute obtained a letter of credit as required by the workers’ compensation arrangement in the amount of $70 for each of the years ended June 30, 2009 and 2008, respectively. There were no draws on the letter of credit in 2009 or 2008.

Grants: The Institute has grants with various organizations and government agencies which are subject to audit. Management believes that any liability which may result from these audits would not be material.

Income Taxes: The Institute adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”), on July 1, 2007. No adjustment to net assets was required upon the adoption of the Interpretation, as the Institute had no unrecognized tax benefits. The Institute has no unrecognized tax benefits as of June 30, 2009 and 2008.

The Institute files an exempt organization tax return in the United States federal jurisdiction and a copy with the state charities division. With few exceptions, the Institute is no longer subject to United States federal or state/local income tax examinations by tax authorities for years before 2006.

Legal: The Institute is a party to certain legal actions arising in the ordinary course of business. In the opinion of management, additional liabilities, if any, under these actions will not result in material charges against net assets.

Guarantees and Indemnities: From time to time, the Institute enters into certain types of contracts that contingently require the Institute to indemnify parties against third-party claims. These contracts primarily relate to: (i) certain technology transfer/license agreements under which the Institute may be required to indemnify licensees, and (ii) certain agreements with the Institute’s officers, directors, and employees, under which the Institute may be required to indemnify such persons for liabilities arising out of their employment relationship. The terms of such obligations vary by contract and, in most instances, a specific or maximum dollar amount is not explicitly stated therein. Generally, amounts under those contracts cannot be reasonably estimated until a specific claim is asserted. Consequently, no liabilities have been recorded for these obligations on the Institute’s statements of financial position for the years ended June 30, 2009 and 2008.

Note 11 – Concentrations of Credit Risk

Cash in bank deposit accounts and the investment portfolio exceeds federally insured deposit limits. No losses have been experienced in such accounts.

The Institute receives funds under various research grants from federal and non-federal agencies. Funding from the National Institutes of Health represents approximately 70 percent and 74 percent of total grant revenue for the years ended June 30, 2009 and 2008, respectively.

22 THE SALK INSTITUTE FOR BIOLOGICAL STUDIES

NOTES TO FINANCIAL STATEMENTS (In Thousands)

Note 12 – Related Party

In May 2006, the Institute and three other research institutions formed the San Diego Consortium for Regenerative Medicine, subsequently renamed Sanford Consortium for Regenerative Medicine (“SCRM”), to coordinate the institutions’ resources, personnel, and programs for scientific research and education in the field of stem cell research and related fields. The nine-member board of SCRM includes a member of the Institute’s Board of Trustees and the Institute’s President/Chief Executive Officer. In addition, the Institute’s Chief Financial Officer serves as SCRM’s Treasurer/Chief Financial Officer.

23 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX C

SUMMARY OF PRINCIPAL DOCUMENTS

The following is a summary of certain provisions of the Purchase Agreement, the Sale Agreement, the Trust Agreement and the Deed of Trust, which are not described elsewhere in this Official Statement. These summaries do not purport to be comprehensive and reference should be made to the Purchase Agreement, the Sale Agreement, the Trust Agreement and the Deed of Trust for a full and complete statement of their provisions. All capitalized terms not defined in this Official Statement have the meaning set forth in the Sale Agreement.

DEFINITIONS OF CERTAIN TERMS

“Additional Indebtedness” means any Indebtedness incurred subsequent to the execution and delivery of the Sale Agreement.

“Administrative Fees and Expenses” means any application, commitment, financing or similar fee charged, or reimbursement for administrative or other expenses incurred, by the County or the Trustee, including Supplemental Payments.

“Annual Debt Service” means for each Fiscal Year the aggregate amount (without duplication) of principal and interest scheduled to become due (either by maturity or by mandatory redemption) and sinking fund payments required to be paid in that Fiscal Year on all Long-Term Indebtedness, less any amounts on deposit in escrow to be applied during that Fiscal Year to pay principal or interest on Long-Term Indebtedness.

“Authority” means the California Statewide Communities Development Authority.

“Authorized Representative” means (1) with respect to the County, the Chief Financial Officer, the Auditor and Controller, the Treasurer-Tax Collector, the Chief Deputy Treasurer, the Chief Investment Officer, the Group Finance Director, the Debt Finance Manager or such other person as may be designated and authorized to sign for the County in writing to the Trustee and filed with the Trustee, and (2) with respect to the Corporation, the Chairman or Vice-Chairman of its Board, its President, chief executive officer, executive vice president, chief financial officer, Secretary, Assistant Secretary or Treasurer, or any other person designated as an Authorized Representative of the Corporation by a Statement of the Corporation signed by the Chairman or Vice Chairman of its Board, its President, chief executive officer, executive vice president, or chief financial officer, Secretary, Assistant Secretary or Treasurer and filed with the Trustee.

“Balloon Indebtedness” means Long-Term Indebtedness of the Corporation, (i) 25% or more of the principal of which becomes due (either by maturity or mandatory redemption) during any Fiscal Year or (ii) the principal of which due in any Fiscal Year exceeds by more than 50% the greatest amount of principal of such Long- Term Indebtedness due in any preceding or succeeding Fiscal Year, which portion of the principal thereof is not required by the documents governing such Indebtedness to be amortized by redemption prior to such date.

“Board” means the Board of Trustees of the Corporation.

“Bond Counsel” means counsel of recognized national standing in the field of obligations the interest on which is excluded from gross income for federal income tax purposes, selected by the Corporation and not objected to by the Trustee.

“Business Day” means a day of the year on which banks located in New York, New York, and Los Angeles, California, are not required or authorized to be closed and on which the Federal Reserve System is open.

“Certificate Payment Date” means, with respect to a Certificate, the date on which principal evidenced and represented by such Certificate becomes due and payable.

C-1 “Certificate Year” means the period of twelve consecutive months ending on July 1 of any year in which Certificates are Outstanding.

“Certificates” means the certificates of participation evidencing a proportionate interest of the Holders thereof in Installment Payments to be made by the County pursuant to the Purchase Agreement.

“Code” means the Internal Revenue Code of 1986 and the regulations issued thereunder, or any successor to the Internal Revenue Code of 1986. Reference to any particular Code section shall, in the event of such a successor Code, be deemed to be reference to the successor to such Code section.

“Completion Indebtedness” means any Long-Term Indebtedness incurred by the Corporation for the purpose of financing the completion of constructing or equipping any project for which Long-Term Indebtedness has theretofore been incurred in accordance with the provisions of the Sale Agreement, to the extent necessary to provide a completed and fully equipped facility of the type and scope contemplated at the time said Long-Term Indebtedness was incurred, and in accordance with the general plans and specifications for such facility as originally prepared and approved in connection with the related financing, modified or amended only in conformance with the provisions of the documents pursuant to which the related financing was undertaken.

“Corporate Trust Office” means the principal corporate trust office of the Trustee at 700 S. Flower Street, Suite 500, Los Angeles, California 90017-4104, Attention: Corporate Trust Services, or such other or additional offices as may be designated by the Trustee, except that with respect to presentation of Certificates for payment or for registration of transfer and exchange such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted.

“Corporation” means The Salk Institute for Biological Studies, San Diego, California, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California, or any corporation which is the surviving, resulting or transferee corporation in any merger, consolidation or transfer of assets permitted under the Sale Agreement.

“Costs of Delivery” means all items of expense directly or indirectly payable by or reimbursable to the County or the Corporation and related to the authorization, execution, sale and delivery of the Certificates, including but not limited to advertising and printing costs, costs of preparation and reproduction of documents, filing and recording fees, documentary transfer tax, premiums for title insurance, initial fees and charges of the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, rating agency fees, initial Administrative Fees and Expenses, fees and charges for preparation, execution, transportation and safekeeping of Certificates, and any other cost, charge or fee in connection with the original delivery of Certificates.

“Costs of Delivery Fund” means the fund so designated and established pursuant to the Trust Agreement.

“Deed of Trust” means that certain Deed of Trust, dated as of March 1, 1994 as amended by a First Confirmatory Amendment thereto dated as of April 1, 2000, a Second Confirmatory Amendment thereto dated as of August 1, 2005 and a Third Confirmatory Amendment thereto dated as of May 1, 2010, in each case executed by the Corporation, as trustor, in favor of Commonwealth Land Title Company, as trustee thereunder, creating a lien on the Facilities for the benefit of the Trustee (as assignee of the County and the Authority), as trustee for the holders of the Outstanding 2000 Certificates, the 2005 Bonds and the Certificates, as beneficiaries.

“Deed of Trust Default” means any event of default under the Deed of Trust.

“Depository” means The Depository Trust Company and its successors and assigns, or any other depository selected as set forth in the Trust Agreement, which agrees to follow the procedures required to be followed by such depository in connection with the Certificates.

C-2 “Escrow Agreement” means that certain escrow deposit agreement, dated as of May 1, 2010, by and between the Corporation and the Escrow Bank, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof.

“Escrow Bank” means The Bank of New York Mellon Trust Company, N.A., a national banking association organized and existing under the laws of United States of America, or its successor, as Escrow Bank under the Escrow Agreement.

“Event of Default” means any of the events specified in the Trust Agreement

“Facilities” means (i) the real property described in the Sale Agreement; (ii) all buildings, structures, fixtures and improvements to the aforesaid real property; and (iii) all personal property owned by the Corporation and used in, around or about the aforesaid real property, whether now existing or hereafter constructed, installed or acquired.

“Fiscal Year” means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the Corporation.

“Government Obligations” means direct obligations of, or obligations the timely payment of principal of and interest on which is fully and unconditionally guaranteed by, the United States of America.

“Gross Revenues” means all moneys, fees, rates, receipts, rentals, charges, issues and income received for, received by or derived from, the Corporation, the operation of the Corporation or the Facilities or any other source whatsoever, including without limitation gifts, bequests, grants, devises, contributions, moneys received from the operation of the Corporation’s business or the possession of its properties, indirect cost recovery payments under research grant agreements, insurance proceeds or condemnation awards, and all rights to receive the same, whether in the form of accounts, accounts receivable, contract rights or other rights, and the proceeds of the same whether now owned or held or hereafter coming into being, but excluding (i) gifts, grants, devises, bequests and contributions designated by the maker to a specific purpose inconsistent with their use for the payment of principal of, premium, if any, and interest on Indebtedness or for the payment of operating expenses, and (ii) any income (including without limitation royalty or license income) for which the Corporation has a contractual obligation to pay to other Persons.

“Gross Revenue Fund” means the fund by that name established pursuant to the Sale Agreement.

“Guaranty” means all loan commitments and all obligations of the Corporation guaranteeing in any manner whatever, whether directly or indirectly, any obligation of any other Person which would, if such other Person were the Corporation, constitute Indebtedness.

“Holder” or “Certificateholder,” whenever used herein or in the Trust Agreement with respect to a registered Certificate, means the person in whose name such Certificate is registered.

“Indebtedness” means any Guaranty and any indebtedness or obligation of the Corporation for borrowed money or the deferred purchase price for property, as determined in accordance with generally accepted accounting principles, including, without limitation, obligations under conditional sales contracts or other title retention contracts, and rental obligations under leases which are considered capital leases under generally accepted accounting principles.

“Information Services” means Financial Information, Inc.’s “Daily Called Bond Service,” 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Moody’s “Municipal and Government,” 99 Church Street, 8th Floor, New York, New York 10007, Attention: Municipal News Reports; and S&P’s “Called Bond Record,” 25 Broadway, 3rd Floor, New York, New York 10004; or to such other addresses and/or such other services providing information with respect to called bonds as the County may designate.

C-3 “Installment Payments” means all of the payments required to be made by the County pursuant to the Purchase Agreement.

“Insurance and Condemnation Proceeds Fund” means the fund by that name established pursuant to the Sale Agreement.

“Insurance Consultant” means a person or firm (which may be an insurance broker or agent of the Corporation) who is not, and no member, director, officer or employee of which is, an officer or employee of the Corporation, selected by the Corporation, and qualified to survey risks and to recommend insurance coverage for research facilities and organizations engaged in such operations.

“Interest Account” means the account by that name in the Revenue Fund established pursuant to the Trust Agreement.

“Investment Securities” means any of the following which at the time are legal investments under the laws of the State of California for moneys held under the Trust Agreement and then proposed to be invested therein:

(1) Government Obligations and U.S. Treasury STRIPS (collectively, “Direct Obligations”);

(2) Participation certificates (excluding strip mortgage securities which are purchased at prices exceeding their principal amounts) and senior debt obligations of the Federal Home Loan Mortgage Corporation; consolidated system-wide bonds and notes of the Farm Credit System; senior debt obligations and mortgage-backed securities (excluding stripped mortgage securities which are purchased at prices exceeding their principal amounts) of the Federal National Mortgage Association; senior debt obligations (excluding securities that have no fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date) of the Student Loan Marketing Association; debt obligations of the Resolution Funding Corp.; and REFCORP STRIPS (stripped by the Federal Reserve Bank of New York) (collectively, “Agency Obligations”);

(3) Direct obligations of any state of the United States of America or any subdivision or agency thereof whose long-term unsecured general obligation debt is rated “A3” or better by Moody’s and “A” or better by S&P or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose long-term, unsecured general obligation debt is rated “A3” or better by Moody’s and “A” or better by S&P;

(4) Commercial paper rated at the time of purchase “Prime-1” by Moody’s and “A-1” or better by S&P maturing in not more than 365 days;

(5) Deposits, federal funds or bankers acceptances (maturing in not more than 365 days) of any domestic bank (including a branch office of a foreign bank which branch office is located in the United States, provided that the Trustee shall have received a legal opinion or opinions to the effect that full timely payment of such deposit or similar obligation is enforceable against the principal office or any branch of such bank), which:

(a) has an unsecured, uninsured and unguaranteed obligation rated “Prime-1” or “A3” or better by Moody’s and “A-1” or “A” or better by S&P; or

(b) is the lead bank of a parent bank holding company with an uninsured, unsecured and unguaranteed obligation meeting the rating requirements in (a) above;

(6) Deposits of any bank (including the Trustee and its affiliates) or savings and loan association which has combined capital, surplus and undivided profits of not less than $10 million, provided such deposits are fully insured by the Federal Deposit Insurance Corporation, the Banking Insurance Fund or the Savings Association Insurance Fund;

C-4 (7) Investments in a money-market fund rated “Am” or “Am-G” or better by S&P, such money market fund may include a fund for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services;

(8) Repurchase agreements with a term of six months or less with any institution having long-term, unsecured debt rated at least “AA” or commercial paper rated “A-1+” (in each case by S&P);

(9) Repurchase agreements collateralized by Direct Obligations or Agency Obligations (the “Collateral Securities”) with any registered broker-dealer which is under the jurisdiction of the Securities Investors Protection Corp. or any commercial bank, if such broker-dealer or bank has uninsured, unsecured and unguaranteed debt rated “Prime-1” or “A3” or better by Moody’s and “A-1” or “A” or better by S&P, provided that:

(a) a master repurchase agreement or other specific written repurchase agreement governs the transaction;

(b) the Collateral Securities are held free and clear of any other lien by the Trustee or an independent third party acting solely as agent for the Trustee, provided that any such third party (1) is (i) a Federal Reserve Bank, or (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 $25 million;

(c) a perfected first security interest under the Uniform Commercial Code is created in, or book-entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq are followed with respect to, the Collateral Securities for the benefit of the Trustee;

(d) such repurchase agreement has a term of thirty days 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) such repurchase agreement matures (or permits the Trustee to withdraw all or any portion of the invested funds) at least 10 days (or other appropriate liquidation period) prior to each debt service payment date with respect to the Certificates;

(f) the fair market value of the Collateral Securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 103%; and

(g) the Trustee obtains an opinion of counsel to such broker-dealer or bank (which opinion shall be addressed to the County) to the effect that such repurchase agreement is a legal, valid, binding and enforceable agreement of such broker-dealer or bank (and, in the case of a bank which is a branch of a foreign bank, of such foreign bank) in accordance with its terms.

“Lien” means any mortgage or pledge of, or security interest in, or lien or encumbrance on, any Property.

“Long Term Debt Service Coverage Ratios” means, for any period of time, the ratio determined by dividing Revenues Available for Debt Service by Maximum Annual Debt Service.

“Long-Term Debt Service Coverage Ratio Including Unrealized Gains and Losses on Investments” means, for any period of time, the ratio determined by dividing the sum of Revenues Available for Debt Service and any unrealized gains or losses on investments by Maximum Annual Debt Service.

“Long-Term Indebtedness” means Indebtedness having an original maturity greater than one year or renewable at the option of the Corporation for a period greater than one year from the date of original incurrence

C-5 or issuance thereof unless, by the terms of such Indebtedness, no Indebtedness is permitted to be outstanding thereunder for a period of at least thirty (30) consecutive days during each calendar year.

“Mandatory Sinking Account Payment” means, with respect to Certificates on any Certificate Payment Date, the amount required by the Trust Agreement to be applied by the Trustee for the retirement of Term Certificates of such Certificate Payment Date.

“Maximum Annual Debt Service” means the greatest amount of Annual Debt Service becoming due and payable in any Fiscal Year including the Fiscal Year in which the calculation is made or any subsequent Fiscal Year; provided, however, that for the purposes of computing Maximum Annual Debt Service:

(a) with respect to a Guaranty by the Corporation of a Person, Long-Term Indebtedness shall include twenty percent (20%) of the Corporation’s maximum possible liability under the Guaranty in any Fiscal Year unless the Guaranty is drawn upon, in which case Long-Term Indebtedness shall include one hundred percent (100%) of the Corporation’s maximum possible liability under the Guaranty, until such time as all amounts drawn upon the Guaranty have been repaid to the Corporation, and for one Fiscal Year thereafter;

(b) for any Long-Term Indebtedness for which a binding commitment, letter of credit or other credit arrangement with an entity whose unsecured long-term indebtedness is rated at least “A-” by S&P providing for the extension of such Indebtedness beyond its original maturity date exists, the computation of Maximum Annual Debt Service shall, at the option of the Corporation, be made on the assumption that such Long-Term Indebtedness will be amortized in accordance with such credit arrangement;

(c) for any Balloon Indebtedness, the computation of Maximum Annual Debt Service shall, at the option of the Corporation, assume that such Long-Term Indebtedness is to be amortized over a period equal to the lesser of twenty (20) years or the actual term of such Indebtedness, assuming level debt service and the rate of interest thereon (determined as of the time of calculation of Maximum Annual Debt Service) equal to the average rate, certified in a Statement of the Corporation (which shall be accompanied by and based on an opinion of a banking or investment banking firm) delivered to the Trustee, at which the Corporation could reasonably expect to borrow by issuing an obligation with a term of twenty (20) years;

(d) if interest on Long-Term Indebtedness is payable pursuant to a variable interest rate formula, the interest rate on such Long-Term Indebtedness for periods when the actual interest rate cannot yet be determined shall be assumed to be equal to one hundred twenty percent (120%) of the average rate of interest borne by such Long-Term Indebtedness during the twenty-four (24) full calendar months immediately preceding the date of calculation (or would have been borne by such Long-Term Indebtedness if such Long-Term Indebtedness had been Outstanding for such twenty-four month period based upon a certificate of an independent financial advisor submitted to the Trustee);

(e) debt service on Long-Term Indebtedness incurred to finance capital improvements shall be included in the calculation of Maximum Annual Debt Service only in proportion to the amount of interest on such Long-Term Indebtedness which is payable in the then-current Fiscal Year from sources other than the proceeds of such Long-Term Indebtedness; and

(f) if moneys or Government Obligations have been deposited with a trustee in an amount, together with earnings thereon, sufficient to pay the principal of or interest on Long-Term Indebtedness as it comes due, such principal or interest, as the case may be, shall be excluded from the calculation of Maximum Annual Debt Service.

“Nonrecourse Indebtedness” means any Indebtedness which is not a general obligation and which is secured by a Lien, liability for which is effectively limited to the Property subject to such Lien with no recourse, directly or indirectly, to any other Property of the Corporation.

C-6 “Optional Prepayment Account” means the account by that name in the Prepayment Fund established pursuant to the Trust Agreement.

“Outstanding,” when used as of any particular time with reference to Certificates, means (subject to the provisions of the Trust Agreement) all Certificates theretofore, or thereupon being, authenticated and delivered by the Trustee under the Trust Agreement except (1) Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Certificates with respect to which all liability shall have been discharged in accordance with the Trust Agreement, including Certificates (or portions of Certificates); and (3) Certificates for the transfer or exchange of or in lieu of or in substitution for which other Certificates shall have been authenticated and delivered by the Trustee pursuant to the Trust Agreement.

“Parity Debt” means indebtedness incurred as “Parity Debt” in accordance with the provisions of the Sale Agreement.

“Permitted Encumbrances” means (a) Any judgment lien or notice of pending action against the Corporation so long as such judgment or pending action is being contested and execution thereon is stayed or while the period for responsive pleading has not lapsed; (b) (i) Rights reserved to or vested in any municipality or public authority by the terms of any right, power, franchise, grant, license, permit or provision of law, affecting any Property; (ii) any liens on any Property for taxes, assessment, levies, fees, water and sewer charges, and other governmental and similar charges and any liens of mechanics, materialmen, laborers, suppliers or vendors for work or services performed or materials furnished in connection with such Property, which are not due and payable or which are not delinquent or which, or the amount or validity of which, are being contested and execution thereon is stayed or, with respect to liens of mechanics, materialmen and laborers, have been due for less than sixty (60) days; (iii) easements, rights-of-way, servitudes, restrictions and other minor defects, encumbrances, and irregularities in the title to any Property which do not materially impair the use of such Property or materially and adversely affect the value thereof; (iv) rights reserved to or vested in any municipality or public authority to control or regulate any Property or to use such Property in any manner, which rights do not materially impair the use of such Property in any manner, or materially and adversely affect the value thereof; and (v) to the extent that it affects title to any Property, the Sale Agreement; (c) any Lien described in an exhibit to the Sale Agreement (other than liens described in clause (b) of this definition) which is existing on the date of execution of the Sale Agreement provided that no such Lien (or the amount of Indebtedness secured thereby) may be increased, extended, renewed or modified to apply to any Property of the Corporation not subject to such Lien on such date, unless such Lien as so extended, renewed or modified otherwise qualifies as a Permitted Encumbrance under the Sale Agreement; (d) any Lien in favor of the Trustee securing Parity Debt; (e) Liens arising by reason of good faith deposits with the Corporation in connection with leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by the Corporation to secure public or statutory obligations, or to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges; (f) any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license, or to enable the Corporation to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with workers’ compensation, unemployment insurance, pension or profit sharing plans or other similar social security plans, or to share in the privileges or benefits required for companies participating in such arrangements, and any Lien in the nature of a banker’s lien or right of setoff with respect to deposits which is not required to maintain with the bank in question; (g) any Lien arising by reason of any escrow established to pay debt service with respect to Indebtedness; (h) any Lien in favor of a trustee on the proceeds of Indebtedness prior to the application of such proceeds; (i) Liens on Property received by the Corporation through gifts, grants or bequests, such Liens being due to restrictions on such gifts, grants or bequests of Property or the income thereon, up to the fair market value of such Property; (j) Liens on Property acquired by the Corporation, up to the fair market value of the Property, if a Statement of the Corporation is delivered to the Trustee certifying that (i) the Lien and the Indebtedness secured thereby were created and incurred by a Person prior to the acquisition of such Property by the Corporation, and (ii) the Lien was created prior to the decision of the Corporation to acquire the Property and was not created for the purpose of enabling the Corporation to avoid the limitations of the Sale Agreement on creation of Liens on Property of the Corporation; (k) leases made, or existing on property acquired, in the ordinary course of business; (l) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation, including liens of judgments thereunder that are not currently dischargeable; (m) Purchase or construction money mortgages, liens,

C-7 charges, encumbrances, pledges, or security interests (which includes conditional sale agreements or other title retention agreements and leases in the nature of title retention agreements) upon or in property acquired after the date of the execution of the Sale Agreement, or any renewals of any such mortgages, liens, charges, encumbrances, pledges, or security interests in connection with the replacement, extension, or renewal (without increase in principal amount) of the Indebtedness secured thereby, provided no such mortgage, lien, charge, encumbrance, pledge, or security interest extends to or covers any property of the Corporation other than the property then being acquired; (n) any other lien or encumbrance created or incurred in the ordinary course of business that does not secure, directly or indirectly, the repayment of borrowed money or the payment of installment sales contracts or capital leases and that, individually or in the aggregate, does not materially impair the value or the utility of the property subject to such lien or encumbrance.

“Person” means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof.

“Prepayment Fund” means the fund by that name established pursuant to the Trust Agreement.

“Prepayment Price” means, with respect to any Certificate (or portion thereof), the principal amount with respect to such Certificate (or portion) plus the applicable premium, if any, payable upon prepayment thereof pursuant to the provisions of such Certificate and the Trust Agreement.

“Principal Account” means the account by that name in the Revenue Fund established pursuant to the Trust Agreement.

“Project” means the financing of the construction, improvement, renovation, furnishing and equipping of buildings, laboratories, offices, and other related facilities of the Corporation, including but not limited to the renewal and expansion of the central plant and electrical distribution infrastructure and the acquisition and installation of photovoltaic panels, to be located at 10010 North Torrey Pines Road, La Jolla, California 92037.

“Project Fund” means the fund by that name established pursuant to the Trust Agreement.

“Property” means any and all rights, titles and interests in and to any and all property of the Corporation whether real or personal, tangible or intangible and wherever situated.

“Purchase Agreement” means that certain installment purchase agreement dated as of the date of the Sale Agreement, between the County and the Corporation, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of the Trust Agreement.

“Purchase Agreement Default” means any of the events so specified in the Purchase Agreement.

“Purchase Payments” means the payments so designated and required to be made by the Corporation pursuant to the Sale Agreement.

“Real Property” means the real estate described in Exhibit A to the Purchase Agreement and the Sale Agreement and all buildings and structures thereon and fixtures and improvements thereto.

“Rebate Fund” means the fund by that name established pursuant to the Trust Agreement.

“Revenue Fund” means the fund by that name established pursuant to the Trust Agreement.

“Revenues” means all amounts received by the County or the Trustee for the account of the County under the Trust Agreement pursuant or with respect to the Sale Agreement, including, without limiting the generality of the foregoing, Installment Payments and Purchase Payments (including both timely and delinquent payments and any late charges, and regardless of source), prepayments, insurance proceeds, condemnation proceeds, and all interest, profits or other income derived from the investment of amounts in any fund or account established

C-8 pursuant to the Trust Agreement, but not including any Administrative Fees and Expenses or amounts received or on deposit in the Rebate Fund.

“Revenues Available for Debt Service” means, with respect to any period, the change in the sum of unrestricted net assets of the Corporation (or any other entity for which this calculation is performed) for such period, determined in accordance with generally accepted accounting principles, to which shall be added interest, amortization and depreciation expense, each item determined in accordance with generally accepted accounting principles, and excluding: (1) any gains or losses (realized or unrealized) on the sale or other disposition, not in the ordinary course of business, of fixed or capital assets or resulting from the early extinguishment or refinancing of debt, (2) the net proceeds of insurance (other than business interruption insurance) and condemnation awards, (3) extraordinary noncash items, and (4) realized and unrealized gains or losses on investments.

“Sale Agreement” means the installment sale agreement, dated as of May 1, 2010, between the County and the Corporation, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of the Trust Agreement.

“Sale Agreement Default” means any of the events specified in the Sale Agreement.

“Serial Certificates” means the Certificates falling due by their terms in specified years, for which no Mandatory Sinking Account payments are provided.

“Short-Term Indebtedness” means all Indebtedness having an original maturity less than or equal to one year and not renewable at the option of the Corporation for a term greater than one year from the date of original incurrence or issuance unless, by the terms of such Indebtedness, no Indebtedness is permitted to be outstanding thereunder for a period of at least thirty (30) consecutive days during each Fiscal Year.

“Sinking Accounts” means the subaccounts in the Principal Account so designated and established pursuant to the Trust Agreement.

“Special Prepayment Account” means the account by that name in the Prepayment Fund established pursuant to the Trust Agreement.

“State” means the State of California.

“Statement,” “Request,” “Requisition” and “Order” of the County or the Corporation”mean, respectively, a written statement, request, requisition or order signed in the name of the County or the Corporation by an Authorized Representative of the County or the Corporation, respectively. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. If and to the extent required by the Sale Agreement, each such instrument shall include the statements provided for in the Sale Agreement.

“Supplemental Payments” means the payments so designated and required to be made by the County pursuant to the Sale Agreement.

“Supplemental Purchase Agreement” means any installment purchase agreement hereafter duly authorized and entered into between the County and the Corporation, supplementing, modifying or amending the Purchase Agreement; but only if and to the extent that such Supplemental Purchase Agreement is specifically authorized under the Purchase Agreement and the Trust Agreement.

“Supplemental Sale Agreement” means any sale agreement hereafter duly authorized and entered into between the County and the Corporation, supplementing, modifying or amending the Sale Agreement; but only if and to the extent that such Supplemental Sale Agreement is specifically authorized under the Sale Agreement and under the Trust Agreement.

C-9 “Supplemental Trust Agreement” means any trust agreement hereafter duly authorized and entered into among the County, the Corporation, and the Trustee supplementing, modifying or amending the Trust Agreement; but only if and to the extent that such Supplemental Trust Agreement is specifically authorized under the Trust Agreement.

“Tax Agreement” or “Tax Certificate and Agreement” means that certain agreement dated as of the date of initial execution and delivery of the Certificates and executed by the County and the Corporation, including any modifications or amendments.

“Term Certificates” means the Certificates payable at or before their specified Certificate Payment Date or Dates from Mandatory Sinking Payments established for that purpose and calculated to retire such Certificates before their specified Certificate Payment Date or Dates.

“Total Unrestricted Net Assets” means total unrestricted net assets as determined in accordance with generally accepted accounting principles.

“Total Unrestricted Revenues” means total unrestricted revenues, gains and other support as determined in accordance with generally accepted accounting principles.

“Trust Agreement” means that certain trust agreement dated as of the date of the Sale Agreement, among the County, the Corporation and the Trustee, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof.

“Trustee” means The Bank of New York Mellon Trust Company, N.A., a national banking association organized and existing under the laws of the United States, or its successor, as Trustee under the Trust Agreement as provided in the Trust Agreement.

“2000 Certificates” means the certificates of participation executed and delivered by the 2000 Trustee in the aggregate principal amount of $15,000,000 evidencing a proportionate interest in certain installment payments to be made by the County pursuant to the 2000 Purchase Agreement.

“2000 Project” shall have the meaning given the term “Project” in the 2000 Sale Agreement.

“2000 Purchase Agreement” means that certain installment purchase agreement, dated as of April 1, 2000, between the County and the Corporation, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of the 2000 Trust Indenture.

“2000 Sale Agreement” means that certain installment sale agreement, dated as of April 1, 2000, between the County and the Corporation, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of the 2000 Trust Indenture.

“2000 Trust Agreement” means that certain trust indenture, dated as of April 1, 2000, among the County, the Corporation and The Bank of New York Mellon Trust Company, N.A., as successor Trustee, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof.

“2000 Trustee” means The Bank of New York Mellon Trust Company, N.A., successor to BNY Western Trust Company, as trustee under the 2000 Trust Agreement.

“2005 Bonds” means the issued and delivered by the Authority, in the aggregate principal amount of $25,135,000, the principal and interest on which are secured by certain loan payments to be made by the Corporation to the Authority pursuant to the 2005 Loan Agreement.

C-10 “2005 Loan Agreement” means that certain loan agreement, dated as of August 1, 2005, between the Authority and the Corporation, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of the 2005 Trust Indenture.

“2005 Trust Indenture” means that certain trust indenture, dated as of August 1, 2005, between the Authority and The Bank of New York Mellon Trust Company, N.A., as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof.

“2005 Trustee” means The Bank of New York Mellon Trust Company, N.A., as trustee under the 2005 Trust Indenture.

INSTALLMENT PURCHASE AGREEMENT

The Purchase Agreement provides the terms of the purchase of the Project the Authority and the payment of the Installment Payments from the sources and to the extent required under the Purchase Agreement. Certain of the provisions of the Purchase Agreement are summarized below. This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Purchase Agreement.

Purchase and Sale of the Project

Pursuant to the Purchase Agreement, the Corporation grants and conveys to the County the Project, and the County purchases the Project at the purchase price set forth in the Purchase Agreement.

Under the Purchase Agreement, the County and the Corporation agree that the title to the Project shall immediately be deemed conveyed to and vested in the County.

Payment Provisions

The purchase price of the Project under the Purchase Agreement shall be $37,207,949.35 (the “principal component”) plus the interest to accrue on the unpaid balance of such principal component over the term of the Purchase Agreement, all in accordance with the installment payment schedule set forth in the Purchase Agreement. All amounts attributable to interest as specified in said schedule shall be paid by the County as and constitute interest.

The County shall pay the purchase price through the Installment Payments over a period from the date of the Purchase Agreement through July 1, 2040; provided, however, that the County’s obligation to make the Installment Payments is limited exclusively to the payments and other moneys and assets received by the Corporation on behalf of the County pursuant to the Sale Agreement, and the County is not directly or indirectly or contingently or morally obligated to make Installment Payments from any other moneys or assets of the County. Subject to that limitation, the Installment Payments will be made semiannually by the County in accordance with the schedule set forth in the Purchase Agreement.

The Installment Payments shall be made to the Trustee at the Corporate Trust Office. In the event the County should fail to make any of the Installment Payments required by the Purchase Agreement, the Installment Payments so unpaid shall continue as an obligation of the County until such amount shall have been fully paid and the County shall pay the same with interest thereon at a rate of interest equal to the rate of interest on the unpaid principal components of such unpaid Installment Payments, subject to the limitation set forth in the Purchase Agreement.

The Corporation shall make each Purchase Payment due under the Sale Agreement directly to the Trustee in satisfaction of the County’s Installment Payment obligations under the Purchase Agreement. The County grants to the Corporation a security interest in the Purchase Payments for the purpose of securing the Installment Payments due from the County under the Purchase Agreement. Pursuant to the Trust Agreement, the Corporation shall assign such interest in the Purchase Payments and its rights to receive Installment Payments under the Purchase Agreement to the Trustee for the benefit of the Holders of the Certificates.

C-11 The County shall prepay all or any part of the Installment Payments from prepayments received from the Corporation pursuant to and subject to the terms of the Sale Agreement and the Trust Agreement.

The obligations of the County to make the foregoing payments and to perform and observe the other agreements on its part contained in the Purchase Agreement shall be absolute and unconditional except as otherwise provided in the Purchase Agreement, and, until such time as all of the Installment Payments shall have been fully paid (or provision for the payment thereof shall have been made in accordance with the Purchase Agreement) the County (i) will not suspend or discontinue any payments required under the Purchase Agreement, (ii) will perform and observe all of its other agreements contained in the Purchase Agreement and (iii) will not terminate the Purchase Agreement for any cause including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Facilities, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either or any failure of the Corporation to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Purchase Agreement.

Nothing contained in this section shall be construed to release the Corporation from the performance of any of the agreements on its part contained in the Purchase Agreement; and in the event the Corporation should fail to perform any such agreement, the County may institute such action against the Corporation as the County may deem necessary to compel performance or recover its damages for nonperformance so long as such action shall not violate the agreements of the County contained in the paragraph above.

The County shall not be obligated to pay any Installment Payment or any portion of the purchase price or make any other payments or advance any moneys or be liable for any other costs or expenses except from the payments and other moneys and assets received by the County pursuant to the Sale Agreement. The County shall not be directly or indirectly or contingently or morally obligated to use any other moneys or assets of the County for all or any portion of the purchase price or for all or any portion of such other costs or expenses.

Purchase Agreement Defaults and Remedies

The following are “Purchase Agreement Defaults” under the Purchase Agreement:

(a) Failure by the County to pay or cause to be paid any Installment Payment required to be paid under the Purchase Agreement at the time specified therein.

(b) Failure by the County to observe and perform any covenant, condition or agreement in the Purchase Agreement on its part to be observed or performed for a period of sixty (60) days after written notice, specifying such failure and requesting that it be remedied, has been given to the County by the Corporation, unless the Corporation shall agree in writing to an extension of such time prior to its expiration.

Whenever any Purchase Agreement Default shall have happened and be continuing, the Trustee (as assignee of the Corporation) may take any one or more of the following remedial steps:

(a) The Trustee (as assignee of the Corporation) may, if the Certificates have been accelerated pursuant to the Trust Agreement and upon notice to the County, declare the principal component of all Installment Payments, plus all accrued and unpaid interest with respect thereto, payable under the Purchase Agreement to be immediately due and payable, whereupon the same shall become immediately due and payable; provided, however, that if acceleration of the Certificates has been rescinded and annulled pursuant to the Trust Agreement, acceleration of the Installment Payments shall be rescinded and annulled, but no such rescission and annulment shall extend to or affect any subsequent default or shall impair or exhaust any right or power consequent thereto;

(b) The Trustee (as assignee of the Corporation) may exercise and enforce all or any of the rights and remedies provided for in the Sale Agreement; and/or

C-12 (c) The Trustee (as assignee of the Corporation) may take whatever action at law or in equity may appear necessary or desirable to enforce performance and observance of any obligation, condition or covenant of the County under the Purchase Agreement.

INSTALLMENT SALE AGREEMENT

The Sale Agreement provides the terms of the repurchase of the Project by the Corporation and the payment of the Purchase Payments and the security for such payments by the Corporation. In connection with said repurchase, the Corporation is subject to the terms and conditions of the Sale Agreement. Certain of the provisions of the Sale Agreement are summarized below; this summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Sale Agreement.

Purchase and Sale of the Interest in Project

Under the Sale Agreement, the County grants and conveys to the Corporation and the Corporation purchases the Project and accepts the grant and conveyance of the Project at the purchase price set forth in the Sale Agreement. Under the Sale Agreement, the Corporation and the County agree that title to the Project shall immediately be deemed conveyed to and vested in the Corporation.

Payment Provisions

The Corporation shall pay the purchase price for the Project by making installment payments, to be referred to herein as “Purchase Payments,” which the Corporation shall pay to the Trustee, as assignee of the County, for deposit in the Revenue Fund held by the Trustee and which, in the aggregate, shall be in an amount sufficient for the payment in full of all obligations to the Holders of the Certificates from time to time Outstanding under the Trust Agreement. The Purchase Payments shall be due and payable in monthly installments on or before the fifteenth (15th) day of each calendar month in an amount necessary for the Trustee to make the transfers and deposits required pursuant to the Trust Agreement (see “TRUST AGREEMENT - Allocation of Revenues”).

Supplemental Payments

In addition to the Purchase Payments, the Corporation shall also pay to the County or the Trustee, as the case may be, “Supplemental Payments,” as follows: (1) all taxes and assessments of any type or character charged to the County or the Trustee affecting the amount available to the County or the Trustee from payments to be received under the Sale Agreement or in any way arising due to the transactions contemplated thereby; (2) the annual (or other regular) fees, charges and expenses of the Trustee under the Trust Agreement; (3) the fees and expenses of such attorneys and other experts engaged by the County or the Trustee to provide services required under the Sale Agreement, the Purchase Agreement, the Deed of Trust or the Trust Agreement; (4) the annual fee of the County and the reasonable fees and expenses of the County in connection with the Sale Agreement, Purchase Agreement, the Certificates or the Trust Agreement; and (5) all other reasonable and necessary fees and expenses attributable to the Sale Agreement. Such Supplemental Payments shall be billed to the Corporation by the County or the Trustee from time to time as provided in the Sale Agreement.

Pledge of Gross Revenues

Under the Sale Agreement, the Corporation agrees that, as long as any of the Certificates remain Outstanding or any Supplemental Payments remain unpaid, all of the Gross Revenues shall be deposited as soon as practicable upon receipt in a fund designated as the “Gross Revenue Fund” which the Corporation shall establish and maintain, subject to the provisions of the Sale Agreement described in the following paragraph, in an account or accounts at such banking institution or institutions as the Corporation shall from time to time designate for such purpose (the “Depository Bank(s)”). Subject to the provisions of the Sale Agreement permitting the application thereof for the purposes and on the terms and conditions set forth therein, the Corporation pledges, and to the extent permitted by law grants a security interest to the Trustee, as assignee of the County (for the benefit of the Certificateholders and the holders of any Parity Debt, as and to the extent provided in the Sale Agreement), in the Gross Revenue Fund and all of the Gross Revenues to secure the payment of the Purchase Payments and

C-13 Supplemental Payments and the performance by the Corporation of its other obligations under the Sale Agreement and the payment and performance of all obligations of the Corporation under any agreement securing Parity Debt.

Gross Revenues and amounts in the Gross Revenue Fund may be used and withdrawn by the Corporation at any time for any lawful purpose, except as provided in the Sale Agreement and described in this paragraph. In the event that the Corporation is delinquent for more than one Business Day in the payment of any Purchase Payment or payment with respect to Parity Debt, the Trustee shall notify the County, the Corporation and the Depository Bank(s) of such delinquency, and, unless such Purchase Payment or payment with respect to Parity Debt is paid within five Business Days after receipt of such notice, the Corporation shall cause the Depository Bank(s) to transfer the Gross Revenue Fund to the name and credit of the Trustee, as assignee of the County. All Gross Revenues shall continue to be deposited in the Gross Revenue Fund as provided in the preceding paragraph until the amounts on deposit in said fund are sufficient to pay in full (or have been used to pay in full) all Purchase Payments in default and payments required with respect to Parity Debt in default and until all other Sale Agreement Defaults and events of default with respect to Parity Debt known to the Trustee shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, whereupon the Gross Revenue Fund (except for the Gross Revenues required to make such payments or cure such defaults) shall be transferred by the Depository Bank(s) automatically back to the name and credit of the Corporation. During any period that the Gross Revenue Fund is held in the name and to the credit of the Trustee, the Trustee shall use and withdraw amounts in said fund from time to time to make Purchase Payments, Supplemental Payments and the other payments required of the Corporation under the Sale Agreement or with respect to any Parity Debt as such payments become due (whether by maturity, prepayment, acceleration or otherwise), and, if such amounts shall not be sufficient to pay in full all such payments due on any date, then to the payment of Purchase Payments and debt service on such Parity Debt, ratably, according to the amounts due respectively for Purchase Payments and such debt service, without any discrimination or preference, and to such other payments in the order which the Trustee, in its sole discretion, shall determine to be in the best interests of the holders of the Certificates and such Parity Debt, without discrimination or preference. During any period that the Gross Revenue Fund is held in the name and to the credit of the Trustee, the Corporation shall not be entitled to use or withdraw any of the Gross Revenues unless (and then only to the extent that) the Trustee, in its sole discretion, so directs for the payment of current or past due operating expenses of the Corporation; provided, however, that the Corporation shall be entitled to use or withdraw any amounts in the Gross Revenue Fund which do not constitute Gross Revenues. The Corporation shall execute and deliver all instruments as may be required to implement this section. The Corporation further agrees that a failure to comply with the terms of this section shall cause irreparable harm to the holders from time to time of the Certificates and of Parity Debt, and shall entitle the Trustee, as assignee of the County, with or without notice to the Corporation, to take immediate action to compel the specific performance of the obligations of the Corporation as provided in this section.

To secure the payment of Purchase Payments and payments with respect to Parity Debt and the performance of the other obligations of the Corporation under the Sale Agreement, the Corporation grants to the County a security interest in the Facilities. The Corporation has entered into the Deed of Trust to secure the Corporation’s obligations under the Sale Agreement.

Anything in this section to the contrary notwithstanding, for so long as any of the 2005 Bonds are outstanding in accordance with their terms, the “Gross Revenue Fund” shall consist of the fund by that name established pursuant to and governed by the terms of the 2005 Loan Agreement relating to the 2005 Bonds, and the provisions of this section relating to the holding and application of such Gross Revenue Fund shall not be applicable, but nothing in this subsection shall affect the pledges and grants of security interests made in this section to secure the payment of the Purchase Payments, the supplemental Payments and the performance by the Corporation of its covenants and agreements in the Sale Agreement.

Unconditional Obligations of the Corporation

The obligations of the Corporation to make the Purchase Payments and Supplemental Payments required under the Sale Agreement and to perform and observe the other agreements on its part contained in the Sale Agreement constitute a general obligation of the Corporation and shall be absolute and unconditional. The Sale Agreement shall be deemed and construed to be a “net contract,” and the Corporation shall pay absolutely net the Purchase Payments, Supplemental Payments and all other payments required thereunder, regardless of any rights of

C-14 set off, recoupment, abatement or counterclaim that the Corporation might otherwise have against the County or any other party or parties.

Prepayment

TheCorporationshallhavetherightatanytimeorfromtimetotimetoprepayalloranypartof the Purchase Payments, and the County shall accept such prepayments when the same are tendered by the Corporation. All prepayments (and the additional payment of any amount necessary to pay the applicable premiums, if any, payable upon the prepayment of Certificates) made by the Corporation as described in this paragraph shall be deposited upon receipt in the Optional Prepayment Account and, at the request of the Corporation, credited against Purchase Payments in order of their due date or used for the prepayment or purchase of Outstanding Certificates in the manner and subject to the terms and conditions set forth in the Trust Agreement. The Corporation also shall have the right to surrender Certificates acquired by it in any manner whatsoever to the Trustee for cancellation, and such Certificates, upon surrender and cancellation, shall be deemed to be paid and retired, and shall be applied as set forth in the Trust Agreement. Notwithstanding any such prepayment or surrender of Certificates, as long as any Certificates remain Outstanding or any Supplemental Payments remain unpaid, the Corporation shall not be relieved of its obligations under the Sale Agreement.

Maintenance of Corporate Existence; Consolidation, Merger, Sale or Transfer Under Certain Conditions

Under the Sale Agreement, the Corporation will maintain its existence as a California nonprofit public benefit corporation, and will not dissolve, sell or otherwise dispose of all or substantially all of its assets nor consolidate with or merge into another corporation or permit one or more other corporations to consolidate with or merge into it; provided, that the Corporation may, consolidate with or merge into another corporation, or permit one or more other corporations to consolidate with or merge into it, or sell or otherwise transfer to another corporation all or substantially all of its assets as an entity and thereafter dissolve, if:

(1) The surviving, resulting or transferee corporation, as the case may be:

(a) assumes in writing, if such corporation is not the Corporation, all of the obligations of the Corporation under the Sale Agreement; and

(b) is not, after such transaction, otherwise in default under any provision of the Sale Agreement.

(2) The Corporation delivers to the County and the Trustee an Opinion of Bond Counsel to the effect that such merger, consolidation, sale or other transfer will not cause the interest component of the Installment Payments received by the Certificateholders to be included in gross income for federal income tax purposes under Section 103 of the Code;

(3) The Corporation delivers to the County and the Trustee an Opinion of Counsel acceptable to the County and the Trustee to the effect that after such merger, sale, consolidation or transfer, the Sale Agreement is a valid and binding obligation of the surviving, resulting or transferee corporation enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors rights generally or by the application of equitable principles if equitable remedies are sought; and

(4) The Corporation files with the Trustee a Statement of the Corporation to the effect that: (a) the surviving, resulting or transferee corporation, as the case may be, shall have unrestricted fund balances (after giving effect to such transaction) at least equal to ninety percent (90%) or more of the Total Unrestricted Fund Balances of the Corporation immediately prior to such transaction; and (b) immediately following such merger, sale, or transfer, the surviving, resulting or transferee corporation, could incur one dollar of Parity Debt.

C-15 Debt Coverage; Liquidity Covenant

Under the Sale Agreement, the Corporation agrees to use its best efforts to maintain, as of the last day of each of the Corporation’s Fiscal Years, net unrestricted assets and temporarily restricted net assets of the Corporation (excluding land, buildings and equipment assets and related debt of the Corporation) equal to at least fifty percent (50%) of the principal amount of all of the Corporation’s Long-Term Indebtedness then outstanding (the “Liquidity Covenant”). In determining whether the Corporation is in compliance with the foregoing Liquidity Covenant, any and all marketable securities held by the Corporation shall be valued at market.

Limitation on Encumbrances

Under the Sale Agreement, the Corporation agrees not to create, assume or suffer to exist any Lien upon the Property of the Corporation. If such a Lien is created or assumed by the Corporation, the Corporation shall make or cause to be made effective a provision whereby all of the Corporation’s obligations with respect to Purchase Payments under the Sale Agreement and Parity Debt shall be secured prior to any such Indebtedness or other obligation secured by such Lien; provided, however, the Corporation may create, assume or suffer to exist Permitted Encumbrances.

Limitations on Additional Indebtedness

Under the Sale Agreement, the Corporation agrees not to incur any Additional Indebtedness except as follows:

(a) Long-Term Indebtedness, provided that there is delivered to the Trustee a Statement of the Corporation certifying (1) the Long-Term Debt Service Coverage Ratio, taking into account all Outstanding Long-Term Indebtedness and the Long-Term Indebtedness proposed to be incurred, for each of the two most recent Fiscal Years for which audited financial statements are available was not less than 1.10:1.00, or, at the Corporation’s option (2) the Long-Term Debt Service Coverage Ratio Including Unrealized Gains and Losses on Investments taking into account all Outstanding Long-Term Indebtedness and the Long-Term Indebtedness proposed to be incurred for the two most recent Fiscal Years for which audited financial statements are available was not less than 1.20:1.00, subject in all cases to the requirements of the Sale Agreement as described herein in paragraph (D) under the caption “INSTALLMENT SALE AGREEMENT - Parity Debt” with respect to Parity Debt. If the 2005 Bonds are no longer Outstanding, as defined in the 2005 Trust Agreement, or if the parity debt test of the 2005 Loan Agreement has been amended in the manner specified in the Sale Agreement as described herein in paragraph (E) under the caption “INSTALLMENT SALE AGREEMENT - Parity Debt,” then the requirement of the Sale Agreement as described herein in paragraph (a) under the caption “INSTALLMENT SALE AGREEMENT - Limitations on Additional Indebtedness” will be satisfied by delivery of the Statement of the Corporation required to incur Parity Debt in accordance with the Sale Agreement as described herein in paragraph (E) under the caption “INSTALLMENT SALE AGREEMENT - Parity Debt.”

(b) Completion Indebtedness, the principal amount of which is not greater than ten percent (10%) of the Long-Term Indebtedness initially issued to finance the project to be completed.

(c) Long-Term Indebtedness incurred for the purpose of refunding any Outstanding Long- Term Indebtedness so as to render it no longer Outstanding if (i) Maximum Annual Debt Service with respect to the Long-Term Indebtedness to be incurred (calculated as if the Long-Term Indebtedness to be incurred were the only Outstanding Indebtedness) will be less than Maximum Annual Debt Service with respect to the refunded Long-Term Indebtedness (calculated as if the Long-Term Indebtedness to be refunded were the only Outstanding Indebtedness).

(d) Short-Term Indebtedness provided that either such Short-Term Indebtedness is incurred in compliance with the provisions of subsection (a) above, treating such Short-Term Indebtedness for such purposes only as if it were Long-Term Indebtedness, or (i) the total amount of Short Term Indebtedness

C-16 outstanding at any time does not exceed fifteen percent (15%) of the Total Unrestricted Revenues of the Corporation for the most recent Fiscal Year for which audited financial statements are available; and (ii) in every Fiscal Year, there shall be at least a twenty (20) day period when the balance of such Short Term Indebtedness is reduced to an amount which shall not exceed five percent (5%) of the Total Unrestricted Revenues of the Corporation for the most recent Fiscal Year for which audited financial statements of the Corporation are available.

(e) Nonrecourse Indebtedness provided that the total amount of Nonrecourse Indebtedness outstanding upon the incurrence of such Nonrecourse Indebtedness does not exceed fifteen percent (15%) of the Total Unrestricted Revenues of the Corporation for the most recent Fiscal Year for which audited financial statements are available.

(f) Liabilities (other than for borrowed money and other than rents payable under lease agreements) incurred in the regular course of operations of the Corporation.

(g) Reimbursement and other obligations arising under reimbursement agreements relating to letters of credit or similar credit facilities used to secure Indebtedness otherwise permitted under permitted under the provisions of the Sale Agreement described under this heading “Limitation on Additional Indebtedness.”

(h) Any other Long-Term Indebtedness, provided that at the time of issuance thereof and after giving effect thereto and to the application of proceeds thereof, the aggregate principal amount of all Indebtedness outstanding under this clause (h) does not in the aggregate exceed ten percent (10%) of the Total Unrestricted Revenues of the Corporation for the most recent Fiscal Year for which audited financial statements are available. The Trustee will not be responsible for monitoring the Corporation’s compliance with the Sale Agreement as described herein under the captions “INSTALLMENT SALE AGREEMENT - Debt Coverage; Liquidity Covenant,” “Limitation on Encumbrances” and “Limitations on Additional Indebtedness.”

Tax Covenants

Under the Sale Agreement, the Corporation agrees to not take any action, or fail to take any action, if such action or failure to take action would adversely affect the exclusion from gross income of the interest payable with respect to Certificates under Section 103 of the Code. Without limiting the generality of the foregoing, the Corporation agrees to comply with the provisions of the Tax Agreement.

Limitation on Disposition of Assets

Under the Sale Agreement, the Corporation agrees not to sell, lease or otherwise dispose of any part of the Property in any Fiscal Year aggregating in excess of five percent (5%) of the Property as shown on the Corporation’s most recent audited financial statements (other than (i) in the ordinary course of business or (ii) as part of a disposition of assets as permitted by the provisions of the Sale Agreement described under the heading “Maintenance of Corporate Existence; Consolidation, Merger, Sale or Transfer Under Certain Conditions” or (iii) dispositions involving a “lease and lease back,” “sale and sale back” or a “sale and lease back” in connection with a certificates of participation financing permitted under the provisions of the Sale Agreement described under the heading “Limitation on Additional Indebtedness”) unless:

(1) such assets shall have become inadequate, obsolete, worn out, unsuitable, undesirable, unprofitable or unnecessary to the Corporation, and the sale, lease, removal or other disposition thereof will not, in the opinion of the Corporation, materially impair the structural soundness efficiency, economic value or revenue generating capacity of the Facilities; or

(2) the proceeds from such sale or other disposition are equal to at least the fair market value of the assets sold or otherwise disposed of and the Corporation either pays the net proceeds of

C-17 such sale or other disposition to the Trustee for deposit in the Optional Prepayment Account or utilizes the net proceeds of such sale or other disposition to acquire property that shall thereafter constitute Property; or

(3) prior to any such sale or other disposition, the Corporation provides the Trustee with a Statement of the Corporation stating that the Corporation could incur one dollar of Parity Debt immediately following such sale or other disposition and that the Total Unrestricted Net Assets of the Corporation shall not be reduced by more then ten percent (10%) as a result of such sale or other disposition.

Before any disposition of any part of the Property in any Fiscal Year which, when added to any other dispositions made in any Fiscal Year, equals or exceeds five percent (5%) of the Property, the Corporation agrees to furnish to the Trustee and the County (i) a Statement of the Corporation stating that such disposition is for a purpose specified in clauses (1), (2) or (3) above, as appropriate, that no Deed of Trust Default, Sale Agreement Default or Purchase Agreement Default has occurred and is continuing and stating the amount of the net proceeds or other consideration received, if any, from such sale or other disposition, and (ii) if applicable, an appraisal of the property to be acquired with the net proceeds or other consideration received from such sale or other disposition, showing that such property is to be acquired at a price not more than its fair market value.

In addition to the foregoing limitations, the Corporation may not sell, lease or otherwise dispose of any property subject to the Deed of Trust (“Deed of Trust Property”) unless it shall be established to the satisfaction of the Trustee that (i) all consents and approvals of governmental entities, board and other bodies required in connection therewith have been obtained, (ii) the security of the Deed of Trust and the ability of the trustee thereunder to foreclose upon the remaining Deed of Trust Property will not be impaired as a result of the disposition of such property, and (iii) the Corporation shall have conveyed to the trustee under the Deed of Trust such rights-of- way, easements and other rights in land as are required for ingress to and egress from the remaining Deed of Trust Property, for the utilization of the facilities located thereon and for utilities required to serve such facilities.

Nothing in the Sale Agreement shall prohibit the Corporation from making secured or unsecured loans provided that any such loan (i) is evidenced in writing and (ii) the Trustee receives a Statement of the Corporation stating that (a) the Corporation reasonably expects such loan to be repaid and (b) such loan bears interest at a reasonable rate of interest as determined in good faith by the Corporation, and (iii) such loan is carried as a loan in the audited financial statements of the Corporation. The Corporation may make secured or unsecured relocation loans to its employees which need not bear interest or be repaid; provided that no such loan is in excess of $500,000 and the aggregate amount of such loans is not in excess of $5,000,000.

Parity Debt

The Corporation may incur Parity Debt, provided that:

(A) The Trustee shall act as trustee for the Parity Debt;

(B) The agreement under which the Parity Debt is issued shall require that:

(i) A Sale Agreement Default or Purchase Agreement Default shall constitute an event of default under such agreement;

(ii) The Parity Debt shall be prepayable in accordance with the terms substantially in the form of and under the conditions prescribed in the Sale Agreement and the Trust Agreement with respect to special extraordinary prepayment from insurance and condemnation proceeds received by the Corporation; and

(iii) Remedies upon an event of default shall be substantially the same as the remedies provided in the Trust Agreement and the Sale Agreement and, prior to exercising any such remedies, the Trustee, acting as the trustee for the holders of such Parity Debt, shall be required to assure that the interests of such holders and the Certificateholders shall be equally protected;

C-18 (C) The Deed of Trust, the Gross Revenue Fund and the Gross Revenues shall equally and ratably secure the obligations of the Corporation under the Sale Agreement and Parity Debt;

(D) The Corporation shall satisfy the provisions of the Sale Agreement described in clause (a) under the heading “Limitation on Additional Indebtedness,” provided that either (i) the Long-Term Debt Coverage Ratio requirement specified therein shall be 1.15:1.00 rather than 1.10:1.00, or (ii) the Long-Term Debt Service Coverage Ratio Including Unrealized Gains and Losses on Investments specified therein shall be 1.25:1.00 rather than 1.20:1.00; and

(E) If the 2005 Bonds are no longer Outstanding, as defined in the 2005 Trust Agreement, or if the 2005 Loan Agreement has been amended to require satisfaction of the following test instead of the parity debt test specified in the 2005 Loan Agreement, then paragraph (D) above shall be inoperative and the following shall be required for the issuance of Parity Debt: the Corporation shall deliver a Statement of the Corporation establishing that, based upon actual results rather than best efforts, the Corporation would have satisfied the Liquidity Covenant under the Sale Agreement as set forth herein under the captions “Debt Coverage; Liquidity Covenant,” taking into account outstanding Long-Term Indebtedness and the Long-Term Indebtedness proposed to be incurred, for each of the two most recent Fiscal Years for which audited financial statements are available.

Insurance Required

Subject to the provisions of the Sale Agreement described in the following paragraph, the Corporation agrees to keep all of its properties and operations adequately insured at all times and carry and maintain such insurance in amounts which are customarily carried and against such risks as are customarily insured against by other organizations in connection with the ownership and operation of facilities of similar character and size in the State (and offering comparable services as those of the Corporation) to the extent it is commercially available.

To the extent that the Corporation obtains insurance coverage in the form of insurance policies issued by insurance companies, each such insurance policy maintained by the Corporation shall be carried by stock, reciprocal or mutual insurance companies authorized to do business (or subject to service of process) in the State which are financially responsible and capable of fulfilling the requirements of such policies; provided, however, such policies shall be provided by carriers rated at least “A” by A.M. Best Company, Inc. (or an equivalent rating by a recognized equivalent rating service if A.M. Best Company, Inc. is no longer issuing such report). All such policies shall name the Corporation, the Trustee and the County as insured parties, beneficiaries or loss payees as their interests may appear. Each policy shall be in such form and contain such provisions as are generally considered standard for the type of insurance involved and shall contain a provision to the effect that the insurer shall not cancel or substantially modify the policy provisions without first giving written notice thereof to the Corporation. In lieu of separate policies, the Corporation may maintain blanket policies which cover any one or more risks required to be insured against so long as the minimum coverages required under the Sale Agreement are met.

Disposition of Insurance and Condemnation Proceeds

Subject to the application of insurance and condemnation provisions in deeds of trust or agreements constituting Permitted Encumbrances, all proceeds of the insurance carried by the Corporation pursuant to the relevant provisions of the Sale Agreement (except proceeds of the liability portion, if any, of such insurance), and proceeds of any condemnation awards with respect to the Facilities in excess of $500,000 shall be paid immediately upon receipt by the Corporation or other named insured parties to the Trustee for deposit in a special fund which the Trustee shall then establish and maintain and hold in trust, to be known as the “Insurance and Condemnation Proceeds Fund.” In the event that the proceeds of any loss or damage to or condemnation of the Facilities shall be less than or equal to $500,000 the Corporation may retain such proceeds without any formality whatsoever. If the Corporation elects to repair or replace such property, the Trustee shall pay such proceeds to the Corporation and the Corporation shall proceed reasonably promptly to repair or replace such property. In the event the Corporation elects to repair or replace the property damaged, destroyed or taken, the Corporation shall furnish to the Trustee plans of the contemplated repair or replacement, accompanied by a certificate of an architect or other qualified expert estimating the reasonable cost of such repair or replacement and a Statement of the Corporation stating that amounts in the Insurance and Condemnation Proceeds Fund, together with investment income

C-19 reasonably expected to be received with respect thereto and any other funds available or reasonably expected to become available therefor (and which the Corporation shall agree to deposit in said fund when so available), shall be sufficient to repair or replace the property damaged, destroyed or taken in accordance with said plans. After deducting therefrom the reasonable charges and expenses of the Trustee in connection with the collection and disbursement of such moneys, moneys in the Insurance and Condemnation Proceeds Fund shall be disbursed by the Trustee for the purpose of repairing or replacing the property damaged, destroyed or taken.

In the event the Corporation shall elect to apply the proceeds to the prepayment of the Certificates, as provided in the preceeding paragraph, the Trustee shall transfer all amounts in the Insurance and Condemnation Proceeds Fund on account of such damage, destruction or condemnation to the Special Prepayment Account in order to prepay the Purchase Payments (and thereby the Installment Payments and the Certificates); provided that if any Parity Debt is then outstanding, any such transfer from the Insurance and Condemnation Proceeds Fund shall be deposited in part in the Special Prepayment Account and in part in such other fund or account as may be appropriate (and used for the retirement of such Parity Debt) in the same proportion which the aggregate principal amount of Outstanding Certificates then bears to the aggregate unpaid principal amount of such Parity Debt.

Sale Agreement Default

The following events shall be Sale Agreement Defaults under the Sale Agreement: (1) failure of the Corporation to pay any payment required under the Sale Agreement when due, whether at maturity, upon a date fixed for prepayment, by declaration or otherwise pursuant to the Sale Agreement; (2) if any material representation or warranty made by the Corporation in any document, instrument or certificate furnished to the Trustee or the County in connection with the execution and delivery of the Certificates shall at any time prove to have been incorrect in any respect as of the time made; (3) if the Corporation shall fail to observe or perform any covenant, condition, agreement or provision in the Sale Agreement on its part to be observed or performed, other than as referred to in clause (1) or (2), or shall breach any warranty by the Corporation contained in the Sale Agreement, for a period of sixty (60) days after written notice, specifying such failure or breach and requesting that it be remedied, has been given to the Corporation by the County or the Trustee; except that, if such failure or breach can be remedied but not within such sixty (60) day period and if the Corporation has taken all action reasonably possible to remedy such failure or breach within such sixty (60) day period, such failure or breach shall not become a Sale Agreement Default for so long as the Corporation shall diligently proceed to remedy same in accordance with and subject to any directions or limitations of time established by the Trustee; (4) if the Corporation files a petition in voluntary bankruptcy, for the composition of its affairs or for its corporate reorganization under any state or federal bankruptcy or insolvency law, or makes an assignment for the benefit of creditors, or admits in writing to its insolvency or inability to pay debts as they mature, or consents in writing to the appointment of a trustee or receiver for itself or for the whole or any substantial part of the Corporation’s facilities; (5) if a court of competent jurisdiction shall enter an order, judgment or decree declaring the Corporation insolvent, or adjudicating it bankrupt, or appointing a trustee or receiver of the Corporation or of the whole or any substantial part of the Corporation’s facilities, or approving a petition filed against the Corporation seeking reorganization of the Corporation under any applicable law or statute of the United States of America or any state thereof, and such order, judgment or decree shall not be vacated or set aside or stayed within sixty (60) days from the date of the entry thereof; (6) if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Corporation’s facilities, and such custody or control shall not be terminated within sixty (60) days from the date of assumption of such custody or control; (7) if any Event of Default under the Trust Agreement, a Purchase Agreement Default or a Deed of Trust Default shall occur; or (8) if any event of default as defined in and under the 2005 Loan Agreement, or in any document with respect to Indebtedness of the Corporation with a principal amount in excess of five hundred thousand dollars ($500,000) shall occur.

Remedies on Default

If a Sale Agreement Default shall occur, then, and in each and every such case during the continuance of such a Sale Agreement Default, the County and the Trustee may take any one or more of the following remedial steps:

(a) The County and the Trustee may, if the Purchase Payments and the Certificates represented thereby have been declared to be due and payable immediately pursuant to the Trust

C-20 Agreement as described herein under the caption “Events of Default; Remedies on Default” and upon notice in writing to the Corporation, declare all installments of Purchase Payments and Supplemental Payments payable for the remainder of the term of the Sale Agreement to be immediately due and payable, whereupon the same shall be immediately due and payable, anything in the Sale Agreement to the contrary notwithstanding; “all installments” as used in this subsection shall mean an amount equal to the entire principal components of the Purchase Payments represented by the Certificates then Outstanding, together with any applicable prepayment premiums and all interest components of the Purchase Payments accrued or to accrue on and prior to the next succeeding prepayment date or dates on which the Certificates can be prepaid after giving notice to the Holders thereof as required by the Trust Agreement (less moneys available for such purpose then held by the Trustee) plus any other payments due or to become due under the Sale Agreement, including, without limitation, any unpaid fees and expenses of the Trustee which are then due or will become due prior to the time that the Certificates are paid in full and the trust established by the Trust Agreement is terminated; provided, however, that if acceleration of the Certificates has been rescinded and annulled pursuant to the Trust Agreement as described herein under the caption “Events of Default; Remedies on Default,” acceleration of the Purchase Payments and the Supplemental Payments shall be rescinded and annulled.

(b) The County and the Trustee may take whatever action, at law or in equity, as may appear necessary or desirable to collect the Purchase Payments, Supplemental Payments and any other payments then due and thereafter to become due under the Sale Agreement or to enforce the performance and observance of any obligation, covenant, agreement or provision contained in the Sale Agreement to be observed or performed by the Corporation.

(c) The County and the Trustee shall have all the rights and remedies of a secured party or creditor under the Uniform Commercial Code of the State, and the general laws of the State, with respect to the enforcement of the security interests granted or reserved under the Sale Agreement, including without limitation to the extent permitted by law the right to require that all of the Gross Revenues be assembled and delivered to the Trustee, as assignee of the County, as set forth in the Sale Agreement as described herein under the caption “INSTALLMENT SALE AGREEMENT - Pledge of Gross Revenues” and the County and the Trustee may, to the extent permitted by law, impound books and records evidencing the Corporation’s accounts, accounts receivable and other similar claims for the payment of money, take possession of all notes and other documents which evidence such accounts, accounts receivable and claims for money and give notice to obligors thereunder of its interest in Gross Revenues and make direct collections on such accounts, accounts receivable and claims for money.

(d) The County and the Trustee shall have all rights and remedies and shall be entitled to pursue any and all claims, causes of action or other rights provided by federal law, including but not limited to the Assignment of Claims Act, codified at Title 31 of the United States Code at Section 203 and at Title 41 of the United States Code at Section 15.

Any such action by the County or the Trustee, however, is subject to the condition that if, at any time after such action and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, there shall be deposited with the Trustee a sum sufficient to pay all Purchase Payments the payment of which is overdue, with interest on such overdue principal component of such overdue Purchase Payments at the rate borne by the respective Certificates, and the reasonable charges and expenses of the Trustee, and any and all other defaults known to the County or the Trustee (other than in the payment of the Purchase Payments due and payable solely by reason of such action) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Trustee shall rescind and annul such action and its consequences and waive such default; but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon.

C-21 TRUST AGREEMENT

General

The Trust Agreement sets forth the terms of the Certificates, the nature and extent of the security, various rights of the Holders of the Certificates, rights, duties and immunities of the Trustee and the rights and obligations of the County and the Corporation. Certain provisions of the Trust Agreement are summarized below. Other provisions are summarized in this Official Statement under the captions “THE CERTIFICATES” and “SECURITY AND SOURCE OF PAYMENT.” These summaries do not purport to be complete or definitive and are qualified in their entireties by reference to the full terms of the Trust Agreement.

Establishment of Funds and Accounts

The Trust Agreement creates a Project Fund; a Costs of Delivery Fund; a Revenue Fund and an Interest Account, and a Principal Account thereunder; a Prepayment Fund and an Optional Prepayment Account and Special Prepayment Account thereunder; and a Rebate Fund; all of which are to be held by the Trustee.

Project Fund

The costs of the Project shall be paid from moneys on deposit in the Project Fund. The Trust Agreement sets forth procedures whereby the moneys in the Project Fund may be withdrawn to pay Project costs.

Costs of Delivery Fund

Moneys deposited in the Costs of Delivery Fund shall be used to pay Costs of Delivery with respect to the Certificates upon receipt by the Trustee of a Requisition of the Corporation stating the Person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against said fund. At the end of one hundred eighty (180) days from the date of initial execution and delivery of the Certificates, or upon earlier receipt of a Statement of the Corporation that amounts in said fund are no longer required for the payment of Costs of Delivery, said fund shall be terminated and any amounts then remaining in said fund shall be transferred to the Revenue Fund.

Revenue Fund

All Revenues shall be promptly deposited by the Trustee upon receipt thereof in the Revenue Fund which the Trustee shall establish, maintain and hold in trust; except (1) as otherwise provided in the Trust Agreement and (2) that all moneys received by the Trustee and required by the Sale Agreement to be deposited in the Prepayment Fund shall be promptly deposited in the Prepayment Fund, which the Trustee shall establish, maintain and hold in trust. All Revenues deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in the Trust Agreement.

If on the third Business Day prior to each Interest Payment Date, there are insufficient amounts in the Revenue Fund to pay the interest and principal becoming due on the next succeeding Interest Payment Date, the Trustee shall immediately notify the County and the Corporation of such insufficiency by telephone, facsimile transmission or telecopy and confirm such notification by written notice.

Insurance and Condemnation Proceeds Fund

The Trustee shall establish (when required), maintain and hold in trust a separate Insurance and Condemnation Proceeds Fund and administer said fund as described under “INSTALLMENT SALE AGREEMENT – Disposition of Insurance and Condemnation Proceeds.”

C-22 Allocation of Revenues

The Trustee shall transfer from the Revenue Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Revenue Fund) and the Rebate Fund, on or before the twenty-fifth (25th) day of each month, the following amounts, in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:

First: To the Interest Account, an amount equal to one-sixth of the aggregate amount of interest becoming due and payable during the next ensuing six months with respect to all Certificates then Outstanding, until the balance in said account is equal to said aggregate amount of interest;

Second: To the Principal Account, one-twelfth of the aggregate amount of principal becoming due and payable with respect to the Outstanding Serial Certificates, plus one-twelfth of the aggregate amount of Mandatory Sinking Account Payments required to be paid into the respective Sinking Accounts for Outstanding Term Certificates, in each case during the next ensuing twelve months, until the balance in said account is equal to said aggregate amount of principal and Mandatory Sinking Account Payments; provided that from the date of delivery of the Certificates to the first Certificate Payment Date with respect thereto, transfers to the Principal Account shall be sufficient on a monthly pro rata basis to pay the principal becoming due and payable on said Certificate Payment Date; and

Third: To the Rebate Fund, such amounts (and on such dates) as are required to be deposited therein by the Trust Agreement (including the Tax Agreement).

Any moneys remaining in the Revenue Fund after the foregoing transfers shall be transferred to the Corporation.

Application of Interest Account and Principal Account

All amounts in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest component of the Installment Payments of the County as the same become due and payable pursuant to the Purchase Agreement, which interest is payable to the Certificateholders as their respective Certificates become due and payable (including accrued interest on any Certificates purchased or prepaid prior to their Certificate Payment Date pursuant to the Trust Agreement).

All amounts in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal component of the Installment Payments of the County as the same become due and payable pursuant to the Purchase Agreement, which principal component is payable to the Certificateholders as their respective Certificates become due and payable, except that all amounts in the Sinking Account shall be used and withdrawn by the Trustee solely to purchase, prepay or pay Term Certificates on their stated Certificate Payment Dates, as provided in the Trust Agreement.

The Trustee shall establish (when required) and maintain within the Principal Account a separate subaccount for the Term Certificates of each stated Certificate Payment Date, designated as the “______Sinking Account,” inserting therein the stated Certificate Payment Date (if more than one such account is established) designation of such Certificates. With respect to each Sinking Account, on each Mandatory Sinking Account Payment date established for such Sinking Account, the Trustee shall apply the Mandatory Sinking Account Payment required on that date to the prepayment (or payment on their stated Certificate Payment Date, as the case may be) of Term Certificates of the stated Certificate Payment Date for which such Sinking Account was established, upon the notice and in the manner provided in the Trust Agreement; provided that, at any time prior to giving such notice of such prepayment, the Trustee may apply moneys in such Sinking Account to the purchase of Term Certificates of such stated Certificate Payment Date at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as directed in writing by the Corporation, except that the purchase price (excluding accrued interest) shall not exceed

C-23 the Prepayment Price that would be payable for such Certificates upon prepayment by application of such Mandatory Sinking Account Payment. If, during the twelve-month period immediately preceding said Mandatory Sinking Account Payment date, the Trustee has purchased Term Certificates of such stated Certificate Payment Date with moneys in such Sinking Account, or, during said period and prior to giving said notice of prepayment, the Corporation has deposited Term Certificates of such stated Certificate Payment Date with the Trustee (together with a Request of the Corporation to apply such Certificates so deposited to the Mandatory Sinking Account Payment due on said date with respect to the Term Certificates of such stated Certificate Payment Date), or Term Certificates of such stated Certificate Payment Date were at any time purchased or prepaid by the Trustee from the Prepayment Fund and allocable to said Mandatory Sinking Account Payment, such Certificates so purchased or deposited or prepaid shall be applied, to the extent of the full principal component thereof, to reduce said Mandatory Sinking Account Payment. Any amounts remaining in a Sinking Account when all of the Term Certificates for which such account was established are no longer Outstanding shall be withdrawn by the Trustee and transferred to the Revenue Fund.

Subject to the terms and conditions described in the paragraphs above, the Certificates having a stated Certificate Payment Date of July 1, 2030, and a Certificate Payment Date of July 1, 2040, respectively, shall be prepaid (or paid on such date, as the case may be) by application of Mandatory Sinking Account Payments in the amounts and upon the dates specified in the Trust Agreement.

Application of Prepayment Fund

The Trustee shall establish and maintain within the Prepayment Fund (which fund the Trustee shall establish (when required), maintain and hold in trust) a separate Optional Prepayment Account and a separate Special Prepayment Account. All amounts deposited in the Optional Prepayment Account and in the Special Prepayment Account shall be accepted and used and withdrawn by the Trustee for the purpose of prepaying the principal components of the Installment Payments of the County and thereby prepaying Certificates, in the manner and upon the terms and conditions specified in the Trust Agreement, at the next succeeding date of prepayment for which notice has not been given and at the Prepayment Prices then applicable to prepayments from the Optional Prepayment Account and the Special Prepayment Account, respectively; provided that, at any time prior to giving such notice of prepayment, the Trustee may apply such amounts to the purchase of Certificates at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Revenue Fund) as the Trustee may be directed in writing by the Corporation, except that the purchase price (exclusive of accrued interest) may not exceed said applicable Prepayment Price; and provided further that in the case of the Optional Prepayment Account in lieu of prepayment at such next succeeding date of prepayment, or in combination therewith, amounts in such account may be transferred to the Revenue Fund and credited against the principal components of the Installment Payments in order of their due date as set forth in a Request of the Corporation.

Rebate Fund

The Trustee shall establish and maintain a fund separate from any other fund established and maintained under the Trust Agreement designated as the Rebate Fund. Within the Rebate Fund, the Trustee shall maintain such accounts as shall be necessary to comply with the terms of any instructions given by the Corporation pursuant to the Tax Agreement. Subject to the transfer provisions of the Trust Agreement, all money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Amount (as defined in the Tax Agreement), for payment to the government of the United States of America. The County, the Corporation or the Holder of any Certificates shall have no rights in or claim to such money. All amounts deposited into or on deposit in the Rebate Fund shall be governed by the Trust Agreement and by the Tax Agreement (which is incorporated in the Trust Agreement by reference).

Investments

Subject to the limitations provided in the Trust Agreement, all moneys in any of the funds and accounts established pursuant to the Trust Agreement shall be invested by the Trustee at the written direction of the Corporation solely in Investment Securities. All Investment Securities shall be acquired at the direction of the Corporation which direction shall comply with the limitations set forth in the Trust Agreement, the limitations as to

C-24 maturities hereinafter in the remainder of this section set forth and such additional limitations or requirements consistent with the foregoing as may be established by Request of the Corporation. In the absence of written investment directions from the Corporation, the Trustee shall invest solely in Investment Securities set forth in clause seven (7) of the definition thereof; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received investment directions from the Corporation specifying a specific money market fund and, if no such written direction from the Corporation is so received, the Trustee shall hold such moneys uninvested. Investment Securities shall be valued by the Trustee not less often than semi-annually, at the market value thereof. Deficiencies in the amount on deposit in any fund or account established pursuant to the Trust Agreement resulting from a decline in market value of such Investment Securities shall be restored no later than the succeeding valuation date.

Moneys in all funds and accounts shall be invested in Investment Securities maturing not later than the dates on which it is estimated that such moneys will be required by the Corporation or the Trustee.

All interest, profits and other income received from the investment of moneys in the Rebate Fund and the Project Fund shall be deposited when received in such respective fund. All interest, profits and other income received from the investment of moneys in any other fund or account established pursuant to the Trust Agreement, shall be deposited when received to the Revenue Fund. Notwithstanding anything to the contrary contained in this paragraph, an amount of interest received with respect to any Investment Security equal to the amount of accrued interest, if any, paid as part of the purchase price of such Investment Security shall be credited to the fund or account for the credit of which such Investment Security was acquired.

Pledge and Assignment of Revenues

Subject only to the provisions of the Trust Agreement permitting the application thereof for the purposes and on the terms and conditions set forth therein, there are pledged to secure the payment of the principal and interest components with respect to the Certificates in accordance with their terms and the provisions of the Trust Agreement, all of the interests of the County and the Corporation in the Revenues and any other amounts (including proceeds of the sale of Certificates) held in any fund or account established pursuant to the Trust Agreement, excepting only moneys on deposit in the Rebate Fund, Supplemental Payments paid by the Corporation pursuant to the Sale Agreement as described herein under the caption “INSTALLMENT SALE AGREEMENT - Supplemental Payments” and any amounts paid by the Corporation as expenses or indemnification, including upon a default, pursuant to the Sale Agreement. Said pledge shall constitute a lien on and security interest in such assets and shall attach, be perfected and be valid and binding from and after delivery by the Trustee of the Certificates, without any physical delivery thereof or further act.

Pursuant to the Trust Agreement, the County transfers in trust, grants a security interest in and assigns to the Trustee, for the benefit of the Holders from time to time of the Certificates, (i) all of its interests in the Revenues and other assets pledged in the immediately preceding paragraph, and (ii) all of the right, title and interest of the County in the Sale Agreement, except for the right to receive any Administrative Fees and Expenses payable to the County and the rights of the County with respect to expenses and indemnification pursuant to the Sale Agreement. The Corporation transfers in trust, grants a security interest in and assigns to the Trustee, for the benefit of the Holders from time to time of the Certificates, (i) all of its interests in the Installment Payments, (ii) all of its interest in the Revenues and other assets pledged in the immediately preceding paragraph and (iii) all of the right, title and interest of the Corporation in the Purchase Agreement.

Events of Default; Remedies on Default

“Events of Default” under the Trust Agreement include:

(1) default in the due and punctual payment of the principal or Prepayment Price or interest with respect to the Certificates when and as the same shall become due and payable;

(2) default by the County or the Corporation in the observance of any of the covenants, agreements or conditions on its part contained in the Trust Agreement, if such default shall have

C-25 continued for a period of thirty (30) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the County and the Corporation by the Trustee, or to the County, the Corporation and the Trustee by the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Certificates at the time Outstanding; or

(3) a Purchase Agreement Default or a Sale Agreement Default.

Upon actual knowledge of the existence of any Event of Default, the Trustee shall notify the Corporation and the County a in writing as soon as practicable; provided, however, that the Trustee need not provide notice of any Purchase Agreement Default, or Sale Agreement Default if the Corporation has expressly acknowledged the existence of such Purchase Agreement Default or Sale Agreement Default in a writing delivered to the Trustee and the County.

If any Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee may, and upon the written direction of the Holders of a majority in aggregate principal amount of the Certificates then Outstanding, will, upon notice in writing to the County and the Corporation, (a) declare the principal component of all of the Installment Payments and the Certificates by which they are represented then Outstanding, and the interest accrued with respect thereto, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Trust Agreement or in the Certificates contained to the contrary notwithstanding.

Any such declaration, however, is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, there will be deposited with the Trustee a sum sufficient to pay all Installment Payments the payment of which is overdue, with interest on such overdue principal component of such overdue Installment Payments at the rate borne by the respective Certificates, and the reasonable charges and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of the Installment Payments due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Holders of not less than a majority in aggregate principal amount with respect to the Certificates then Outstanding, by written notice to the County, the Corporation and the Trustee, or the Trustee, if such declaration was made by the Trustee, may, on behalf of the Holders of all of the Certificates, rescind and annul such declaration and its consequences and waive such default; but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon.

The Trustee is irrevocably appointed (and the successive respective Holders of the Certificates by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Holders of the Certificates for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Holders under the provisions of the Certificates, the Trust Agreement, the Sale Agreement, the Purchase Agreement and applicable provisions of law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the Certificateholders, the Trustee in its discretion may, and upon the written request of the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Certificates then Outstanding, and upon being indemnified to its satisfaction therefor, shall proceed to protect or enforce its rights or the rights of such Holders by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Trust Agreement, or in aid of the execution of any power granted in the Trust Agreement, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Holders under the Trust Agreement, the Sale Agreement, the Purchase Agreement or any law; and upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged under the Trust Agreement pending such proceedings. All rights of action under the Trust Agreement or the Certificates or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Certificates or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Holders of such Certificates, subject to the provisions of the Trust Agreement.

C-26 The Holders of a majority in aggregate principal amount of the Certificates then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, to direct the method of conducting all remedial proceedings taken by the Trustee under the Trust Agreement, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Trust Agreement, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Certificateholders not parties to such direction or the Trustee.

No Holder of any Certificate shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Trust Agreement, the Sale Agreement, the Purchase Agreement or any applicable law with respect to such Certificate, unless (1) such Holder shall have given to the Trustee written notice of the occurrence of an Event of Default; (2) the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the Certificates then Outstanding shall have made written request upon the Trustee to exercise the powers described above or to institute such suit, action or proceeding in its own name; (3) such Holder or said Holders shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (4) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity, refusal or omission are, in every case, to be conditions precedent to the exercise by any Holder of Certificates of any remedy under the Trust Agreement or under law; it being understood and intended that no one or more Holders of Certificates shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Trust Agreement or the rights of any other Holders of Certificates, or to enforce any right under the Trust Agreement, the Sale Agreement, the Purchase Agreement or other applicable law with respect to the Certificates, except in the manner provided in the Trust Agreement, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner provided in the Trust Agreement and for the benefit and protection of all Holders of the Outstanding Certificates, subject to the provisions of the Trust Agreement.

Notwithstanding any other provision in the Trust Agreement, each Certificateholder shall have the right to receive payment of the principal and the premium, if any, and interest represented by said Certificateholder’s Certificate at the respective dates on which the same become due and payable in accordance with the terms, from the source and in the manner provided in such Certificate and in the Trust Agreement, and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Certificateholder.

Notwithstanding anything in the Trust Agreement, the Deed of Trust, the Sale Agreement or any other document to the contrary, the Trustee shall not be required to initiate foreclosure proceedings with respect to the Real Property, and shall not otherwise be required to acquire possession of, or take other action with respect to the Real Property which could cause it to be considered an “owner” or “operator” within the meaning of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, or any other law dealing with environmental matters or hazardous substances, unless the Trustee has sufficient comfort, based on previous determinations by experts on which the Trustee can rely, including an environmental report (any expense of a new report shall be paid by the Owners that:

(i) the Real Property is in compliance with all environmental laws, rules or regulations or, if the Real Property is not in compliance, that it would nevertheless be in the best economic interest of the Owner or Owners to take such actions as are necessary for the Real Property to comply therewith; and

(ii) there are no circumstances present with the Real Property relating to the use, management or disposal of any Hazardous Substances for which investigation, testing, monitoring, contaminant clean up or remedial action could be required under any environmental laws or that, if any such hazardous substances are present for which such action could be required, that it would nevertheless be in the best economic interest of the Trustee and the Owner or Owners to take such actions with respect to the Real Property; and

(iii) if the Trustee has determined that it would be in the best economic interest of the Trustee and the Owner or Owners, the Trustee must be satisfied that it will suffer no unreimbursed liabilities and will be

C-27 adequately reimbursed for all liabilities, expenses and costs from available funds in the Trustee’s possession and control or from funds made available to the Trustee from the Owner or Owners; and

(iv) if the Trustee has determined that it would be in the best economic interest of the Trustee and the Owner or Owners to take any such action and its aforementioned liabilities, expenses and costs will be adequately reimbursed and the Trustee has so notified the Owner or Owners and has not received, within 30 days of such notification, instructions from the Owner or Owners of a majority of the Certificates Outstanding directing it not to take such action.

If the foregoing conditions are not satisfied and the Trustee is not willing to waive such conditions and initiate foreclosure proceedings, then the Trustee shall take such actions as are reasonably necessary or appropriate in order to facilitate the appointment of a co-trustee, designated by the Owner or Owners, and to assign to such person or entity (subject, however, to the trusts created pursuant to the Trust Agreement) the beneficial interest under the Deed of Trust which secures the obligations under the Sale Agreement for the limited purpose of foreclosing such Deed of Trust and receiving and holding any title to real estate obtained as a result of such foreclosure. Persons or entities appointed as co-trustees pursuant to this section shall not be required to meet the criteria for trustees under the Trust Agreement, or any other criteria, in order to serve a such co-trustee. The Trustee shall not be responsible for the acts of a co-trustee appointed pursuant to this section.

Notwithstanding anything in the Trust Indenture, the Deed of Trust, the Sale Agreement or any other document to the contrary, only funds held by the Trustee or funds provided by the Owner or Owners may be used to remedy an environmental contamination and the Trustee will not have personal liability for clean-up costs, unless the environmental contamination is a result of negligent acts of the Trustee in its fiduciary capacity.

Application of Revenues and Other Funds After Default

If an Event of Default shall occur and be continuing, all Revenues and any other funds then held or thereafter received by the Trustee under the Trust Agreement shall be applied by the Trustee as follows and in the following order:

(1) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Holders of the Certificates and payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Trust Agreement;

(2) To the payment of the principal or Prepayment Price and interest then due with respect to the Certificates (upon presentation of the Certificates to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Trust Agreement as follows:

(i) Unless the principal component of the Installment Payments shall have become or have been declared due and payable,

First: To the payment to the Persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference; and

Second: To the payment to the Persons entitled thereto of the unpaid principal or Prepayment Price with respect to any Certificates which shall have become due, whether on their Certificate Payment Dates or by call for prepayment, in the order of their due dates, with interest on the overdue principal at the rate borne by the respective Certificates, and, if the amount available shall not be sufficient to pay in full all the Certificates due on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal or Prepayment Price due on such date to the Persons entitled thereto, without any discrimination or preference;

C-28 (ii) If the principal component of the Installment Payments shall have become or have been declared due and payable, to the payment of the principal and interest then due and unpaid with respect to the Certificates, with interest on the overdue principal at the rate borne by the respective Certificates, and, if the amount available shall not be sufficient to pay in full the whole amount so due and unpaid, then to the payment thereof ratably, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any Certificate over any other Certificate, according to the amounts due respectively for principal and interest, to the Persons entitled thereto without any discrimination or preference.

Amendment of Agreements

The Trust Agreement, the Purchase Agreement and the Sale Agreement, and the rights and obligations of the County, the Corporation and of the Holders of the Certificates and of the Trustee may be modified or amended from time to time and at any time by a trust agreement(s), installment purchase agreement(s) or installment sale agreement(s), each or all supplemental thereto, which the County, the Corporation and the Trustee may enter into, when the written consent of the Holders of at least a majority in aggregate principal amount of the Certificates then Outstanding shall have been filed with the Trustee; provided that if such modification or amendment will, by its terms, not take effect so long as any Certificates of any particular Certificate Payment Date remain Outstanding, the consent of the Holders of such Certificates shall not be required and such Certificates shall not be deemed to be Outstanding for the purpose of any calculation of Certificates Outstanding pursuant to this section. No such modification or amendment shall (1) extend the Certificate Payment Date of any Certificate, or reduce the amount of principal represented thereby, or extend the time of payment or reduce the amount of any Mandatory Sinking Account Payment provided in the Trust Agreement for the payment of any Certificate, or reduce the rate of interest with respect thereto, or extend the time of payment of interest with respect thereto, or reduce any premium payable upon the prepayment thereof, without the written consent of the Holder of each Certificate so affected, or (2) reduce the aforesaid percentage of Certificates the consent of the Holders of which is required to effect any such modification or amendment, or permit the creation of any lien on the Revenues and other assets pledged under the Trust Agreement prior to or on a parity with the lien created by the Trust Agreement, or deprive the Holders of the Certificates of the lien created by the Trust Agreement on such Revenues and other assets (except as expressly provided in the Trust Agreement), without the consent of the Holders of all of the Certificates then Outstanding. For such consent to be effective, it shall not be necessary that the Certificateholders approve the particular form of any Supplemental Trust Agreement, Supplemental Purchase Agreement or Supplemental Sale Agreement, but it shall be sufficient if the Certificateholders shall approve the substance thereof.

The Trust Agreement, the Sale Agreement and the Purchase Agreement and the rights and obligations of the County, of the Corporation, of the Trustee and of the Holders of the Certificates may also be modified or amended from time to time and at any time by a Supplemental Trust Agreement, Supplemental Sale Agreement or Supplemental Purchase Agreement, respectively, which the County, the Corporation and the Trustee may enter into without the consent of any Certificateholders, but only for any one or more of the following purposes: (1) to add to the covenants and agreements of the County or the Corporation contained in the Trust Agreement, the Sale Agreement or the Purchase Agreement other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Certificates (or any portion thereof), or to surrender any right or power reserved to or conferred upon the County or the Corporation under the Trust Agreement, provided, that no such covenant, agreement, pledge, assignment or surrender shall materially adversely affect the interests of the Holders of the Certificates; (2) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Trust Agreement, the Sale Agreement or the Purchase Agreement, or in regard to matters or questions arising under the Trust Agreement, the Sale Agreement or the Purchase Agreement, or to make any other revisions or additions to the Trust Agreement, the Sale Agreement or the Purchase Agreement as the County or the Corporation may deem necessary or desirable, and which, in the opinion of the Trustee shall not materially adversely affect the interests of the Holders of the Certificates; (3) to modify, amend or supplement the Trust Agreement in such manner as to permit the qualification thereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute in effect after the date of the Trust Agreement, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute, and which shall not materially adversely affect the interests of the Holders of the Certificates; or (4) to provide any additional procedures, covenants or agreements to maintain the exclusion from gross income

C-29 for federal income tax purposes of the interest payable with respect to the Purchase Agreement and the Certificates, including the amendment of any Tax Agreement.

Defeasance

Discharge of Trust Agreement. When the obligations of the County under the Purchase Agreement shall cease pursuant to the Purchase Agreement (except for the right of the Trustee and the obligation of the County to have the money and Investment Securities mentioned therein applied to the payment of Installment Payments as therein set forth), then and in that case, the obligations created by the Trust Agreement shall thereupon cease, determine and become void, except for the right of the Trustee to apply such moneys and Investment Securities to the payment of the Certificates as set forth in the Trust Agreement, and the Trustee shall turn over to the Corporation upon its written request, as an overpayment of Purchase Payments, any surplus in the Revenue Fund and all balances remaining in any other funds or accounts (except the Rebate Fund which shall be governed by the Tax Agreement) other than moneys and Investment Securities held for the payment of the Certificates on their Certificate Payment Dates or upon prepayment, which moneys and Investment Securities shall continue to be held by the Trustee in trust for the benefit of the Certificateholders and shall be applied by the Trustee to the payment, when due, of the principal and any premium and interest represented by the Certificates, and after such payment, the Trust Agreement shall become void.

Deposit of Money or Securities with Trustee. Whenever in the Trust Agreement or the Purchase Agreement it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or prepay any Certificates, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to the Trust Agreement (exclusive of the Rebate Fund) and shall be:

(a) lawful money of the United States of America in an amount equal to the principal amount of such Certificates and all unpaid interest with respect thereto to their Certificate Payment Dates, except that, in the case of Certificates which are to be prepaid prior to their Certificate Payment Dates and in respect of which notice of such prepayment shall have been given as provided in the Trust Agreement or provision satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount or Prepayment Price with respect to such Certificates and all unpaid interest with respect thereto to the prepayment date; or

(b) Investment Securities described in clause (1) of the definition thereof (which shall not be callable by the issuer thereof prior to maturity), the principal of and interest on which when due will provide money sufficient to pay the principal Prepayment Price and all unpaid interest to their Certificate Payment Dates, or to the prepayment date, as the case may be, represented by the Certificates to be paid or prepaid, as such principal or Prepayment Price and interest become due, provided that, in the case of Certificates which are to be prepaid prior to their Certificate Payment Dates, notice of such prepayment shall have been given as in provided in the Trust Agreement or provision satisfactory to the Trustee shall have been made for the giving of such notice;

provided, in each case, that the Trustee shall have been (i) irrevocably instructed (by the terms of the Trust Agreement and the Purchase Agreement or by Order of the County) to apply such money to the payment of such principal or Prepayment Price and interest with respect to such Certificates and (ii) provided a verification report demonstrating the sufficiency of the amounts so deposited to make such payments of principal or Prepayment Price and interest with respect to such Certificates.

Payment of Certificates After Discharge of Trust Agreement. Notwithstanding any provisions of the Trust Agreement, any moneys held by the Trustee in trust for the payment of the principal, Prepayment Price, or interest with respect to any Certificates and remaining unclaimed for the period which is one year less than the statutory escheat period after the principal and interest with respect to all of the Certificates have become due and payable (whether on their Certificate Payment Dates or upon call for prepayment or by acceleration as provided in the Trust Agreement), if such moneys were so held at such date, or the period which is one year less than the statutory escheat period after the date of deposit of such moneys if deposited after said date when all of the Certificates became due and payable, shall, be repaid to the Corporation free from the trusts created by the Trust

C-30 Agreement, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Corporation as aforesaid, the Corporation or the Trustee, as the case may be, may (at the cost of the Corporation) first mail a notice, in such form as may be deemed appropriate by the Trustee, to the Holders of the Certificates so payable and not presented and with respect to the provisions relating to the repayment to the Corporation of the moneys held for the payment thereof at the addresses shown on the registration books maintained by the Trustee. In the event of the repayment of any such moneys to the Corporation as aforesaid, the Holders of the Certificates with respect to which such moneys were deposited shall thereafter be deemed to be general unsecured creditors of the Corporation for amounts equivalent to the respective amounts deposited for the payment of such Certificates and so repaid to the Corporation (without interest thereon), subject to any applicable statute of limitations.

DEED OF TRUST

The obligations of the Corporation pursuant to the Sale Agreement are secured by the lien of a Deed of Trust upon certain real property (as described in the Deed of Trust) owned by the Corporation (together with all permanent improvements thereon and all fixtures and equipment now or hereafter installed or situated thereon).

The Deed of Trust may be amended in accordance with its terms, without the necessity of obtaining the consent of the Trustee, the Authority or the holders of the Certificates or of Parity Debt.

To the extent permitted under the Sale Agreement, certain property may be removed from the lien and security interest of the Deed of Trust.

At any time after the occurrence and during the continuance of a Deed of Trust Default, the trustee under the Deed of Trust, or the beneficiary under the Deed of Trust shall have the following rights and remedies, among others: (1) to declare all obligations secured under the Deed of Trust to be due and payable immediately; (2) to seek foreclosure; (3) to enter upon, possess, manage, operate, dispose of the property described in the Deed of Trust; and (4) to cause said property to be sold to satisfy the obligations secured by the Deed of Trust. If the Trustee elects to foreclose and sell said property, there are certain applicable statutory time periods which must expire before such proceedings shall be effective.

C-31 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX D

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (the “Disclosure Agreement”), dated as of May 1, 2010, is executed and delivered by The Salk Institute for Biological Studies, San Diego, California (the “Corporation”) and Digital Assurance Certification, L.L.C., as exclusive Disclosure Dissemination Agent (the “Disclosure Dissemination Agent” or “DAC”) for the benefit of the Holders (hereinafter defined) of the Certificates (hereinafter defined) and in order to provide certain continuing disclosure with respect to the Certificates in accordance with Rule 15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (the “Rule”).

SECTION 1. Definitions. Capitalized terms not otherwise defined in this Disclosure Agreement shall have the meaning assigned in the Rule or, to the extent not in conflict with the Rule, in the Official Statement (hereinafter defined). The capitalized terms shall have the following meanings:

“Annual Report” means an Annual Report described in and consistent with Section 3 of this Disclosure Agreement.

“Annual Filing Date” means the date, set in Sections 2(a) and 2(f), by which the Annual Report is to be filed with the MSRB.

“Annual Financial Information” means annual financial information as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(a) of this Disclosure Agreement.

“Audited Financial Statements” means the financial statements (if any) of the Corporation for the prior fiscal year, certified by an independent auditor as prepared in accordance with generally accepted accounting principles or otherwise, as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(b) of this Disclosure Agreement.

“Certificates” means the Certificates of Participation as listed on the attached Exhibit A, with the 9-digit CUSIP numbers relating thereto.

“Certification” means a written certification of compliance signed by the Disclosure Representative stating that the Annual Report, Audited Financial Statements, Voluntary Report or Notice Event notice delivered to the Disclosure Dissemination Agent is the Annual Report, Audited Financial Statements, Voluntary Report or Notice Event notice required to be submitted to the MSRB under this Disclosure Agreement. A Certification shall accompany each such document submitted to the Disclosure Dissemination Agent by the Corporation and include the full name of the Certificates and the 9-digit CUSIP numbers for all Certificates to which the document applies.

“County” means the County of San Diego.

“Disclosure Representative” means the Chief Financial Officer, the senior member of the Corporation or his or her designee, or such other person as the Corporation shall designate in writing to the Disclosure Dissemination Agent from time to time as the person responsible for providing Information to the Disclosure Dissemination Agent.

D-1 “Disclosure Dissemination Agent” means Digital Assurance Certification, L.L.C, acting in its capacity as Disclosure Dissemination Agent hereunder, or any successor Disclosure Dissemination Agent designated in writing by the Corporation pursuant to Section 10 hereof.

“Holder” means any person (a) having the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries) or (b) treated as the owner of any Certificates for federal income tax purposes.

“Information” means the Annual Financial Information, the Audited Financial Statements (if any) the Notice Event Notices, and the Voluntary Reports.

“Notice Event” means an event listed in Sections 5(a) of this Disclosure Agreement.

“MSRB” means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934 or such other entity as may hereafter be designated or authorized by the SEC to receive reports pursuant to the Rule.

“Official Statement” means that Official Statement prepared by the County and the Corporation in connection with the Certificates, as listed on Appendix A.

“Quarterly Filing Date” means the date, set in Sections 4(a), by which the Quarterly Report is to be filed with the MSRB.

“Quarterly Report” means a Quarterly Report described in and consistent with Section 4(b) of this Disclosure Agreement.

“Trustee” means The Bank of New York Mellon Trust Company, N.A., as trustee under that Trust Agreement, dated as of May 1, 2010 by and among the County, the Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee.

“Voluntary Report” means the information provided to the Disclosure Dissemination Agent by the Corporation pursuant to Section 8.

SECTION 2. Provision of Annual Reports.

(a) The Corporation shall provide, annually, an electronic copy of the Annual Report and Certification to the Disclosure Dissemination Agent, together with a copy each for the County and the Trustee, not later than fifteen (15) days prior to the Annual Filing Date. Promptly upon receipt of an electronic copy of the Annual Report and the Certification, the Disclosure Dissemination Agent shall provide an Annual Report to the MSRB not later than 180 days after the end of the Corporation’s Fiscal Year (presently June 30), commencing with the report for Fiscal Year 2009-10. Such date and each anniversary thereof is the Annual Filing Date. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross reference other information as provided in Section 3 of this Disclosure Agreement.

(b) If on the fifteenth (15th) day prior to the Annual Filing Date, the Disclosure Dissemination Agent has not received a copy of the Annual Report and Certification, the Disclosure Dissemination Agent shall contact the Disclosure Representative by telephone and in writing (which may be by e-mail), with a copy to the County, to remind the Corporation of its undertaking to provide the Annual Report pursuant to Section 2(a). Upon such reminder, the Disclosure Representative shall either

D-2 (i) provide the Disclosure Dissemination Agent with an electronic copy of the Annual Report and the Certification) no later than two (2) business days prior to the Annual Filing Date, or (ii) instruct the Disclosure Dissemination Agent in writing, with a copy to the County, that the Corporation will not be able to file the Annual Report within the time required under this Disclosure Agreement, state the date by which the Annual Report for such year will be provided and instruct the Disclosure Dissemination Agent that a Notice Event as described in Section 5(a)(12) has occurred and to immediately send a notice to the MSRB in substantially the form attached as Exhibit B.

(c) If the Disclosure Dissemination Agent has not received an Annual Report and Certification by 12:00 noon on the first business day following the Annual Filing Date for the Annual Report, a Notice Event described in Section 5(a)(12) shall have occurred and the Corporation irrevocably directs the Disclosure Dissemination Agent to immediately send a notice to the MSRB in substantially the form attached as Exhibit B.

(d) If Audited Financial Statements of the Corporation are prepared but not available prior to the Annual Filing Date, the Corporation shall, when the Audited Financial Statements are available, provide in a timely manner an electronic copy to the Disclosure Dissemination Agent, accompanied by a Certificate, together with a copy each for the County and the Trustee, for filing with the MSRB.

(e) The Disclosure Dissemination Agent shall:

(i) determine the address of the MSRB each year prior to the Annual Filing Date;

(ii) upon receipt, promptly file each Annual Report received under Section 2(a) with the MSRB;

(iii) upon receipt, promptly file each Audited Financial Statement received under Section 2(d) with the MSRB;

(iv) upon receipt, promptly file the text of each disclosure to be made with the MSRB together with a completed copy of the Event Notice Cover Sheet in the form attached as Exhibit E, describing the event by checking the box indicated below when filing pursuant to the Section of this Disclosure Agreement indicated:

1. “Principal and interest payment delinquencies,” pursuant to Sections 5(c) and 5(a)(1);

2. “Non-Payment related defaults,” pursuant to Sections 5(c) and 5(a)(2);

3. “Unscheduled draws on debt service reserves reflecting financial difficulties,” pursuant to Sections 5(c) and 5(a)(3);

4. “Unscheduled draws on credit enhancements reflecting financial difficulties,” pursuant to Sections 5(c) and 5(a)(4);

5. “Substitution of credit or liquidity providers, or their failure to perform,” pursuant to Sections 5(c) and 5(a)(5);

6. “Adverse tax opinions or events affecting the tax-exempt status of the security,” pursuant to Sections 5(c) and 5(a)(6);

D-3 7. “Modifications to rights of securities holders,” pursuant to Sections 5(c) and 5(a)(7);

8. “Bond calls,” pursuant to Sections 5(c) and 5(a)(8);

9. “Defeasances,” pursuant to Sections 5(c) and 5(a)(9);

10. “Release, substitution, or sale of property securing repayment of the securities,” pursuant to Sections 5(c) and 5(a)(10);

11. “Ratings changes,” pursuant to Sections 5(c) and 5(a)(11);

12. “Failure to provide annual financial information as required,” pursuant to Section 2(b)(ii) or Section 2(c), together with a completed copy of Exhibit B to this Disclosure Agreement;

13. “Failure to provide quarterly financial information as required,” pursuant to Section 4(b)(ii) or Section 4(c), together with a completed copy of Exhibit C to this Disclosure Agreement; and

14. “Other material event notice (specify),” pursuant to Section 8 of this Disclosure Agreement, together with the summary description provided by the Disclosure Representative.

(v) provide the Corporation evidence of the filings of each of the above when made, which shall be by means of the DAC system, for so long as DAC is the Disclosure Dissemination Agent under this Disclosure Agreement.

(f) The Corporation may adjust the Annual Filing Date upon change of its fiscal year by providing written notice of such change and the new Annual Filing Date to the Disclosure Dissemination Agent, the County, the Trustee and the MSRB, provided that the period between the existing Annual Filing Date and new Annual Filing Date shall not exceed one year.

SECTION 3. Content of Annual Reports.

The Corporation’s Annual Report shall contain or include by reference the following:

(a) The audited financial statements of the Corporation for the prior fiscal year, prepared in accordance with generally accepted accounting principles as promulgated from time to time by the Financial Accounting Standards Board. If the Corporation’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 2(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements required for the fiscal year being audited financial statements will be filed in the same manner as the Annual Report when they become available.

(b) The completed form attached hereto as Exhibit D or such other form which contains substantially the same information.

(c) Unless otherwise set forth in the Corporation’s financial statements filed on or prior to the annual filing deadline for the Annual Report pursuant to Section 2(a), the financial information and

D-4 operating data with respect to the Corporation for the most recently completed fiscal year of the type set forth in Appendix A to the Official Statement under the captions:

(i) Chart of faculty hired and departed (ii) Sources of Grants Revenue (iii) Summary of Restricted vs. Unrestricted Revenue (iv) Investments (v) Capitalization (vi) Calculation of Debt Coverage (vii) Employees

Any or all of the items listed above may be included by specific reference from other documents, including official statements of debt issues with respect to which the Corporation is an “obligated person” (as defined by the Rule), which have been previously filed with each of the MSRB or the Securities Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The Corporation will clearly identify each such document so incorporated by reference.

Any annual financial information containing modified operating data or financial information is required to explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided.

SECTION 4. Quarterly Report.

(a) The Corporation shall provide, quarterly, an electronic copy of the Quarterly Report to the Disclosure Dissemination Agent, together with a copy for the Trustee, not later than the Quarterly Filing Date. Promptly upon receipt of an electronic copy of the Quarterly Report, the Disclosure Dissemination Agent shall provide a Quarterly Report to the MSRB not later than 60 days after the end of each fiscal quarter of the Corporation, commencing with the fiscal quarter ending September, 2010. Such date and the date not later than sixty (60) days after the last day of each fiscal quarter of the Corporation thereafter is the Quarterly Filing Date. The Quarterly Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 3 of this Disclosure Agreement.

(b) Each Quarterly Report shall contain unaudited quarterly financial information with respect to the Corporation.

(c) If the Dissemination Agent shall not have received the Quarterly Report by the Quarterly Filing Date, the Dissemination Agent shall so notify the Corporation, the MSRB and each Related Bond Trustee within five (5) Business Days of the Quarterly Filing Date, regardless of whether the Dissemination Agent shall have received the Quarterly Report during the period between the Quarterly Filing Date and such fifth Business Day. Such notice shall be in substantially the form attached hereto as Exhibit C.

SECTION 5. Reporting of Notice Events.

(a) The occurrence of any of the following events, if material, with respect to the Certificates constitutes a Notice Event:

1. Principal and interest payment delinquencies;

D-5 2. Non-payment related defaults;

3. Unscheduled draws on debt service reserves reflecting financial difficulties;

4. Unscheduled draws on credit enhancements relating to the Certificates 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 Certificates;

7. Modifications to rights of Certificate holders;

8. Certificate calls;

9. Defeasances;

10. Release, substitution, or sale of property securing repayment of the Certificates;

11. Rating changes on the Certificates; and

12. Failure to provide annual financial information as required.

The Corporation shall promptly notify the Disclosure Dissemination Agent in writing upon the occurrence of a Notice Event. Such notice shall instruct the Disclosure Dissemination Agent to report the occurrence pursuant to subsection (c). Such notice shall be accompanied with the text of the disclosure that the Corporation desires to make, the written authorization of the Corporation for the Disclosure Dissemination Agent to disseminate such information, and the date the Corporation desires for the Disclosure Dissemination Agent to disseminate the information.

(b) The Disclosure Dissemination Agent is under no obligation to notify the Corporation or the Disclosure Representative of an event that may constitute a Notice Event. In the event the Disclosure Dissemination Agent so notifies the Disclosure Representative, the Disclosure Representative will within five business days of receipt of such notice, instruct the Disclosure Dissemination Agent that (i) a Notice Event has not occurred and no filing is to be made or (ii) a Notice Event has occurred and the Disclosure Dissemination Agent is to report the occurrence pursuant to subsection (c), together with the text of the disclosure that the Corporation desires to make, the written authorization of the Corporation for the Disclosure Dissemination Agent to disseminate such information, and the date the Corporation desires for the Disclosure Dissemination Agent to disseminate the information.

(c) If the Disclosure Dissemination Agent has been instructed by the Corporation as prescribed in subsection (a) or (b)(ii) of this Section 5 to report the occurrence of a Notice Event, the Disclosure Dissemination Agent shall promptly file a notice of such occurrence with the MSRB in accordance with Section 2 e (iv) hereof.

SECTION 6. CUSIP Numbers. Whenever providing information to the Disclosure Dissemination Agent, including but not limited to Annual Reports, documents incorporated by reference to the Annual Reports, Audited Financial Statements, notices of Notice Events, and Voluntary Reports

D-6 filed pursuant to Section 8(a), the Corporation shall indicate the full name of the Certificates and the 9- digit CUSIP numbers for the Certificates as to which the provided information relates.

SECTION 7. Additional Disclosure Obligations. The Corporation acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Corporation, and that the failure of the Disclosure Dissemination Agent to so advise the Corporation shall not constitute a breach by the Disclosure Dissemination Agent of any of its duties and responsibilities under this Disclosure Agreement. The Corporation acknowledges and understands that the duties of the Disclosure Dissemination Agent relate exclusively to execution of the mechanical tasks of disseminating information as described in this Disclosure Agreement.

SECTION 8. Voluntary Reports.

(a) The Corporation may instruct the Disclosure Dissemination Agent to file information with the MSRB, from time to time pursuant to a Certification of the Disclosure Representative accompanying such information (a “Voluntary Report”).

(b) Nothing in this Disclosure Agreement shall be deemed to prevent the Corporation from disseminating any other information through the Disclosure Dissemination Agent using the means of dissemination set forth in this Disclosure Agreement or including any other information in any Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice, in addition to that required by this Disclosure Agreement. If the Corporation chooses to include any information in any Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice in addition to that which is specifically required by this Disclosure Agreement, the Corporation shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice.

SECTION 9. Termination of Reporting Obligation. The obligations of the Corporation and the Disclosure Dissemination Agent under this Disclosure Agreement shall terminate with respect to the Certificates upon the legal defeasance, prior prepayment or payment in full of all of the Certificates, when the Corporation is no longer an obligated person with respect to the Certificates, or upon delivery by the Disclosure Representative to the Disclosure Dissemination Agent of an opinion of nationally recognized bond counsel to the effect that continuing disclosure is no longer required.

SECTION 10. Disclosure Dissemination Agent. The Corporation has appointed Digital Assurance Certification, L.L.C. as exclusive Disclosure Dissemination Agent under this Disclosure Agreement. The Corporation may, with the prior written consent of the County and upon thirty (30) days written notice to the Disclosure Dissemination Agent and the Trustee, replace or appoint a successor Disclosure Dissemination Agent. Upon termination of DAC’s services as Disclosure Dissemination Agent, whether by notice of the Corporation or DAC, the Corporation agrees to appoint a successor Disclosure Dissemination Agent or, alternately, agrees to assume all responsibilities of Disclosure Dissemination Agent under this Disclosure Agreement for the benefit of the Holders of the Certificates. Notwithstanding any replacement or appointment of a successor, the Corporation shall remain liable until payment in full for any and all sums owed and payable to the Disclosure Dissemination Agent. The Disclosure Dissemination Agent may resign at any time by providing thirty (30) days’ prior written notice to the Corporation.

SECTION 11. Remedies in Event of Default. In the event of a failure of the Corporation or the Disclosure Dissemination Agent to comply with any provision of this Disclosure Agreement, the Holders’ rights to enforce the provisions of this Disclosure Agreement shall be limited solely to a right, by action

D-7 in mandamus or for specific performance, to compel performance of the parties' obligation under this Disclosure Agreement. Any failure by a party to perform in accordance with this Disclosure Agreement shall not constitute a default on the Certificates or under any other document relating to the Certificates, and all rights and remedies shall be limited to those expressly stated herein.

SECTION 12. Duties, Immunities and Liabilities of Disclosure Dissemination Agent.

(a) The Disclosure Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement. The Disclosure Dissemination Agent’s obligation to deliver the information at the times and with the contents described herein shall be limited to the extent the Corporation has provided such information to the Disclosure Dissemination Agent as required by this Disclosure Agreement. The Disclosure Dissemination Agent shall have no duty with respect to the content of any disclosures or notice made pursuant to the terms hereof. The Disclosure Dissemination Agent shall have no duty or obligation to review or verify any Information or any other information, disclosures or notices provided to it by the Corporation and shall not be deemed to be acting in any fiduciary capacity for the Corporation, the Holders of the Certificates or any other party. The Disclosure Dissemination Agent shall have no responsibility for the Corporation’s failure to report to the Disclosure Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Disclosure Dissemination Agent shall have no duty to determine, or liability for failing to determine, whether the Corporation has complied with this Disclosure Agreement. The Disclosure Dissemination Agent may conclusively rely upon certifications of the Corporation at all times.

THE OBLIGATED PERSON AGREES TO INDEMNIFY AND SAVE THE DISCLOSURE DISSEMINATION AGENT AND ITS RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, HARMLESS AGAINST ANY LOSS, EXPENSE AND LIABILITIES WHICH THEY MAY INCUR ARISING OUT OF OR IN THE EXERCISE OR PERFORMANCE OF THEIR POWERS AND DUTIES HEREUNDER, INCLUDING THE COSTS AND EXPENSES (INCLUDING ATTORNEYS FEES) OF DEFENDING AGAINST ANY CLAIM OF LIABILITY, BUT EXCLUDING LIABILITIES DUE TO THE DISCLOSURE DISSEMINATION AGENT’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

The obligations of the Corporation under this Section shall survive resignation or removal of the Disclosure Dissemination Agent and defeasance, prepayment or payment of the Certificates.

(b) The Disclosure Dissemination Agent may, from time to time, consult with legal counsel (either in-house or external) of its own choosing in the event of any disagreement or controversy, or question or doubt as to the construction of any of the provisions hereof or its respective duties hereunder, and shall not incur any liability and shall be fully protected in acting in good faith upon the advice of such legal counsel. The reasonable fees and expenses of such counsel shall be payable by the Corporation.

(c) All documents, reports, notices, statements, information and other materials provided to the MSRB under this Disclosure Agreement shall be provided in an electronic format and accompanied by identifying information as prescribed by the MSRB.

SECTION 13. No County Responsibility. The Obligated Person and the Disclosure Dissemination Agent acknowledge that the County has undertaken no responsibility, and shall not be required to undertake any responsibility, with respect to any reports, notices or disclosures required by or provided pursuant to this Disclosure Agreement, and shall have no liability to any person, including any Holder of the Bonds, with respect to any such reports, notices or disclosures.

D-8 SECTION 14. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Corporation and the Disclosure Dissemination Agent 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 expert in federal securities laws acceptable to both the Corporation and the Disclosure Dissemination Agent to the effect that such amendment or waiver does not materially impair the interests of Holders of the Certificates and would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule; provided neither the Corporation or the Disclosure Dissemination Agent shall be obligated to agree to any amendment modifying their respective duties or obligations without their consent thereto.

Notwithstanding the preceding paragraph, the Disclosure Dissemination Agent shall have the right to adopt amendments to this Disclosure Agreement necessary to comply with modifications to and interpretations of the provisions of the Rule as announced by the Securities and Exchange Commission from time to time by giving not less than 20 days written notice of the intent to do so together with a copy of the proposed amendment to the Corporation. No such amendment shall become effective if the Corporation shall, within 10 days following the giving of such notice, send a notice to the Disclosure Dissemination Agent in writing that it objects to such amendment.

SECTION 15. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Corporation, the County, the Trustee for the Certificates, the Disclosure Dissemination Agent, the original underwriter, and the Holders from time to time of the Certificates, and shall create no rights in any other person or entity.

SECTION 16. Governing Law. This Disclosure Agreement shall be governed by the laws of the State of California (other than with respect to conflicts of laws).

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.

D-9 The Disclosure Dissemination Agent and the Corporation have caused this Continuing Disclosure Agreement to be executed, as of the date first written above, by their respective officers duly authorized.

DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Disclosure Dissemination Agent

By: Name: Title:

THE SALK INSTITUTE FOR BIOLOGICAL STUDIES, SAN DIEGO, CALIFORNIA

By: Kim E. Witmer, Sr. Vice President and Chief Financial Officer

D-10 EXHIBIT A

NAME AND CUSIP NUMBERS OF CERTIFICATES

Name of Issuer: County of San Diego, California

Obligated Person: The Salk Institute for Biological Studies, San Diego, California

Name of Certificate Issue: $37,445,000 Certificates of Participation Evidencing Proportionate Undivided Interests in Installment Payments to be made by the County of San Diego pursuant to an Installment Purchase Agreement with The Salk Institute for Biological Studies, San Diego, California (the “Certificates”)

Date of Issuance: May 27, 2010

Date of Official Statement: May 20, 2010

CUSIP Number: 797391P52 CUSIP Number: 797391Q69 CUSIP Number: 797391P60 CUSIP Number: 797391Q77 CUSIP Number: 797391P78 CUSIP Number: 797391Q85 CUSIP Number: 797391P86 CUSIP Number: 797391Q93 CUSIP Number: 797391P94 CUSIP Number: 797391R27 CUSIP Number: 797391Q28 CUSIP Number: 797391R35 CUSIP Number: 797391Q36 CUSIP Number: 797391R43 CUSIP Number: 797391Q44 CUSIP Number: 797391R50 CUSIP Number: 797391Q51

D-11 EXHIBIT B

NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT

Issuer: County of San Diego, California

Obligated Person: The Salk Institute for Biological Studies, San Diego, California

Date of Issuance: May 27, 2010

NOTICE IS HEREBY GIVEN that The Salk Institute for Biological Studies, San Diego, California (the “Corporation”) has not provided an Annual Report with respect to the above named Certificates as required by the Continuing Disclosure Agreement, dated as of May 1, 2010, between the Corporation and Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent. The Corporation has notified the Disclosure Dissemination Agent that it anticipates that the Annual Report will be filed by ______.

Dated: ______

DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Disclosure Dissemination Agent, on behalf of the Corporation

______cc: Debt Finance Manager, County of San Diego Chief Financial Officer, The Salk Institute for Biological Studies, San Diego, California The Bank of New York Mellon Trust Company, N.A., Corporate Trust Office

D-12 EXHIBIT C

NOTICE TO MSRB OF FAILURE TO FILE QUARTERLY REPORT

Issuer: County of San Diego, California

Obligated Person: The Salk Institute for Biological Studies, San Diego, California

Date of Issuance: May 27, 2010

NOTICE IS HEREBY GIVEN that The Salk Institute for Biological Studies, San Diego, California (the “Corporation”) has not provided an Quarterly Report with respect to the above named Certificates as required by the Continuing Disclosure Agreement, dated as of May 1, 2010, between the Corporation and Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent. The Corporation has notified the Disclosure Dissemination Agent that it anticipates that the Quarterly Report will be filed by ______.

Dated: ______

DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Disclosure Dissemination Agent, on behalf of the Corporation

D-13 EXHIBIT D

THE SALK INSTITUTE FOR BIOLOGICAL STUDIES CONTINUING DISCLOSURE ANNUAL REPORT

Operating Data

Non-Financial

Please answer each of the following questions:

a) Has there been a change in the name and titles of officers since the last annual report? (Check one)

Yes ! No ! If yes, please indicate name and title.

b) Please describe any new litigation, or a material result in litigation since the date of the last report.

c) Please describe any significant sale, destruction or loss of real property or other material assets since the date of the last report. In addition, please describe any sale or loss of any collateral since the date of the last report.

Please update the following information for the most recent academic or fiscal year, as appropriate. Only the data for the most recent academic or fiscal year (as appropriate) needs to be included in your annual report:

Financial

a) Please attach a copy of your most recent financial statements.

Material Events

a) Please review Section V of the Continuing Disclosure Agreement and confirm that no material Listed Event has occurred. Please describe any material Listed Event that has occurred since the date of the last report.

D-14 EXHIBIT E

EVENT NOTICE COVER SHEET

This cover sheet and material event notice will be sent to the MSRB, pursuant to Securities and Exchange Commission Rule 15c2-12(b)(5)(i)(C) and (D).

Issuer’s and/or Other Obligated Person’s Name:

Issuer’s Six-Digit CUSIP Number:

or Nine-Digit CUSIP Number(s) of the Certificates to which this material event notice relates:

Number of pages of attached: _____

____ Description of Material Event Notice (Check One):

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 security 7. ___Modifications to rights of securities holders 8. ___Certificate calls 9. ___Defeasances 10. ___Release, substitution, or sale of property securing repayment of the securities 11. ___Rating changes 12. ___Other material event notice (specify)

____ Failure to provide annual financial information as required

I hereby represent that I am authorized by the obligated person or its agent to distribute this information publicly:

Signature:

Name: Title:

Employer: Digital Assurance Certification, L.L.C. Address: City, State, Zip Code: Voice Telephone Number:

D-15 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX E

FORM OF FINAL OPINION OF SPECIAL COUNSEL

Upon execution and delivery of the Certificates, Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Special Counsel, proposes to render its final approving opinion with respect to the Certificates in substantially the following form:

[Date of Delivery]

BoardofSupervisorsofthe County of San Diego 1600 Pacific Highway San Diego, California 92101

Certificates of Participation Evidencing Proportionate Interests of the Holders Thereof in Installment Payments to be Paid by the County of San Diego from Purchase Payments to be Received from The Salk Institute for Biological Studies, San Diego, California (Final Opinion)

Ladies and Gentlemen:

We have acted as special counsel to the County of San Diego, California (the “County”) in connection with the execution and delivery of $37,445,000 principal amount of certificates of participation (the “Certificates”), each evidencing a proportionate ownership interest of the holders thereof in the rights to receive certain installment payments (the “Installment Payments”) to be paid by the County pursuant to an installment purchase agreement, dated as of May 1, 2010 (the “Purchase Agreement”), between the County and The Salk Institute for Biological Studies, San Diego, California (the “Corporation”), all of which rights to receive such Installment Payments having been assigned without recourse by the Corporation to The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Certificates have been executed by the Trustee pursuant to the terms of a trust agreement, dated as of May 1, 2010 (the “Trust Agreement”), among the County, the Corporation and the Trustee. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in an installment sale agreement, dated as of May 1, 2010 (the “Sale Agreement”), between the County and the Corporation.

In such connection, we have reviewed the Purchase Agreement, the Sale Agreement, the Trust Agreement, a Tax Certificate and Agreement, dated the date hereof (the “Tax Agreement”), between the County and the Corporation, opinions of counsel to the County, the Corporation and the Trustee, certificates of the County, the Corporation, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

We have relied on the opinion of Allen Matkins Leck Gamble Mallory & Natsis LLP, Los Angeles, California, Counsel to the Corporation, regarding, among other matters, the current qualification of the Corporation as an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986 (the “Code”) and use of the facilities financed and refinanced with the proceeds of the Certificates in activities that are not considered unrelated trade or business activities of the Corporation within the

E-1 meaning of Section 513 of the Code. We note that such opinion is subject to a number of qualifications and limitations. Furthermore, Counsel to the Corporation cannot give and has not given any opinion or assurance about the future activities of the Corporation, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or changes in enforcement thereof by the Internal Revenue Service. Failure of the Corporation to be organized and operated in accordance with the Internal Revenue Service’s requirements for the maintenance of its status as an organization described in Section 501(c)(3) of the Code, or to operate the facilities financed and refinanced by the Certificates in a manner that is substantially related to the Corporation’s charitable purpose under Section 513(a) of the Code, may result in the interest portion of the Installment Payments to be paid by the County under the Purchase Agreement and received by the Beneficial Owners being included in federal gross income, possibly from the date of the original execution and delivery of the Certificates.

The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this opinion speaks only as of its date and is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Our engagement with respect to the Certificates has concluded with their execution and delivery, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the County. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second and third paragraphs hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Purchase Agreement, the Sale Agreement, the Trust Agreement and the Tax Agreement, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause the interest components of the Installment Payments to be included in gross income for federal income tax purposes.

We call attention to the fact that the rights and obligations under the Certificates, the Purchase Agreement, the Sale Agreement, the Trust Agreement and the Tax Agreement and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against counties in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the foregoing documents nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in or subject to the lien of the Purchase Agreement, the Sale Agreement or the Trust Agreement or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such property. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Certificates and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

1. The Purchase Agreement, the Sale Agreement and the Trust Agreement have been duly executed and delivered, and constitute valid and binding obligations of the County. The obligation of the County to make Installment Payments does not constitute a debt of the County or the State of California

E-2 or any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction.

2. The Trust Agreement creates a valid pledge, to secure the payment of the principal and interest components of the Installment Payments, of the Revenues and any other amounts (including proceeds of the sale of the Certificates) held by the Trustee in any fund or account established pursuant to the Trust Agreement (except the Rebate Fund) subject to the provisions of the Trust Agreement permitting the application thereof for the purposes and on the terms and conditions set forth in the Trust Agreement.

3. Assuming due authorization, execution and delivery of the Trust Agreement and the Certificates by the Trustee, the Certificates are entitled to the benefits of the Trust Agreement.

4. The interest component of the Installment Payments to be paid by the County under the Purchase Agreement and received by the registered owners of the Certificates is excluded from gross income for federal income tax purposes under Section 103 of the Code and is exempt from State of California personal income taxes. Such interest component is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest with respect to, the Certificates, including whether the interest component of the Installment Payments to be paid by the County under the Purchase Agreement is included in adjusted current earnings when calculating corporate alternative minimum taxable income.

Faithfully yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP

E-3 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX F

BOOK-ENTRY ONLY SYSTEM

The information in this Appendix F concerning The Depository Trust Company, New York, New York, and DTC’s book entry system has been obtained from DTC and neither the County nor the Corporation takes no responsibility for the completeness or accuracy thereof. The County and the Corporation cannot and do not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Certificates, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Certificates, or (c) prepayment or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Certificates, or that they will do so on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix F. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Certificates (the “Securities”). The Securities 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 Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC.

DTC, the world’s largest securities 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. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC 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.

Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC’s records. The ownership interest of each actual purchaser of each Security (“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

F-1 through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities 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 Securities, except in the event that use of the book-entry system for the Securities is discontinued.

To facilitate subsequent transfers, all Securities 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 Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the County 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 Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the Securities 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 County or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the County, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the County or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

F-2 NONE OF THE COUNTY, THE CORPORATION OR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS WITH RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OR THE SELECTION OF CERTIFICATES FOR PREPAYMENT.

Neither the County, the Corporation nor the Trustee can give any assurances that DTC, DTC Participants, Indirect Participants or others will distribute payments of principal, premium, if any, and interest evidenced by the Certificates paid to DTC or its nominee, as the registered Owner, or any prepayment or other notice, to the Beneficial Owners or that they will do so on a timely basis or that DTC will serve and act in a manner described in this Official Statement.

DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the County or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

The County (at the Direction of the Corporation) may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security 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 County believes to be reliable, but the County takes no responsibility for the accuracy thereof.

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COUNTY OF SAN DIEGO • THE SALK INSTITUTE FOR BIOLOGICAL STUDIES, SAN DIEGO, CALIFORNIA, Certificates of Participation