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HomeMy WebLinkAbout23 - Hoag Memorial Series 2008 Health Care BondsCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 23 April 22, 2008 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dennis Danner, Administrative Services Director (949) 644 -3123 ddanner@city.newport-beach.ca.us SUBJECT: Resolution 2008 - Hoag Memorial Hospital Presbyterian Series 2008 Health Care Facility Revenue Bonds Issue: Should the City assist Hoag Memorial Hospital Presbyterian in issuing Health Care Facility Revenue Bonds to refund the auction bonds previously issued by the City? Recommendation: Hold the public hearing and adopt the resolution authorizing: • the sale of not to exceed $630,000,000 million of City of Newport Beach Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008; • the execution and delivery of one or more Loan Agreements in substantially the form presented; • the execution and delivery of one or more Indentures in substantially the form presented; • the execution and delivery of one or more Official Statements (including Appendix A) in substantially the form presented; • the execution and delivery of one or more Bond Purchase Contracts in substantially the form presented; and • staff to take the necessary steps to provide for the sale and issuance of the 2008 bonds. Discussion: In 1984, 1992, 1996, 1999, 2005 and 2007 the City issued similar bonds to assist Hoag Hospital Memorial Presbyterian. The debt service for these bonds is not a City obligation. The hospital will use the proceeds of this issue (2008) to refinance all or part of the outstanding City of Newport Beach Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian). In each of the previous issues Hoag Hospital paid an issuance fee to the City that was used for a General Fund paramedic reserve or for infrastructure OHS We t:260419249.2 Hoag Memorial Hospital Presbyterian Series 2008 Heath Care Facility Revenue Bonds April 22, 2008 Page 2 improvements. Since this issue simply refinances the existing Hoag Revenue Bonds with no new principal, the City is proposing an administrative fee of $25,000 to compensate for City staff time relating to this issue. All other cost of issuance expenses will be born by the Hospital. This proposed issue provides a major benefit to the Hospital. Because of the uncertain interest rate environment and the instability of bond insurers (including FGIC and Ambac which insure existing City /Hoag bonds), Hoag will be able to save money using the proceeds of this issue to refund the existing variable interest rate auction bonds and replace them with a combination of variable rate demand bonds and intermediate put bonds. Commonly referred to as "Conduit Debt,"' it is not unusual for municipalities in California to assist nonprofit charitable organizations such as Hoag with tax - exempt financing of this nature. A significant provision of the agreement between the City and Hoag is that the City incurs no independent financial responsibility for the indebtedness. Existing agreements of this type are disclosed in the City's Comprehensive Annual Financial Report, which is approved by the City's auditors each year. We are unaware of any negative comments by the auditors, creditors or Bond rating agencies concerning the agreements. The limited nature of the City's participation in the financing is also clearly disclosed to investors who purchase the Bonds. The bond offering documents state that neither the full faith nor credit of the City nor the general taxing power of City or State of California are pledged in connection with the bond offering. A City is a successful combination of many factors, including the mix of land uses, the quality of public services, the availability of housing, open space opportunities, and various other amenities. Certainly one of the key factors in achieving a successful community is having a quality health care facility and health care providers. The City is fortunate to have a very high quality hospital in Hoag and its success has attracted a very high quality physician base to our immediate region. The perpetuation of this asset is in the City's long term interest. Since there is no cost or risk to the City in approving the issue, it is in the community's interest to do so. The Resolution authorizing the issue is attached to this staff report. All other documents are available in the City Clerk's office for examination. Public Notice: Public Notice of this hearing was provided as prescribed by law. Funding Availability: No City funding is required by this action. OHS West,260419249.2 Hoag Memorial Hospital Presbyterian Series 2008 Heath Care Facility Revenue Bonds April 22, 2008 Page 3 Alternative: The alternative is to not assist Hoag Memorial Hospital Presbyterian in the issuance of Health Care Facility Revenue Bonds. Prepared and Submitted by: Dennis C. Danner Administrative Services Director Attachment: Resolution Copies of the Loan Agreement(s), Indenture(s), Official Statement(s), and Bond Purchase Contract(s) are on file in the City Clerk's Office. OHS We t:2604192491 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $630,0009000 AGGREGATE PRINCIPAL AMOUNT OF THE CITY OF NEWPORT BEACH REFUNDING REVENUE BONDS (HOAG MEMORIAL HOSPITAL PRESBYTERIAN), SERIES 2008 WHEREAS, the City of Newport Beach (the "City") is a municipal corporation and charter city duly organized and existing under a freeholders' charter pursuant to which the City has the right and power to make and enforce all laws and regulations in respect of municipal affairs and certain other matters in accordance with and as more particularly provided in Sections 3, 5 and 7 of Article XI of the Constitution of the State of California and Section 200 of Article II of the Charter of the City (the "Charter "); and WHEREAS, the City Council of the City, acting under and pursuant to the powers reserved to the City under Sections, 3, 5, and 7 of Article XI of the Constitution of the State of California and Section 200 of Article II of the Charter, has found that the public interest and necessity require the establishment of a program for the authorization, issuance and sale of revenue bonds or notes by the City for the purposes of making loans such as those described herein; and WHEREAS, the City pursuant to Ordinance No. 85 -23 and 84 -4, has adopted the Health Care and Recreation Facilities Revenue Bond Ordinance of the City of Newport Beach (the "Law") to establish procedures for the authorization, issuance and sale of such revenue bonds or notes; and WHEREAS, Hoag Memorial Hospital Presbyterian, a California nonprofit public benefit corporation (the " Corporation ") has requested that the City issue its Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008, in one or more series and from time to time (collectively, the "Bonds ") for the purpose of. (1) refinancing the acquisition and construction of certain additions and improvements to, and equipment for, health facilities (collectively, the "Health Facilities ") located on and about the campus of Hoag Memorial Hospital Presbyterian, One Hoag Drive, Newport Beach, California; and (2) providing for the payment of bond issuance expenses; and WHEREAS, the Corporation is a "participating health institution" and operates a "health facility" as those terms are defined in the Law; and WHEREAS, the loan or .loans to be made with the proceeds of said bonds will promote the purposes of the Law by providing funds to pay the cost of acquiring, constructing, rehabilitating or improving health facilities and reimbursing the Corporation for certain expenses incurred for the purposes of acquiring, constructing, rehabilitating or improving the health facilities; and OHS West:260414576.2 WHEREAS, pursuant to Section 147(f) of the Internal Revenue Code of 1986 (the "Code "), the Bonds are required to be approved, following a public hearing, by an elected representative of the City, as the governmental party issuing the Bonds, and an elected representative of the governmental unit or units having jurisdiction over the area in which the Health Facilities are located; and WHEREAS, the Health Facilities are located wholly within the City; and WHEREAS, the City Council of the City is the elected legislative body of the City and is the applicable elected representative required to approve the issuance of the Bonds within the meaning of Section 147(f) of the Code; and WHEREAS, pursuant to Section 147(f) of the Code, the City Council of the City has, following notice duly given, held a public hearing regarding the issuance, execution and delivery of the Bonds, and now desires to approve the issuance of the Bonds; and WHEREAS, there have been presented to this meeting the following: (1) Proposed form of a Loan Agreement (the "Loan Agreement") between the City and the Corporation; (2) Proposed form of a Bond Indenture (the `Bond Indenture ") between the City and Wells Fargo Bank, National Association (or such other financial institution acceptable to the City and the Corporation), as bond trustee (the "Bond Trustee "), providing for the authorization and issuance of the Bonds of one or more series designated therein; (3) Proposed form of an Official Statement to be used in connection with the sale of the Bonds (the "Official Statement"); and (4) Proposed form of a Bond Purchase Contract (the "Bond Purchase Contract ") between the City and Citigroup Global Markets Inc. (the "Underwriter "). NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Newport Beach, California, as follows: Section 1. The form, terms and provisions of the Loan Agreement, to be used for the loan or loans, as applicable, be and they hereby are approved and the Mayor or the Mayor's designee is hereby authorized and empowered to execute, and the City Clerk or the City Clerk's designee is hereby authorized and empowered to attest and deliver, one or more Loan Agreements, in substantially the form presented to and considered at this meeting with such changes as may be approved by the official executing the same , such approval to be conclusively evidenced by execution thereof. Section 2. The form, terms and provisions of the Bond Indenture be and they hereby are approved, and the Mayor or the Mayor's designee is hereby authorized and empowered to execute and the City Clerk or the City Clerk's designee is hereby authorized and empowered to OHS Wesk260414576.2 attest and deliver to the Bond Trustee one or more Bond Indentures, in substantially the form presented to and considered at this meeting with such changes as may be approved by the official executing the same, such approval to be conclusively evidenced by execution thereof. Section 3. Pursuant to Section 147(f) of the Internal Revenue Code of 1986, this City Council approves the issuance of the Bonds in an aggregate principal amount not to exceed $630,000,000. It is the purpose and intent of the Council that this Resolution constitutes approval of the issuance of the Bonds by the applicable elected representative of the issuer and the applicable elected representative of the governmental unit having jurisdiction over the area in which the Health Facilities are located, in accordance with said Section 147(f). Payment of the principal of, redemption premium (if any) and interest on the Bonds shall be made solely from the revenues to be received by the City pursuant to the Loan Agreement, and said Bonds shall not be deemed to constitute a debt or liability of the City. Section 4. The issuance, sale and delivery of the Bonds in one or more series from time to time pursuant to one or more Bond Indentures, in an aggregate principal amount of not to exceed $630,000,000, is hereby authorized and approved. Section 5. The Official Statement in the form presented to this meeting be and the same hereby is approved for use by the Underwriter in connection with the public offering of the Bonds with such changes as may be approved by one or more officers ofthe City, and the Mayor or the Mayor's designee is authorized to execute one or more final Official Statements relating to the Bonds. The Underwriter is hereby authorized to distribute the Official Statement in preliminary form to potential purchasers of the Bonds, and the Official Statement in final form to actual purchasers of the Bonds. Section 6. The Mayor and the City Clerk (each of whom may sign by facsimile signature) are hereby authorized and directed to execute, in the name and on behalf of the City, the Bonds and to cause the Bonds to be delivered to the Bond Trustee for authentication and delivery to or upon the order of the Underwriter. Section 7. The Bond Purchase Contract is hereby approved, and the Mayor or the Mayor's designee and the City Clerk or the City Clerk's designee be and hereby are authorized and empowered to execute and deliver one or more Bond Purchase Contracts, in substantially the form presented to and considered at this meeting, with such changes as the officials executing the same shall deem appropriate and in the best interests of the City as conclusively evidenced by their execution thereof. Section 8. The Mayor or the Mayor's designee and the City Clerk or the City Clerk's designee are hereby authorized and directed, jointly and severally, to do any and all things, and to execute and deliver any and all documents which they may deem necessary or advisable, in order to consummate the issuance of the Bonds, including to modify the provisions of the Loan Agreement, the Bond Indenture, the Official Statement and the Bond Purchase Contract to conform to any requirements of a credit facility or liquidity facility provider selected by the Corporation and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution and the documents referred to herein. OHS We t:260414576.2 Section 9. Each of the Mayor, the Mayor's designee, the City Clerk or the City Clerk's designee; acting alone, is hereby authorized to execute and deliver any future amendments or supplements to the documents authorized to be executed and delivered pursuant to this Resolution, from time to time, provided that such amendments or supplements are either consented to by or on behalf of the bondholders or do not require bondholder consent and such amendment or supplement is made in accordance with the terms of the respective documents executed in accordance with this Resolution. Section 10. If the Corporation evaluates current bond market conditions and determines to leave outstanding all or any portion of the City's Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2005 and Series 2007 (collectively, the "Prior Bonds "), and if the Corporations requests the City to amend or supplement any of the documents pertaining to such Prior Bonds in order to minimize interest costs, each of the Mayor, the Mayor's designee, the City Clerk or the City Clerk's designee, acting alone, is hereby authorized to execute and deliver any amendments or supplements to the Prior Bond documents, from time to time, provided that such amendments or supplements are either consented to by or on behalf of the bondholders or do not require bondholder consent. Section 11. The Bonds authorized to be issued pursuant to this Resolution shall be issued in strict compliance with the provisions of the Law. The City Clerk shall certify to the passage of this Resolution by the City Council of the City of Newport Beach, and it shall thereupon take effect. I hereby certify that the foregoing resolution was adopted by the City Council of the City of Newport Beach at its meeting of April 22, 2008, by the following vote: AYES: Councilmembers: NOES: Councilmembers: ABSTAIN: Councilmembers: Mayor ATTEST: City Clerk OHS West260414576.2 Authorized to Publish Advertisements of all kinds including public notices by Decree of the Superior Court of Orange County, California. Number A -6214, September 29, 1961, and A -24831 June 11, 1963. PROOF OF PUBLICATION STATE OF CALIFORNIA) ) ss. COUNTY OF ORANGE ) I am a Citizen of the United States and a resident of the County aforesaid; I am over the age of eighteen years, and not a party to or interested in the below entitled matter. I am a principal clerk of the NEWPORT BEACH - COSTA MESA DAILY PILOT, a newspaper of general circulation, printed and published in the City of Costa Mesa, County of Orange, State of California, and that attached Notice is a true and complete copy as was printed and published on the following dates: April 8, 2008 I declare, under penalty of perjury, that the foregoing is true and correct. Executed on April 8, 2008 at Costa Mesa, California. Signature r MWOMILKWWO Notice is hereby giver that on April 22, 2008 a public hearing as re- quired by Section 147(f; of the Internal Revenue Code (the "Code ") will be held with respect to revenue oonas In one or more series, from time to time, in an amount not to exceed $630,000,000 (the "Bonds '). The proceeds of the Bonds will be used by Hoag Memorial Hospital Presbyterian (the "Corporation') to finance and refinance the cost of acquisition, construction, im- provement, equipping, renovation, rehabilita- tion, remodeling and other capital projects lo- cated at the hospital campus at One Hoag Drive, Newport Beach, CA (the "Project "). The facility listed above is Downed and operated by the Corporation, a non- profit public benefit cor. poration as described in Section 501(c)(3) of the Code. The hearing will com- mence at 7:00 p.m., or as soon thereafter, as the matter can be heard, and will be held at the City Council Chambers, City Hall, 3300 Newport Boule- vard, New Ort Beach, California 92663. inter- ested persons wishing to express their views on the issuance of the Bonds or on the nature and location of the health facilities pro - posed to be financed may attend the public hearing or, prior to the time of the hearing, sub- mit written comments. The Bonds will be Issued by the City under the powers reserved to the City under Sections 3, 5 !nd 7 of Article XI of the Constitution of the State of California and Section 200 of Article II of the Charter of the City to finance the costs of the Project described above and will be limited obligations of the City to be repaid solely from revenues re- ceived by the City from the Corporation, Additional information concerning 'the above matter may be obtained from and written com men ts should be ad- dressed to the City Clerk, City of Newport Beach, 3300 Newport Boulevard, Newport Beach, California 92663. Lavonne Harkless City Clerk of the City of Newport Beach April 8, 2008 Published Newport Beach /Costa Mesa Daily Pilot April 8, 2008 T348 City of Newport Beach, CA - Accounting Division Y3 Page 1 of 1 Contacts /Org Chart Financial In formation 0 Budget 0 CAFR 0 Single Audit 0 IUAOC Long Term Debt 0 Government Activitlesl. 0 Business Activities 0 Bonds 0 Conduit Debt 0 Total Obligations Home Page Lang -term liabilities for the year ended 3une 30, 2007 Conduit Debt Issues Hoag Hospital Bonds S 1984 Hoag Hospital Bonds S 1992 Hoag Hospital Bonds S 1996 Hoag Hospital Bonds S 1999 Hoag Hospital Bonds S 2005 Hoag Hospital Bonds S 2007 Total Conduit Debt Obligations Original Outstanding issue Babrnce 61,200,000 91,000,000 100,000,000 125,000,000 200,000,000 200,000,OOC 422,950,000 422,950,OOC $1,000,150,000 $622,950,000 Digital Assurance Certification (DAC) serves as the City's primary disseminating agent and portal for Investor - specific information on the City's bonded indebtedness. We encourage Interested parties to view bond Information and sign up for email notification of new filings free of charge on the DAC website. MuniFinancial serves as the City's financial administrator and disclosure consultant on all land secured Assessment Districts and Special Improvement Districts. The district reports can also be viewed at the Muni Financial website. Accounting Division - 3300 Newport Boulevard - Newport Beach - California - 92663 - 949.644.3146 Mailing Address - PO Box 1768 Newport Beach, CA 92658 -8915 - FAX 949.644.3339 http: / /www.city.newport- beach. ca .us /accounting/debt/Conduit.asp 4/22/2008 LAaal 0 e - 4 a3 CITY OF NEWPORT BEACH and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Bond Trustee BOND INDENTURE Dated as of May 1, 2008 relating to [PAR AMOUNT] CITY OF NEWPORT BEACH .REFUNDING REVENUE BONDS (HOAG MEMORIAL HOSPITAL PRESBYTERIAN) SERIES 2008A, 2008B, 2008C, 2008D and 2008E OHS West:260411958.4 OH &S DRAFT 4121108 This BOND INDENTURE, made and entered into as of May 1, 2008, by and between the CITY OF NEWPORT BEACH, a municipal corporation and charter city duly organized and existing under a freeholder's charter under the Constitution and the laws of the State of California (the "City "), and Wells Fargo Bank, National Association, a national banking association organized and existing under the laws of the United States of America, being qualified to accept and administer the trusts hereby created (the "Bond Trustee "); WITNESSETH: WHEREAS, the City is a municipal corporation and charter, city duly organized and existing under a freeholder's charter under the Constitution and laws of the State of California; and pursuant to the Charter of the City (as it may from time to time be amended, hereinafter called the "Charter') has the right and power to make and enforce all laws and regulations in respect to municipal affairs and certain other. matters in accordance with and as more particularly provided in Sections 3, 5 and 7 of Article XI of the Constitution of the State of California and Section 200 of Article II of the Charter, and pursuant to such right and power the City Council of the City adopted Ordinance No. 85 -23 and 84 -4 (said Ordinances, as the same may from time to time be amended, being hereafter called the "Law'); and WHEREAS, the City is authorized under the Law to issue its bonds for the purpose of making secured or unsecured loans to any participating health institution (as defined in the Law) for the cost of acquiring, constructing, rehabilitating or improving a health facility (as defined in the Law) or financing thereof or working capital therefor, including reimbursement of costs already expended for such purpose and for refinancing outstanding obligations of such participating health institution incurred to finance the cost of acquiring, constructing, rehabilitating or improving a health facility or financing working capital for such health facility, all for the purposes set forth in the Law; and WHEREAS, Hoag Memorial Hospital Presbyterian, a California nonprofit public benefit corporation (the "Corporation "), has requested the assistance of the City in the financing and refinancing of the acquisition, construction and equipping of health facilities located within the City; WHEREAS, the City provided such assistance through the issuance of its Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2005A, Series 2005B and Series 2005C and its Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2007A, Series 2007B, Series 2007C, Series 2007D and Series 2007E (collectively, the "Prior Bonds "); WHEREAS, the Corporation has requested the assistance of the City in the refunding of all the outstanding Prior Bonds; WHEREAS, the Corporation has made an additional request for the assistance of the City in the refinancing of the acquisition, construction, and equipping of health facilities located within the City; OHS West:260411958.4 WHEREAS, after due investigation and deliberation, the City has approved said request and authorized the issuance of its Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008A, 2008B, 2008C, 2008D and 2008E (collectively, the "Bonds ") in the aggregate principal amount of dollars [PARAMOUNT] to provide such assistance to the Corporation in accordance with the Law; WHEREAS, the City has duly entered into a loan agreement, dated as of May 1, 2008, with the Corporation specifying the terms and conditions of a loan by the City to the Corporation of the proceeds of the Bonds and of the payment by the Corporation to the City of amounts sufficient for the payment of the principal of and interest and premium, if any, on the Bonds, the Purchase Price, under circumstances described therein, and certain related expenses; WHEREAS, pursuant to a master trust indenture, dated as of May 1, 2007 (the "Master Indenture "), between the Corporation, Newport Health Care Center LLC, a California limited liability company ( "NHC "), the sole corporate member for which is the Corporation, and Wells Fargo Bank, National Association, as master trustee (the "Master Trustee "), and a Supplemental Master Indenture for Obligation No. 4, dated as of May 1, 2008, between .the Corporation and the Master Trustee ( "Supplement No. 4 "), the Corporation has issued its Obligation No. 4 to evidence the joint and several obligation of the Members to make all payments required of the Corporation under the Loan Agreement, including amounts sufficient to pay the principal of and premium and interest on the Bonds; WHEREAS, payments of the principal of, interest on, and Purchase Price of the Bonds, will be initially secured by a direct pay letter of credit to be issued by , simultaneously with the issuance and delivery of the Bonds. WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued. and secured and to secure the payment of the principal thereof and interest thereon, the City has authorized the execution and delivery of this Bond Indenture; and WHEREAS, the Bonds, and the Bond Trustee's certificate of authentication and assignment to appear thereon, shall be in substantially the following forms, respectively, with necessary or appropriate variations, omissions and insertions, as permitted or required by this Bond Indenture: _2_ OHS West260411958.4 NUMBER I1A FORM OF BOND PRINCIPAL AMOUNT CITY OF NEWPORT BEACH REFUNDING REVENUE BOND (HOAG MEMORIAL HOSPITAL PRESBYTERIAN) SERIES 2008_ MATURITY DATE December 1, 20 INTEREST RATE Variable REGISTERED HOLDER: Cede & Co. DATED ,2008 CUSIP NUMBER CITY OF NEWPORT BEACH, a municipal corporation and charter city duly organized and existing under a freeholder's charter under the Constitution and the laws of the State of California, (the "City "), for value received, hereby promises to pay (but only out of the Revenues and other assets pledged therefor as hereinafter mentioned) to the Registered Holder specified above or registered assigns, on the Maturity Date specified above (unless this Bond shall have been previously called for redemption in whole or in part and payment of the Redemption Price (as hereinafter provided) shall have been duly made), the Principal Amount specified above, in lawful money of the United States of America; and to pay interest thereon (but only from said Revenues and other assets pledged therefor) in like lawful money from the date hereof until payment of such principal sum shall be discharged as provided in the Bond Indenture hereinafter mentioned, at the rates per annum determined as set forth below, payable on each Interest Payment Date (as defined below). The principal (or Redemption Price) hereof is payable at the designated corporate trust office of Wells Fargo Bank, National Association (together with any successor Bond Trustee as provided in the Bond Indenture, as defined below, the "Bond Trustee "). Interest hereon is payable by check mailed on each Interest Payment Date to the Holder hereof as of the close of business on the Record Date (as hereinafter defined) at the address appearing on the bond registration books maintained by the Bond Trustee; provided, however, that in the case of Bonds bearing interest at Bond Interest Term Rates (as hereinafter described), or Bonds bearing interest other than at a Bond Interest Term Rate for a Holder who owns an aggregate principal amount in excess of $1,000,000 of Bonds as shown on the registration books maintained by the Bond Trustee and who, prior to the Record Date next preceding any Interest Payment Date, shall have provided the Bond Trustee with written wire transfer instructions, in accordance with such written wire transfer instructions and the Bond Indenture, provided that while the Bonds bear interest at Bond Interest Term Rates, except for Bonds registered in the name of the Securities Depository (as defined in the Bond Indenture), interest payable hereon is payable only upon presentation hereof to the Bond Trustee, at its Principal Office (hereinafter identified). OHS West:260411958.4 -3- NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OF NEWPORT BEACH, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR PREMIUM OR INTEREST ON THIS BOND. The Record Date means (i) with respect to any Bonds bearing interest at a Weekly Interest Rate (as hereinafter described) or a Bond Interest Tenn Rate (as hereinafter described) (each a "Record Date "), the Business Day (as hereinafter described) immediately preceding the related Interest Payment Date, (ii) with respect to any Bonds bearing interest at a Serial Bond Interest Rate, the 15th day of the calendar month immediately preceding the calendar month in which such Interest Payment Date falls or, in the event that an Interest Payment Date shall occur less than 15 days after the first day of a Serial Bond Interest Rate Period, such first day and (iii) with respect to any Bonds which are ARS, the second Business Day next preceding each ARS Interest Payment Date. If available funds are insufficient on any Interest Payment Date to pay the interest then due, such interest shall continue to accrue thereon but shall cease to be payable to the Holders shown on the registration books of the Bond Trustee as of the related Record Date. If sufficient funds for the payment of the overdue interest thereafter become available, the Bond Trustee shall establish a special interest payment date (any such date being herein referred to as a "Special Interest Payment Date ") on which such overdue interest shall be paid and a special record date for determining the Bondholders entitled to such payments (any such date shall be a Business Day and shall be referred to as a "Special Record Date "), shall mail a notice of each such date to each Holder at least ten, days prior to the Special Record Date, but not more than.thirty days prior to the Special Interest Payment Date, and shall pay the overdue interest to the Holders on the Special Interest Payment Date. This Bond is issuable in denominations of $100,000 or any integral multiple of $5,000 in excess of $100,000 for Bonds during the Short-Term Interest Rate Period or Weekly Interest Rate Period. During the Serial Bond Interest Rate Period, this Bond shall be issuable in denominations of $5,000 or any integral multiple thereof. During any ARS Interest Rate Period, this Bond is issuable in denominations of $5,000 or any integral multiple thereof. This Bond is one of a duly authorized, issue of bonds of the City designated as "City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008_" (the "Series 2008_ Bonds "), limited in aggregate principal amount to $ , and issued pursuant to the provisions of Ordinance No. 85 -23 and 84 -4 of the City (the "Law ") and a bond indenture, dated as of May 1, 2008, between the City and the Bond Trustee (the "Bond Indenture "). The Series 2008_ Bonds are issued under the Bond.Indenture on a parity with bonds of the City designated as "City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008_" (the "Series 2008_ Bonds "), "City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008_" (the "Series 2008_ Bonds "), "City of Newport'Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008_" (the "Series 2008_ Bonds ") and the "City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008_" (the "Series 2008_ Bonds "). The Series 2008_ Bonds, Series 2008_ Bonds, Series 2008_ Bonds, Series 2008_ Bonds and the Series 2008_ Bonds are collectively referred to as the `Bonds." The Bonds are issued for the purpose of making a loan to Hoag Memorial Hospital Presbyterian, a California nonprofit public benefit corporation (the -4- OHS West:260411958.4 "Corporation "), pursuant to a loan agreement, dated as of May 1, 2008 (the "Loan Agreement'); between the City and the Corporation, for the purposes and on the terms and conditions set forth therein. Reference is hereby made to the Bond Indenture (a copy of which is on file at said designated corporate trust office of the Bond Trustee) and all indentures supplemental thereto, to the Loan Agreement (a copy of which is on file at said designated corporate trust office of the Bond Trustee) and to the Law for a description of the rights thereunder of the Holders of the Bonds, of the nature and extent of the security, of the rights, duties and immunities of the Bond Trustee and of the rights and obligations of the City thereunder, to all the provisions of which Bond Indenture and Loan Agreement the Holder of this Bond, by acceptance hereof, assents and agrees. Capitalized terms not otherwise defined herein have the meanings set forth in the Bond Indenture. The Bonds and the interest thereon are payable from Revenues (as that term is defined in the Bond Indenture) and are secured by a pledge and assignment of said Revenues and of amounts held in the funds and accounts established pursuant to the Bond Indenture (other than the Bond Purchase Fund and the Rebate Fund), subject only to the provisions of the Bond Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Bond Indenture. The Bonds are further secured by an assignment of the right, title and interest of the City in the Loan Agreement (to the extent and as more particularly described in the Bond Indenture) and in Obligation No. 4, dated as of the date of initial delivery of the Bonds, and issued by the Corporation, pursuant to the terms of a master trust indenture, dated as of May 1, 2007, (the "Master Indenture "), between the Corporation, Newport Healthcare Center LLC, a California limited liability company, the .sole corporate member of which is the Corporation, and Wells Fargo Bank, National Association, as Master Trustee (herein called the "Master Trustee ") and a supplemental master indenture, dated as of May 1, 2008, between the Corporation and the Master Trustee. The term of the Series 2008_ Bonds will be divided into consecutive Interest Rate Periods during each of which the Series 2008_ Bonds shall bear interest at a Weekly Interest.Rate (a "Weekly Interest Rate Period "), a Serial Bond Interest Rate (a "Serial Bond Interest Rate Period "), Bond Interest Term Rates for one or more consecutive Bond Interest Terms (a "Short-Term Interest Rate Period ") or an ARS Interest Rate (an "ARS Interest Rate Period "). The Interest Rate Period on the Series 2008 Bonds thereafter may be adjusted from time to time to a Weekly Interest Rate Period, a Short -Term Interest Rate Period, a Serial Bond Interest Rate Period or an ARS Interest Rate Period and thereafter again adjusted as described in the Bond Indenture. As hereinafter described, the Series 2008_ Bonds are subject to mandatory purchase on the first day of any Interest Rate Period. During any Weekly Interest Rate Period for the Series 2008_ Bonds, interest on the Series 2008_ Bonds shall be payable on each Interest Payment Date for the period commencing on the immediately preceding Interest Accrual Date (or, if any Interest Payment Date is not a Wednesday, commencing on the second preceding Interest Accrual Date) and ending on the Tuesday immediately preceding the Interest Payment Date (or, if sooner, the last day of the Weekly Interest Rate Period). During any Short-Term Interest Rate Period, Serial Bond Interest Rate Period or ARS Interest Rate Period, interest on this Bond shall be payable on -S- ONS West260411958.4 each Interest Payment Date for the period commencing on the immediately preceding Interest Accrual Date and ending on the day immediately preceding such Interest Payment Date. In any event, interest on this Bond shall be payable for the final Interest Rate Period to the date on which this Bond shall have been paid in full. Interest shall be computed, in the case of a Serial Bond Interest Rate Period, on the basis of a 360 -day year consisting of twelve 30 -day months, in the case of any other Interest Rate Period (other than an ARS Interest Rate Period, which shall be computed as provide in Exhibit A hereto), on the basis of a 365- or 366- day year, as the case may be, for the actual number of days elapsed. The term "Interest Accrual Date" means (i) with respect to any Weekly Interest Rate Period, the first day thereof and, thereafter, the first Wednesday of each calendar month during such Weekly Interest Rate Period (whether or not a Business Day), (ii) with respect to any Auction Period within an ARS Interest Rate Period, the first day thereof, (iii) with respect to any Serial Bond Interest Rate Period, the first day thereof and, thereafter, each Interest Payment Date in respect thereof, other than the last such Interest Payment Date, and (iv) with respect to each Bond Interest Term within a Short-Term Interest Rate Period, the first day thereof. The term "Interest Payment Date" means (i) with respect to any Weekly Interest Rate Period, the first Wednesday of each calendar month or, if such first Wednesday shall not be a Business Day, the next succeeding Business Day, (ii) with respect to any Serial Bond Interest Rate Period, each June 1 and December 1, provided that if any such June 1 or December 1 is not a Business Day, the next succeeding Business Day, (iii) with respect to any Bond Interest Term, the day next succeeding the last day thereof (iv) with respect to each ARS Interest Rate Period, the Business Day immediately following each Auction Period and (v) with respect to any Interest Rate Period that is different than the immediately preceding Interest Rate Period, the first day thereof. The term "Business Day" any day other than a Saturday, Sunday or a day on which banks located in (a) the State of California or the State of New York, (b) the city or cities in which the principal corporate trust office of the Trustee and the Tender. Agent is located, (c) the city or cities in which the office of the Credit Facility Provider and/or Liquidity Facility Provider at which drawings under the Credit Facility and/or Liquidity Facility are to be presented is located, and (d) the city in which the principal office of each Remarketing Agent is located, are required or 'authorized to remain closed or on which The New York Stock Exchange is closed, in addition, while Bonds of a Series bear interest at the ARS Rate, the term Business Day shall not include Saturdays, Sundays, days on which banking institutions or trust companies located in the state in which the operations of the Auction Agent are conducted are authorized or required to be closed by law, regulation or executive order of the state in which the Auction Agent conducts operations with respect to such Bonds. The interest rate on the Series 2008 Bonds shall be determined as follows: (1) Weekly Interest Rate. During each Weekly Interest Rate Period, this Bond shall bear interest at the Weekly Interest Rate, which shall be determined by the Remarketing Agent by no later than 5:00 p.m., New York City time, on Tuesday of each week during such Weekly Interest Rate Period or if such day shall not be a Business Day, then on the next succeeding Business Day. The first Weekly Interest Rate for each Weekly Interest Rate Period shall be determined on or prior to the first day of such Weekly Interest Rate Period and shall apply to the period commencing on the first day of such Weekly Interest Rate Period. and ending on the next succeeding Tuesday (whether or not a Business Day). Thereafter, each -6- OHS Wmt:260411958.4 Weekly Interest Rate shall apply to the period commencing on the first Wednesday on or after the date, of determination thereof (whether or not a Business Day) and ending on the next succeeding Tuesday (whether or not a Business Day), unless such Weekly Interest Rate Period shall end on a day other than a Tuesday, in which event the last Weekly Interest Rate for such Weekly Interest Rate Period shall apply to the period commencing on the Wednesday (whether or not a Business Day) preceding the last day of such Weekly Interest Rate Period and ending on the last day of such Weekly Interest Rate Period. The Weekly Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the minimum interest rate which, if borne by the Series 2008_ Bonds, would enable the Remarketing Agent to sell the Series 2008_ Bonds on the effective date and at the time of such determination at a price (without regard to accrued interest) equal to the principal amount thereof. In the event that the Remarketing Agent fails to establish a Weekly Interest Rate for any week, then the Weekly Interest Rate for such week shall be the same as the Weekly Interest Rate for the immediately preceding week if the Weekly Interest Rate for such preceding week was determined by the Remarketing Agent. In the event that the Weekly Interest Rate for the immediately preceding week was not determined by the Remarketing Agent, or in the event that the Weekly Interest Rate determined by the Remarketing Agent shall be held to be invalid or unenforceable by a court of law, then the interest rate for such week shall be equal to 110% of the SIFMA Swap Index on the day such Weekly Interest Rate would otherwise be determined as provided in the Bond Indenture for such Weekly Interest Rate Period, until the Remarketing Agent is able to set the rate as required under the Bond Indenture. (2) Serial Bond Interest Rate. During each Serial Bond Interest Rate Period, this Bond shall bear interest at the Serial Bond Interest Rate. The Serial Bond Interest Rate shall be determined by the Remarketing Agent on a Business Day no later than the effective date of such Serial Bond Interest Rate Period. Subject to the detailed provisions set forth in the Bond Indenture the Serial Bond Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the minimum interest rate which, if borne by the Series 2008_ Bonds, would enable the Remarketing Agent to sell the Series 2008_ Bonds on the date and at the time of such determination at a price equal to the principal amount thereof (or at a discount below or premium above par if Bond Counsel (as defined in the Bond Indenture) delivers a Favorable Opinion of Bond Counsel (as defined in the Bond Indenture) to the Bond Trustee). If, for any reason, the Serial Bond Interest Rate is not so determined for the Serial Bond Interest Rate Period by the Remarketing Agent on or prior to the first day of such Serial Bond Interest Rate Period, then the Series 2008 Bonds shall bear interest at the Weekly Interest Rate and shall continue to bear interest at a _ Weekly Interest Rate until such time as the interest rate on such Bonds shall have been adjusted to Bond Interest Term Rates, a Serial Bond Interest Rate or an ARS Interest Rate, as provided in the Bond Indenture. (3) Bond Interest Term Rates. During each Short-Term Interest Rate Period, this Bond shall bear interest during each Bond Interest Term at the Bond Interest Term Rate. The Bond Interest Term and the Bond Interest Term Rate need not be the same for any two Bonds, even if determined on the same date. Each of such Bond Interest Terms and Bond Interest Term Rates for each Bond shall be determined by the Remarketing Agent no later than the first day of each Bond Interest Term. Each Bond Interest Term shall be for a period of days within the range or ranges announced as possible Bond Interest Terms no later than 9:30 a.m., New York City time, on the first day of each Bond Interest Term by the Remarketing Agent. -7- OHS West260411958.4 Each Bond Interest Term for each Bond shall be a period of not more than one hundred eighty (180) days, determined by the Remarketing Agent to be the period which, together with all other Bond Interest Terms for all Series 2008_ Bonds then Outstanding, will result in the lowest overall interest expense on the Series 2008— If, for any reason, a Bond Interest Term for any Bond cannot be so determined by the Remarketing Agent, or if the determination of such Bond Interest Term is held by a court of.law to be invalid or unenforceable, then such Bond Interest Term shall be thirty (30) days, but if the last day so determined shall not be a day immediately preceding a Business Day, shall end on the first day immediately preceding the Business Day next succeeding such last day, or if such last day would be after the day immediately preceding the Maturity Date, shall end on the day immediately preceding the Maturity Date. Each Bond Interest Term shall end on either a day which immediately precedes a Business Day or on the day immediately preceding the Maturity Date for the Series 2008_ Bonds. No Bond Interest Term shall be set to end On a day later than the fifth day preceding the expiration of any Liquidity Facility applicable to the subject Bonds. The Bond Interest Term Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the minimum interest rate which, if borne by this Bond, would enable the Remarketing Agent to sell. this Bond on the date and at the time of such determination at a price equal to the principal amount thereof. If, for any reason, a Bond Interest Term Rate for any Bond is not so established by the Remarketing Agent for any Bond Interest Term, or such Bond Interest Term Rate is determined by a court of law to be invalid or unenforceable, then the Bond Interest Term Rate for such Bond Interest Term shall be the rate per annum equal to 110% of the SIFMA Swap Index on the first day of such Bond Interest Term. (4) ARS Interest Rates. During each ARS Interest Rate Period, this Bond shall bear interest at a rate determined by the periodic application of the Auction Procedures, as provided in the Bond Indenture. The Bond Trustee shall give notice by first class mail of an adjustment in the Interest Rate Period not less than thirty (30) days prior to the proposed effective date of such Interest Rate Period. If notice of such adjustment has been mailed to the Holders of the Series 2008_ Bonds and Bond Counsel fails to deliver a Favorable Opinion of Bond Counsel (as that term is defined in the Bond Indenture), if required pursuant to the Bond Indenture, or if other conditions precedent to such adjustment have not been satisfied, the Series 2008_ Bonds shall continue to be subject to mandatory tender for purchase (as described herein) on the date that would have been the effective date of such adjustment unless the Bonds were previously bearing interest at an ARS Interest Rate. If this Bond was previously bearing interest at an ARS Interest Rate, this Bond shall not be subject to mandatory tender for purchase and shall bear interest as provided in the Bond Indenture. Optional Purchase of Bonds During Weekly Interest Rate Period. During any Weekly Interest Rate Period any Eligible Bond shall be purchased at the option of the Holder on any Business Day at a purchase price equal to the Purchase Price (as defined in the Bond Indenture), payable in immediately available funds, upon delivery to the Tender Agent at its Principal Office for delivery of notices and to the Remarketing Agent of an irrevocable written notice which states the name of such Bond, the principal amount of such Bond and the date on which the same shall be purchased, which date shall be a Business Day not prior to the seventh day next succeeding the date of the delivery of such notice to the Tender Agent. Any notice -8- OHS West:260411958.4 delivered to the Tender Agent after 4:00 p.m., New York City time, shall be deemed to have been received on the next succeeding Business Day. For payment of such Purchase Price on the date specified in such notice, such Bond must be delivered, at or prior to 10:00 a.m., New York City time, on the date specified in such notice, to the Tender Agent at its Principal Office, accompanied by an instrument of transfer hereof, in form satisfactory to the Tender Agent executed in blank by the Holder hereof or the Holder's duly authorized attorney, with such signature guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. The giving of notice by a Holder of such Bond that such Holder elects to have such Bond purchased during a Weekly Interest Rate Period as described above shall constitute the irrevocable tender for purchase of such Bond with respect to which such notice shall have been given irrespective of whether such Bond shall be delivered to the Tender Agent for purchase. Mandatory Tender for Purchase on Day Next Succeeding the Last Day of Each Bond Interest Term. On the day next succeeding the last day of each Bond Interest Term for any Bond while in a Short -Term Interest Rate Period, unless such day is the first day of a new Interest Rate Period, such Bond shall be purchased from its Holder at a purchase price equal to the principal amount hereof plus accrued interest to but not including the Purchase Date (as defined in the Bond Indenture), payable in immediately available funds, if such Bond is delivered to the Tender Agent not later than 10:00 a.m., New York City time, on such day or, if delivered after 10:00 a.m., New York City time, payable on the next succeeding Business Day; provided, however, that in any event such Bond will not bear interest at the Bond Interest Term Rate after the last day of each Bond Interest Term. The Purchase Price of any Bond so purchased shall be payable only upon surrender of such Bond to the Tender Agent at its Principal Office, accompanied by an instrument of transfer thereof, in form satisfactory to the Tender Agent, executed in blank by the Holder thereof or by the Holder's duly authorized attorney, with such signature guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. Mandatory Tender for Purchase on First Dad of Each Interest Rate Period. The Bonds shall be subject to mandatory tender for purchase on the first day of each Interest Rate Period with respect to such Bonds, or on the day which would have been the first day of an Interest Rate Period with respect to such Bonds in the event that one of the conditions precedent to the adjustment to a new Interest Rate Period shall not be met as described in the Bond Indenture (unless such Bonds were previously bearing an ARS Interest Rate, in which case there is no mandatory tender), at the Purchase Price, payable in immediately available funds in accordance wiib the Bond Indenture. The Purchase Price of any Bond so purchased shall be payable only upon surrender of such Bond to the Tender Agent at its Principal Office, accompanied by an instrument of transfer thereof, in form satisfactory to the Tender Agent, executed in blank by the Holder thereof or by the Holder's duly authorized attorney, with such signature guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange, at or prior to 10:00 a.m., New York City time, on the date specified for such delivery in this paragraph or in the notice of adjustment to a new Interest Rate Period provided to the Holders by the Bond Trustee. -9- OHS West260411958,4 0 f a a 0 w ,-- ° (tD 5'o 8v C8 � o n o 00 '0o a ��°. 4.((D= 6. r. ti °'(a0D CL t < �' tz $ . . CD o n: r CP CL CL 4. CLa o `C v O n pt CD a ((DD ..� a'. ((DD CD �aa o a ° C ° (nD (o ao < c �'<o.n oa n °a, a c C a n w .. a 0 CL o °(D (a) C n Er � •°�, O O •rte' td n• (D <' CD .�q td `Jy• P ttl a 0 (D 5s o (D a o (D N m O fA � Cl. CL o o N (D a Y CD G R N A '�'d (QD ry O o P M a b (D L a. ^�a s swRr-� n... o M ,fi,�-rr N N kj N o AD o w (D CD e -e ti% N O . o w� o ° rte' `CD �jc' aQ 0 �' µ (D a (D '. (�(DD (D O C CL m 0 CD 0 CL CL CD . a 0. N (D a (moo a ° :r a CL CL `G O A. � K am' W 4. a (CD CD FD nhd ° Q,o a� C(`Di td� ° (CD bib o n o tz n .. 0 o tz rL C� o w CD < E n." ° n o a n(o -d -oo -o H R N§ ; go -ytry -fwt- o a`° m y Nnw.. o w 00 (D 5' ,y a N' o (D b o =."= (mry.,�,rm a � O N • w N N� A CY R C N r �' CD CD CL 0 CD �' ti° O P0.. 0 z 2 O" o o o _n w n CL 0 100 0= t"o n y >° Ch a(oD c w o °. w f7 tr o (D (D a CD CD CL w c w a;: K � .°nw C CD E dyo eb o . o �S (D w K n w tr o wt" C o 0' w M O n w a' w (°D r o ° n (HD �NnC 0 0��wn(g��a'.�'� ki CL Q H o n °a w o a w a ��� n O W �G n C N° o on o b a �9 a z] O n V (D 00 C N "O a °a a F o "d w a.00 °o(CD°:wN° While any Weekly Interest Rate is in effect with respect to the Series 2008_ Bonds, the Series 2008_ Bonds are subject to redemption prior to their stated maturity, at the option of the City (which option shall be exercised upon Request of the Corporation given to the Bond Trustee (unless waived by the Bond Trustee) at least twenty -five (25) days prior to the date fixed for redemption), in whole or in part on any date at a redemption price equal to the principal amount of such Bonds to be redeemed, plus accrued interest thereon (if any) to the date fixed for redemption, without premium, but only from Available Moneys (as defined in the Bond Indenture) at any time at which there is a Credit Facility in effect with respect to such Bonds. While any Serial Bond Interest Rate is in effect with respect to the Series 2008_ Bonds, the Series 2008_ Bonds are subject to redemption prior to their stated maturity at the option of the City (which option shall be exercised upon Request of the Corporation given to the Bond Trustee (unless waived by the Bond Trustee) at least twenty -five (25) days prior to the date fixed for redemption), in whole or in part, on the first day following such Serial Bond Interest Rate Period at a redemption price equal to the principal amount of such Bonds to be redeemed, plus accrued interest thereon (if any) to the date fixed for redemption, without premium, but only from Available Moneys at any time at which there is a Credit Facility in effect and thereafter, during the periods specified below (or, if approved by Bond Counsel, during the periods and at the redemption prices specified in a notice of the Corporation to the Bond Trustee) in whole or in part on any date, at the redemption prices (expressed as a percentage of principal amount) hereinafter indicated or specified in the notice of the Corporation to the Bond Trustee, plus accrued interest thereon (if any) to the date fixed for redemption, but only from Available Moneys at any time at which there is a Credit Facility in effect: Length of Serial Bond Interest Rate Period (expressed in years) Redemption Prices greater than 10 after 10 years at 100% While any Bond Interest Term Rate is in effect, the Series 2008_ Bonds subject to such Bond Interest Term Rate are also subject to redemption prior to their stated maturity, at the option of the City (which option shall be exercised upon Request of the Corporation given to the Bond Trustee (unless waived by the Bond Trustee) at least twenty -five (25) days prior to the date fixed for redemption), in whole or in part, on the day succeeding the last day of such Bond Interest Term at a Redemption Price equal to the principal amount of Series 2008_ Bonds called for redemption, plus accrued interest thereon (if any) to the date fixed for redemption, without premium, but only from Available Moneys at any time at which there is a Credit Facility in effect. While any ARS Interest Rate is in effect, the Series 2008 Bonds are also subject to redemption prior to their stated maturity, at the option of the City _ (which option shall be exercised upon Request of the Corporation given to the Bond Trustee (unless waived by the Bond Trustee) at least forty (40) days prior to the date fixed for redemption), in whole or in part, on any ARS Interest Payment Date at a Redemption Price equal to the principal amount of Series 2008_ Bonds called for redemption, plus accrued interest thereon (if any) to the date fixed for OHS West:260411958.4 redemption, without premium, but only from Available Moneys at any time at which there is a Credit Facility in effect. The Bonds are subject to redemption prior to their stated maturity, at the option of the City (which option shall be exercised upon Request of the Corporation in accordance with the Bond Indenture) in whole or in part, on any date, from hazard insurance or condemnation proceeds received with respect to the facilities of any of the Members and deposited in the Special Redemption Account, at a redemption Price equal to the principal amount thereof, plus accrued interest thereon (if any) to the date fixed for redemption, without premium, but only from Available Moneys at any time at which there is a Credit Facility in effect. In addition, the Bonds are also subject to redemption prior to maturity at the option of the City (which option shall be exercised upon Request of. the Corporation in accordance with the Bond Indenture) as a whole (but not in part) on any date at the principal amount thereof and interest accrued thereon (if any) to the date fixed for redemption, without premium, but only from Available Moneys at any time at which there is a Credit Facility in effect, if as a result of any changes in the Constitution of the United States of America or any state or legislative or administrative action or inaction by the United States of America or any state, or any agency or political subdivision thereof, or by reason of any judicial decisions and there is a good faith determination by any Member that (a) the Master Indenture has become void or unenforceable or impossible to perform or (b) unreasonable burdens or excessive liabilities have been imposed on such Member, including without limitation, federal, state or other ad valorem property, income or other taxes not being imposed on the Date of Issuance. The Series 2008 Bonds are also subject to mandatory redemption prior to the Maturity Date, in part, from Sinking Fund Installments payable on December 1 (subject to adjustment in accordance with the Bond Indenture) of each year set forth below (provided, that if the Series 2008_ Bonds are in a Weekly Interest Rate Period, a Short-Term Interest Rate Period or a Serial Bond Interest Rate Period, and any such December 1 is not a Business Day, the applicable Sinking Fund Installment shall be paid on the next succeeding Business Day; and provided further, that if the Series 2008_ Bonds are in an ARS Interest Rate Period and any.such December 1 is not an ARS Interest Payment Date, the applicable Sinking Fund Installment shall be paid on the next succeeding ARS Interest Payment Date), in the amount set forth below, at a redemption price equal to 100% of the principal amount to be redeemed, plus accrued interest thereon (if any) to the date fixed for redemption, without premium, but only from Available Moneys at any time at which there is a Credit Facility in effect: -12- OHS West260411958.4 Sinking Fund Installment Date (December 10 Sinking Fund Installments. 20 20 26—* t Subject to adjustment as provided in the Bond Indenture. * Final maturity. Any redemption of this Bond shall be made as provided in the Bond Indenture upon not less than thirty (30) days' nor more than sixty (60) days' notice (except in the case of redemption of Bonds that bear interest at a Weekly Interest Rate, or at a Bond Interest Term Rate which shall be upon not less than ten (10) days' notice and except in the case of redemption of Bonds that bear interest at an ARS Interest Rate which shall be upon not less than twenty -five (25) days' notice) by mailing a copy of the redemption notice postage prepaid to the Holder hereof at the address shown on the bond registration books of the Bond Trustee; provided, however, that failure by the Bond Trustee to mail any notice or any defect therein or in the mailing thereof, as it affects any particular Bond, shall not affect the validity of the proceedings for redemption of any other Bonds. Any notice of optional redemption given in accordance with the provisions.of the Bond Indenture may be rescinded by written notice given to the Bond Trustee by the Corporation no later than two Business Days prior to the date specified for redemption. If this Bond is called for redemption and payment is duly provided therefor as specified in the Bond Indenture, interest shall cease to accrue hereon from and after the date fixed for redemption. If an Event of Default (as that term is defined in the Bond Indenture) shall occur, the principal of all Bonds may be declared due and payable upon the conditions, in the manner and with the effect provided in the Bond Indenture. The Bond Indenture provides that in certain events such declaration and its consequences maybe rescinded. Subject to the limitations and upon payment of the charges, if any, provided in the Bond Indenture, Series 2008_ Bonds may be exchanged, at the designated corporate trust office of the Bond Trustee, for a like aggregate principal amount of Series 2008_ Bonds of other authorized denominations. This Bond is transferable by the Holder hereof, in person or by such Person's attorney duly authorized in writing, at the designated corporate trust office of the Bond Trustee, but only in the manner, subject to the limitations and upon payment of the charges, if any, provided in the Bond Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a Series 2008_ Bond or Bonds, of authorized denomination or denominations and for the same aggregate principal amount, will be issued to the transferee in exchange herefor. The City and the Bond Trustee shall treat the Holder hereof as the absolute owner hereof for all purposes, and the City and the Bond Trustee shall not be affected by any notice to the contrary. -13- OHS West:260411958.4 The Bond Indenture and the rights and obligations of the City and of the Holders of the Bonds and of the Bond Trustee may be modified or amended from time to time and at any time in the manner, to the extent, and upon the terms provided in the Bond Indenture; provided that no such modification or amendment shall (i) extend the stated maturity of this Bond, or reduce the amount of principal hereof, or extend the time of payment, or change the method of computing the rate of interest hereon, or extend the time of payment of interest hereon, or reduce any premium payable upon the redemption hereof or change the Purchase Price to be paid upon tender hereof, without the consent of the Holder hereof, or (ii) reduce the percentage of Bonds 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 Bond Indenture as security for the Bonds prior to or on a parity with the lien created by the Bond Indenture, or deprive the Holders of the Bonds of the lien created by the Bond Indenture on such Revenues and other assets (except as expressly provided in the Bond Indenture), without the consent of the Holders of all Bonds then outstanding, all as more fully set forth in the Bond Indenture. It is hereby certified and recited that any and all acts, conditions and things required to exist, to have happened and to have been performed precedent to and in the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by the provisions of the Law and by the Constitution and laws of the State of California, and that the amount of this Bond, together with all other indebtedness of the City, does not exceed any limit prescribed by the Law or the Constitution and laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Bond Indenture. This Bond shall not be entitled to any benefit under the Bond Indenture, or become valid or obligatory for any purpose, until the certificate of authentication and registration hereon endorsed shall have been signed by the Bond Trustee. -14- OHS West:260411958.4 IN WITNESS WHEREOF, CITY OF NEWPORT BEACH has caused this Bond to be executed in its name and on its behalf by the facsimile signature of its Mayor and its seal to be reproduced hereon by facsimile and attested by the facsimile signature of its City Clerk, all as of the date set forth above. (Seal) Attest: : CITY OF NEWPORT BEACH City Clerk Mayor [FORM OF BOND TRUSTEE'S CERTIFICATE OF AUTHENTICATION AND REGISTRATION] This is one of the Bonds described in the within mentioned Bond Indenture, which has been registered on the date set forth below. Dated: Wells Fargo Bank, National Association, as Bond Trustee LE Authorized Officer -15- OHS West:260411958.4 [FORM OF ASSIGNMENT] For value received, the undersigned do(es) hereby sell, assign and transfer unto the within mentioned Bond and hereby irrevocably constitute(s) and appoint(s) , attorney, to transfer the same on the books of the within named Bond Trustee, with full power of substitution in the premises. Dated: Notice: The signature on this Assignment must correspond with the name as it appears on the face of the within Bond in every particular, without alteration or enlargement or any change whatsoever. Social . Security Number, Taxpayer Identification Number or other Identifying Number of Assignee: Signature Guaranteed By: NOTICE: Signature must be guaranteed by an eligible guarantor institution. WHEREAS, the City has determined that all acts and proceedings required by law necessary to make the Bonds, when executed by the City, authenticated and delivered by the Bond Trustee and duly issued, the valid, binding and legal limited obligations of the City, and to constitute this Bond Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Bond Indenture have been in all respects duly authorized; NOW, THEREFORE, THIS BOND INDENTURE WITNESSETH, that in order to secure the payment of the principal of, the interest and premium, if any, on, all Bonds at any time issued and outstanding under this Bond Indenture, according to their tenor, and the Purchase Price, under circumstances as described herein, and to secure the performance and observance of all the covenants and .conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the holders thereof, and for other valuable consideration, the receipt whereof is hereby acknowledged, the City. does hereby covenant and agree with the Bond Trustee, for the respective benefit of the Holders from time to time of the Bonds, as follows: -16- OHS West:260411958.4 ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS SECTION 1.01. Definitions. Unless the context otherwise requires, the terms defined in this Section shall, for all purposes of this Bond Indenture and of any indenture supplemental hereto and of any certificate, opinion or other document herein mentioned, have the meanings herein specified or specified in Exhibit A, to be equally applicable to both the singular and plural forms of any of the terms herein defined. Unless otherwise defined in this Bond Indenture, all terms used herein shall have the meanings assigned to such terms in the Law. Additional Payments "Additional Payments" means the payments so designated and required to be made by the Corporation pursuant to Section 3.2 of the Loan Agreement. Administrative Fees and Expenses "Administrative Fees and Expenses" means any application, commitment, financing or similar fee charged or reimbursement for administrative or other expenses incurred by the City or the Bond Trustee, including Additional Payments. Alternate Credit Facility "Alternate Credit Facility" means an irrevocable, direct pay letter of credit, providing for the payment of principal of and interest on Bonds when due issued by a commercial bank or financial institution delivered or made available to the Bond Trustee in accordance with Section 5.7 of the Loan Agreement which replaces the Credit Facility then in effect for such Bonds. Alternate Liquidity Facilit "Alternate Liquidity Facility" means a line of credit, letter of credit, standby purchase agreement or similar liquidity facility providing for the purchase of Bonds upon their optional or mandatory tender in accordance with the provisions of Article IV hereof and issued by a commercial bank or financial institution delivered or made available to the Tender Agent in accordance with Section 5.8 of the Loan Agreement which replaces the Liquidity Facility then in effect. ARS "ARS" means, on any date, all Bonds of any Series which on such date bear interest as auction rate securities as provided in Exhibit A to this Bond Indenture. Authorized Representative "Authorized Representative" means with respect to the Corporation in whatever capacity it may then be acting, the chairman of its governing body, its chief executive officer, its -17- OHS West:260411958.4 chief financial officer or any other person designated as an Authorized Representative of the Corporation by a Certificate of the Corporation signed by the chairman of its governing body, its chief executive officer, its chief financial officer, and filed with the Bond Trustee. Available Moneys "Available Moneys" means, (a) if a Credit Facility is in effect, (i) moneys drawn under the Credit Facility which at all times since their receipt by the Bond Trustee or the Tender Agent were held in a separate segregated account or accounts or subaccount or subaccounts in which no moneys (other than those drawn under the Credit Facility) were at any time held, (ii) moneys which have been paid to the Bond Trustee or the Tender Agent by the Corporation and have been on deposit with the Bond Trustee or the Tender Agent for at least 124 days (or, if paid to the Trustee or the Tender Agent by an "affiliate," as defined in Bankruptcy Code §101(2), of the Corporation, 366 days) during and prior to which no Event of Bankruptcy shall have occurred, (iii) any other moneys, if, in the opinion of nationally recognized counsel experienced in bankruptcy matters (which opinion shall be acceptable to each Rating Agency then rating the Bonds), the application of such moneys will not constitute a voidable preference in the event of the occurrence of an Event of Bankruptcy, and (iv) investment earnings on any of the moneys described in clauses (i), (ii) and (iii) of this definition; and (b) otherwise, "Available Moneys" means any moneys deposited with the Bond Trustee or the Tender Agent. L ,:7 "Bank" means Bank of America, N.A., or its successors. Bankruptcy Code "Bankruptcy Code" means Title 11 of the United States Code, as amended, and any successor statute. Beneficial Owner "Beneficial Owner" means any Person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any of the Bonds (including any Person holding Bonds through nominees, depositories or other intermediaries). Bond Counsel "Bond Counsel" means Orrick, Herrington & Sutcliffe LLP or another attorney -at- law, or firm of such attorneys, of nationally recognized standing in matters pertaining to the tax- exempt nature of interest on obligations issued by states and their political subdivisions and acceptable to the City and the Bond Trustee. Bond Indenture "Bond Indenture" means this Bond Indenture, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Bond Indenture. -18- OHS West:260411958.4 Bond Interest Term "Bond Interest Term" means, with respect to any Bond, each period established in accordance with Section 2.06 during which such Bond shall bear interest at a Bond Interest Term Rate. Bond Interest Term Rate "Bond Interest Term Rate" means, with respect to any Bond, an interest rate on such Bond established periodically in accordance with Section 2.06. Bond Purchase Fund "Bond Purchase Fund" means the fund by that name established pursuant to Section 4.10. Bond Trustee "Bond Trustee" means Wells Fargo Bank, National Association, a national banking association organized and existing under and by virtue of the laws of the United States, or its successor, as Bond Trustee hereunder as provided in Section 8.01. Bonds "Bonds" means the City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series. 2008A, 2008B, 2008C, 2008D and 2008E authorized by, and at any time Outstanding pursuant to, this Bond Indenture. Business Day "Business Day" means any day other than a Saturday, Sunday or a day on which banks located in (a) the State of California or the State of New York, (b) the city or cities in which the principal corporate trust office of the Trustee and the Tender Agent is located, (c) the city or cities in which the office of the Credit Facility Provider and/or Liquidity Facility Provider at which drawings under the Credit Facility and/or Liquidity Facility are to be presented is located, and (d) the city in which the principal office of each Remarketing Agent is located, are required or authorized to remain closed or on which The New York Stock Exchange is closed, in addition, while Bonds bear interest at the ARS Rate, the term Business Day shall not include Saturdays, Sundays, days on which the Federal Reserve Bank of New York is not open for business, days on which banking institutions or trust companies located in the state in which the operations of the Auction Agent are conducted are authorized or required to be closed by law, regulation or executive order of the state in which the Auction Agent conducts operations with respect to the Bonds. Certificate, Statement, Request or Requisition of the City or the Corporation "Certificate," "Statement," "Request' and "Requisition" of the City or the Corporation mean, respectively, a written certificate, statement, request or requisition signed in -19- OHS West:260411958.4 the name of the City by its Mayor, City Clerk or such other person as may be designated and authorized to sign for the City in writing to the Bond Trustee, or in the name of the Corporation by an Authorized Representative of the Corporation. 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 Section 1.02, each such instrument shall include the statements provided for in Section 1.02. Citv "City" means the City of Newport Beach, a municipal corporation and charter city duly organized and existing under a freeholder's charter under the Constitution and the laws of the State of California. e"M "Code" means the Internal Revenue Code of 1986, or any successor statute thereto and any regulations promulgated thereunder. Continuing Disclosure Certificate "Continuing Disclosure Certificate" means, (i) initially the continuing.disclosure certificate executed by the Corporation with respect to the Bonds on the Date of Issuance pursuant to Section 5.9 of the Loan Agreement, and (ii) after termination of the initial Continuing Disclosure Certificate and subsequent Conversion of a Series of Bonds to an Interest Rate Period subject to the continuing disclosure requirement of Rule 15c2 -12 promulgated by the Securities and Exchange Commission, any other continuing disclosure certificate executed by the Corporation with respect to such Bonds pursuant to -Section 5.9 of the Loan Agreement and then in effect. [BDV Note: CDC on Date of Issuance ?] Conversion "Conversion" means a conversion of a Series of Bonds from one Interest Rate Period to another Interest Rate Period. Conversion Date "Conversion Date" means the effective date of a Conversion of a Series of Bonds. Corporation "Corporation" means Hoag Memorial Hospital Presbyterian, a California nonprofit public benefit corporation duly organized and existing under the laws of the State of California or any corporation that is the surviving, resulting or transferee corporation in any merger, consolidation or transfer of all or substantially all assets permitted under the Master Indenture. -20- OHS wesh.260411958.4 Corporation Purchase Account "Corporation Purchase Account" means the account by that name in the Bond Purchase Fund established pursuant to Section 4.10. Costs of Issuance "Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the City or the Corporation and related to the authorization, issuance, sale and delivery of the Bonds, including but not limited to advertising and printing costs, costs of preparation and reproduction of documents, filing and recording fees, initial fees and charges for the Letter of Credit and initial fees and charges of counsel to the Bank, initial fees and charges of the Bond Trustee and the Master Trustee, initial and ongoing fees and charges. of the City, legal fees and charges, fees and disbursements of consultants and professionals, Rating Agency fees, fees and charges for preparation, execution, transportation and safekeeping of the Bonds, and any other cost, charge or fee in connection with the original issuance of the Bonds. Costs of Issuance Fund "Costs of Issuance Fund" means the fund by that name established pursuant to Section 3.03. Credit Facility "Credit Facility" means the Letter of Credit or, in the event of the delivery or availability of an Alternate Credit Facility, such Alternate Credit Facility. Credit Facility Fund "Credit Facility Fund" means, the fund by that name established pursuant to Section 5.08(C). Credit Facility Provider "Credit Facility Provider" means initially the Bank, and, upon the effectiveness of an Alternate Credit Facility, shall mean the bank or banks or other financial institution or financial institutions or other entity that is then a party to the. Credit Facility. Credit Facility Provider Failure "Credit Facility Provider Failure" means a failure of the Credit Facility Provider to pay a properly presented and conforming draw or request for advance under the Credit Facility or the filing or commencement of any bankruptcy or insolvency proceedings by or against the Credit Facility Provider or the Credit Facility Provider shall declare a moratorium on the payment of its unsecured debt obligations or shall repudiate the Credit Facility. -21- OHS West:260411958.4 Date of Issuance "Date of Issuance" means May _, 2008. Electronic Means "Electronic Means" means facsimile transmission, email transmission or other similar electronic means of communication providing evidence of transmission, including a telephone communication confirmed by any other method set forth in this definition. Eligible Bonds "Eligible Bonds" means any Bonds other than Liquidity Facility Bonds or Bonds owned by,. for the account of, or on behalf of, the City or any Member. Environmental Laws "Environmental Laws" means any federal, state or local law, statute, code, ordinance, regulation, requirement or rule relating to Hazardous Materials to which the Corporation or any property of the Corporation is subject. [Escrow Agreement "Escrow Agreement" means the Escrow Agreement dated the Date of Issuance, between the Bond Trustee, as escrow agent thereunder, and the Corporation.] Event of Bankruptcv "Event of Bankruptcy" means any of the following events: (i) the Corporation (or any other Person obligated, as guarantor or otherwise, to make payments on the Bonds or under the Loan Agreement, Obligation No. _, the Master Indenture or a Reimbursement Agreement, or an "affiliate" of the Corporation as defined in Bankruptcy Code § 101(2)) or the Authority shall (a) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or the like of the Corporation (or such other Person) or the Authority or of all or any substantial part of their respective property, (b) commence a voluntary case under the Bankruptcy Code, or (c) file .a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding -up or composition or adjustment of debts; or -22- OHS WesC260411958.4 (ii) a proceeding or case shall be commenced, without the application or consent of the Corporation (or any other Person obligated, as guarantor or otherwise, to make payments on the Bonds or under the Loan Agreement, Obligation No. _, the Master Indenture or a Reimbursement Agreement, or an "affiliate" of the Corporation as defined in Bankruptcy Code § 101(2)) or the Authority in any court of competent jurisdiction, seeking (a) the liquidation, reorganization, dissolution, winding up, or composition or adjustment of debts, of the Corporation (or any such other Person) or the Authority, (b) the appointment of a trustee, receiver, custodian, liquidator or the like of the Corporation (or any such other Person) or the Authority or of all or any substantial part of their respective property, or (c) similar relief in respect of the Corporation (or any such other Person) or the Authority under any law relating to bankruptcy, insolvency, reorganization, winding -up or composition or adjustment of debts. Event of Default "Event of Default" means any of the events specified in Section 7.01: Expiration Date "Expiration Date" means (i) the date upon which a Credit Facility or a Liquidity Facility is scheduled to expire (taking into account any extensions of such Expiration Date by virtue of extensions of a particular Credit Facility or a particular Liquidity Facility, from time to time) in accordance with its terms, including without limitation termination upon the effective date of an Alternate Credit Facility or an Alternate Liquidity Facility delivered in accordance with Section 5.7 or Section 5.8 of the Loan Agreement, as applicable and (ii) the date upon which a Credit Facility or a Liquidity Facility terminates following voluntary termination by the Corporation pursuant to Section 5.7(b) or Section 5.8(b) of the Loan Agreement, as applicable. Favorable Opinion of Bond Counsel "Favorable Opinion of Bond Counsel" means an opinion of Bond Counsel, addressed to the City, the Credit Facility Provider (if any), the Remarketing Agent (if any), the Broker - Dealer (if any), the Auction Agent (if any), the Corporation and the Bond Trustee, to the effect that the action proposed to be taken is authorized or permitted by the laws of the State of California and this Bond Indenture and will not result in the inclusion of interest on the Bonds in gross income for federal income tax purposes. Fixed Rate Conversion Date "Fixed Rate Conversion Date" means the date on which a Series of Bonds begin to bear interest for a Serial Bond Interest Rate Period which extends to the final Maturity Date of such Series of Bonds. -23- OHS West:260411958.4 Hazardous Materials "Hazardous Materials" means dangerous, toxic or hazardous pollutants, contaminants, chemicals, waste, materials or substances (as defined in Environmental Laws), and also any urea formaldehyde, polychlorinated biphenyls, asbestos, asbestos containing materials, nuclear fuel or waste, radioactive materials, explosives, carcinogens and petroleum products, or any other waste, material, substance; pollutant or contaminant the improper storage, disposal or release of which would subject the person so storing, disposing or releasing (or the owner of the property on which such action occurs) to any damages, penalties or liabilities under any applicable law, regulation, requirement or rule. Holder or Bondholder "Holder" or "Bondholder," whenever used herein with respect to a Bond, means the Person in whose name such Bond is registered. Hold Order "Hold Order" has the meaning set forth in Section 2(a)(i) of the Auction Procedures. Interest Account "Interest Account" means the account by that name in the Revenue Fund established pursuant to Section 5.02. Interest Accrual Date "Interest Accrual Date" means (a) for any Weekly Interest Rate Period, the first day thereof and, thereafter, the first Wednesday of each calendar month during such Weekly Interest Rate Period (whether or not a Business Day); (b) for any Auction Period, each Interest Payment Date (as defined in Exhibit A hereto); (c) for any Serial Bond Interest Rate Period, the first day thereof and, thereafter, each Interest Payment Date in respect thereof, other than the last such Interest Payment Date, during that Serial Bond Interest Rate Period; and (d) for each Bond Interest Term within a Short-Term. Interest Rate Period, the first day thereof. Interest Payment Date "Interest Payment Date" means: (a) with respect to the Bonds or any Series of Bonds other than ARS, -24- OHS West:260411958.4 (i) for any Weekly Interest Rate Period, the first Wednesday of each calendar month, or, if the first Wednesday is not a Business Day, the next succeeding Business Day; (ii) for any Serial Bond Interest Rate Period, each June I and December 1, or if any June 1 or December I is not a Business Day, the next succeeding Business Day, (iii) for any Bond Interest Term, the day next succeeding the last day of that Bond Interest Term, (iv) for each Interest Rate Period that is different than the immediately preceding Interest Rate Period, the first day thereof for the immediately preceding Interest Rate Period; and (v) for Liquidity Facility Bonds, each .date specified in the Liquidity Facility relating to such Liquidity Facility Bonds. (b) with respect to Bonds or any Series of Bonds which are ARS, as provided in Exhibit A hereto. (c) with respect to each Bond the Maturity Date of such Bond. Interest Rate Period "Interest Rate Period" means a Weekly Interest Rate Period, a Short-Term Interest Rate Period, a Serial Bond Interest Rate Period or an ARS Interest Rate Period. Investment Securities "Investment Securities" means any of the following that at the time are legal investments under the laws of the State of California for moneys held hereunder and then proposed to be invested therein: (d) United States Government Obligations; (e) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America: (i) Export-Import Bank; (ii) Rural Economic Community Development Administration; (iii) U.S. Maritime Administration; (iv) Small Business Administration; (v) U.S. Department of Housing & Urban Development (PHAs); -25- OHS West:260411958.4 (vi) Federal Housing Administration; and (vii) Federal Financing Bank. (f) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: (i) Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC); (ii) Obligations of the Resolution Funding Corporation (REFCORP); (iii) Senior debt obligations of the Federal Home Loan Bank System; and (iv) Senior debt obligations of other government sponsored agencies approved by the Credit Facility Provider (if any). (g) U.S. dollar denominated deposit accounts, federal fund and bankers' acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of "P -1" by Moody's and "A -1" or "A -1 +" by S &P and maturing not more than 360 calendar days after the date of purchase; (h) Commercial paper which is rated at the time of purchase in the single highest classification, "P -1" by Moody's and "A -1" or "A -1 +" by S &P and which matures not more than 360 calendar days after the date of purchase; (i) Investments in money market funds rated "AAAm" or "AAm -G" or better by S &P; 0) Pre - refunded Municipal Obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (i) which are rated, based on irrevocable escrow account or fund (the "escrow'), in the highest Rating Category of Moody's or S &P or any successors thereto; or (ii) (a) which are fully secured as to principal, interest and redemption premium, if any, by an escrow consisting only of cash or United States Government Obligations, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as -26- OHS West260411958.4 appropriate, and (b) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate. (k) Municipal obligations rated "Aaa/AAA" or general obligations of States with a rating of "A2 /A" or higher by both Moody's and S &P; (1) Investment agreements approved in writing by the Credit Facility Provider (if any) (supported by appropriate opinions of counsel as determined by and (m) Other forms of investments (including repurchase agreements) approved in writing by the Credit Facility Provider (if any). The value of the above investments shall be determined as follows: (a) For the purpose of determining the amount in any fund, all Legal Investments credited to such fund shall be valued at fair market value. The Bond Trustee shall determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers shall include but are not limited to pricing services provided by Financial Times Interactive Data Corporation, Merrill Lynch, Citigroup Global Markets Inc., Bear Stearns, or Lehman Brothers; (b) As to certificates of deposit and bankers' acceptances, the face amount thereof, plus accrued interest thereon; and (c) As to any investment not specified above, the value thereof established by prior agreement among the City, the Bond Trustee and the Credit Facility Provider (if any). Law "Law" means Ordinance No. 85 -23 and 84 -4 of the City, as now in effect and as it may from time to time be amended or supplemented. Letter of Credit "Letter of Credit" means the irrevocable, direct -pay letter of credit, dated May 2008, issued by the Bank pursuant to the initial Reimbursement Agreement. Liquidity Facility "Liquidity Facility" means a the Letter of Credit and, in the event of the delivery or availability of an Alternate Liquidity Facility, such Alternate Liquidity Facility. -27- OHS West:260411958.4 Liquidity Facility Account "Liquidity Facility Account" means the account by that name in the Bond Purchase Fund established pursuant to Section 4.10. Liquidity Facility Bonds "Liquidity Facility Bonds" means Bonds purchased with moneys drawn under (or otherwise obtained pursuant to the terms of) a Liquidity Facility, but excluding Bonds no longer considered to be Liquidity Facility Bonds in accordance with the terms of the applicable Liquidity Facility. Liquidity Facility Provider "Liquidity Facility Provider" means initially the Bank, and, upon effectiveness of an Alternate Liquidity Facility, the commercial bank or other financial institution acceptable to the Credit Facility Provider (if any) issuing (or having primary obligation, or acting as agent for the financial institutions obligated, under) a Liquidity Facility then in effect. Liquidity Facility Rate "Liquidity Facility Rate" means the rate per annum, if any, specified in a Liquidity Facility as applicable to Liquidity Facility Bonds, which rate shall not exceed the Maximum Interest Rate, but in no event shall such Liquidity Facility Rate exceed the Maximum Lawful Rate. Loan Agreement "Loan Agreement" means that .certain loan agreement by and between the City and the Corporation, dated as of May 1, 2008, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of this Bond Indenture. Loan Default Event "Loan Default Event" means any of the events specified in Section 6.1 of the Loan Agreement. Loan Repa ents "Loan Repayments" means the payments so designated and required to be made by the Corporation pursuant to Section 3.1 of the Loan Agreement. Mandatory Credit/Liquidity Tend er "Mandatory Credit/Liquidity Tender" means the mandatory tender of the Bonds pursuant to Section — upon receipt by the Bond Trustee of written notice from the Credit Facility Provider or the Liquidity Facility Provider that an event with respect to the Liquidity -28- OHS WesC260411958.4 Facility has occurred which requires or gives the Liquidity Facility Provider the option to terminate such Credit Facility or Liquidity Facility upon notice. Mandatory Credit/Liquidity Tender shall not include circumstances, if any, where the Liquidity Facility Provider may suspend or terminate its obligations to purchase securities without notice, in which case there will be no mandatory tender. Master Indenture "Master Indenture" means that certain master trust indenture, dated as of May 1, 2007, between the Corporation, Newport Healthcare Center LLC, a California limited liability company, the sole corporate member of which is the Corporation, and the Master Trustee and as it may from time to time be supplemented, modified or amended in accordance with the terns thereof. Master Trustee "Master Trustee" means Wells Fargo Bank, National Association, a national banking association duly organized and existing under the laws of the United States of America, as master trustee or its successor as master trustee under the Master Indenture. Maturity Date "Maturity Date" means, with respect to each Series of Bonds, December 1, 20 Maximum Interest Rate "Maximum Interest Rate" means (a) with respect to Bonds other than ARS the lesser of 12% per annum and the Maximum Lawful Rate and (b) with respect to ARS, "Maximum Rate" as defined in Exhibit A hereto, in each case calculated in the same manner as interest is calculated for the particular interest rate on the Bonds. Maximum Lawful Rate "Maximum Lawful Rate" means the maximum rate of interest on the relevant obligation permitted by applicable law. Member "Member" means the Corporation and each other Person that is then obligated as a Member under the Master Indenture. Minimum Authorized Denominations "Minimum Authorized Denominations" means with respect to any (i) Serial Bond Interest Rate Period, $5,000 and any integral multiple thereof; (ii) Short-Term Interest Rate Period or Weekly Interest Rate Period, $100,000 and any integral multiple of $5,000 in excess of $100,000, and (iii) ARS Interest Rate Period, $25,000 and any integral multiple thereof. -29- OHS West:260411958.4 Moody's " Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, or, if such corporation shall be dissolved or liquidated. or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Corporation by notice in writing to the City, the Credit Provider (if any) and the Bond Trustee. Obligated Group "Obligated Group" means the Corporation and each other Member. Obligation No. 4 "Obligation No. 4" means the obligation issued under the Master Indenture and Supplement No. 4. Opinion of Counsel "Opinion of Counsel" means a written opinion of counsel (who may be counsel for the City, the Bond Trustee or the Corporation), selected by the Bond Trustee and not objected to by the City or the Credit Facility Provider (if any). If and to the extent required by the provisions of Section 1.02, each Opinion of Counsel shall include the statements provided for in Section 1.02. Optional Redemption Account "Optional Redemption Account" means the account by that name in the Redemption Fund established pursuant. to Section 5.05. Outstanding "Outstanding," when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 11.09) all Bonds theretofore, or thereupon being, authenticated and delivered by the Bond Trustee under this Bond Indenture except (1) Bonds theretofore canceled by the Bond Trustee or surrendered to the Bond Trustee for cancellation; (2) Bonds with respect to which all liability of the City shall have been discharged in accordance with Section 10.02, including Bonds (or portions of Bonds) referred to in Section 11.10; and (3) Bonds for the transfer or exchange of.or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Bond Trustee pursuant to this Bond Indenture. Participan t "Participant" means a member of or participant in the Securities Depository. -30- OHS West:260411958.4 Payment Default "Payment Default" means any failure by the City to make timely payment of principal or interest on the Bonds when due. Person "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. Princinal Account "Principal Account" means the account by that name in the Revenue Fund established pursuant to Section 5.02. Principal Office "Principal Office" means, as appropriate, the designated corporate trust office of (1) the Bond Trustee, which as of the date hereof is located at 707 Wilshire Boulevard, 17th Floor, Los Angeles, CA 90017, Attention: Corporate Trust Services or (2) the Tender Agent, which as of the date hereof, shall be the same as the Bond Trustee. Prior Bonds "Prior Bonds" means, collectively, the City of Newport Beach Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2005A, 2005B, and 2005C, and the City of Newport Beach Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2007A, 2007B, 2007C, 2007D and 2007E. Program "Program" means the City's program of making loans under the Law. Protect "Project" means the acquisition and construction of certain additions and improvements to, and equipment for, the acute care hospital and related facilities owned by the Corporation and located on the campus known as One Hoag Drive, Newport Beach, California 92658. Project Fund "Project Fund" means the fund by that name established pursuant to Section 3.04. Purchase Date "Purchase Date" has the meaning set forth in Section 4.10(C).. -31 - OHS West:260411958.4 Purchase Price "Purchase Price" has the meaning set forth in Section 4.10(C). Purchased Bonds Rating Agency "Purchased Bonds" has the meaning set forth in Section 4.10(C). "Rating Agency" means S &P and/or Moody's, as the context requires. Rating Category "Rating Category" means a generic securities rating category, without regard to any refinement or gradation of such rating category by a numerical modifier or otherwise. Rebate Fund "Rebate Fund" means the fund by that name established pursuant to Section 5.06. Record Date "Record Date" means (a) with respect to the Bonds other than ARS, (i) with respect to any Interest Payment Date in respect to any Weekly Interest Rate Period or any Short- Term Interest Rate Period, the Business Day immediately preceding such Interest Payment Date, and (ii) with respect to any Interest Payment Date in respect to any Serial Bond Interest Rate Period, the 15th day of the calendar month preceding the calendar month in which such Interest Payment Date falls or, in the event that an Interest Payment Date shall occur less than 15 days after the first day of a Serial Bond Interest Rate Period, that first day and (b) with respect to any Bonds which are ARS, the second Business Day next preceding each ARS Interest Payment Date. Redemption Fund "Redemption Fund" means the fund by that name established pursuant to Section 5.05. Redemption Price "Redemption Price" means, with respect to any Bond (or portion thereof), the principal amount of such Bond (or portion) plus the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such Bond and this Bond Indenture. Reimbursement Agreement "Reimbursement Agreement" means (i) that certain Letter of Credit and Reimbursement Agreement, dated as of May _, 2008, between the Corporation, the Bank certain Lenders (as defined therein) and the Bank, as Administrative Agent, and (ii) if an Alternate -32- OHS West:260411958.4 Credit Facility and /or an Alternate Liquidity Facility is issued, any reimbursement agreement, credit agreement, line of credit agreement, standby purchase agreement or other agreement relating to the Alternate Credit Facility and/or the Alternate Liquidity Facility, by and between the Credit Facility Provider and/or the Liquidity Facility Provider and the Corporation. Remarketing Agent "Remarketing Agent" means, with respect to any Series of Bonds, any Remarketing Agent or successor or additional Remarketing Agent appointed in accordance with this Bond Indenture with respect to such Series of Bonds. "Principal Office" of the Remarketing Agent means the address for the Remarketing Agent designated in writing to the Bond Trustee and the Corporation. Remarketing Agreement "Remarketing Agreement" means the Remarketing Agreement, dated as of May 1, 2008, between the Corporation and the initial Remarketing Agent with respect to any Series of Bonds, and any similar agreement with a successor Remarketing Agent, in each case as from time to time in effect. Remarketing Proceeds Account "Remarketing Proceeds Account" means the account by that name within the Bond Purchase Fund established pursuant to Section 4.10. Required Stated Amount "Required Stated Amount". means with respect to a Credit Facility or a Liquidity Facility, at any time of calculation, an amount equal to the aggregate principal amount of all Bonds then Outstanding and subject to such Credit Facility or Liquidity Facility together with interest accruing thereon (assuming an annual rate of interest equal to the Maximum Interest Rate) for the period specified in a Certificate of the Corporation to be the minimum period specified by the Rating Agencies then rating such Bonds as necessary to obtain (or maintain) a specified short-term rating of such Bonds. Revenue Fund "Revenue Fund" means the fund by that name established pursuant to Section 5.01 Revenues "Revenues" means all amounts received by the City or the Bond Trustee for the account of the City pursuant or with respect to the Loan Agreement or Obligation No. 4, including, without limiting the generality of the foregoing, Loan Repayments (including both timely and delinquent payments and any late charges, and whether paid from any 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 -33- OHS West:260411958.4 this Bond Indenture, but not including any Administrative Fees and Expenses or any moneys required to be deposited in the Rebate Fund. S &P "S &P" means Standard & Poor's Ratings Services, a division of The McGraw - Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Corporation by notice in writing to the City and the Bond Trustee. Securities Depository "Securities Depository" means The Depository Trust Company and its successors and assigns, or any other securities depository selected as set forth in Section 2.16. Serial Bond Conversion Date "Serial Bond Conversion Date" means the date on which the Bonds begin to bear interest at a Serial Bond Interest Rate pursuant to the provisions of Section 2.05 and such term shall include the Fixed Rate Conversion Date for such Bonds. Serial Bond Interest Rate "Serial Bond Interest Rate" means, with respect to the Bonds, an interest rate on such Bonds established in accordance with Section 2.05. Serial Bond Interest Rate Period "Serial Bond Interest Rate Period" means each period during which such a Serial Bond Interest Rate is in effect for the Bonds. Series "Series," when used with respect to the Bonds, means all the Bonds designated as being of the same series, authenticated and delivered in a simultaneous transaction, and any Bonds thereafter authenticated and delivered upon a transfer or exchange or in lieu of or in substitution for such Bonds as herein provided. Series 2008A Bonds "Series 2008A Bonds" means the City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008A, authorized by, and at any time Outstanding pursuant to, this Bond Indenture. -34- OHS West:260411958.4 Series 2008B Bonds "Series 2008B Bonds" means the City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008B, authorized by, and at any time Outstanding pursuant to, this Bond Indenture. Series 2008C Bonds "Series 2008C Bonds" means the City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008C, authorized by, and at any time Outstanding pursuant to, this Bond Indenture. Series 2008D Bonds "Series 2008D Bonds" means the City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008D, authorized by, and at any time Outstanding pursuant to, this Bond Indenture. . Series 2008E Bonds "Series 2008E Bonds" means the City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008E, authorized by, and at any time Outstanding pursuant to, this Bond Indenture. Short-Term Interest Rate Period "Short-Term Interest Rate Period" means each period with respect to a Series of the Bonds, comprised of Bond Interest Terms, during which Bond Interest Term Rates are in effect. SIFMA Swap Index "SIFMA Swap Index" means, on any date, a rate determined on the basis of the seven -day high grade market index of tax - exempt variable rate demand obligations, as produced by Municipal Market Data and published or made available by the Securities Industry & Financial Markets Association (formerly the Bond Market Association) ( "SIFMA ") or any Person acting in cooperation with or under the sponsorship of SIFMA and acceptable to the Bond Trustee and effective from such date. Sinking Fund Installment "Sinking Fund Installment" means the amount required by Section 5.04 to be paid by the City on any single date for the retirement of Bonds. Sinking Fund Installment Date "Sinking Fund Installment Date" means, the dates specified in Section 5.04(C). -35- OHS West260411958.4 Special Record Date "Special Record Date" means the date established by the Bond Trustee pursuant to Section 2.02 as the record date for the payment of defaulted interest on the Bonds that are not ARS and pursuant to Section 2.08(A)(6)(b) as the record date for the payment of ARS Defaulted Interest. Special Redemption Account "Special Redemption Account" means the account by that name in the Redemption Fund established pursuant to Section 5.05. Supplemental Bond Indenture "Supplemental Bond Indenture" means any indenture hereafter duly authorized and entered into between the City and the Bond Trustee, supplementing, modifying or amending this Bond Indenture; but only if and to the extent that such Supplemental Bond Indenture is specifically authorized hereunder. Supplement No. 4 "Supplement No. 4" means that certain supplemental master indenture, dated as of May 1, 2008, between the Corporation and the Master Trustee pursuant to which Obligation No. 4 is issued, as originally executed and as amended or supplemented from time to time in accordance with the terms of the Master Indenture. Tax Agreement "Tax Agreement" means the Tax Certificate and Agreement delivered by the City and the Corporation at the time of issuance and delivery of the Bonds, as the same may be amended or supplemented in accordance with its terms. Tender Agent "Tender Agent" means the Tender Agent appointed in accordance with Sections 4.17 through 4.19. Tender Agent Agreement "Tender Agent Agreement means each such agreement between the Corporation and a Tender Agent with respect to any Series of Bonds, and any similar agreement with a successor Tender Agent, in each case as from time to time in effect. Undelivered Bonds "Undelivered Bonds" means any Bond which constitutes an Undelivered Bond under the provisions of Section 4.12. -36- OHS We t:260411958.4 United States Government Obligations "United States Government Obligations" means (1) noncallable direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of Treasury of the United States of America) and obligations of any agency or instrumentality of the United States of America the timely payment of the principal of and interest on which are fully guaranteed by the United States of America, and (2) any other obligations approved in writing by the Credit Facility Provider (if any). Weekly Interest Rate "Weekly Interest Rate" means a variable interest rate home by a Series of Bonds and established in accordance with Section 2.04. Weekly Interest Rate Period "Weekly Interest Rate Period" means each period with respect to a Series of Bonds during which a Weekly Interest Rate is in effect. SECTION 1.02. Content of Certificates and Opinions. Every certificate or opinion provided for herein with respect to compliance with any provision hereof shall include (1) a statement that the Person making or giving such certificate or. opinion has read such provision and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (3) a statement that, in the opinion of such Person, he has made or caused to be made such examination or investigation as is necessary to enable such Person to express an informed opinion with respect to the subject matter referred to in the instrument to which such Person's signature is affixed; and (4).a statement as to whether, in the opinion of such Person, such provision has been complied with (5) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable. Any such certificate or opinion made or given by an officer of the City or the Corporation may be based, insofar as it relates to legal, accounting or health care matters, upon a certificate or opinion of or representation by counsel, an accountant or a management consultant, unless such officer knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or opinion may be based, as. aforesaid, is erroneous. Any such certificate, opinion or representation made or given by counsel, an accountant or a management consultant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the City or the Corporation, as the case may be) upon a certificate or opinion of or representation by an officer of the City or the Corporation, unless such counsel, accountant or management consultant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such person's certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the City or the Corporation, or the same counsel or accountant or management consultant, as the case may be, need not certify to all of the matters required to be certified under any provision of this Bond -37- OHS Wtst:260411958.4 Indenture, but different officers, counsel, accountants or management consultants may certify to different matters, respectively. SECTION 1.03. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine or feminine gender is for convenience only and shall be deemed to mean and include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (c) All references herein to "Articles," . "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Bond Indenture; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Bond Indenture as a whole and not to any particular Article, Section or subdivision hereof. ARTICLE II THE BONDS SECTION 2.01. Authorization of Bonds. There are hereby created five Series of Bonds to be issued hereunder in order to obtain money to carry out the purposes of the Program, for the benefit of the City and the Corporation. The Bonds are to be designated as "City of Newport. Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008A, Series 2008B, Series 2008C, Series 2008D and Series 2008E". The aggregate principal amount of Bonds that may be issued and Outstanding under this Bond Indenture shall not exceed to dollars [PARAMOUNT]. The aggregate principal amount of the Bonds of each Series which may be issued and Outstanding under this Bond Indenture shall not exceed the following amounts: Series Principal Amount 2008B $ 2008C 2008D $ 2008E $. This Bond Indenture constitutes a continuing agreement with the Holders from time to time of the Bonds to secure the full payment of the principal of and premium, if any, and interest on all such Bonds subject to the covenants, provisions and conditions herein contained. -38- OHS West:260411958.4 SECTION 2.02. Terms of the Bonds; Registration; Denominations; Payment of Principal and Interest. (A) The Bonds shall be issued as fully registered Bonds without coupons in Minimum Authorized Denominations. The Bonds shall be registered in the name of "Cede & Co.," as initial nominee of the Securities Depository, and shall be evidenced by one Bond certificate for each Series of Bonds in the total aggregate principal amount of the Bonds of such Series. Registered ownership of the Bonds, or any portion thereof, may not thereafter be transferred except as set forth in Section 2.15. The Bonds shall be dated the Date of Issuance. The Bonds of each Series shall be numbered in consecutive numerical order from R -1 upwards. (B) (1) The Bonds shall bear interest, payable in lawful money of the United States of America, at the rates determined pursuant to this Article II from the date thereof. (2) For any Weekly Interest Rate Period, interest shall be payable on each Interest Payment Date for the period commencing on the immediately preceding Interest Accrual Date (or, if any Interest Payment Date is not a Wednesday, commencing on the second preceding Interest Accrual Date) and ending on the Tuesday (whether or not a Business Day) immediately preceding the Interest Payment Date (or, if sooner, the last day of the Weekly Interest Rate Period). For any Short-Term Interest Rate Period or Serial Bond Interest Rate Period, interest shall be payable on each Interest Payment Date for the period commencing on the immediately preceding Interest Accrual Date and ending on the day immediately preceding such Interest Payment Date.. For any ARS Interest Rate Period, interest shall be payable as provided in Exhibit A hereto. (3) Interest on the Bonds of each Series shall be payable for the final Interest Rate Period to the date on which the Bonds of such Series shall have been paid in full. Interest shall be computed, in the case of a Serial Bond Interest Rate Period, on the basis of a 360-day year consisting of twelve 30 -day months, in the case of any other Interest Rate Period (except an ARS Interest Rate Period, which shall be computed as provided in the Bond Indenture), on the basis of a 365 or 366 -day year, as appropriate, and the actual number of days elapsed. (4) The determination of the Weekly Interest Rate and Serial Bond Interest Rate and each Bond Interest Term and Bond Interest Term Rate by the Remarketing Agent, shall be conclusive and binding upon the Corporation, the Obligated Group Members, the Bond Trustee, the Remarketing Agent and the Holders of such Bonds. (5) Interest on the Bonds shall be payable on each Interest. Payment Date by the Bond Trustee during any Weekly Interest Rate Period or Serial Bond Interest Rate Period by check mailed on the date on which due to the Holders of Bonds at the close of business on the Record Date in respect of such Interest Payment Date at the registered. addresses of Holders as shall appear on the registration books of the Bond Trustee. In the case of (i) Bonds bearing interest at a Bond Interest Tenn Rate or (ii) any Holder of Bonds bearing interest at other than a Bond Interest Tenn Rate in an aggregate principal amount in excess of $1,000,000 as silo OHS West260411958.4 shown on the registration books of the Bond Trustee who, prior to the Record Date next preceding any Interest Payment Date, shall have provided the Bond Trustee with written wire transfer instructions, interest payable on such Bonds shall be paid in accordance with such wire transfer instructions provided by the Holder of such Bonds; provided, however, that during any Short-Term Interest Rate Period for any Series of Bonds, except for Bonds registered in the name of the Securities Depository (or its nominee), interest on any Bond of such Series shall be payable only upon presentation of such Bond to the Bond Trustee at its designated corporate office for delivery of Bonds. (6) If available funds are insufficient on any Interest Payment Date to pay the interest then due on any Bonds, interest shall continue to accrue on such Bonds but shall cease to be payable to the Holder thereof as of such related Record Date. If sufficient funds for the payment of such overdue interest thereafter become available, the Bond Trustee shall (A) establish a "special interest payment date" for the payment of the overdue interest and a Special Record Date (which shall be a Business Day) for determining the Bondholders entitled to such payment and (B) mail notices by first class mail of such dates as soon as practicable. Notice of each such date so established shall be mailed to each Bondholder at least ten (10) days prior to the Special Record Date but not more than thirty (30) days prior to the special interest payment date. The overdue interest shall be paid on the special interest payment date to the Holders of such Bonds, as shown on the registration books of the Bond Trustee as of the close of business on the Special Record Date. The form of such notice shall be provided to the Bond Trustee by the Corporation. (7) Notwithstanding the foregoing provisions of this Section 2.02(B), (A) Liquidity Facility Bonds shall bear interest at the Liquidity Facility Rate and the payment terms of Liquidity Facility Bonds shall be governed by the Liquidity Facility, and (B) the interest rate and payment terms of ARS shall be governed by the provisions of Exhibit A hereto. (C) (1) The Bonds shall mature on the Maturity Date. (2) The Sinking Fund Installments established for the Bonds of any Series pursuant to Section 5.04 shall be redesignated as maturity dates and other Sinking Fund Installments for the Bonds of such Series on the Fixed Rate Conversion Date for such Series of Bonds as follows: (i) If the Fixed Rate Conversion Date for any Series of the Bonds is on or before December 1, 2018, principal of such Bonds shall mature (a) in ten serial maturities in amounts equal to the Sinking Fund Installments established for such dates pursuant to Section 5.04, commencing on the December I immediately succeeding the Fixed Rate Conversion Date, and on December I of each of the succeeding years, and (b) in a term maturity on the Maturity Date for such Series of Bonds. (ii) If the Fixed Rate Conversion Date for any Series of the Bonds is after December 1, 2018, principal of such Bonds shall mature in serial maturities in principal amounts equal to the Sinking Fund Installments established for such dates pursuant to Section 5.04 commencing on the December 1 -40- OHS West:260411958.4 immediately succeeding the Fixed Rate Conversion Date and on December 1 of each of the succeeding years. (iii) Sinking Fund Installments for each term maturity of each Series of the Bonds established pursuant to subparagraph (i) above shall be in principal amounts equal to. the Sinking Fund Installments established for such dates pursuant to Section 5.04 for such Series of Bonds and be payable on December 1 of each year, commencing on December 1 of the year immediately following the next preceding maturity date of Bonds and ending on the respective Maturity Date for such Series. (iv) Notwithstanding anything above to the contrary, if, due to the serialization of the Bonds pursuant to this subsection (C)(2), a Favorable Opinion of Bond Counsel cannot be delivered, then no such serialization shall occur. (v) In accordance with this Section 2.02, the Bond Trustee shall select the Bonds of each maturity date by lot. (3) The principal or Redemption Price of the Bonds shall be payable in lawful money of the United States of America at the Principal Office of the Bond Trustee upon surrender of the Bonds to the Bond Trustee for cancellation; provided that the Bond Trustee may agree with the Holder of any Bond that such Holder may, in lieu of surrendering the same for a new Bond, endorse on such Bond a record of partial payment of the principal of such Bond in the form set forth below (which shall be typed or printed on such Bond): PAYMENTS ON ACCOUNT OF PRINCIPAL Principal Balance of Principal Signature Payment Date Amount Paid Amount Unpaid of Holder The Bond Trustee shall maintain a record of each such partial payment made in accordance with the foregoing agreement and such record of the Bond Trustee shall be conclusive. Such partial payment shall be valid upon payment of the amount thereof to the Holder of such Bond, and the City and the Bond Trustee shall be fully released and discharged from all liability to the extent of such payment regardless of whether such endorsement shall or shall not have been made upon such Bond by the Holder thereof and regardless of any error or omission in such endorsement. (D) The Bonds shall be subject to redemption as provided in Article IV. (E) The Bond Trustee shall identify all payments (whether made by check or by wire transfer) of interest, principal and premium by CUSIP number of the Bonds. -41 - OHS West:260411958.4 SECTION 2.03. Initial Interest Rate; Subsequent Interest Rates. (A) The initial Interest Rate Period for the Bonds shall be a [Weekly Interest Rates Period.] The Bonds shall initially bear interest to and including _ 2008, at the rates per annum set forth.below: Series Initial Interest Rate 2008A % 2008B 2008C 2008D 2008E The interest rate on any Series of the Bonds may thereafter be adjusted to an ARS Interest Rate, a Bond Interest Term Rate, or a Serial Bond Interest Rate, and subsequently a Weekly Interest Rate, as provided in this Article II. (B) In the manner hereinafter provided, the term of each Series of the Bonds will be divided into consecutive Interest Rate Periods during each of which such Bonds shall bear interest at the Weekly Interest Rate, Bond Interest Term Rates, Serial Bond Interest Rate or ARS Interest Rate; provided, however, that no Bond shall bear interest in excess of the Maximum Interest Rate. SECTION 2.04. Weekly Interest Rate Period. (A) Determination of Weekly Interest Rates. During each Weekly Interest Rate Period with respect to a Series of Bonds, the Bonds of such Series shall bear interest at the Weekly Interest Rate, which shall be determined by the Remarketing Agent by no later than 5:00 p.m., New York City time, on Tuesday of each week during such Weekly Interest Rate Period, or if such day shall not be a Business Day, then on the next succeeding Business Day. The first Weekly Interest Rate for each Weekly Interest Rate Period shall be determined on or prior to the first day of such Weekly Interest Rate Period and shall apply to the period commencing on the first day of such Weekly Interest Rate Period and ending on the next succeeding Tuesday (whether or not a Business Day). Thereafter, each Weekly Interest Rate shall apply to.the period commencing on the first Wednesday on or after the date of determination thereof (whether or not a Business Day) and ending on the next succeeding Tuesday (whether or not a Business Day), unless such Weekly Interest Rate Period shall end on a day other than Tuesday, in which event the last Weekly Interest Rate for such Weekly Interest Rate Period shall apply to the. period commencing on the Wednesday (whether or not a Business Day) preceding the last day of such Weekly Interest Rate Period and ending on the last day of such Weekly Interest Rate Period. The Weekly Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the minimum interest rate which, if borne by the Bonds of such Series, would enable the Remarketing Agent to sell such Bonds on the effective date and at the time of such determination at a price (without regarding accrued interest) equal to the principal amount thereof. In the event that the Remarketing Agent fails to establish a Weekly Interest Rate for any week, then the Weekly Interest Rate for such week shall be the same as the Weekly Interest Rate -42- OHS West260411958.4 for the immediately preceding week if the Weekly Interest Rate for such preceding week was determined by the Remarketing Agent. Subject to the provisions of Section 2.07(D), in the event that the Weekly Interest Rate for the immediately preceding week was not determined by the Remarketing Agent, or in the event that the Weekly Interest Rate determined by the Remarketing Agent shall be held to be invalid or unenforceable by a court of law, then the interest rate for such week shall be equal to 110% of the SIFMA Swap Index on the day such Weekly Interest Rate would otherwise be determined as provided herein for such Weekly Interest Rate Period until the Remarketing Agent determines the Weekly Interest Rate as required hereunder. (B) Adjustment to Weekly Interest Rate. Subject to Section 2.07, at any time, the Corporation, by written direction to the Bond Trustee, the Credit Facility Provider (if any), the Tender Agent (if any), the Liquidity Facility Provider (if any), the Remarketing Agent (if any), the Auction Agent (if any) and the Broker - Dealer (if any), may elect that the Bonds of any Series shall bear interest at a Weekly Interest Rate. Such direction of the Corporation shall specify (i) the proposed effective date of such adjustment to a Weekly Interest Rate Period, which date shall be (1) a Business Day not earlier than the thirtieth (30th) day following the second Business Day after receipt by the Bond Trustee of such direction, (2) in the case of an adjustment from a Serial Bond Interest Rate Period, the day immediately following the last day of the then- current Serial Bond Interest Rate Period with respect to the Bonds of such Series or a day on which the Bonds of such Series otherwise would be subject to optional redemption pursuant to Section 4.01(C) if such adjustment did not occur, (3) in the case of an adjustment from a Short-Term Interest Rate Period, the day immediately following the last day of the Short- Term Interest Rate Period with respect to the Bonds of such Series and (4) in the case of an adjustment from an ARS Interest Rate Period, an ARS Interest Payment Date for the Bonds of such Series; and (ii) the date of delivery for such Bonds to be purchased on the effective date of such adjustment to a Weekly Interest Rate Period. In addition, such direction shall be accompanied, by (1) a letter of Bond Counsel that it expects to be able to give a Favorable Opinion of Bond Counsel on the effective date of the adjustment to the Weekly Interest Rate Period and (2) a form of the notice to be mailed by the Bond Trustee to the Holders of the Bonds of such Series as provided in Section 2.04(C). During each Weekly Interest Rate Period for a Series of Bonds commencing on a date so specified and ending on the day immediately preceding the effective date of the next succeeding Interest Rate Period for a Series of Bonds, the interest rate borne by the Bonds of such Series shall be a Weekly Interest Rate. (C) Notice of Adjustment to Weekly Interest Rate. The Bond Trustee shall give notice by first -class mail of an adjustment to a Weekly Interest Rate Period for the Bonds of any Series to the Holders of the Bonds of such Series not less than thirty (30) days prior to the proposed effective date of such Weekly Interest Rate Period. Such notice shall state: (i) that the interest rate on the Bonds of such Series will be adjusted to a Weekly Interest Rate unless Bond Counsel fails to deliver a Favorable Opinion of Bond Counsel to the Bond Trustee, the Corporation, the Credit Facility Provider (if any) and. the Remarketing Agent as to such adjustment on the effective date of such adjustment in the Interest Rate Period; (ii) the proposed effective date of such Weekly Interest Rate Period; and (iii) that the Bonds of such Series are subject to mandatory tender for purchase on such proposed effective date, regardless of whether any or all conditions to the adjustment are met (unless the Bonds were previously bearing interest at an ARS Interest Rate), and setting forth the applicable Purchase Price and the place of delivery for purchase of such Bonds. - 43 - OHS west:260411958.4 SECTION 2.05. Serial Bond Interest Rate Period. (A) Determination of Serial Bond Interest Rate. During the Serial Bond Interest Rate Period with respect to a Series of Bonds, the Bonds of such Series shall bear interest at the Serial Bond Interest Rate. The Serial Bond Interest Rate shall be determined by the Remarketing Agent on a Business Day no later than the Serial Bond Conversion Date. Subject to the provisions of Section 2.05(D), the Serial Bond Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the minimum interest rate which, if borne by the Bonds of the applicable Series, would enable the Remarketing Agent to sell such Bonds on the date and at the time of such determination at a price (without regarding accrued interest) equal to the principal amount thereof. If, for any reason, the Serial Bond Interest Rate is not so determined for the Serial Bond Interest Rate Period by the Remarketing Agent on or prior to the first day of such Serial Bond Interest Rate Period, then the Bonds of the applicable Series shall bear interest at the Weekly Interest Rate as provided in Section 2.04, and shall continue to bear interest at a Weekly Interest Rate determined in accordance with Section 2.04 until such time as the interest rate on the Bonds of such Series shall have been adjusted to Bond Interest Term Rates, a Serial Bond Interest Rate or an ARS Interest Rate as provided herein. (B) Adjustment to or Continuation of Serial Bond Interest Rate. (1) Subject to Section 2.07, at any time, the Corporation, by written direction to the Bond Trustee, the Credit Facility Provider (if any), the Tender Agent (if any), the Liquidity Facility Provider (if any), the Remarketing Agent (if any), the Auction Agent (if any) and the Broker - Dealer (if any), may elect that the Bonds of any Series shall bear interest at a Serial Bond Interest Rate. Such direction of the Corporation (i) shall specify the proposed effective date of the Serial Bond Interest Rate Period, which date shall be (1) a Business Day not earlier than the thirtieth (30th) day following receipt by the Bond Trustee of such direction, (2) in the case of an adjustment from a Short-Term Interest Rate Period to a Serial Bond Interest Rate Period, the day immediately following the last day of the Short-Term Interest Rate Period, (3) in the case of an adjustment from one Serial Bond Interest Rate Period to another Serial Bond Interest Rate Period, the day immediately following the last day of the then- current Serial Bond Interest Rate Period for such Series or a day on which the Bonds of such Series otherwise_ would be subject to optional redemption pursuant to Section 4.01(C) if such adjustment did not occur and (4) in the case of an adjustment from an ARS Interest Rate Period, an ARS Interest Payment Date for the Bonds of such Series; and (ii) with respect to any such Serial Bond Interest Rate Period, may specify redemption prices and periods different from those set forth in this Bond Indenture, if approved by Bond Counsel as provided in Section 2.05(B)(2). The last day of the Serial Bond Interest Rate Period shall be determined by the Remarketing Agent on a Business Day not later than the Serial Bond Conversion Date (which last day shall be either the day immediately prior to the Maturity Date for such Series, or a day which is at least one hundred eighty -one (18 1) days after the effective date thereof). (2) The direction of the Corporation described in Section 2.05(B)(1) shall be accompanied by a letter of Bond Counsel that it expects to be able to give a Favorable Opinion of Bond Counsel on the Serial Bond Conversion Date and by a form of the notice to be mailed by the Bond Trustee to the Holders of the Bonds of such Series as provided in Section -44- OHS West260411958.4 2.05(C). During the Serial Bond Interest Rate Period for a Series of Bonds commencing and ending on the dates so determined and during each successive Serial Bond Interest Rate Period, if any, so determined, the interest rate borne by the Bonds of such Series shall be a Serial Bond Interest Rate. (3) If, by the twenty -ninth (29th) day prior to the last day of any Serial Bond Interest Rate Period with respect to the Bonds of any Series which ends on a day other than the day immediately preceding the Maturity Date of such Bonds, the Bond Trustee shall not have received notice of the Corporation's election that, during the next succeeding Interest Rate Period, the Bonds of such Series shall bear interest at a Weekly Interest Rate, a Serial Bond Interest Rate or an ARS Interest Rate or at Bond Interest Term Rates, the next succeeding Interest Rate Period for such Bonds shall be a Weekly Interest Rate Period until such time as the interest rate on such Bonds shall be adjusted to a Serial Bond Interest Rate, Bond Interest Term Rates or an ARS Auction Rate as provided in this Article II. (4) After the Fixed Rate Conversion Date for a Series of Bonds, the Bonds of such Series shall no longer be subject to or have the benefit of the provisions of Sections 4.06 through 4.20. (C) Notice of Adjustment to or Continuation of Serial Bond Interest Rate. The Bond Trustee shall give notice of an adjustment to a (or the establishment of another) Serial Bond Interest Rate Period for the Bonds of any Series to the Holders of such Bonds not less than thirty (30) days prior to the proposed effective date of such Serial Bond Interest Rate Period. Such notice shall state: (i) that the interest rate on the Bonds of the applicable Series shall be adjusted to, or continue to be, a Serial Bond Interest Rate unless Bond Counsel fails to deliver a Favorable Opinion of Bond Counsel to the Bond Trustee, the Corporation and the Remarketing Agent as to such adjustment in the Interest Rate Period on the effective date of such adjustment; (ii) the proposed effective date of such Serial Bond Interest Rate Period; and (iii) that the Bonds of such Series are subject to mandatory tender for purchase on such proposed effective date, regardless of whether any or all conditions to the adjustment are met (unless the Bonds were previously bearing interest at an ARS Interest Rate), and setting forth the applicable Purchase Price and the place of delivery for purchase of such Bonds. (D) Sale at Premium or Discount. Notwithstanding the provisions of Section 2.05(A), the Serial Bond Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to, be the interest rate which, if borne by the Bonds of the applicable Series, would enable the. Remarketing Agent to sell such Bonds on the date and at the time of such determination at a. price which will result in the lowest net interest cost for the Bonds of such Series, after taking into account any premium of discount at which such Bonds are sold by the Remarketing Agent, provided that: (1) the Remarketing Agent certifies to the Bond Trustee, the Tender Agent and the Corporation that the sale of the Bonds of such Series at the interest rate and premium or discount specified by the Remarketing Agent is expected to result in the lowest net interest cost for such Bonds on the Serial Bond Conversion. Date; -45- OHS West:260411958.4 (2) the Corporation consents in writing to the sale of the Bonds of such Series by the Remarketing Agent at such premium or discount; (3) in the case of Bonds to be sold at a discount, either (a) a Liquidity Facility is in effect with respect to such Series of Bonds and provides for the payment of such discount or (b) the Corporation agrees to transfer to the Tender Agent on the Serial Bond Conversion Date, in immediately available funds, for deposit in the Corporation Purchase Account, an amount equal to such discount; (4) in the case of Bonds to be sold at a premium, the Remarketing Agent shall transfer to the Bond Trustee for deposit in the Revenue Fund an amount equal to such premium; (5) on or before the date of the determination of the Serial Bond Interest Rate, the Corporation delivers to the Bond Trustee, the Credit Facility Provider (if any), and .the Remarketing Agent a letter of Bond Counsel to the effect that Bond Counsel expects to be able to give a Favorable Opinion of Bond Counsel on the Serial Bond Conversion Date; and (6) on or before the Serial Bond Conversion Date, a Favorable Opinion of Bond Counsel shall have been received by the Bond Trustee, the Corporation, the Credit Facility Provider (if any), and the Remarketing Agent. SECTION 2.06. Short-Term Interest Rate Periods. (A) Determination of Bond Interest Terms and Bond Interest Term Rates. During each Short-Term Interest Rate Period with respect to a Series of Bonds, each Bond of such Series shall bear interest during each Bond Interest Term for such Bond at the Bond Interest Term Rate for such Bond. The Bond Interest Term and the Bond Interest Term Rate for each Bond need not be the same for any two Bonds, even if determined on the same date. Each of such Bond Interest Terms and Bond Interest Term Rates for each Bond shall be determined by the Remarketing Agent no later than the first day of each Bond Interest Term. Each Bond Interest Term shall be for a period of days within the range or ranges announced as possible Bond Interest Terms no later than 9:30 a.m., New York City time, on the first.day of each Bond Interest Term by the Remarketing Agent. Each Bond Interest Term for each Bond shall be a period of not more than one hundred eighty (180) days, determined by the Remarketing Agent to be the period which, together with all other Bond Interest Terms for all Bonds of the applicable Series then Outstanding, will result in the lowest overall interest expense on the Bonds of such Series. Each Bond Interest Term shall end on either a day which immediately precedes a Business Day or on the day immediately preceding the Maturity Date for such Series. No Bond Interest Term shall be set to end on a day later than the fifth day preceding the expiration of any Liquidity Facility applicable to the subject Series. If, for any reason, a Bond Interest Term for any Bond cannot be so determined by the Remarketing Agent, or if the determination of such Bond Interest Term is held by a court of law to be invalid or unenforceable, then such Bond Interest Term shall be thirty (30) days, but if the last day so determined shall not be a day immediately preceding a Business Day, shall end on the first day immediately preceding the Business Day next succeeding such last day, or if such last day would be after the day immediately preceding the Maturity Date, shall end on the day immediately preceding such -46- OHS West:260411958.4 Maturity Date for such Series. In determining the number of days in each Bond Interest Term, the Remarketing Agent shall take into account the following factors: (I) existing short -term, tax - exempt market rates and indices of such short -term rates; (II) the existing market supply and demand for short -term tax - exempt securities; (III) existing yield curves for short -term and long- term tax- exempt securities for obligations of credit quality comparable to the Bonds of such Series; (IV) general economic conditions; (V) industry economic and financial conditions that may affect or be relevant to the Bonds of such Series; (VI) the Bond Interest Terms of other Bonds of such Series; and (VII) such other facts, circumstances and conditions pertaining to financial markets as the Remarketing Agent, in its sole discretion, shall determine to be relevant. The Bond Interest Term Rate for each Bond Interest Term for each Bond in a Short -Term Interest Rate Period shall be the rate of interest per annum determined by the Remarketing Agent to be the minimum interest rate which, if borne by such Bond, would enable the Remarketing Agent to sell such Bond on the date and at the time of such determination at a price equal to the principal amount thereof. Subject to the provisions of Section 2.07(D), if, for any reason, a Bond Interest Term Rate for any Bond in a Short -Term Interest Rate Period is not so established by the Remarketing Agent for any Bond Interest Term, or if such Bond Interest Term Rate is determined by a court of law to be invalid or unenforceable, then the Bond Interest Term Rate for such Bond Interest Term shall be the rate per annum equal to 110% of the SIFMA Swap Index on the first day of such Bond Interest Term. (B) Adjustment to Bond Interest Term Rates. Subject to Section 2.07, at any time, the Corporation, by written direction to the Bond Trustee, the Credit Facility Provider (if any), the Tender Agent (if any), the Liquidity Facility Provider (if any), the Remarketing Agent (if any), the Auction Agent (if any) and the Broker - Dealer (if any), may elect that the Bonds of any Series shall bear interest at Bond Interest Term Rates. Such direction of the Corporation shall specify (i) the proposed effective date of the Short -Term Interest Rate Period (during which the Bonds of such .Series shall bear interest at Bond Interest Term Rates), which date shall be (1) a Business Day not earlier than the thirtieth (30th) day following the second Business Day after receipt by the Bond Trustee of such direction, (2) in the case of an adjustment from a Serial Bond Interest Rate Period for a Series, the day immediately following the last day of the then - current Serial Bond Interest Rate Period for such Series or a day on which the Bonds of such Series otherwise would be subject to optional redemption pursuant to Section 4.01(C) if such adjustment did not occur, (3) in the case of an adjustment from a Weekly Interest Rate Period the day immediately following the last day of such Interest Rate Period with respect to the Bonds and (4) in the case of an adjustment from an ARS Interest Rate Period, an ARS Interest Payment Date for the Bonds of such Series; and (ii) the date of delivery of such Bonds to be purchased. In addition, the direction of the Corporation shall be accompanied by (1) a letter of Bond Counsel that it expects to be able to give a Favorable Opinion of Bond Counsel on the effective date of the adjustment to the Short -Term Interest Rate Period and (2) a form of the notice to be mailed by the Bond Trustee to the Holders of the Bonds of such Series as provided in Section 2.06(C). During each Short -Term Interest Rate Period for a Series of Bonds commencing on the date so specified and ending, with respect to each Bond of such Series, on the day immediately preceding the effective date of the next succeeding Interest Rate Period with respect to such Bond, each such Bond shall bear interest at a Bond Interest Term Rate during each Bond Interest Term for such Bond. -47- OHS West:260411958.4 (C) Notice of Adjustment to Bond Interest Term Rates. The Bond Trustee shall give notice by first -class mail of an adjustment to a Short-Term Interest Rate Period for the Bonds of any Series to the Holders of such Bonds not less than thirty (30) days prior to the proposed effective date of such Short-Term Interest Rate Period. Such notice shall state: (i) that the Bonds of the applicable Series shall bear interest at Bond Interest Term Rates unless Bond Counsel fails to deliver a Favorable Opinion of Bond Counsel to the Bond Trustee, the Credit Facility Provider (if any), the Corporation and the Remarketing Agent as to such adjustment on the effective date of such adjustment in the Interest Rate Period or other conditions precedent to such adjustment are not met; (ii) the proposed effective date of such Short-Term Interest Rate Period; and (iii) that such Bonds are subject to mandatory tender for purchase on such proposed effective date of such Short-Term Interest Rate Period, regardless of whether any or all conditions precedent to the adjustment are met (unless the Bonds were previously bearing interest at an ARS Interest Rate), and setting forth the applicable Purchase Price and the place of delivery for purchase of the Bonds of such Series. (D) Adjustment from Short-Term Interest Rate Period. Subject to Section 2.07(B), at any time during a Short-Term Interest Rate Period with respect to a Series of Bonds, the Corporation may elect, pursuant to Sections 2.04(B), 2.05(B) or 2.08, that such Bonds no longer shall bear interest at Bond Interest Term Rates and shall instead bear interest at a Weekly Interest Rate, a Serial Bond Interest Rate or an ARS Interest Rate, as specified in such election. The date on which all Bond Interest Terms determined for the Bonds of such Series . shall end shall be the last day of the then - current Short-Term Interest Rate Period and the day next succeeding such date shall be the effective date of the Weekly Interest Rate Period, Serial Bond Interest Rate Period or ARS Interest Rate Period elected by the Corporation for such Bonds. SECTION 2.07. Notice of Conversion; Conditions. (A) In the event that the Corporation shall elect to adjust the interest rate on a Series of Bonds to a Weekly Interest Rate, Serial Bond Interest Rate, Bond Interest Term Rates or an Applicable ARS Rate, as provided in Sections 2.04(B), 2.05(B), 2.06(B) or 2.08(.1)(1) then the written direction furnished by the Corporation as required by such sections shall be made by registered or certified mail, or by Electronic Means, confirmed by registered or certified mail. The Bond Trustee shall also provide written notice to S &P of any Conversion hereunder. (B) Notwithstanding anything in this Article II, in connection with any Conversion of the Interest Rate Period for a Series of Bonds, the Corporation shall have the right to deliver to the Bond Trustee, the Credit Facility Provider (if any), the Remarketing Agent (if any), the Tender Agent (if any), the Liquidity Facility Provider (if any), the City, the Auction Agent (if any), the Broker - Dealer(s) (if any) on or prior to 10:00 a.m., New York City time, on the second Business Day preceding the effective date of any such Conversion a notice to the effect that the Corporation elects to rescind its election to make such Conversion. If the Corporation rescinds its election to make such Conversion, then the Interest Rate Period shall not be converted and the Bonds of such Series shall continue to bear interest at the Weekly Interest Rate, Serial Bond Interest Rate or Bond Interest Term Rates, as the case may be, as in effect immediately prior to such proposed Conversion (provided, that the period of any such continuing Serial Bond Interest Rate Period shall be one year); provided that in the case of a Series of ARS, -48- OHS West260411958.4 such ARS shall bear interest at the ARS Maximum Rate until the next succeeding Auction Period that commences at least two Business Days following such proposed Conversion Date, then at the ARS Interest Rate. In any event, if notice of a Conversion has been mailed to the Holders of such Series as provided in Section 2.04(C), 2.05(C), 2.06(C) or 2.080(2) and the Corporation rescinds its election to make such Conversion, then the Bonds of such Series (except ARS, which shall not be subject to mandatory tender) shall continue to be subject to mandatory tender for purchase. on the date which would have been the effective date of the Conversion as provided in Section 4.08. (C) No Conversion from one Interest Rate Period to another shall take effect under this Bond Indenture unless each of the following conditions, to the extent applicable, shall have been satisfied. (1) Except with respect to a Conversion from a Serial Bond Interest Rate Period to a Weekly Interest Rate Period pursuant to Section 2.05(B)(3), the Bond Trustee and the City shall have received a Favorable Opinion of Bond Counsel with respect to such Conversion. (2) In the case of any Conversion with respect to which there shall be no Liquidity Facility in.effect to provide funds for the purchase of Bonds of any Series on the Conversion Date, the remarketing proceeds available on the Conversion Date shall not be less than the amount required to purchase all of the Bonds of such Series at the Purchase Price (unless the Corporation, in its sole discretion, elects to transfer to the Tender Agent the amount of such deficiency on or before the Conversion Date). (3) In the case of any Conversion of a Series of Bonds from any Interest Rate Period to any other Interest Rate Period (except a Serial Bond Interest Rate Period effective to the Maturity. Date for such Series or an ARS Interest Rate Period for. such Series), prior to the Conversion Date the Corporation shall (1) have appointed a Tender Agent and a Remarketing Agent with respect to such Series, and (2) there shall have been executed and delivered with respect to such Series a Tender Agent Agreement and a Remarketing Agreement. (4) In the case of any Conversion of a Series of Bonds to an ARS Interest Rate Period, prior to the Conversion Date the Corporation shall have appointed an Auction Agent and a Broker - Dealer with respect to such Series and there shall have been executed and delivered, with respect to such Series, an Auction Agent Agreement and a Broker - Dealer Agreement. (D) If any condition to the Conversion of a Series of Bonds shall not have been satisfied, then the Interest Rate Period shall not be converted and the Bonds of such Series (except ARS) shall continue to bear interest at the Weekly Interest Rate, Serial Bond Interest Rate or Bond Interest Term Rates, as the case may be, as in effect immediately prior to such proposed Conversion (provided, that the period of any such continuing Serial Bond Interest Rate Period shall be one year), and the Bonds of such Series (except ARS) shall continue to be subject to mandatory tender for purchase on the date which would have been the effective date of the Conversion as provided in Section 4.08. In the case of a Series of ARS, such Series of ARS SUM OHS West:260411958.4 shall bear interest at the ARS Maximum Rate until the next succeeding Auction Period then at the Applicable ARS Rate. SECTION 2.08. Execution of Bonds. The Bonds shall be executed in the name and on behalf of the City with the manual or facsimile signature of its Mayor, under its seal and attested by the manual or facsimile signature of its City Clerk. Such seal may be in the form of a facsimile of the City's seal and may be reproduced, imprinted or impressed on the Bonds. The Bonds shall then be delivered to the Bond Trustee for authentication by it. In case any of the officers who shall have signed or attested any of the Bonds shall cease to be such officer or officers of the City before the Bonds so signed or attested shall have been authenticated or delivered by the Bond Trustee or issued by the City, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the City as though those who signed and attested the same had continued to be such officers of the City, and also any Bond may be signed and attested on behalf of the City by such persons as at the actual date of execution of such Bond shall be the proper officers of the City although at the nominal date of such Bond any such person shall not have been such officer of the City. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form hereinbefore recited, manually executed by an authorized signatory of the Bond Trustee as authentication agent, shall be valid or obligatory for any purpose or entitled to the benefits of this Bond Indenture, and such certificate of the Bond Trustee shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Bond Indenture. SECTION 2.09. Transfer of Bonds. Subject to the provisions of Section 2.14, any Bond may, in accordance with its terms, be transferred, upon the books required to be kept pursuant to the provisions of Section 2.11, by the Person in whose name it is registered, in person or by such Person's duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form approved by the Bond Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the City shall execute and the Bond Trustee shall authenticate and deliver a new Bond or Bonds, of the same Series and maturity and for a like aggregate principal amount. The Bond Trustee shall require the Bondholder requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer, and the Bond Trustee may also require the Bondholder requesting such transfer to pay a reasonable sum to cover expenses incurred by the Bond Trustee or the City in connection with such transfer. SECTION 2.10. Exchange of Bonds. Bonds may be exchanged at the Principal Office of the Bond Trustee for a like aggregate principal amount of Bonds of other Minimum Authorized Denominations of the same Series and maturity. The Bond Trustee shall require the Bondholder requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange and the Bond Trustee may also require. the Bondholder requesting such exchange to pay a reasonable sum to cover expenses incurred by the Bond Trustee or the City in connection with such exchange. -50- OHS West260411958.4 SECTION 2.11. Bond Register. The Bond Trustee will keep or cause to be kept sufficient books for the registration and transfer of the Bonds, which shall at all times (during regular business hours at the location where such books are kept) be open to inspection by any Bondholder or such Bondholder's agent duly authorized in writing, the City, or the Corporation; and, upon presentation for such purpose, the Bond Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such books, Bonds as hereinbefore provided. SECTION 2.12. Temporary Bonds. The Bonds may be issued in temporary form exchangeable for definitive Bonds when ready for delivery. Any temporary Bond may be printed, lithographed or typewritten, shall be of such denomination as may be determined by the City, shall be in fully registered form without coupons and may contain such reference to any of the provisions of this Bond Indenture as may be appropriate. Every temporary Bond shall be executed by the City and be authenticated by the Bond Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the City issues temporary Bonds it will execute and deliver definitive Bonds as promptly thereafter as practicable, and thereupon the temporary Bonds shall be surrendered, for cancellation, in exchange therefor at the Principal Office of the Bond Trustee, and the Bond Trustee shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of Minimum Authorized Denominations of the same Series and maturity. Until so exchanged, the temporary Bonds shall be entitled to the same benefits under this Bond Indenture as definitive Bonds authenticated and delivered hereunder. SECTION 2.13. Bonds Mutilated. Lost, Destroyed or Stolen. If any Bond shall become mutilated, the City, at the expense of the Holder of said Bond, shall execute, and the Bond Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Bond Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Bond Trustee shall be canceled by it. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted. to the City and the Bond Trustee and, if such evidence be satisfactory to both and indemnity satisfactory to them shall be given, the City, at the expense of the Holder, shall execute, and the Bond Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall be about to mature; instead of issuing a substitute Bond; the Bond Trustee may pay the same without surrender thereof). The Bond Trustee may require payment of a Sum not exceeding the actual cost of preparing each new Bond issued under this Section and of the expenses which may be incurred by the City and the Bond Trustee in complying with this Section. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen shall replace the Bond alleged to be lost, stolen or destroyed as an original contractual obligation on the part of the City, and shall be entitled to the benefits of this Bond Indenture with all other Bonds secured by this Bond Indenture. SECTION 2.14. Use of Securities Denository. Notwithstanding any provision of this Bond Indenture to the contrary: (A) The Bonds shall be initially issued as provided in Section 2.02. Registered ownership of the Bonds, or any portion thereof, may not thereafter be transferred except: . -51- OHS West:260411956.4 (1) To any successor of the Securities Depository or its nominee, or to any substitute depository designated pursuant to clause (2) of this subsection (A) ( "substitute depository"); provided that any successor of the Securities Depository or substitute depository shall be qualified under any applicable laws to provide the service proposed to be provided by it; (2) To any substitute depository designated by the City upon (a) the resignation of the Securities Depository or its successor (or any substitute depository or its successor) from its functions as depository or (b) a determination by the City that the Securities Depository or its successor (or any substitute depository or its successor) is no longer able to carry out its functions as depository; provided that any such substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (3) To any Person as provided below, upon (a) the resignation of the Securities Depository or its successor (or substitute depository or its successor) from its functions as depository; provided that no substitute depository can be obtained or (b) a determination by the City that it is in the best interests of the City to remove the Securities Depository or its successor (or any substitute depository or its successor) from its functions as depository. (B) In the case of any transfer pursuant to clause (1) or clause (2) of subsection (A), upon receipt of the Outstanding Bonds by the Bond Trustee, together with a Certificate of the City to the Bond Trustee, a single new Bond of the applicable Series shall be executed and delivered in the aggregate principal amount of the Bonds of such Series then Outstanding, registered in the name of such successor or such substitute depository, or their nominees, as the case may be, all as specified in such Certificate of the City. In the case of any transfer pursuant to clause (3) of subsection (A), upon receipt of the Outstanding Bonds by the Bond Trustee together with a Certificate of the City to the Bond Trustee, new Bonds shall be executed and delivered in such Minimum Authorized Denominations and registered in the names of such Persons as are requested in such a Certificate of the City, subject to the limitations of Section 2.02, provided the Bond Trustee shall not be required to deliver such new Bonds within a period less than sixty (60) days from the date of receipt of such a Certificate of the City. (C) In the case of partial redemption or an advance refunding of any Series of Bonds evidencing all or a portion of such principal amount Outstanding, the Securities Depository shall make an appropriate notation on such Bonds indicating the date and amounts of such reduction in principal, in form acceptable to the Bond Trustee. (D) The City, the Credit Facility Provider (if any) and the Bond Trustee shall be entitled to treat the Person in whose name any Bond is registered as the Bondholder thereof for all purposes of this Bond Indenture and any applicable laws, notwithstanding any notice to the contrary received by the Bond Trustee, the Credit Facility Provider (if any) or the City; and the City, the Credit Facility Provider (if any) and the Bond Trustee shall have no.responsibility for transmitting payments to, communicating with, notifying or otherwise dealing with any beneficial owners of the Bonds. None of the City, the Credit Facility Provider (if any) or the Bond Trustee will have any responsibility or obligations,. legal or otherwise, to the beneficial owners or to any other party including the Securities Depository or its successor (or substitute depository or its successor), except for the Holder of any Bond. -52- OHS West260411958.4 (E) So long as the Outstanding Bonds are registered in the name of Cede & Co. or its registered assign, the City and the Bond Trustee shall cooperate with Cede & Co., as sole registered Bondholder, and its registered assigns in effecting payment of the principal of and redemption. premium, if any, and interest on the Bonds by arranging for payment in such manner that funds for such payments are properly identified and are made immediately available on the date they are due. (F) So long as all Bonds no longer bear interest at Auction Rates, the Corporation may, with the consent of the City and the Bond Trustee, determine not to continue with the Securities Depository or the book - entry -only system in accordance with the provisions of this Bond Indenture. In such event, the Corporation shall use its best efforts to identify another qualified Securities Depository. ARTICLE 111 ISSUANCE OF BONDS; APPLICATION OF PROCEEDS SECTION 3.01. Issuance of Bonds. At any time after the execution of this Bond Indenture, the City may execute and the Bond Trustee shall authenticate and, upon Request of the City, deliver the Bonds of each Series in the aggregate principal amount set forth below: Series Principal Amount 2008A $ 2008B $ 2008C $ 2008D $ 2008E $ SECTION 3.02. AARnlication of Proceeds of Bonds. The proceeds received from the sale of the Bonds. (being $ , comprised of the aggregate principal amount of the Bonds, less an underwriters' discount of $ ) shall be deposited in trust with the Bond Trustee, who shall forthwith deposit or transfer such proceeds as follows: (A) The .Bond Trustee shall deposit the sum of $ in the Costs of Issuance Fund. (B) The Bond Trustee shall deposit the sum of $ in the Project Fund. (C) The Bond Trustee. shall transfer the sum of $ to the escrow fund(s) established by the Bond Trustee, as escrow agent under the Escrow Agreement. (D) [The Bond Trustee shall deposit the sum of $ . in the. Debt Service Reserve Account, which is an amount equal to the Debt Service Reserve Requirement.] SECTION 3.03. Establishment and Application of Costs of Issuance Fund. The Bond Trustee shall establish, maintain and hold in trust a separate fund designated as the "Costs -53- OHS West:260411958.4 of Issuance Fund." The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Bond Trustee to pay the Costs of Issuance upon Requisition of the Corporation substantially in the form attached hereto as Exhibit C 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 the Costs of Issuance Fund. On the date no later than 180 days after the Date of Issuance, or upon the earlier Request of the Corporation, amounts, if any, remaining in the Costs of Issuance Fund shall be transferred to the Project Fund and the Costs of Issuance Fund shall be closed. SECTION 3.04. Establishment and Application of the Project Fund (A) The Bond Trustee shall establish, maintain and hold in trust a separate fund designated as the "Project Fund." The moneys in the Project Fund shall be used to pay (i) the capital costs of the Project; (ii) interest on the New Money Bonds allocated to the New Money Project until the Completion Date, as specified below and in the Tax Agreement, which amounts may be paid to the Corporation to reimburse it for advancements of such interest payments upon Request to the Bond Trustee therefore; and (iii) interest on the Prior Bonds to August 29, 2008. The Bond Trustee shall pay directly to the bond trustee for each respective series of Prior Bonds from amounts on deposit in the Project Fund amounts on deposit in the Project Fund amounts identified from time to time by or on behalf of the Corporation as interest owing on such Prior Bonds. No moneys in the Project Fund shall be used to pay Costs of Issuance. . (B) Before any payment from the Project Fund shall be made to pay capital costs of the Project (other than interest on the New Money Bonds which may be paid upon Request of the Corporation), the Corporation shall file or cause to be filed with the Bond Trustee a Requisition, in substantially the form attached hereto as Exhibit B, stating: (1) the item number of such payment; (2) the name of the Person to whom each such payment is due, which may be the Corporation in the case of reimbursement for Project costs theretofore paid by the Corporation; (3) the respective amounts to be paid; (4) the purpose by general classification for which each obligation to be paid was incurred; and (5) that obligations in the stated amounts have been incurred by the Corporation and are presently due and payable and that each item thereof is a proper charge against the Project Fund, has not been previously paid from the Project Fund and is only made with respect to elements of the Project for which all approvals, if any, required under the California Environmental Quality Act have been previously finalized. Upon receipt of such a Requisition, the Bond Trustee shall pay the amount set forth in such Requisition as directed by the terms thereof out of the Project Fund. The Bond Trustee shall not make any such payment if it has received any written notice of claim of lien, -54- OHS West260411958.4 right to lien or attachment upon, or.claim affecting the right to receive payment of, any of the monies to be so paid, that has not been released or will not be released simultaneously with such payment. Each such Requisition shall be sufficient evidence to the Bond Trustee of the facts stated therein and the Bond Trustee shall have no duty to confirm the accuracy of such facts. (C) When the Project shall have been completed, there shall be delivered to the Bond Trustee a Certificate of the Corporation stating the fact and date of such completion and stating that all of the costs thereof have been determined and paid (or that all of such costs have been paid less specified claims that are subject to dispute and for which a retention in the Project Fund is to be maintained in the full amount of such claims until such dispute is resolved). Upon the receipt of such Certificate, the Bond Trustee shall, as directed by said Certificate, transfer any remaining balance in such Project Fund to the Optional Redemption Account. Upon such transfer, the Project Fund shall be closed. SECTION 3.05. Validity of Bonds. The validity of the authorization and issuance of the Bonds is not dependent on and shall not be affected in any way by any proceedings taken by the City or the Bond Trustee with respect to or in connection with the Loan Agreement. The recital contained in the Bonds that the same are issued pursuant to the Law and the Constitution and laws of the State of California shall be conclusive evidence of their validity and of compliance with the provisions of law in their issuance. ARTICLE IV REDEMPTION AND TENDER OF BONDS SECTION 4.01. Terms of Redemption. (A) The Bonds are subject to redemption prior to their stated maturity, at the option of the City (which option shall be exercised upon Request of the Corporation given to the Bond Trustee (unless waived by the Bond Trustee) with at least the same number of days notice to the Bond Trustee then applicable to such Bonds as set forth in this Section 4.01(B) -(E) prior to the date fixed for redemption) in whole or in part on any date, from hazard insurance or condemnation proceeds received with respect to the facilities of any of the Members and deposited in the Special Redemption Account pursuant to Section 3.4 of the Loan Agreement, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon (if any)to the date fixed for redemption, without premium but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds. (B) While any Weekly Interest Rate is in effect with respect to a Series of Bonds, the Bonds of such Series are also subject to redemption prior to their stated maturity, at the option of the City (which option shall be exercised upon Request of the Corporation given to the Bond Trustee (unless waived by the Bond Trustee) at least twenty -five (25) days prior to the date fixed for redemption), in whole or in part (in such amounts as may, be specified by the Corporation), on any date at a Redemption Price equal to the principal amount of Bonds called for redemption, plus accrued interest thereon (if any) to the date fixed for redemption, without premium but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds. -55- OHS West:260411958.4 (C) While any Serial Bond Interest Rate is in effect with respect to a Series of Bonds, the Bonds of such Series are also subject to redemption prior to their stated maturity, at the option of the City (which option shall be exercised upon Request of the Corporation given to the Bond Trustee (unless waived by the Bond Trustee) at least forty -five (45) days prior to the date fixed for redemption), in whole or in part, on the first day following such Serial Bond Interest Rate Period at a Redemption Price equal to the principal amount of Bonds called for redemption, plus accrued interest thereon (if any) to the date fixed for redemption, without premium but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds, and thereafter, during the periods specified below (or if approved by Bond Counsel, during the periods and at the Redemption Prices specified in a notice of the Corporation to the Bond Trustee) in whole or in part on any date, at the Redemption Prices (expressed as a percentage of principal amount) hereinafter indicated or specified in the notice of the Corporation to the Bond Trustee, plus accrued interest thereon (if any) to the date fixed for redemption but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds: Length of Serial Bond Interest Rate Period (expressed in years) Redemption Price greater than 10 after 10 years at 100% (D) While any Bond Interest Term Rate is in effect with respect to a Series of Bonds, the Bonds of such Series subject to such Bond Interest Term Rate are also subject to redemption prior to their stated maturity, at the option of the City (which option shall be exercised upon Request of the Corporation given to the Bond Trustee (unless waived by the Bond Trustee) at least twenty -five (25) days prior to the date fixed for redemption), in whole or in part (in such amounts as may be specified by the Corporation), on the day succeeding the last day of such Bond Interest Term at a Redemption Price equal to the principal amount of Bonds called for redemption, plus accrued interest thereon (if any) to the date fixed for redemption, without premium but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds. (E) While any ARS Interest Rate is in effect with respect to a Series of Bonds, the Bonds of such Series are also subject to redemption prior to their stated maturity, at the option of the City (which option shall be exercised upon Request of the Corporation given to the Bond Trustee (unless waived by the Bond Trustee) at least forty (40) days prior to the date fixed for redemption), in whole or in part, on any ARS Interest Payment Date for such Series at a Redemption Price equal to the principal amount of Bonds called for redemption, plus accrued interest thereon (if any) to the date fixed for redemption, without premium. (F) The Bonds are also subject to redemption in part prior to their stated maturity from Sinking Fund Installments established pursuant to Section 5.04 on any Sinking Fund Installment Date but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds. -56- OHS West:260411958.4 (G) The Bonds are also subject to redemption prior to their stated maturity at the option of the City (which option shall be exercised upon Request of the Corporation given to the Bond Trustee (unless waived by the Bond Trustee) with at least the same number of days notice to the Bond Trustee then applicable to such Bonds as set forth in this Section 4.01(B) -(E) prior to the date fixed for redemption) as a whole (but not in part) on any date at the principal amount thereof and interest accrued thereon (if any) to the date fixed for redemption, without premium but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds, from amounts deposited in the Special Redemption Account pursuant to Section 3.4 of the Loan Agreement, if as a result of any changes in the Constitution of the United States of America or any state, or legislative or administrative action or inaction by the United States of America or any state, or any agency or political subdivision thereof, or by reason of any judicial decisions there is a good faith determination by any Member that (a) the Master Indenture has become void or unenforceable or impossible to perform, or (b) unreasonable burdens or excessive liabilities have been imposed on such Member, including without limitation, federal, state or other ad valorem property, income or other taxes being then imposed which were not being imposed on the Date of Issuance. (H) The Corporation shall not purchase any Bond subject to redemption in accordance with the provisions of this Bond Indenture. [BDV Note: No Insurer, add purchase in lieu of redemption? DELETE ?] SECTION 4.02. Selection of Bonds for Redemption. Whenever provision is made in this Bond Indenture for the redemption of less than all of the Bonds of any Series or any given portion thereof, the Bond Trustee shall select the Bonds of such Series to be redeemed, from all Bonds subject to redemption or such given portion thereof not previously called for redemption, by lot in any manner which the Bond Trustee in its sole discretion shall deem appropriate and fair; provided, however, that Bonds shall be redeemed in the following order of priority (and by lot within each priority): FIRST: Any Bonds of such Series which are Liquidity Facility Bonds; and SECOND: Any other Bonds of such Series. SECTION 4.03. Notice of Redemption. Notice of redemption shall be mailed by the Bond Trustee, not less than thirty (30) days nor more than sixty (60) days (except in the case of the redemption of Bonds bearing interest at a Weekly Interest Rate, and except in the case of the redemption of Bonds bearing interest at the Bond Interest Term Rate pursuant to. Section 4.01(D), in which case no less.than ten (10) days prior .to the redemption date and except for redemption of Bonds bearing interest at an ARS Interest Rate in which case no less than twenty- five (25) days prior to the redemption date), to the Holders of Bonds called for redemption at their addresses appearing on the bond registration books of the Bond Trustee and to the Master Trustee and the Credit Facility Provider (if any)i with a copy to the City. The Bond Trustee shall also give notice of redemption by overnight mail or courier service to the Remarketing Agent, the Auction Agent, each Broker - Dealer and such securities depositories and/or securities information services as shall be designated in a Certificate of the Corporation. For . any redemption in whole, the Bond Trustee shall also mail notice of such redemption to S &P. Each notice of redemption shall state the date of such notice, the Series designation and date of issue -57- OHS West:260411958.4 of the Bonds, the redemption date, the Redemption Price, the place or places of redemption (including the name and appropriate address or addresses of the Bond Trustee), the maturity, the CUSIP numbers, if any, and, in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that, subject to prior rescission as provided in the next paragraph of this Section, on said date there will become due: and payable on each of said Bonds the Redemption Price thereof or of said specified portion of the principal amount thereof in the case of a Bond to be redeemed in part only, together with interest accrued thereon to the redemption date, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered. Each notice shall also state that redemption is conditioned upon receipt by the Bond Trustee of sufficient funds to pay the Redemption Price of the Bonds so redeemed. Any notice of optional redemption given pursuant to this Section 4.03 may be rescinded by written notice given to the Bond Trustee by the Corporation no later than two (2) Business Days prior to the date specified for redemption. The Bond Trustee shall give notice of such rescission as soon thereafter as practicable in the same manner, and to the same Persons, as notice of such redemption was given pursuant to this Section 4.03. Failure by the Bond Trustee to give notice pursuant to this Section 4.03 to the Credit Facility Provider (if any), Auction Agent, Broker - Dealer, Remarketing Agent or any one or more of the securities information services or depositories designated by the Corporation or the insufficiency of any such notice shall not affect the sufficiency of the proceedings for redemption. Failure by the Bond Trustee to mail notice of redemption in accordance with this Section 4.03 to any one or more of the respective Holders of any Bonds designated for redemption shall not affect the sufficiency of the proceedings for redemption with respect to the Holders to whom such notice was mailed. Notice of redemption of Bonds shall be given by the Bond Trustee, at the expense of the Corporation, for and on behalf of the City. SECTION 4.04. Partial Redemption of Bonds. Upon surrender of any Bond redeemed in part only, the City shall execute (but need not prepare) and the Bond Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Corporation, a new Bond or Bonds of.Minimum Authorized Denominations, and of the same Series and maturity, equal in aggregate principal amount to the unredeemed portion of the Bond surrendered. SECTION 4.05. Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the Redemption Price of, together with interest accrued to the redemption date on, the Bonds (or portions thereof) so called for redemption being held by the Bond Trustee, on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption shall become due and payable at the Redemption Price specified in such notice together with interest accrued thereon to the redemption date, interest on the Bonds so called for redemption shall cease to accrue, said Bonds (or portions thereof) shall cease to be entitled to any benefit or security under this Bond Indenture and the Holders of said Bonds shall have no rights in respect thereof except to receive payment Of said Redemption Price and accrued interest to the date fixed for redemption from funds held by the Bond Trustee for such payment. -58- OHS West260411958.4 All Bonds redeemed pursuant to the provisions of this Article shall be canceled upon surrender thereof. SECTION 4.06. Optional Tender During Weekly Interest Rate Period. During any Weekly Interest Rate Period for a Series of Bonds, any Eligible Bond of such Series shall be purchased from its Holder at the option of the Holder on any Business Day at the Purchase Price payable in immediately available funds, upon delivery to the Tender Agent at its Principal Office for delivery of notices and to the Remarketing Agent of an irrevocable written notice which states the name and Series designation of the Bond, the principal amount and the date on which the same shall be purchased, which date shall be a Business Day not prior to the seventh day next succeeding the date of the delivery of such notice to the Tender Agent. Any notice delivered to the Tender Agent after 4:00 p.m., New York City time, shall be deemed to have been received on the next succeeding Business Day. For payment of such Purchase Price on the date specified in such notice, such Bond must be delivered, at or prior to 10:00 a.m., New York City time, on the date specified in such notice, to the Tender Agent at its Principal Office, accompanied by an instrument of transfer thereof, in form satisfactory to the Tender Agent, executed in blank by the Holder thereof or by the Holder's duly- authorized attorney, with such signature guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. SECTION 4.07. Mandatory Tender for Purchase On Day Next Succeeding the Last Day of Each Bond Interest Term. On the day next succeeding the last day of each Bond Interest Term for an Eligible Bond in a Short-Term Interest Rate Period, unless such day is the first day of a new Interest Rate Period for such Bond (in which event such Bond shall be subject to mandatory purchase pursuant to Section 4.08), such Bond shall be purchased from its Holder at the Purchase Price payable in immediately available funds, if such Bond is delivered to the Tender Agent on or prior to 10:00 a.m., New York City time, on such day, or if delivered after 10:00 a.m., New York City time, on the next succeeding Business Day; provided, however, that in any event such Bond will not bear interest at the Bond Interest Term Rate after the last day of each Bond Interest Term. The Purchase Price of any Bond so purchased shall be payable only upon surrender of such Bond to the Tender Agent at its Principal Office, accompanied by an instrument of transfer thereof, inform satisfactory to the Tender Agent, executed in blank by the Holder thereof or by the Holder's duly- authorized attorney, with such signature guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. SECTION 4.08. Mandatory Tender for Purchase on First Day of Each Interest Rate Period. Eligible Bonds shall be subject to mandatory tender for purchase on the first day of each Interest Rate Period with respect to such Bonds, or, except ARS, on the day which would have been the first day of an Interest Rate Period for such Bonds had one of the events specified in Section 2.07(B) not occurred which resulted in the interest rate not being adjusted, at the Purchase Price, payable in immediately available funds. The Purchase Price of any Bond so purchased shall be payable only upon surrender of such Bond to the Tender Agent at its Principal Office, accompanied by an instrument of transfer thereof, in form satisfactory to such Tender Agent, executed in blank by the Holder thereof or by the Holder's duly- authorized attorney, with such signature guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange at or prior to 10:00 a.m., New York City time, on the date specified for such delivery in this paragraph or in the notice provided pursuant to.Section 2.07. -59- OHS West:260411958.4 SECTION 4.09. Mandatory Tender for Purchase upon Termination. Replacement or Expiration of Liquidity Facility or Credit Facility' Mandatory Credit/Liquidity Tender. If at any time Bonds shall cease to be subject to purchase pursuant to the Liquidity Facility or the Credit Facility then in effect as a result of (i) the termination, replacement or expiration of the term, as extended, of that Liquidity Facility or Credit Facility, including but not limited to termination at the option of the Corporation in accordance with the terms of such Liquidity Facility or Credit Facility, or (ii) the occurrence of a Mandatory Credit/Liquidity Tender, then the Bonds shall be purchased or deemed purchased at the Purchase Price. Any purchase of the Bonds pursuant to this subsection (e) shall occur: (1) on the fifth Business Day preceding any such expiration or termination of such Liquidity Facility or Credit Facility without replacement by an Alternate Liquidity Facility or an Alternate Credit Facility or upon any termination of a Liquidity Facility as a result Of a Mandatory Credit/Liquidity Tender, and (2) on the proposed date of the replacement of a Liquidity Facility or a Credit Facility with an Alternate Liquidity Facility or Alternate Credit Facility, respectively, is to become effective In the case of any replacement of an existing Liquidity Facility or Credit Facility, the existing Liquidity Facility or Credit Facility will be drawn upon to pay the Purchase Price, if necessary, rather than the Alternate Liquidity Facility or the Alternate Credit Facility. No mandatory tender pursuant to this Section 4.09 will be effected upon the replacement of a Liquidity Facility or a Credit Facility in the case where the Liquidity Facility Provider or the Credit Facility Provider is failing to honor conforming draws. The assignment of any Liquidity Facility which relieves the Liquidity Provider of its obligation to purchase Bond shall be considered a replacement for the purposes of this Section 4.09. SECTION 4.10. General Provisions Relating to Tenders. (A) Creation of Bond Purchase Fund. (1) There shall be created and established hereunder with the Tender Agent a fund to be designated the "Bond Purchase Fund" to be held in trust only for the benefit of the Holders of tendered Bonds who shall thereafter be restricted exclusively to the moneys held in such fund for the satisfaction of any claim for the Purchase Price of such tendered Bonds. Neither the Corporation nor the City shall have any right, title or interest in any of the funds held on deposit in the Remarketing Proceeds Account or the Liquidity Facility Account nor any remarketing proceeds held for any period of time by the Remarketing Agent. (2) There shall be created and designated the following accounts within the Bond Purchase Fund: the "Remarketing Proceeds Account," the "Liquidity Facility Account' and the "Corporation Purchase Account " Moneys paid to the Tender Agent for the purchase of tendered or deemed tendered Bonds received from (i) the Remarketing Agent shall be deposited in the Remarketing Proceeds Account in accordance with the provisions of Section 4.10(D)(1), (2) payments pursuant to a Liquidity Facility, if any, shall be deposited in the Liquidity Facility Account in accordance with the provisions of Section 4.10(D)(2), and (3) the Corporation or any other Member shall be deposited in the Corporation Purchase Account in accordance with the provisions of Section 4.10(D)(3). Moneys provided from payments made under the Liquidity Facility (if any) not required to be used in connection with the purchase of tendered Bonds shall be returned to the Liquidity Facility Provider in accordance with Section 4.10(D) and (E). Moneys provided by the Corporation or other Member not required to be used -60- OHS West260411958.4 in connection with the purchase of tendered Bonds shall be returned to the Corporation in accordance with Sections 4.10(D) and (E). (3) Moneys in the Liquidity Facility Account, the Corporation Purchase Account and the Remarketing Proceeds Account shall not be commingled with other funds held by the Tender Agent and shall remain uninvested. (B) Deposit of Bonds. The Tender Agent agrees to hold all Bonds delivered to it pursuant to Sections 4.06, 4.07, 4.08 and 4.09 of this Bond Indenture in trust for the benefit of the respective Holders which shall have so delivered such Bonds until moneys representing the Purchase Price of such Bonds have been delivered to such Holder in accordance with the provisions of this Bond Indenture and until such Bonds shall have been delivered by the Tender Agent in accordance with Section 4.10(F). (C) Remarketing of Bonds. (1) Immediately upon its receipt, but not later than 12:00 noon, New York City time, on the following Business Day in the case of a Bond bearing interest at a Weekly Interest Rate, from a Holder of a notice pursuant to Section 4.06 of this Bond Indenture, the Tender Agent shall notify the Remarketing. Agent, the Liquidity Facility Provider (if any), and the Corporation by telephone, promptly confirmed in writing, or by Electronic Means, of such receipt, specifying the principal amount of Bonds for which it has received a notice pursuant to Section 4.06 of this Bond Indenture, the names of the Holders thereof and the date on which such Bonds are to be purchased in accordance with Section 4.06. The date on which Bonds are to be purchased pursuant to Sections 4.06, 4.07, 4.08 or 4.09 of this Bond Indenture is hereinafter referred to as the "Purchase Date," and the Bonds to be purchased pursuant to such subsections are hereinafter collectively referred to as the "Purchased Bonds." (2) As soon as practicable, but in no event later than 11:30 a.m., New York City time, on the Purchase Date in the case of Bonds to be purchased pursuant to Section 4.07 and by no later than 4:00 p.m., New York City time,. on the last Business Day prior to the Purchase Date in the case of Bonds to be purchased pursuant to Sections 4.06, 4.08 or 4.09, the Remarketing Agent shall inform the Tender Agent by telephone, promptly confirmed in writing, of the principal amount of Purchased Bonds for which the Remarketing Agent has identified prospective purchasers and of the name, address and taxpayer identification number of each such purchaser, the principal amount of Purchased Bonds to be purchased and the Minimum Authorized Denominations in which such Purchased Bonds are to be delivered. Upon receipt from the Remarketing Agent of such information, the Tender Agent shall prepare Purchased Bonds in accordance with such information received from the Remarketing Agent for the registration of transfer and redelivery to the Remarketing Agent. (3) By 11:45 a.m., New York City time, on the Purchase Date in the case of Bonds to be purchased pursuant to Section 4.07 and by 11:30 a.m., New York City time, on the Purchase Date in the case of Bonds to be purchased pursuant to Sections 4.06, 4.08 or 4.09, the Tender Agent shall notify the Liquidity Facility Provider (if any), and the Corporation -61- OHS West:260411958.4 by telephone, promptly confirmed in writing, as to the aggregate Purchase Price of the Purchased Bonds and as to the projected Funding Amount. The term "Funding Amount' is hereby defined to mean an amount equal to the difference between (1) the total Purchase Price of those Purchased Bonds to be purchased pursuant to Sections 4.06, 4.07, 4.08 and 4.09, and (2) the Purchase. Price of those Purchased Bonds to be purchased pursuant to Sections 4.06, 4.07, 4.08 or 4.09 with respect to which the Remarketing Agent expects to transfer, or to cause to be transferred, immediately available funds to the Tender Agent by 12:00 noon, New York City time, on the Purchase Date for deposit in the Remarketing Proceeds Account pursuant to Section 4.10(D). As used herein, the term "Purchase Price" of any Purchased Bond means the principal amount thereof plus accrued interest to, but not including, the Purchase Date; provided, however, that (1) if the Purchase Date for any Purchased Bond is an Interest Payment Date, the Purchase Price thereof shall be the principal amount thereof, and interest on such Bond shall be paid to the Holder of such Bond pursuant to this Bond Indenture and (2) in the case of a purchase on the fast day of an Interest Rate Period which is preceded by a Serial Bond Interest Rate Period and which commences prior to the day originally established as the last day of such preceding Serial Bond Interest Rate Period, "Purchase Price" of any Purchased Bonds means the optional redemption price set forth in Section 4.01(C) which would have been applicable to such Bond if the preceding Serial Bond Interest Rate Period had continued to the day originally established as its last day, plus accrued interest, if any. (4) Any Purchased Bonds which are subject to mandatory tender for purchase in accordance with Sections 4.07, 4.08 or 4.09 which are not presented to the Tender Agent on the Purchase Date and any Purchased Bonds which are the subject of a notice pursuant to Section 4.06 which are not presented to the Tender Agent on the Purchase Date, shall, in accordance with the provisions of Section 4.12, be deemed to have been purchased upon the deposit of moneys equal to the Purchase Price thereof into any or all of the accounts of the Bond Purchase Fund. (5) .Notwithstanding anything to the contrary contained in this Section 4. 10, in the case of Bonds to be purchased on the first day of an Interest Rate Period that immediately follows a Serial Bond Interest Rate Period, such Bonds shall not be remarketed by the Remarketing Agent but instead shall be purchased by the Corporation at the Purchase Price. Thereafter, the Corporation may request the Remarketing Agent to remarket such bonds in accordance with the terms hereof and the Remarketing Agreement. (D) Deposits of Funds. (1) The Remarketing Agent shall transfer, or to cause to be transferred, to the Tender Agent the proceeds derived by the Remarketing Agent from remarketing of Bonds pursuant to Section 4.10(C) in immediately available funds by 12:00 noon (New York City time) on the Purchase Date for deposit in the Remarketing Proceeds Account. The Tender Agent shall deposit into the Remarketing Proceeds Account any amounts received by it from the Remarketing Agent against receipt of Bonds by the Remarketing Agent pursuant to -62- OHS West:260411958.4 Section 4.10(F) and on account of Purchased Bonds remarketed pursuant to the terms of the Remarketing Agreement. (2) . By 12:30 p.m., New York City time, on the Purchase Date, the Tender Agent shall notify the Liquidity Facility Provider (if any) for the Purchased Bonds and the Corporation by telephone, immediately confirmed in writing, of the amount of funds, if any, required to be transferred to the Tender Agent (the "Additional Funding Amount") which shall be the amount, if any, by which the total Purchase Price of the Purchased Bonds exceeds the sum of the amounts then on deposit in the Remarketing Proceeds Account. The Additional Funding Amount may be different from the Funding Amount to the extent that the Remarketing Agent deposits moneys associated with Bonds remarketed in the interim period. If a Liquidity Facility is in effect with respect to the Purchased Bonds, the Tender Agent shall, at or before 1:00 p.m., New York City time, on the Purchase Date, also present drafts for payment or otherwise request amounts under the Liquidity Facility, in accordance with its terms, in an amount equal to the Additional Funding Amount so that payment is received under the Liquidity Facility at or before 3:00 p.m., New York City time. The Tender Agent shall deposit such amounts in the Liquidity Facility Account. If more than one Liquidity Facility is then in effect, the Tender Agent shall establish a separate subaccount in the Liquidity Facility Account for each Liquidity Facility and apply the moneys in such subaccounts solely to pay the purchase price of Purchased Bonds subject to such Liquidity Facility. (3) The Corporation has agreed in Section 3.5 of the Loan Agreement and in Obligation No. 4 to pay to the Tender Agent in immediately available funds the Additional Funding Amount by 3:00 p.m., New York City time, if a Liquidity Facility is not in effect with respect to the Purchased Bonds or if such Liquidity Facility Provider has not paid the full Additional Funding Amount as required by clause (2) of this subsection at the times required therein. The Tender Agent shall deposit such amounts into the Corporation Purchase Account. (4) The Tender Agent shall hold all proceeds received from the Remarketing Agent, the Liquidity Facility Provider or the Corporation pursuant to this Section 4.10(D) in trust for the tendering Bondholders. In holding such proceeds 'and moneys, the Tender Agent will be acting on behalf of such Bondholders by facilitating purchase of the Bonds and not on behalf of the City, any Liquidity. Facility Provider, or the Corporation and will not be subject to the control of any of them. Subject to the provisions of Section 4.10(E), following the discharge of the lien created by Section 5.01 of this Bond Indenture or after payment in full of the Bonds, the Tender Agent shall pay any moneys remaining in any account of the Bond Purchase Fund directly to the Persons for whom such money is held upon presentation of evidence reasonably satisfactory to the Bond Trustee that such Person is rightfully entitled to such money and the Tender Agent shall not pay such amounts to any other Person. (E) Disbursements. Payment of Purchase Price. Moneys delivered to the Tender Agent on a Purchase Date shall be applied at or before 3:30 p.m., New York City time, on such Purchase Date to pay the Purchase Price of Purchased Bonds in immediately available funds as follows in the indicated order of application (but subject to Section 4.10(C)(iv)) and, to the extent not so applied on such date, shall be held in the separate and segregated accounts of the Bond Purchase Fund for the benefit of the Holders of the Purchased Bonds which were to have been purchased: . axle OHS West:260411955.4 FIRST: Moneys deposited in the Remarketing Proceeds Account. SECOND: Moneys deposited in the Liquidity Facility Account. THIRD: Moneys deposited in the Corporation Purchase Account. Any moneys held by the Tender Agent in the Corporation Purchase Account remaining unclaimed by the Holders of the Purchased Bonds which were to have been purchased for two (2) years after the respective Purchase Date for such Bonds shall be paid, upon the written request of the Corporation to the Corporation, against written receipt therefor. The Holders of Purchased Bonds who have not yet claimed money in respect of such Bonds shall thereafter be entitled to look only to the Tender Agent, to the extent it shall hold moneys on deposit in the Bond Purchase Fund or the Corporation to the extent moneys have been transferred in accordance with this Section. (F) Delivery of Purchased Bonds. (i) The Remarketing Agent shall give telephonic or telegraphic notice, promptly confirmed by a written notice, to the Tender Agent on each date on which Bonds shall have been purchased pursuant to Sections 4.06, 4.07, 4.08 and 4.09, specifying the principal amount of such Bonds, if any, sold by it pursuant to Section 4.13(A) along with a list of such purchasers showing the names and Authorized Minimum Denominations in which such Bonds shall be registered, and the addresses and social security or taxpayer identification numbers of such purchasers. By 1 :30 p.m., New York City time, on the Purchase Date, a principal amount of Bonds equal to the amount of Purchased Bonds purchased with moneys from the Remarketing Proceeds Account shall be made available by the Tender Agent to the Remarketing Agent against payment therefor in immediately available funds. The Tender Agent shall prepare each Bond to be so delivered in such names as directed by the Remarketing Agent pursuant to Section 4.10(C)(2). (ii) A principal amount of Bonds equal to the amount of Purchased Bonds purchased from moneys on deposit in the Liquidity Facility Account shall be delivered on the day of purchase by the Tender Agent to or as directed by the Liquidity Facility Provider. The Tender Agent shall register such Bonds in the name of the Liquidity Facility Provider or as otherwise provided in the Liquidity Facility. (iii) A principal amount of Bonds equal to the amount of Purchased Bonds purchased from moneys on deposit in the Corporation Purchase Account shall be delivered on the day of such purchase by the Tender Agent to or as directed by the Corporation. The Tender Agent shall register such Bonds in the name of the Corporation or as otherwise directed by the Corporation. [BDV Note: clarify ability to direct cancellation of Bonds purchased by funds in corporation purchase account and apply to sinkers per 5.041 SECTION 4.11. Notice of Mandatory Tender for Purchase on First Day of Each Interest Rate Period. In connection with any mandatory tender for purchase of Bonds in accordance with Section 4.08, the Tender Agent shall give the notice provided herein as a part of the notice given pursuant to Sections 2.04(C), 2.05(C), 2.06(C) or 2.08(.1)(2). Such notice shall state: (1) that the Purchase Price of any Bond so subject to mandatory tender for purchase shall -64- OHS West260411958.4 be payable only upon surrender of such Bond to the Tender Agent at its Principal Office, accompanied by an instrument of transfer thereof, in form satisfactory to the Tender Agent, executed in blank by the Holder thereof or by the Holder's duly - authorized attorney, with such signature guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange; (2) that all Bonds so subject to mandatory tender for purchase shall be purchased on the mandatory purchase date which shall be explicitly stated; and (3) that in the event that any Holder of a Bond so subject.to mandatory tender for purchase shall not surrender such Bond to the Tender Agent for purchase on such mandatory purchase date, then such Bond shall be deemed to be an Undelivered Bond, and that no interest shall accrue thereon on and after such mandatory purchase date and that the Holder thereof shall have no rights under this Bond Indenture other than to receive payment of the Purchase Price thereof. SECTION 4.12. Irrevocable Notice Deemed to be Tender of Bond; Undelivered (A) The giving of notice by a Holder of a Bond as provided in Section 4.06 shall constitute the irrevocable tender for purchase of each such Bond with respect to which such notice shall have been given, regardless of whether such Bond is delivered to the Tender Agent for purchase on the relevant Purchase Date as provided in this Article IV. (B) The Tender Agent may refuse to accept delivery of any such Bonds for which a proper instrument of transfer has not been provided; such refusal, however, shall not affect the validity of the purchase of such Bond as herein described. For purposes of this Article IV, the Tender Agent for the Bonds shall determine timely and proper delivery of such Bonds and the proper endorsement of such Bonds. Such determination shall be binding on the Holders of such Bonds, the Corporation and the Remarketing Agent, absent manifest error. If any Holder of a Bond who shall have given notice of tender of purchase pursuant to Section 4.06 or any Holder of a Bond subject to mandatory tender for purchase pursuant to Sections 4.07, 4.08 or 4.09 shall fail to deliver such Bond to the Tender Agent at the place and on the applicable date and at the time specified, or shall fail to deliver such Bond properly endorsed, such Bond shall constitute an Undelivered Bond. If funds in the amount of the Purchase Price of the Undelivered Bond are available for payment to the.Holder thereof on the date and at the time specified, from and after the date and time of that required delivery, (1) the Undelivered Bond shall be deemed to be purchased and shall no longer be deemed to be Outstanding under this Bond Indenture; (2) interest shall no longer accrue thereon; and (3) funds in the amount of the Purchase Price of the Undelivered Bond shall be held by the Tender Agent for such Bond for the benefit of the Holder thereof, to be paid on delivery (and proper endorsement) of the Undelivered Bond to the Tender Agent at its Principal Office. Any funds held by the Tender Agent as described in clause (3) of the preceding sentence shall be held uninvested. SECTION 4.13. Remarketing of Bonds; Notice of Interest Rates. (A) Upon a mandatory tender or notice of the tender for purchase of Bonds, the Remarketing Agent shall offer for sale and use its best efforts to sell such Bonds, any such sale to be made on the date of such purchase in accordance with this Article IV at a price equal to the principal amount thereof plus accrued interest, if any, thereon to the purchase date. The Remarketing Agent agrees that it shall not sell any Bonds purchased pursuant to this Article IV -65- OHS West:260411959.4 to the Corporation or any other Member, or to any Person who controls, is controlled by, or is under common control with the Corporation or any other Member or a Person who is otherwise a guarantor of the Loan Repayments. (B) The Remarketing Agent shall offer for sale and use its best efforts to sell Liquidity Facility Bonds at a price equal to the principal amount thereof plus accrued interest to the date of purchase (based on the rate per annum which would have been applicable to such Bonds if they were not Liquidity Facility Bonds). Liquidity Facility Bonds shall not be delivered upon remarketing unless the Tender Agent shall have received a written confirmation from the Liquidity Facility Provider that the Liquidity Facility is reinstated in accordance with its terms to the full amount of the then Required Stated Amount. (C) The Remarketing Agent shall determine the rate of interest to be borne by the Bonds during each Interest Rate Period (other than during an ARS Interest Rate Period) for such Bonds and by each Bond during each Bond Interest Term for such Bond and the Bond Interest Terms for each Bond during each Short-Term Interest Rate Period as provided in Article II hereof and shall furnish to the Credit Facility Provider (if any), the Tender Agent and to the Corporation upon request, in a timely fashion each rate of interest and Bond Interest Term so determined by telephone or Electronic Means, promptly confirmed in writing. (D) Anything in this Bond Indenture to the contrary notwithstanding, (i) during the period during which a Liquidity Facility is required to.be in effect, if there is no Liquidity. Facility in effect, there shall be no remarketing of Bonds'tendered or deemed tendered for purchase, and (ii) if there shall have occurred and is continuing an Event of Default, there shall be no remarketing of Bonds tendered or deemed tendered for purchase. SECTION 4.14. The Remarketing Agent. The Remarketing Agent shall be authorized by law to perform all the duties imposed upon it pursuant to the Remarketing Agreement. The Remarketing Agent or any successor shall signify its acceptance of the duties and obligations imposed upon it pursuant to the Remarketing Agreement by an agreement under which the Remarketing Agent will agree to: (A) determine the interest rates applicable to the Bonds (other than ARS) and give notice to the Tender Agent of such rates and periods in accordance with Article II hereof; (B) keep such books and records as shall be consistent with prudent industry practice; and (C) use its best efforts to remarket Bonds in accordance with the Remarketing Agreement. The Remarketing Agent shall hold all amounts received by it in accordance with any remarketing of Bonds pursuant to Section 4.13 in trust only for the benefit of the Holders of tendered Bonds and shall not commingle such amounts with any other moneys. -66- OHS West:260411958.4 SECTION 4.15. Qualifications of Remarketing Agent; Resignation; Removal. (A) Each Remarketing Agent shall be a Member of the National Association of Securities Dealers, having a combined capital stock, surplus and undivided profits of at least $50,000,000 and authorized by law to perform all the duties imposed upon it by this Bond Indenture. Any successor Remarketing Agent shall have senior unsecured long -term debt which shall be rated, so long as the Bonds with respect to which it is serving as Remarketing Agent shall be rated by Moody's, at least Baa3/P -3 or otherwise qualified by Moody's. (B) A Remarketing Agent may at any time resign and be discharged of the duties and obligations created by the Remarketing Agreement by giving thirty (30) days' written notice to the Tender Agent, the City, the Bond Trustee, the Credit Facility Provider (if any), the Liquidity Facility Provider (if any) and the Corporation. A Remarketing Agent may be removed at the direction of the Corporation or at any time on forty -five (45) days prior written notice, by an instrument signed by the Corporation filed with such Remarketing Agent, the Credit Facility Provider (if any), the Liquidity Facility Provider (if any), the Bond Trustee and the Tender Agent. SECTION 4.16. Successor Remarketing Agents. (A) Any corporation, association, partnership or firm which succeeds to the business of the Remarketing Agent as a whole or substantially as a whole, whether by sale, merger, consolidation or otherwise, shall thereby become vested with all the property, rights and powers of such Remarketing Agent hereunder. (B) In the event that the Remarketing Agent has given notice of resignation or has been notified of its impending removal in accordance with Section 4.15(B), the Corporation shall appoint a successor Remarketing Agent. (C) In the event that the property or affairs of the Remarketing Agent shall be taken under control of any state or federal court or administrative body because of bankruptcy or insolvency, or for any other reason, and the Corporation shall not have appointed its successor, the City shall appoint a successor and, if no appointment is made within thirty (30) days, the Tender Agent shall apply to a court of competent jurisdiction for such appointment. SECTION 4.17. The Tender Agent. (A) Any Tender Agent and each successor Tender Agent shall be appointed in accordance with this Bond Indenture and shall designate its Principal Office and signify its acceptance of the duties and obligations imposed upon it as described herein by a written instrument of acceptance delivered to the City, the Bond Trustee, the Credit Facility Provider (if any), the Liquidity Facility Provider (if any), and the Corporation under which each Tender Agent will agree, particularly: (1) to hold all Bonds delivered to it for purchase hereunder in trust for the exclusive benefit of the respective Holders that shall have so delivered such Bonds until moneys representing the purchase price of such Bonds shall have been delivered to or for the account of or to the order of such Holders; -67- OHS West:260411958.4 (2) to hold all moneys delivered to it hereunder for the purchase of Bonds in trust for the exclusive benefit of the Person that shall have so delivered such moneys until the Bonds purchased with such moneys shall have been delivered to it for the account of such Person and, thereafter, for the benefit of the Holders tendering such Bonds; and (3) to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the City, the Bond Trustee, the Remarketing Agent, the Credit Facility Provider (if any), the Liquidity Facility Provider (if any) and the Corporation. SECTION 4.18. Qualifications of Tender Agent; Resignation, Removal. Any successor Tender Agent shall be a commercial bank or trust company duly organized under the laws of the United States of America or any state or territory thereof having a combined capital stock, surplus and undivided profits of at least $50,000,000 and authorized by law to perform all the duties imposed upon it by this Bond Indenture. Subject to the next succeeding paragraph, any Tender Agent may resign at any time, and be discharged of the duties and obligations created by this Bond Indenture by giving at least sixty (60) days' notice to the City, the Liquidity Facility Provider (if any), the Corporation, the Credit Facility Provider (if any) and the Bond Trustee. Subject to the next succeeding paragraph, any Tender Agent may be removed at any time by an instrument signed by the Corporation and filed with the Bond Trustee, the Credit Facility Provider (if any), the Remarketing Agent, the Liquidity Facility Provider (if any) and the City. Upon the resignation or removal of the Tender Agent, the Tender Agent shall pay over, assign and deliver any-moneys and/or Bonds held by it in such capacity to its successor and shall transfer any documentation relating to the Liquidity Facility in its custody, if any, to its successor. In the event of the resignation of a Tender Agent who is also serving in the capacity of Bond Trustee, the Bond Trustee shall also tender its resignation in accordance with the provisions of this Bond Indenture. No such resignation or removal shall be effective until a successor has been appointed and accepted such duties. SECTION 4.19. Successor Tender Agents. (A) Any corporation, association, partnership or firm which succeeds to the business of the Tender Agent as a whole or substantially as a whole, whether by sale, merger, consolidation or otherwise, shall thereby become vested with all the property; rights and powers of such Tender Agent hereunder. (B) In the event that the Tender Agent has given notice of resignation or has been notified of its impending removal in accordance with Section 4.18, the Corporation shall appoint a successor Tender Agent. The Bond Trustee shall provide notice of any successor Tender Agent to S &P. (C) In the event that the Tender Agent shall resign, be removed or be dissolved, or if the property or affairs of the Tender Agent shall be taken under control of any state or federal court or administrative body because of bankruptcy or insolvency, or for any -68- OHS West:26D411958.4 other reason, and the Corporation shall not have appointed its successor, the City shall appoint a successor and, if no appointment is made within thirty (30) days, the Tender Agent shall apply to a court of competent jurisdiction for such appointment. SECTION 4.20. Inadequate Funds for Tenders. If sufficient funds are not available for the purchase of all Bonds tendered or deemed tendered and required to be purchased on any Purchase Date, the failure to pay the Purchase Price of all tendered Bonds when due and payable shall constitute an Event of Default pursuant to Section 7.01(C) and all tendered Bonds shall be returned to their respective Holders and shall bear interest at the Maximum Interest Rate from the date of such failed purchase until all such Bonds are purchased as required in accordance with this Indenture. Thereafter, the Bond Trustee shall continue to take all such action available to it to obtain remarketing proceeds from the Remarketing Agent and sufficient other funds from the Liquidity Facility Provider, the Credit Facility Provider or the Corporation. ARTICLE V REVENUES SECTION 5.01. Pledge and Assignment, Revenue Fund. (A) Subject only to the provisions . of this Bond Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, there are hereby pledged to secure the payment of the principal of and premium, if any, and interest on the Bonds in accordance with their terms and the provisions of this Bond Indenture, all of the Revenues and any other amounts held in any fund or account established pursuant to this Bond Indenture (other than the Bond Purchase Fund and the Rebate Fund). 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 Bond Trustee of the Bonds, without any physical delivery thereof or further act. (B) The City hereby transfers in trust, grants a security interest in and assigns to the Bond Trustee, for the benefit of the Holders from time to time of the Bonds, all of the Revenues and other assets pledged in subsection (A) of this Section and all of the right, title and interest of the City in the Loan Agreement (except for (i) the right to receive any Administrative Fees and Expenses to the extent payable to the City, (ii) any rights of the City to indemnification, (iii) the obligation of the Corporation to make deposits pursuant to the Tax Agreement) and (iv) as otherwise expressly set forth in the Loan Agreement and Obligation No. 4. The Bond Trustee shall be entitled to and shall collect and receive all of the Revenues, and any Revenues collected or received by the City shall be deemed to be held, and to have been collected or received, by the City as. the agent of the Bond Trustee and shall forthwith be paid by the City to the Bond Trustee. The Bond Trustee also shall be entitled to and shall take all steps, actions and proceedings reasonably necessary in its judgment to enforce all of the rights of the City and all of the obligations of the Corporation under the Loan Agreement and of the Obligated Group Members under Obligation No. 4. us OHS West260411958.4 (C) All Revenues shall be promptly deposited by the Bond Trustee upon receipt thereof in a special fund designated as the "Revenue Fund" which the Bond Trustee is hereby directed to establish, maintain and hold in trust, except as otherwise provided in Sections 5.06 and 5.07 and except that (i) all moneys received by the Bond Trustee and required by the Loan Agreement, or Obligation No. 4 to be deposited in the Bond Purchase. Fund or the Redemption Fund, shall be promptly deposited in the Bond Purchase Fund and Redemption Fund, respectively and (ii) all moneys received by the Bond Trustee from a Credit Facility shall be promptly deposited in the Credit Facility Fund. All Revenues deposited with the Bond Trustee shall be held, disbursed, allocated and applied by the Bond Trustee only as provided in this Bond Indenture. SECTION 5.02. Allocation of Revenues. On or before the dates specified below, the Bond Trustee shall transfer from the Revenue Fund and deposit into the following respective accounts (each of which the Bond Trustee is hereby directed to establish and maintain within the Revenue Fund) and the Rebate Fund 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: on or before each Interest Payment Date, to the Interest Account, the amount of interest becoming due and payable on such Interest Payment Date on all Bonds then Outstanding, until the balance in said account is equal to said amount of interest; Second: to the Principal Account, on or before each Sinking Fund Installment Date, the amount of the Sinking Fund Installment becoming due and payable on such date, until the balance in said account is equal to said amount of such Sinking Fund Installment; and Third: to the Rebate Fund, such amounts as are required to be deposited therein by this Bond Indenture (including the Tax Agreement). Any moneys remaining in the Revenue Fund after the foregoing transfers shall be transferred to the Corporation as an overpayment of Loan Repayments. SECTION 5.03. Application of Interest Account. All amounts in the Interest Account shall be used and withdrawn by the Bond Trustee solely for the purpose of paying interest on the Bonds as it shall become .due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity from funds on deposit in the Principal Account or the Redemption Fund pursuant to this Bond Indenture) or to reimburse the Credit Facility Provider for drawings made under the Credit Facility for such purpose. SECTION 5.04. Application of Principal Account. (A) All amounts in the Principal Account shall be used and withdrawn by the Bond Trustee solely for the purpose of purchasing or redeeming or paying Sinking Fund Installments or pay at maturity the Bonds as provided herein or to reimburse the Credit Facility Provider for drawings made under the Credit Facility for such purpose. -70- OHS West:260411958.4 (B) On each Sinking Fund Installment Date established pursuant to this Section 5.04, the Bond Trustee shall apply the Sinking Fund Installment required on that date to the redemption (or payment at maturity, as the case may be) of the related Series of Bonds, upon the notice and in the manner provided in Article IV; provided that, at any time prior to giving such notice of such redemption, the Bond Trustee may apply moneys in the Principal Account to the purchase of Bonds 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 the par amount of the Bonds so purchased. If, during the twelve -month period immediately preceding a Sinking Fund Installment payment date, the Bond Trustee has purchased Bonds with moneys in the Principal Account, or, during said period and prior to giving said notice of redemption, the Corporation has deposited Bonds with the Bond Trustee (together with a Request of the Corporation, to apply such Bonds to the Sinking Fund Installment due on said date), or Bonds were at any time purchased or redeemed by the Bond Trustee from the Redemption Fund and allocable to said Sinking Fund Installment, such Bonds shall be applied, to the extent of the full principal amount thereof, to reduce said Sinking Fund Installment. All Bonds purchased or deposited pursuant to this subsection, if any, shall be canceled by the Bond Trustee. Bonds purchased from the Principal Account, purchased or redeemed from the Redemption Fund, or deposited by the Corporation with the Bond Trustee shall be allocated as a credit against such future Sinking Fund Installments as the Corporation may specify in writing. -71- OHS West260411958.4 (C) Subject to the terms and conditions set forth in this Section and in Section 4.01 (F), the Series 2OO8A Bonds shall be redeemed (or paid at maturity, as the case may be) by application of Sinking Fund Installments in the following amounts and on the following Sinking Fund Installment Dates: Sinking Fund Installment Date (December It) Sinkinp, Fund Installments t Subject to adjustment as provided in the definition of Sinking Fund Installment Dates. " Final maturity. -72- OHS West:260411958.4 (D) Subject to the terms and conditions set forth in this Section and in Section 4.01(F), the Series 2008B Bonds shall be redeemed (or paid at maturity, as the case may be) by application of Sinking Fund Installments in the following amounts and on the following Sinking Fund Installment Dates: Sinking Fund Installment Date (December It Sinking Fund Installments t Subject to adjustment as provided in the definition of Sinking Fund Installment Dates. • Final maturity. OHS West:260411958.4 - _73_ (E) Subject to the terms and conditions set forth in this Section and in Section 4.O1(F), the Series 2OO8C Bonds shall be redeemed (or paid at maturity, as the case may be) by application of Sinking Fund Installments in the following amounts and on the following Sinking Fund Installment Dates: Sinking Fund Installment Date (December It) Sinking Fund Installments t Subject to adjustment as provided in the definition of Sinking Fund Installment Dates. *Final maturity. OHS West:260411958.4 _74_ (F) Subject to the terms and conditions set forth in this Section and in Section 4.01(F), the Series 2008D Bonds shall be redeemed (or paid at maturity, as the case may be) by application of Sinking Fund Installments in the following amounts and on the following Sinking Fund Installment Dates: Sinking Fund Installment Date (December It) Sinking Fund Installments 0 t Subject to adjustment as provided in the definition of Sinking Fund Installment Dates. `Final maturity. OHS West:260411958.4 _75_ (G) Subject to the terms and conditions set forth in this Section and in Section 4.01(F), the Series 2008E Bonds shall be redeemed (or paid at maturity, as the case may be) by application of Sinking Fund Installments in the following amounts and on the following Sinking Fund Installment Dates: Sinking Fund Installment Date (December It) Sinking Fund Installments t Subject to adjustment as provided in the definition of Sinking Fund Installment Dates. *Final maturity. OHS Wesu260411958.4 _76_ SECTION 5.05. Application of Redemption Fund. The Bond Trustee shall establish, maintain and hold in trust a fund separate from any other fund established and maintained hereunder designated as the "Redemption Fund" and within the Redemption Fund a separate Optional Redemption Account and a separate Special Redemption Account. . All amounts deposited in the Optional Redemption Account and in the Special Redemption Account shall be used and withdrawn by the Bond Trustee solely for the purpose of redeeming Bonds, in the manner and upon the terms and conditions specified in Article IV, at the next succeeding date of redemption for which notice has not been given and at the Redemption Prices then applicable to redemptions from the Optional Redemption Account and the Special Redemption Account, respectively or to reimburse the Credit Facility Provider; provided that at any time prior to giving such notice of redemption, the Bond Trustee shall, upon direction of the Corporation, apply such amounts to the purchase of Bonds 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 the Corporation may direct, except that the purchase price (exclusive Of accrued interest) may not exceed the Redemption Price then applicable to such Bonds; and provided further that, in the case of the Optional Redemption Account, in lieu of redemption at such next succeeding date of redemption, or in combination therewith, amounts in such account that constitute Available Moneys may be transferred to the Revenue Fund and credited against Loan Repayments in order of their due date as set forth in a Request of the Corporation. SECTION 5.06. Rebate Fund. (A) The Bond Trustee shall establish and.maintain a fund separate from any other fund established and maintained hereunder designated as the Rebate Fund. Within the Rebate Fund, the Bond Trustee shall maintain such accounts as.shall be specified by the Tax Agreement. Subject to the transfer provisions provided in subsection (E) below, all money at any time deposited in the Rebate Fund shall be held by the Bond Trustee in trust, to the extent required to satisfy the Rebate Requirement (as defined in the Tax Agreement), for payment to the federal government of the United States of America. Neither the City, the Corporation, nor the Holder of any Bonds shall have any rights in or claim to such money. All amounts deposited into or on deposit in the Rebate Fund shall be governed by this Section, by Section 6.06 and by the Tax Agreement (which is incorporated herein by reference). The Bond Trustee shall be deemed conclusively to have complied with such provisions if it follows the written directions of the Corporation including supplying all necessary information in the manner provided in the Tax Agreement, and shall have no liability or responsibility to enforce compliance by the Corporation or the City with the terms of the Tax Agreement. The City shall be deemed conclusively to have complied with the provisions of this Section if it takes such action as may reasonably be requested by the Corporation pursuant to the Tax Agreement. (B) Upon.the Corporation's written direction, an amount shall be deposited to the Rebate Fund by the Bond Trustee from deposits by the Corporation or from available investment earnings on amounts held in the Revenue Fund, if and to the extent required, so that the balance in the Rebate Fund shall equal the Rebate Requirement. Computations of the Rebate Requirement shall be furnished to the Bond Trustee by or on behalf of the Corporation in accordance with the Tax Agreement. OHS West:260411958A -77- (C) The Bond Trustee shall have no obligation to rebate any amounts required to be rebated pursuant to this Section, other than from moneys held in the funds and accounts created under this Bond Indenture or from other moneys provided to it by the Corporation. (D) At the written direction of the Corporation, the Bond Trustee shall invest all amounts held in the Rebate Fund in Investment Securities, subject to the restrictions set forth .in the Tax Agreement. Neither the City nor the Bond Trustee shall be liable for any consequences arising from such investment. Money shall not be transferred from the Rebate Fund except as provided in subsection (E) below. (E) Upon receipt of the Corporation's written directions, the Bond Trustee shall remit part or all of the balances in the Rebate Fund to the United States, as so directed. In addition, if the Corporation so directs in writing, the Bond Trustee will deposit money into or transfer money out of the Rebate Fund from or into such accounts or funds, as so directed. Any funds remaining in the Rebate Fund after redemption and payment of all of the Bonds and payment and satisfaction of any Rebate Requirement, or provision made therefor satisfactory to the Bond Trustee, shall be withdrawn and remitted to the Corporation (F) Notwithstanding any other provision of this Bond Indenture, including in particular Article X, the obligation to remit the Rebate Requirements to the United States and to comply with all other requirements of this Section, Section 6.06 and the Tax Agreement shall survive the defeasance or payment in full of the Bonds. SECTION 5.07. Investment of Moneys in Funds and Accounts. All moneys in any of the funds and accounts established pursuant to this Bond Indenture (other than the Bond Purchase Fund and the Credit Facility Fund) shall be invested by the Bond Trustee, upon direction of the Corporation, solely in Investment Securities. Investment Securities shall be purchased at such prices as the Corporation may direct. The directions of the Corporation shall be subject to the limitations set forth in Section 6.06. All Investment Securities shall be acquired subject to the limitations as to maturities hereinafter in this Section set forth and such additional limitations or requirements consistent with the foregoing as may be established by Request of the Corporation. No Request of the Corporation shall impose any duty on the Bond Trustee inconsistent with its fiduciary responsibilities. In the absence of directions from the Corporation, the Bond Trustee shall invest in Investment Securities specified in subsection (f) of the definition thereof in Section 1.01. Moneys in the Bond Purchase Fund and the Credit Facility Fund shall remain uninvested. Moneys in all other funds and accounts shall be invested in Investment Securities maturing not later than the date on which it is estimated that such moneys will be required for the purposes.specified in this Bond Indenture. Investment Securities purchased under a repurchase agreement or investment contract may be deemed to mature on the date or dates on which the Bond Trustee may deliver such Investment Securities for repurchase under such agreement. All interest, profits and other income received from the investment of moneys in the Rebate Fund shall be deposited when received in such fund. All interest, profits and other income received from the investment of moneys in any other fund or account established pursuant to this Bond Indenture shall be deposited when received in the fund or account from -78- OHS West:260411958.4 which the moneys were invested. 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. Investment Securities acquired as an investment of moneys in any fund or account established under this Bond Indenture shall be credited to such fund or account. For the purpose of determining the amount in any such fund or account all Investment Securities credited to such fund or account shall be valued at the lower of cost (exclusive of accrued interest after the first payment of interest following acquisition) or par value (plus, prior to the first payment of interest following acquisition, the amount of interest paid as part of the purchase price). The Bond Trustee may commingle any of the amounts on deposit in the funds or accounts established pursuant to this Bond Indenture (other than the Bond Purchase Fund, the Credit Facility Fund or the Rebate Fund) into a separate fund or funds for investment purposes only, provided that all funds or accounts held by the Bond Trustee hereunder shall be accounted for separately as required by this Bond Indenture. The Bond Trustee may act as principal or agent in the making or disposing of any investment. The Bond Trustee may sell at the best price reasonably obtainable, or present for. redemption, any Investment Securities so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such Investment Security is credited, and, subject to the provisions of Section 8.03 with respect to the Bond Trustee, neither the City nor the Bond Trustee shall be liable or responsible for any loss resulting from any investment made in accordance with the provisions of this Section 5.07. The City (and the Corporation by its execution of the Loan Agreement) acknowledges that, to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City or the Corporation the right to receive brokerage confirmations of security. transactions as they occur, the City and the Corporation will not receive such confirmations to the extent permitted by law. The Bond Trustee will furnish the City and the Corporation periodic cash transaction statements as provided herein which include detail for all investment transactions made by the Bond Trustee hereunder. SECTION 5.08. Credit Facility; Credit Facility Fund. (A) The Bond Trustee shall hold and maintain each Credit Facility (if any) for the benefit of the Holders until such Credit Facility expires in accordance with its terms. Subject to the provisions of this Bond Indenture, the Bond Trustee shall enforce all terms, covenants and conditions of each Credit Facility, including payment when due of any draws on such Credit Facility, and the provisions relating.to the payment of draws on, and reinstatement of amounts that may be drawn under, such Credit Facility, and will not consent to, agree to or permit any amendment or modification of such Credit Facility which would materially adversely affect the rights or security of the Holders. If at any time during the term of a Credit Facility any successor Bond Trustee shall be appointed and qualified under this Bond Indenture, the resigning or removed Bond Trustee shall request that the Credit Facility Provider transfer such Credit Facility to the successor Bond Trustee. If the resigning or removed Bond Trustee fails to make this -79- OHS West:260411958.4 request, the successor Bond Trustee shall do so before accepting appointment. When a Credit Facility expires in accordance with its terms or is replaced by an Alternate Credit Facility, the Bond Trustee shall immediately surrender such Credit Facility to the Credit Facility Provider. All provisions herein relating to the rights of the Credit Facility Provider shall be of no force and effect if there is no Credit Facility or Alternate Credit Facility in effect and, if the Credit Facility Provider and the Liquidity Facility Provider are the same entity, there are no Liquidity Facility Bonds and all amounts owing to the Credit Facility Provider and, if the Credit Facility Provider and the Liquidity Facility. Provider are the same entity, the Liquidity Facility Provider hereunder and under the Reimbursement Agreement then in effect have been paid. (B) Notwithstanding any other provision of this Indenture, unless a Credit Facility Provider Failure has occurred and is continuing, the principal and Redemption Price or and interest on the Bonds shall be paid solely with Available Moneys. While a Credit Facility is in effect with respect to any Bonds, the Bond Trustee shall, on the Business Day preceding each Interest Payment Date and Sinking Fund Installment Date (or other date upon which principal of such Bonds is due), draw on the Credit Facility in accordance with the terms thereof so as to receive thereunder by 3:00 p.m. New York City time on said Interest Payment Date and Sinking Fund Installment Date (or other date upon which principal of such bonds is due), an amount, in immediately available funds, equal to the amount of interest and principal payable on such Bonds on such Interest Payment Date and Sinking Fund Installment Date (or other date upon which principal of such Bonds is due). The proceeds of such draws shall be deposited in the Credit Facility Fund pursuant to Section 5.08(C) hereof and shall be applied to pay principal of. and interest on the Bonds prior to the application of any other funds held by the Bond Trustee therefor. Notwithstanding the foregoing, if the Credit Facility Provider and the Liquidity Facility Provider are the same entity, the Bond Trustee shall not draw on the Credit Facility with respect to any payments due or made in connection with Liquidity Facility Bonds.. In no event shall the Bond Trustee draw on the Credit Facility with respect to any payments made in connection with Bonds not covered by the Credit Facility or Bonds owned by the Corporation or any Obligated Group Member. (C) The Bond Trustee. shall establish, maintain and hold in trust a special fund designated as the "Credit Facility Fund." The Bond Trustee shall deposit in the Credit Facility Fund all moneys derived from a drawing under a Credit Facility for the purpose of paying the principal of and interest on Bonds subject to such Credit Facility when due. Moneys held in the Credit Facility Fund shall be held separate and apart from all other funds and accounts and shall not be commingled with any other moneys. Moneys in the Credit Facility Fund :shall be withdrawn by the Bond Trustee from the Credit Facility Fund and applied to the payment of the. principal of and interest on Bonds subject to such Credit Facility on each Sinking Fund Installment Date for such Bonds (or other date upon which principal of such Bonds is due) and Interest Payment Date for such Bonds, provided that such moneys shall not be used to pay the principal of or interest on Bonds not covered by the Credit Facility or Bonds owned by any Obligated Group Member. -80- OHS West260411958.4 ARTICLE VI PARTICULAR COVENANTS SECTION 6.01. Punctual Payment. The City shall punctually cause to be paid the principal or Redemption Price and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of this Bond Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in this Bond Indenture. SECTION 6.02. Extension of Payment of Bonds. Except as set forth in Section 9.01, the City shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase or funding of such Bonds or claims for interest or by any other arrangement and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Bond Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the City to issue obligations for the purpose of refunding any Outstanding Bonds, and such issuance shall not be _deemed to constitute an extension of maturity of Bonds. SECTION 6.03. Againsf Encumbrances. The City shall not create any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under this Bond Indenture while any of the Bonds are Outstanding, except the pledges and assignments created by this Bond Indenture, and will assist the Bond Trustee in contesting any such pledge, lien, charge or other encumbrance which may be created. Subject to this limitation, the City expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Law, and reserves the right to issue other obligations for such purposes. SECTION 6.04. Power to Issue Bonds and Make Pledge and Assignment. The City is duly authorized pursuant to law to issue the Bonds and to enter into this Bond Indenture and to pledge and assign the Revenues and other assets purported to be pledged and assigned, respectively, under this Bond Indenture in the manner and to the extent provided in this Bond Indenture. The Bonds and the provisions of this Bond Indenture are will be the legal, valid and binding limited obligations of the City in accordance with their terms, and the City and Bond Trustee shall at all times, to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Bondholders under this Bond Indenture against all claims and demands of all Persons whomsoever. SECTION 6.05. Accounting Records, and Financial Statements. (A) The Bond Trustee shall at all times keep, or cause to be kept, proper books of record and account prepared in accordance with trust accounting standards, in which complete and accurate entries shall be made .of all transactions relating to the receipt, investment, disbursement, allocation and application of the proceeds of the Bonds, the Revenues, the Loan -81- OHS West:260411958.4 Agreement and all funds and accounts established pursuant to this Bond Indenture. Such books of record and account shall be available for inspection by the City, the Credit Facility Provider (if any), the Liquidity Facility Provider (if any), the Corporation and any Bondholder or such Bondholder's agent or representative duly authorized in writing, during the Bond Trustee's business hours on days on which the Bond Trustee is open for business. (B) The Bond Trustee shall file and furnish on or before the 15th day of each month to the Corporation, the Credit Facility Provider (if any) and to each Bondholder who shall have filed such Bondholder's name and address with the Bond Trustee for such purpose, and to the City if requested in writing, a complete financial statement (which need not be audited) covering receipts, disbursements, allocation and application of Revenues and any other moneys (including proceeds of Bonds) in any of the funds and accounts established pursuant to this Bond ,Indenture for the preceding month. (C) The Trustee shall furnish to any Bondholder and the Credit Facility Provider (if any) (upon such Bondholder's request or the Credit Facility Provider's (if any)), and the City if requested in writing a statement of the aggregate principal amount of Bonds Outstanding and the redemption history of the Bonds (i.e., the dates, amounts, sources of funds, and distribution of calls to the maturities of any previously occurring redemptions). SECTION 6.06. Tax Covenants. The City shall at all times do and perform all acts and things permitted by law and this Bond Indenture which are necessary or desirable in order to assure that interest paid on the Bonds (or any of them) will be excluded from gross income for federal income tax purposes and shall take no action that would result in such interest not being so excluded. Without limiting the generality of the foregoing; the City agrees to comply with the provisions of the Tax Agreement. This covenant shall survive payment in full or defeasance of the Bonds. SECTION 6.07. Enforcement of Loan Agreement and Obligation No. 4. The Bond Trustee shall promptly collect all amounts due from the Corporation pursuant to the Loan Agreement and from the Obligated Group pursuant to Obligation No. 4, shall perform all duties imposed upon it pursuant to the. Loan Agreement and shall enforce, and take all steps, actions and proceedings reasonably necessary (subject to the rights of the Credit Facility Provider (if any) with respect to the enforcement of remedies) for the enforcement of, all of the rights of the City and all of the obligations of the Corporation. SECTION 6.08. Amendment of Loan Agreement. (A) Except as provided in Section 6.08(B), the City shall not amend, modify or terminate any of the terms of the Loan Agreement, or consent to any such amendment, modification or termination, unless the written consent of (i) the Credit Facility Provider (if any) or (ii) if a Credit Facility Provider Failure has occurred and is continuing or if there is no Credit Facility Provider, the Holders of a majority in principal amount of the Bonds then Outstanding to such amendment, modification or termination is filed with the Bond Trustee, provided that no such amendment, modification or termination shall reduce the amount of Loan Repayments to be made to the City or the Bond Trustee by the Corporation pursuant to the Loan Agreement, or -82- OHS West260411958.4 extend the time for making such payments, without the written consent of all of the Holders of the Bonds then Outstanding. (B) Notwithstanding the provisions of Section 6.08(A), the terms of the Loan Agreement may also be modified or amended from time to time and at any time by the City, with the consent of the Credit Facility Provider (if any), without the necessity of obtaining the consent of any Bondholders, only to the extent permitted by law and only for any one or more of the following purposes: (1) to add to the covenants and agreements of the City or the Corporation contained in the Loan Agreement other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power therein reserved to or conferred upon the City or the Corporation, provided, that no such covenant, agreement, pledge, assignment or surrender shall materially adversely affect the interests of the Holders of the Bonds; (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 Loan Agreement, or in regard to matters or questions arising under the Loan .Agreement, as the City may deem necessary or desirable and not inconsistent with the Loan Agreement or this Bond Indenture, and which shall not materially adversely affect the interests of the Holders of the Bonds; (3) to evidence or give effect to, or to conform to the terms and provisions of, any Liquidity Facility; (4) to evidence or give effect to, or to conform to the terms and provisions of, any Credit Facility; (5) to maintain the exclusion from gross income of interest payable with respect to the Bonds; and. (6) to make any modification or amendment to the Loan Agreement which will be effective upon the remarketing of Bonds following the mandatory tender of the Bonds pursuant to Section 4.08. (C) In executing or consenting to any amendment to the Loan Agreement permitted by this Section, the City, the Credit Facility Provider (if any) and the Bond Trustee shall receive, and shall be fully protected in relying upon, an Opinion of Bond Counsel addressed to the City, the Credit Facility Provider (if any) and the Bond Trustee stating that the execution of such amendment is authorized or permitted by the Loan Agreement and this Bond Indenture and applicable law, will upon the execution and delivery thereof be valid and binding obligations of the parties thereto, and that the execution and delivery thereof will not adversely affect the exclusion from federal gross income of interest on the Bonds. -83- OHS WesY260411958.4 (D) Upon Request of the Corporation, the Bond Trustee, as holder of Obligation No. 4, shall consent to any amendment to the Master Indenture requested by the Corporation, provided that the Bond Trustee shall have received the prior written consent of the Credit Facility Provider (if any) and the Liquidity Facility Provider (if any) to such amendments. SECTION 6.09. Waiver of Laws. The City shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force that may affect the covenants and agreements contained in this Bond Indenture or in the Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the City to the extent permitted by law. SECTION 6.10. Further Assurances. The City shall make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the ,intention or to facilitate the performance of this Bond Indenture and for the better assuring and confirming unto the Holders of the Bonds of the rights and benefits provided in this Bond Indenture. SECTION 6.11. Continuing Disclosure. Pursuant to Section 5.9 of the Loan Agreement, the Corporation has undertaken all responsibility for compliance with continuing disclosure requirements to the extent set forth therein, and the City shall have no liability to the Holders of the Bonds or any other Person with respect to S.E.C. Rule 15c2 -12. Notwithstanding any other provision of this Bond Indenture, failure of the Corporation or the Dissemination Agent (as defined in the Continuing Disclosure Certificate) to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default; however, the Bond Trustee may (and, at the request of any Participating Underwriter (as defined in the Continuing Disclosure Certificate) or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall) or any Bondholder or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Corporation to comply with its obligations under Section 5.9 of the Loan Agreement or to cause the Bond Trustee to comply with its obligations under this Section 6.11. SECTION 6.12. Replacement of Obligation No. 4. At the option of the Corporation, Obligation No. 4 shall be surrendered by the Bond Trustee and delivered to the Master Trustee for cancellation upon receipt by the Bond Trustee of all of the following: (1) a Request of the Corporation requesting such surrender and delivery and stating that the Corporation has become a member of an obligated group under a master indenture (other than the Master Indenture) or has obligated itself pursuant to another form of indebtedness security arrangement, and that an obligation is being issued to the Bond Trustee under such replacement master indenture or security arrangement ( "Replacement Arrangement "); (2) a properly executed obligation (the "Replacement Obligation ") issued under the Replacement Arrangement and registered in the name of the Bond Trustee with the same tenor and effect as Obligation No. 4, duly authenticated by the master trustee under the Replacement Arrangement; -84- OHS West:260411958.4 (3) an Opinion of Counsel to the effect that the Replacement Obligation has been validly issued under the Replacement Arrangement and constitutes a valid and binding obligation of the Corporation and each other member of the obligated group under the Replacement Arrangement; (4) a copy of the Replacement Arrangement, certified as a true and accurate copy by the master trustee under the Replacement Arrangement; (5) written confirmation from each Rating Agency then rating the Bonds that the replacement of Obligation No. 4 in accordance with the provisions of this Section will not, by itself, result in a reduction in the then - current ratings on the Bonds; and (6) the written consent of the Credit Facility Provider (if any). Upon satisfaction of such conditions, all references herein and in the Loan Agreement to Obligation No. 4 shall be deemed to be references to the Replacement Obligation, all references to the Master Indenture shall be deemed to be references to the Replacement Arrangement, all references to the Master Trustee shall be deemed to be references to the master trustee under the Replacement Arrangement, all references to the Obligated Group and the Members shall be deemed to be references to the obligated group and the members of the obligated group under the Replacement Arrangement and all references to Supplemental Master Indenture for Obligation No. 4 shall be deemed to be references to the document pursuant to which the Replacement Obligation is issued. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS SECTION 7.01. Events of Default. The following events shall be Events of Default: (A) default in the due and punctual payment of the principal or Redemption Price of any Bond when and .as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration or otherwise or default in the redemption of any Bonds from Sinking Fund Installments in the amount and at the times provided therefor; (B) default in the due and punctual payment of any installment Of interest on any Bond when and as such interest installment shall become due and payable; (C) failure by the Corporation to pay the Purchase Price of any Bond tendered or subject to mandatory tender pursuant to Article IV; (D) default in any material respect by the City in the observance of any of the other covenants, agreements or conditions on its part in this Bond Indenture or in the Bonds contained, if such default shall have continued for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to -85- OHS West:2 6011 195 8.4 the City and the Corporation by the Bond Trustee, or to the City, the Corporation and the Bond Trustee by the Credit Facility Provider (if any) or Holders of not less than twenty -five per cent (25 %) in aggregate principal amount of the Bonds at the time Outstanding; or (E) a Loan Default Event; (F) receipt by the Bond Trustee of notice from the Credit Facility Provider (if any) that an Event of Default (as defined in the Reimbursement Agreement) has occurred under the Reimbursement Agreement and which notice directs the Bond Trustee to accelerate the Bonds; or (G) receipt by the Bond Trustee of notice from the Credit Facility Provider that the amount of an interest drawing under the Credit Facility will not be reinstated as provided in the Credit Facility. Upon actual knowledge of the existence of any Event of Default, the Bond Trustee and the City shall notify the Corporation, the City, the Credit Facility Provider (if any), the Master Trustee and the Bond Trustee in writing as soon as practicable (but no later than 30 days after obtaining actual knowledge thereof); provided, however, that the Bond Trustee or City need not provide notice of any Loan Default Event if the Corporation has expressly acknowledged the existence of such Loan Default Event in a writing delivered to the Bond Trustee, the City, the Credit Facility Provider (if any) and the Master Trustee. Additionally, the Bond Trustee shall immediately notify the Credit Facility Provider (if any) if at any time there are insufficient moneys to make any payments of principal of and/or interest on the Bonds and immediately upon the occurrence of any Event of Default hereunder and shall provide such additional information as the Credit Facility Provider (if any) shall reasonably request. SECTION 7.02. Acceleration of Maturities. Whenever any Event of Default referred to in Section. 7.01 shall have happened and be continuing, the Bond Trustee may take the following remedial steps: (A) In the case of an Event of Default described in Section 7.01 of this Bond Indenture, the Bond Trustee may, with the written consent of the Credit Facility Provider (if any), and upon written direction of the Credit Facility Provider (if any) shall, notify the City and the Master Trustee of such Event of Default, may make a demand for payment under Obligation No. 4 and request the Master Trustee in writing to give notice pursuant to Section 6.02 of the Master Indenture to the Obligated Group Members declaring the.principal of all obligations issued under the Master Indenture then outstanding to be due and immediately payable. Thereupon, the Bond Trustee shall declare the principal of all the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall. be .immediately due and payable, anything in this Bond Indenture to the contrary notwithstanding. In addition, the Bond Trustee may take whatever action at law or in equity is necessary or desirable to collect the payments due under Obligation No. 4; (B) In the. case of an Event of Default described in Section 7.01(D) of this Bond Indenture, the Bond Trustee may, with the written consent of the Credit Facility Provider -86- OHS West:260411955.4 (if any), take whatever action at law or in equity is necessary or desirable to enforce the performance, observance or compliance by the City with any covenant, condition or agreement by the City under this Bond Indenture; and (C) In the case of an Event of Default described in Section 7.01(E) of this Bond Indenture, the Bond Trustee may, with the written consent of the Credit Facility Provider (if any), take whatever action the City would be entitled to take, and shall take whatever action the City would be required to take, pursuant to the Loan Agreement in order to remedy the Loan Default Event. Upon a declaration of acceleration pursuant to this Section 7.02, interest on Bonds (other than Liquidity Facility Bonds) shall immediately cease to accrue and the Bond Trustee shall immediately draw on the Credit Facility in accordance with its terms, as provided in Section 5.08, in an amount sufficient to pay principal and interest on Bonds subject to such Credit Facility, and shall immediately apply the proceeds of such draw to the payment of such Bonds. Any such declaration, however, is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the City or the Corporation shall deposit with the Bond Trustee a sum sufficient to pay all the principal (including any Sinking Fund Installments) or redemption price of and installments of interest on the Bonds, payment of which is overdue, with interest on such overdue principal at the rate borne by the respective Bonds, and the reasonable charges and expenses of the Bond Trustee, and if the Bond Trustee has received notification from the Master Trustee that the declaration of acceleration of Obligation No. 4 has been annulled pursuant to the Master Indenture and any and all other defaults known to the Bond Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Bond Trustee or provision deemed by the Bond Trustee to be adequate shall have been made therefor (provided that if a Credit Facility was drawn upon in connection with such Event of Default, such Credit Facility has been reinstated and in the case of an Event of Default described in Section 7.01(F), the notice provided by the Credit Facility Provider has been rescinded by the Credit Facility Provider), then, and in every such case, the Bond Trustee shall, on behalf of the Holders of all of the Bonds, 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 Bond Trustee shall give written notice to the Liquidity Facility Provider (if any) of any such rescission. Notice of such declaration having been given as aforesaid, anything to the contrary contained in this Bond Indenture or in the Bonds to the contrary notwithstanding, interest shall cease to accrue on such Bonds from and after the date set forth in such notice (which shall be not more than seven days from the date of such declaration). Nothing contained herein, however, shall require the Bond Trustee to exercise any remedies in connection with an Event of Default unless the Bond Trustee shall have actual knowledge or shall have received written notice of such Event of Default. _87_ OHS West260411958.4 SECTION 7.03. AAplication 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 Bond Trustee under any of the provisions of this Bond Indenture (subject to Section 11.10 and other than moneys required to be deposited in the Rebate Fund, the Credit Facility Fund or the Bond Purchase Fund) shall be applied by the Bond Trustee as follows and in the following order: (1) To the payment of any expenses necessary in the opinion of the Bond Trustee to protect the interests of the Holders of the Bonds and payment of reasonable fees and expenses of the Bond Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under this Bond Indenture; and (2) To the payment of the principal or Redemption Price of and interest then due on the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of this Bond Indenture (including Section 6.02), as follows: (i) Unless the principal of all of the Bonds shall have become or have been declared due and payable, First: To the payment to the Persons entitled thereto of all installments of interest then due 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 (including Sinking Fund Installments) or Redemption Price of any Bonds which shall have become due, whether at maturity or by call for redemption, in the order of their due dates, with interest on the overdue principal at the rate borne by the respective Bonds, and, if the amount available shall not be sufficient to pay in full all the Bonds due on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal or Redemption Price due on such date to the Persons entitled thereto, without any discrimination or preference. Third: To the payment of the Credit Facility Provider (if any), any amounts due under the Reimbursement Agreement. (ii) If the principal of all of the Bonds shall have become or have been declared due and payable, to the payment of the principal and interest then due and unpaid upon the Bonds, with interest on the overdue principal at the rate borne by the respective Bonds, and, if the amount available shall not be sufficient to pay in full the whole amount so due and unpaid, then to the payment thereof ratably, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, according to the amounts due -88- OHS West:260411958.4 respectively for principal and interest, to the Persons entitled thereto without any discrimination or preference. SECTION 7.04. Bond Trustee to Represent Bondholders. The Bond Trustee is hereby irrevocably appointed (and the successive respective Holders of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Bond Trustee) as Bond Trustee and true and lawful attorney -in -fact of the Holders of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Holders under the provisions of the Bonds, 'this Bond Indenture, the Loan Agreement, Obligation No. 4, the Law and applicable provisions of any other law. Subject to the rights of the Credit Facility Provider (if any) with respect to the enforcement of remedies related to the Bonds as described herein, upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Bond Trustee to represent the Bondholders, the Bond 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 Bonds 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 herein, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Bond Trustee or in such Holders under this Bond Indenture, the Loan Agreement, Obligation No. 4, the Law or any other law; and upon instituting such' proceeding, the Bond Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other amounts and assets pledged under this Bond Indenture, pending such proceedings. If more than one such request is received by the Bond Trustee from the Holders, the Bond Trustee shall follow the written request executed by the Holders of the greater percentage of Bonds then Outstanding in excess of twenty -five percent (25 %). All rights of action under this Bond Indenture or the Bonds or otherwise may prosecuted and enforced by the Bond Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Bond Trustee shall be brought in the name of the Bond Trustee for the benefit and protection of all the Holders of such Bonds, subject to the provisions of this Bond Indenture (including Section 6.02). SECTION 7.05. Credit Facility. Provider's and Bondholders' Direction of Proceedings. Anything in this Bond Indenture to the contrary notwithstanding, the Credit Facility Provider (if any) or if a Credit Facility Provider Failure has occurred and is continuing or, if there is no Credit Facility Provider, Holders of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Bond Trustee; and upon indemnifying the Bond Trustee to its satisfaction therefor, to direct the method of conducting all remedial proceedings taken by the Bond Trustee hereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of this Bond Indenture, and that the Bond Trustee shall have the right to decline to follow any such direction which in the opinion of the Bond Trustee would be unjustly prejudicial to Bondholders not parties to such direction. SECTION 7.06. Limitation on Bondholders' Right to Sue. No Holder of any Bond shall have the right to institute any suit, action or proceeding at law or in equity, for the -89- OHS West260411958.4 protection or enforcement of any right. or remedy under this Bond Indenture, the Loan Agreement, Obligation No. 4, the Law or any other applicable law with respect to such Bond, unless (1) such Holder shall have given to the Bond Trustee written notice ofthe occurrence of an Event of Default; (2) the Holders of not less than twenty -five per cent (25 %) in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Bond Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; provided, however, that if more than one such request is received by the Bond Trustee from the Holders, the Bond Trustee shall follow the written request executed by the Holders of the greater percentage of Bonds then Outstanding in excess of twenty -five percent (25 %); (3) such Holder or said Holders shall have tendered to the Bond Trustee indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Bond 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 Bond Trustee; and (5) the Credit Facility Provider (if any) shall have consented in writing to such action. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Holder of Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Holders of Bonds shall have any right in any manner whatever by such Holder's or Holders' action to affect, disturb or prejudice the security of this Bond Indenture or the rights of any other Holders of Bonds, or to enforce any right under this Bond Indenture, the Loan Agreement, Obligation No. 4, the Law or other applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Holders . of the Outstanding Bonds, subject to the provisions of this Bond Indenture (including Section 6.02). SECTION 7.07. Absolute Obligation of City. Nothing in Section 7.06 or in any other provision of this Bond Indenture, or in the Bonds, contained shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal or Redemption Price of and interest on the Bonds to the respective Holders of the Bonds at their respective dates of maturity, or upon call for redemption, as herein provided, but only out of the Revenues and other assets herein pledged therefor, and not otherwise, or affect or impair the right of such Holders, which is .also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds. SECTION 7.08. Termination of Proceedings. In case any proceedings taken by the Bond Trustee, the Credit Facility Provider (if any) or any one or more Bondholders on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Bond Trustee, the Credit Facility Provider (if any) or the Bondholders, then in every such case the City, the Bond Trustee, the Credit Facility Provider (if any), the Liquidity Facility Provider (if any) and the Bondholders, subject to any determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the City, the Bond Trustee, the Credit Facility Provider (if any), the Liquidity Facility Provider (if any) and the Bondholders shall continue as though no such proceedings had been taken. •i OHS West:260411958.4 SECTION 7.09. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Bond Trustee, the Credit Facility Provider (if any) or to the Holders of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. SECTION 7.10. No Waiver of Default. No delay or omission of the Bond Trustee, the Credit Facility Provider (if any) or of any Holder of the Bonds to exercise any right . or power arising upon the occurrence of any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy given by this Bond Indenture to the Bond Trustee, the Credit Facility Provider (if any) or to the Holders of the Bonds may be exercised from time to time and as often as may be deemed expedient. ARTICLE VIII THE BOND TRUSTEE SECTION 8.01. Duties, Immunities and Liabilities of Bond Trustee. . I (A) The Bond Trustee shall, prior to an Event of Default, and after the curing of all Events of Default which may have occurred; perform such duties and only such duties as are specifically set forth in this Bond Indenture, and, except to the extent required by law, no implied covenants or obligations shall be read into this Bond Indenture against the Bond Trustee. The Bond Trustee shall, during the existence of any Event of Default (which has not been cured), exercise such of the rights and powers vested in it by this Bond Indenture, and use the same degree of care and skill in their exercise, as a prudent person that customarily engages in activities essentially similar to those provided for the Bond Trustee hereunder would exercise or use under the circumstances in the conduct of such person's own affairs. (B) The City may, and upon written request of (i) the Credit Facility Provider (if any) (if an Event of Default or an event that with the passage of time or the giving of notice or both will become an Event of Default has occurred and is continuing or. if the Bond Trustee has breached any of its trust duties set forth herein) or (ii) the Corporation shall, remove the Bond Trustee at any time unless an Event of Default shall have occurred and then be continuing, and shall remove the Bond Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Bond Trustee shall cease to be eligible in accordance with subsection .(E) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or. insolvent, or a receiver of the Bond Trustee or its property shall be appointed, or any public officer shall take control or charge of the Bond Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Bond Trustee, and thereupon shall appoint, with the written consent of the Corporation and the Credit Facility Provider (if any), a successor Bond Trustee by an instrument in writing. The City, the Corporation or any Holder may at any time petition any court of competent jurisdiction for the removal for.cause of the Bond Trustee. -91- OHS West260411958.4 (C) The Bond Trustee may at any time resign by giving written notice of such resignation to the City, the Credit Facility Provider (if any), the Liquidity Facility Provider (if any) and the Corporation and by giving the Bondholders notice of such resignation by mail at the addresses shown on the registration books maintained by the Bond Trustee. Upon receiving such notice of resignation, the City shall promptly appoint, with the written consent of the Corporation and the Credit Facility Provider (if any), a successor Bond Trustee by an instrument in writing. The Bond Trustee shall not be relieved of its duties until such successor Bond Trustee has accepted appointment. If the Bond Trustee has or shall acquire any conflicting interest, as defined in the Trust Indenture Act of 1939, as amended, it shall, within 90 days after ascertaining that it has a conflicting interest, or within 30 days after receiving written notice from the City or the Corporation (so long as the Corporation is not in default under the Loan Agreement) that it has a conflicting interest, either eliminate such conflicting interest or resign in the manner and with the effect specified in this Subsection (C). (D) Any removal or resignation of the Bond Trustee and appointment of a successor Bond Trustee shall only become effective upon written approval of such successor Bond Trustee by the Credit Facility Provider (if any) and acceptance of appointment by the successor Bond Trustee. If no successor Bond Trustee shall have been appointed and have accepted appointment within thirty (30) days of giving notice of removal or notice of resignation as aforesaid, the resigning Bond Trustee, the Credit Facility Provider (if any) or any Bondholder (on behalf of such Bondholder and all other Bondholders and such Credit Facility Provider) may petition any court of competent jurisdiction for the appointment of a successor Bond Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Bond Trustee. Any successor Bond Trustee appointed under this Bond Indenture shall signify its acceptance of such appointment by executing and delivering to the City and the Credit Facility Provider (if any) and to its predecessor Bond Trustee a written acceptance thereof, and thereupon such successor Bond Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Bond Trustee, with like effect as if originally named Bond Trustee herein; but, nevertheless at the request of the City or the request of the successor Bond Trustee, such predecessor Bond Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things. as may reasonably be required for more fully and certainly vesting in and confirming to such successor Bond Trustee all the right, title and interest of such predecessor Bond Trustee in and to any property held by it under this Bond Indenture and shall pay over, transfer, assign and deliver to the successor Bond Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Bond Trustee, the City shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Bond Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon written approval of a successor Bond Trustee by the Credit Facility Provider (if any) and acceptance of appointment by a successor Bond Trustee as provided in this subsection, the successor Bond Trustee shall mail a notice of the succession of such Bond Trustee to the trusts hereunder to the Bondholders at the addresses shown on the registration books maintained by the Bond Trustee. (E) The Bond Trustee and any successor Bond Trustee shall be a trust company or bank having a combined capital and surplus of at least seventy -five million dollars. -92- OHS Wesk260411958.4 ($75,000,000) (or providing a guarantee of the full and prompt performance by the Bond Trustee of its obligations under this Bond Indenture by a guarantor with such combined capital and surplus), duly authorized to exercise trust powers and subject to supervision or examination by federal or state authority. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Bond Trustee shall cease to be eligible in accordance with the provisions of this subsection (E), the Bond Trustee shall resign immediately in the manner and with the effect specified in this Section. SECTION 8.02. Merger or Consolidation. Any company into which the Bond Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Bond Trustee may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under subsection (E) of Section 8.01, shall be the successor to such Bond Trustee without the execution or filing of any paper or any Rather act, anything herein to the contrary notwithstanding. SECTION 8.03. Liability of Bond Trustee. (A) The recitals of facts herein and in the Bonds contained shall be taken as statements of the City, and the Bond Trustee assumes no responsibility for the correctness of the same, makes no representations as to. the validity or sufficiency of this Bond Indenture, of the" Loan Agreement, of the Remarketing Agreement, of Obligation No. 4, or of the Bonds, and shall incur no responsibility in respect thereof, other than in connection with the duties or obligations herein or in the Bonds assigned to or imposed upon it except for any recital or representation specifically relating to the Bond Trustee or its powers. The Bond Trustee assumes no responsibility or liability for any information, statement or recital in any offering memorandum or other disclosure material prepared or, distributed in connection with the issuance of the Bonds. The Bond Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Bond Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Bond Trustee may become the owner of Bonds with the same rights it would have if it were not Bond Trustee, and, to the extent permitted by law, may act as depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with. respect to, any committee formed to protect the rights of Bondholders, whether or not such committee shall represent the Holders of a majority in principal amount of the Bonds then Outstanding. (B) The Bond Trustee shall not be liable for any error of judgment made in good faith by any of its officers, employees, agents or representatives, unless it shall be proved that the Bond Trustee was negligent in ascertaining the pertinent facts. (C) The Bond Trustee shall not be liable with respect to any action taken of omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than twenty -five percent (25 %) in aggregate principal amount of the Bonds at the time -93- OHS West260411958.4 Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Bond Trustee, or exercising any trust or power conferred upon the Bond Trustee under this Bond Indenture. (D) The Bond Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Bond Indenture (except for drawing or otherwise accessing funds from the Liquidity Facility or Credit Facility when required under this Bond Indenture and except for declaring an acceleration of the Bonds in accordance with Section 7.02 hereof) at the request, order or direction of any of the Bondholders or the Credit Facility Provider (if any) pursuant to the provisions of this Bond Indenture unless such Bondholders or the Credit Facility Provider (if any) shall have offered to the Bond Trustee reasonable security or indemnity, satisfactory to the Bond Trustee, against the costs, expenses and liabilities which may be incurred therein or thereby. The Bond Trustee has no obligation or liability to the Holders for the payment of interest on, principal of or redemption premium, if any, with respect to the Bonds from its own funds; but rather the Bond Trustee's obligations shall be limited to the performance of its duties hereunder. (E) Except with respect to Events of Default specified in Section 7.01(A) or (B), the Bond Trustee shall not be deemed to have knowledge of any Event of Default unless and until an officer at the Principal Office responsible for the administration of its duties hereunder shall have actual knowledge thereof or the Bond Trustee shall have received written notice thereof at the Principal Office. The Bond Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or of any of the documents executed in connection with the Bonds; or as to the existence of a default or Event of Default thereunder. The Bond Trustee shall not be responsible for the validity or effectiveness of any collateral given to or held by it. (F) The Bond Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through attomeys -in -fact, agents, receivers, officers, employees or representatives, and shall not be answerable for the negligence or misconduct of any such attorney -in -fact, agent, receiver, officer, employee or representative selected by it with due care. The Bond Trustee shall be entitled to advice of counsel and other professionals concerning all matters of trust and its duty hereunder, but the Bond Trustee shall not be answerable for the professional malpractice of any counsel or other professional (including without limiting the generality of the foregoing, attomeys -in -law or certified public accountants) in connection with the rendering of such counsel's or other professionals' advice in accordance with the terms of this Bond Indenture, if such counsel or other professional was selected by the Bond Trustee with due care. (G) The Bond Trustee shall not be concerned with or accountable to anyone for the subsequent use or application of any moneys that shall be released or withdrawn in accordance with the provisions hereof. (H) Whether or not therein expressly so provided, every provision of this Bond Indenture, the Loan Agreement, Obligation No. 4 or related documents relating to the conduct or affecting the liability of or affording protection to the Bond Trustee shall be subject to the provisions of this Article. -94- OHS West2604I 1958.4 SECTION 8.04. Right of Bond Trustee to Rely on Documents. The Bond Trustee shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Bond Trustee may consult with counsel, who may be counsel of or to the City and/or counsel selected by the Bond Trustee, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. Whenever in the administration of the trusts imposed upon it by this Bond Indenture the Bond Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Certificate of the City,.and such Certificate shall be full warrant to the Bond Trustee for any action taken or suffered in good faith under the provisions of this Bond Indenture in reliance upon such Certificate, but in its discretion the Bond Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may deem reasonable. SECTION 8.05. Preservation and Inspection of Documents. All documents received by the Bond Trustee under the provisions of this Bond Indenture shall be retained in its possession and shall be subject at all reasonable times to the inspection of the City, the Corporation, the Liquidity Facility Provider (if any), the Credit Facility Provider (if any) and any Bondholder, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions. SECTION 8.06. Compensation and Indemnification. The Corporation shall pay to the Bond Trustee from time to time reasonable compensation for all services rendered under this Bond Indenture, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of its attorneys, agents and employees, incurred in and about the performance of its powers and duties under this Bond Indenture. No provision of this Bond Indenture shall require the Bond Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of its rights or powers, if it has not received the agreed compensation for such services or, in cases where the Bond Trustee has a right to reimbursement or indemnification for such performance or exercise, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 8.07. Bond Trustee's Relationship to City. (A) The Bond Trustee acknowledges that the Bonds are payable solely from Revenues, including payments to be made.by the Corporation pursuant to the Loan Agreement and the Bonds, that the City is a passive conduit for the payments to be made by the Corporation pursuant to the Loan Agreement and the Bonds and that the Bonds are not general obligations of the City. The Bond Trustee, by execution of this Bond Indenture, has accepted the assignment -95- OHS West260411958.4 by the City to the Bond Trustee of the payments to be made by the Corporation pursuant to the Loan Agreement and the Bonds and of certain of the rights of the City under the Loan Agreement and the Bonds and, to the extent permitted by law and subject to the limiting provisions contained herein, has assumed any and all responsibilities of the City (other than the right of the City to indemnification under the Loan Agreement and administration expense and fees under the Loan Agreement and as otherwise set forth therein) under the Loan Agreement and the Bonds to enforce those rights. The Bond Trustee will notify the City of any default known to the Bond Trustee under the Loan Agreement or the Bonds, and will at the expense of the Corporation and upon receipt of a Request of the City provide the City with any information reasonably available to the Bond Trustee which the City may reasonably request regarding any events of default. (B) The Bond Trustee agrees to provide the City at the expense of the Corporation and within a reasonable time after the receipt of a Request of the City any financial or other information it may reasonably request relating to the Corporation or to this Bond Indenture or the Loan Agreement and the Bonds which the City finds necessary or desirable and which is reasonably available to the Bond Trustee. ARTICLE IX MODIFICATION OR AMENDMENT OF THE BOND INDENTURE SECTION 9.01. Amendments Permitted. (A) This Bond Indenture and the rights and obligations of the City and of the Holders of the Bonds and of the Bond Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental hereto, which the City and the Bond Trustee may enter into when the written consent of the Corporation and (1) the Credit Facility Provider (if.any), or (2) if a Credit Facility Provider Failure has occurred and is continuing or if there is no Credit Facility Provider, the Holders of a majority in aggregate principal amount of the Bonds then Outstanding shall have been filed with the Bond Trustee. No such modification or amendment shall (1) extend the stated maturity of any Bond, or reduce the amount of principal thereof, or extend the time of payment or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof or change the Purchase Price to be paid to Holders tendering their Bonds, without the consent of the Holder of each Bond so affected, or (2) reduce the aforesaid percentage of Bonds, 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 this Bond Indenture prior to or on a parity with the lien created by this Bond Indenture, or deprive the Holders of the Bonds of the lien created by this Bond Indenture on such Revenues and other assets (except as expressly provided in this Bond Indenture), without the consent of the Holders of all Bonds then Outstanding. It shall not be necessary for the consent of the Bondholders to approve the particular form of any Supplemental Bond Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the City and the Bond Trustee of any Supplemental Bond Indenture pursuant to this subsection (A), the Bond Trustee shall mail a notice, setting forth in general terms the substance of such Supplemental Bond Indenture to the Bondholders at the addresses shown on the registration -96- OHS Wmt'260411958.4 books maintained by the Bond Trustee. Any failure to give such notice, .or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Bond Indenture. (B) This Bond Indenture and the rights and obligations of the City, of the Bond Trustee and of the Holders of the Bonds may also be modified or amended from time to time and at any time in accordance with Section 2.08(D) hereof or by an indenture or indentures supplemental hereto, which the City and the Bond Trustee may enter into with the consent of the Corporation and the Credit Facility Provider (if any), but without the necessity of obtaining the consent of any Bondholders, only to the extent permitted by law and only for any one or more of the following purposes: (1) to add to the covenants and agreements of the City contained in this Bond Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the City, provided, that no such covenant, agreement, pledge, assignment or surrender shall materially adversely affect the interests of the Holders of the Bonds; (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 this Bond Indenture, or in regard to matters or questions arising under this Bond Indenture, as the City or the Bond Trustee may deem necessary or desirable and not inconsistent with this Bond Indenture, and which shall not materially adversely affect the interests of the Holders of the Bonds; (3) to modify, amend or supplement this Bond Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, 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 Bonds; (4) to evidence or give effect to, or to conform to the terms and provisions of, any Liquidity Facility; (5) to evidence or give effect to, or to conform to the terms and provisions of, any insurance policy, letter of credit or other credit enhancement for the Bonds; (6) to facilitate and implement any book entry system (or any termination of a book entry system) with respect to the Bonds; (7) to maintain the exclusion from gross income of interest payable with respect to the Bonds; or (8) to make any modification or amendment to this Bond Indenture which will be effective upon. the remarketing of a Series of Bonds following the mandatory tender of such Series of Bonds pursuant to Section 4.08. -97- OHS West:260411958.4 (C) The Bond Trustee may in its discretion, but shall not be obligated to, enter into any such Supplemental Bond Indenture authorized by subsections (A) or (B) of this Section which materially adversely affects the Bond Trustee's own rights, duties or immunities under this Bond Indenture or otherwise. (D) In executing, or accepting the additional trusts created by, any Supplemental Bond Indenture permitted by this Article or the modification thereby of the trusts created by this Bond Indenture, the Bond Trustee and the City shall receive, and shall be fully protected in relying upon, a Favorable Opinion of Bond Counsel addressed and delivered to the Bond Trustee and the City stating that the execution of such Supplemental Bond Indenture is permitted by and in compliance with this Bond Indenture, and that the execution and delivery thereof will not adversely affect the exclusion from federal gross income of interest on the Bonds. (E) The Bond Trustee shall provide written notice and a copy of any amendment to this Bond Indenture, the Loan Agreement or the Liquidity Facility to S &P at least fifteen (15) days in advance (unless S &P waives or reduces such time period) of the execution of any amendment to such documents. SECTION 9.02. Effect of Supplemental Bond Indenture. Upon the execution of any Supplemental Bond Indenture pursuant to this Article, this Bond Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Bond Indenture of the City, the Bond Trustee and all Holders of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Bond Indenture shall be deemed to be part of the terms and conditions of this Bond Indenture for any and all purposes. SECTION 9.03. Endorsement of Bonds: Preparation of New Bonds. Bonds delivered after the execution of any Supplemental Bond Indenture pursuant to this Article may, and if the City so determines shall, .bear a notation by endorsement or otherwise in form approved by the City and the Bond Trustee as to any modification or amendment provided for in such Supplemental Bond Indenture, and, in that case, upon demand of the Holder of any Bond Outstanding at the time of such execution and presentation of such Holder's Bond for the purpose at the Principal Office of the Bond Trustee or at such additional offices as the Bond Trustee may select and designate for that purpose, a suitable notation shall be made on such Bond. If the Supplemental Bond Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the City and the Bond Trustee, to any modification or amendment contained in such Supplemental Bond Indenture, shall be prepared by the Bond Trustee at the expense of the Corporation, executed by the City and authenticated by the Bond Trustee, and upon demand of the Holders of any Bonds then Outstanding shall be exchanged at the Principal Office of the Bond Trustee, without cost to any Bondholder, for Bonds then Outstanding, upon surrender for cancellation of such Bonds in equal aggregate principal amounts of the same maturity. SECTION 9.04. Amendment of Particular Bonds. The provisions of this Article shall not prevent any Bondholder from accepting, with the consent of the Credit Facility Provider -98- OHS West260.111958.4 (if any), any amendment as to the particular Bonds held by such Bondholder, provided that due notation thereof is made on such Bonds. ARTICLE X DEFEASANCE SECTION 10.01. Discharge of Indenture. The Bonds may be paid by the City or the Bond Trustee on behalf of the City in any of the following ways: (A) by paying or causing to be paid (with Available Moneys at any time at which there is a Credit Facility in effect) the principal or Redemption Price of and interest on all Bonds Outstanding, as and when the same become due and payable; (B) by depositing with the Bond Trustee, in trust, at or before maturity, moneys (which shall be Available Moneys at any time at which there is a Credit Facility in effect) or securities (purchased with Available Moneys at any time at which there is a. Credit Facility in effect) in the necessary amount (as provided in Section 10.03) to pay when due or redeem all Bonds then Outstanding; or (C) by delivering to the Bond Trustee, for cancellation by it, all Bonds then Outstanding. If the City shall also pay or cause to be paid all other sums payable hereunder by the City and the Corporation shall have paid all Administrative Fees and Expenses payable to the City pursuant to the Loan Agreement, then and in that case at the election of the City (evidenced by a Certificate of the City filed with the Bond Trustee signifying the intention of the City to discharge all such indebtedness and this Bond Indenture), and notwithstanding that any Bonds shall not have been surrendered for payment, this Bond Indenture and the pledge of Revenues and other assets made under this Bond Indenture and all covenants, agreements and other obligations of the City under this Bond Indenture (except as otherwise provided in Section 5.06) shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the request of the City, the Bond Trustee shall cause an. accounting for such period or periods as may be requested by the City to be prepared and filed with the City and shall execute and deliver to the City all such instruments as may be necessary to evidence such discharge and satisfaction, and the Bond Trustee shall pay over, transfer, assign or deliver to the Corporation all moneys or securities or other property held by it pursuant to this Bond Indenture which are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption; provided that in all events moneys in the Rebate Fund shall be subject to the provisions of Section 5.06. SECTION 10.02. Discharge of Liability on Bonds. Upon the deposit with the Bond Trustee, in trust, at or before maturity, of money (which shall be Available Moneys at any time at.which there is a Credit Facility in effect) or securities (purchased with Available Moneys at any time at which there is a Credit Facility in effect) in the necessary amount (as provided in Section 10.03) to pay or redeem any Outstanding Bond (whether upon or prior to its maturity or the redemption date of such Bond), provided that, if such Bond is to be redeemed prior to maturity, notice of such redemption shall have been given as in Article IV provided or provision -99- OHS West260411958.4 satisfactory to the Bond Trustee shall have been made for the giving of such notice, then all liability of the City in respect of such Bond shall cease, terminate and be completely discharged, except only that thereafter the Holder thereof shall be entitled to payment of the principal of and interest on such Bond by the City, and the City shall remain liable for such payments, but only out of such money or securities deposited with the Bond Trustee as aforesaid for their payment, subject, however, to the provisions of Section 10.04. The City may at any time surrender to the Bond Trustee for cancellation by it any Bonds previously issued and delivered, which the City may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. SECTION 10.03. Deposit of Money or Securities with Bond Trustee. Whenever in this Bond Indenture it is provided or permitted that there be deposited with or held in trust by the Bond Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities to be so deposited or held may include money or securities held by the Bond Trustee in the funds and accounts established pursuant to this Bond Indenture (other than the Rebate Fund) and shall be: (A) lawful money of the United States of America (which shall be Available Moneys at any time at which there is a Credit Facility or Liquidity Facility in effect) in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity (based on an assumed interest rate equal to the Maximum Interest Rate for periods for which the actual interest rate on the Bonds cannot be determined), except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as in Article IV provided or provision satisfactory to the Bond Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount or Redemption Price of such Bonds and all unpaid interest thereon to the redemption date; or (B) United States Government Obligations (not callable by the City thereof prior to maturity and purchased with Available Moneys at any time at which there is a Credit Facility or Liquidity Facility in effect), the principal of and interest on which when due (without any income from the reinvestment thereof) will provide money sufficient to pay the principal or Redemption Price of and all unpaid interest to maturity (based on an assumed interest rate equal to the Maximum Interest Rate for periods for which the actual interest rate on the Bonds cannot be determined), or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such principal or Redemption Price and interest become due; provided that, in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in Article IV provided or provision satisfactory to the Bond Trustee shall have been made for the giving of such notice; provided, in each case, that the Bond Trustee shall have been irrevocably instructed (by the terms of this Bond Indenture or by Request of the City) to apply such money to the payment of such principal or. Redemption Price and interest with respect to such Bonds, and, provided further, if the Bonds are then rated by S &P, the Bond Trustee shall have received written confirmation from S&P that the rating on the Bonds will not be reduced or withdrawn solely as a result of the -100 - OHS West260411958.4 defeasance; and provided further, that with respect to the deposit of United States Government Obligations pursuant to subsection (B) in connection with an advance refunding, the Bond Trustee shall have received a verification report from a firm of independent accountants or other qualified verifier, addressed to the City and the Bond Trustee, acceptable in form and substance to the Bond Trustee, to the effect that the amount deposited is sufficient to make the payments specified therein. SECTION 10.04. Payment of Bonds After Discharge of Bond Indenture. Notwithstanding any provisions of this Bond Indenture, any moneys held by the Bond Trustee in trust for the payment of the principal of or premium, if any, or interest on, any Bonds and remaining unclaimed for three years (or, if shorter, one day before such moneys would escheat to the State of California under then applicable. California law) after such principal or interest, as the case may be, has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in this Bond Indenture), if such moneys were so held at such date, or three years (or, if shorter, one day before such moneys would escheat to the State of California under then applicable California law) after the date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall be repaid to the Corporation free from the trusts created by this Bond Indenture upon receipt of an indemnification agreement acceptable to the City and the Bond Trustee indemnifying the City and the Bond Trustee with respect to claims of Holders of Bonds which have not yet been paid and containing the agreement of the Corporation to remain liable for the amount so repaid to the Corporation, and all liability of the City and the Bond Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Corporation as aforesaid, the Bond Trustee may (at the cost of the Corporation) first mail to the Holders of Bonds which have not yet been paid, at the addresses shown on the registration books maintained by the Bond Trustee, a notice, in such form as may be deemed appropriate by the Bond Trustee with respect ,to the Bonds 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. ARTICLE XI MISCELLANEOUS SECTION 11.01. Limited Liability of City. Notwithstanding anything in this Bond Indenture or in the Bonds contained, the City shall not be required to advance any moneys derived from any source other than the Revenues and other assets pledged under this Bond Indenture for any of the purposes in this Bond Indenture mentioned, whether for the payment of the principal or Redemption Price of or interest on the Bonds or for any other purpose of this Bond Indenture. SECTION 11.02. Successor is Deemed Included in All References to Predecessor. Whenever in this Bond Indenture either the City or the Bond Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Bond Indenture contained by or on behalf of the City or the Bond Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. -101 - OHS West:260411958A SECTION 11.03. Limitation of Rights to Parties. Citv. Bond Trustee the Corporation. the Liquidity Facility Provider. the Credit Facility Provider and Bondholders. Nothing in this Bond Indenture or in the Bonds expressed or implied is intended or shall be construed to confer upon, or to give or grant to any Person other than the City, the Credit Facility Provider (if any), the Bond Trustee, the Corporation, the Liquidity Facility Provider (if any), and the Holders of the Bonds, any legal or equitable right, remedy or claim under or by reason of this Bond Indenture or any covenant, condition or stipulation therein or herein contained; and all such covenants, conditions and stipulations in this Bond Indenture contained by and on behalf of the Corporation shall be for the sole and exclusive benefit of the City, the Bond Trustee, the Corporation, the Liquidity Facility Provider (if any), the Credit Facility Provider (if any) and the Holders of the Bonds. SECTION 11.04. Waiver of Notice. Whenever in this Bond Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the Person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 11.05. Destruction of Bonds. Whenever in this Bond Indenture provision is made for the cancellation by the Bond Trustee and the delivery to the City of any Bonds, the Bond Trustee shall, in lieu of such cancellation and delivery, destroy such Bonds and deliver a certificate of such destruction to the City. . SECTION 11.06. Severability of Invalid Provisions. If any one or more of the provisions contained in this Bond Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Bond Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of. this Bond Indenture, and this Bond Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. SECTION 11.07. Notices. (A) Subject to Section 11.04, any notice or request to or demand upon the Bond Trustee shall be in writing and may be served or presented, and such demand may be made, at the Principal Office of the Bond Trustee or at such other address as may have. been filed in writing by the Bond Trustee with the City. Any notice to or demand upon the City, the Corporation, the Credit Facility Provider (if any), the Liquidity Facility Provider (if any) and the Tender Agent shall be deemed to have been sufficiently given or served for all purposes by being delivered or sent by confirmed facsimile transmission or by being deposited, postage prepaid, in a post office letter box, addressed as follows: -102- ORS West260411958.4 (1) to the City at: City of Newport Beach 3300 Newport Boulevard P.O. Box 1768 Newport Beach, California 92658 Attention: Treasurer Telephone: (949) 644 -3123 Facsimile: (949) 644 -3339 (2) to the Corporation at: Hoag Memorial Hospital Presbyterian One Hoag Drive P.O. Box 6100 Newport Beach, California 92658 -6100 Attention: Chief Financial Officer Telephone: (949) 764 -4411 Facsimile: (949) 764 -4416 (3) to the Bond Trustee at: Wells Fargo Bank, National Association 707 Wilshire Boulevard, 17th Floor Los Angeles, CA 90017 Attention: Corporate Trust Services Telephone: (213) 614 -3350 Facsimile: (213) 614 -3355 (4) to the initial Credit Facility Provider and Liquidity Facility Provider at: Bank of America, N.A. Trade Operations Mail Code: CA9- 70507 -05 Attn: Standby Letter of Credit Department 1000W. Temple St., 7th Floor Los Angeles, California 90012 -1514 Telephone: L� _ Facsimile: (or in each case at such other or additional addresses as may have been filed in writing with the Bond Trustee). (B) S &P shall be entitled to written notice (in the same fashion as is specified for notices in subsection (A) above) to the following address (or such other address as may be filed in writing with the Bond Trustee upon the occurrence of each of the following events: (1) a Noticed Termination Date, Expiration Date or extension of the term of any Credit Facility or -103 - OHS West:260411958.4 Liquidity Facility or the delivery of an Alternate Credit Facility or Alternate Liquidity Facility; (2) redemption of the Bonds in whole; (3) acceleration of the Bonds; (4) a Conversion; (5) an amendment or modification of the Loan Agreement, Bond Indenture, Credit Facility or Liquidity Facility; and (6) appointment of a new or successor Tender Agent. C7, i MV1F -'1' 7 e 55 Water Street, 38th Floor New York, NY 10041 Attn: Municipal Structured Surveillance Telephone: (212) 438 -2021 Facsimile: (212) 438 -2151 . SECTION 11.08. Evidence of Rights of Bondholders. Any request, consent or other instrument required or permitted by this Bond Indenture to be signed and executed by Bondholders may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Bondholders in person or by an agent or agents duly appointed in writing. Proof of the execution of.any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any Person of Bonds transferable by delivery; shall be sufficient for any purpose of this Bond Indenture and shall be conclusive in favor of the Bond Trustee and of the City if made in the manner provided in this Section. The fact and date of the execution by any Person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the Person signing such request, consent or other instrument acknowledged to such notary public or officer the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of Bonds shall be proved by the bond registration books held by the Bond Trustee. Any request, consent or other instrument or writing of the Holder of any Bond shall bind every future Holder of the same Bond and the Holder of every Bond .issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Bond Trustee or the City in accordance therewith or reliance thereon. SECTION 11.09. Disqualified Bonds. In determining whether the Holders of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, . consent or waiver under this Bond Indenture, Bonds which are owned or held by or for the account of the City, the Corporation or any of the other Obligated Group Members or by any other obligor on the Bonds, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City, the Corporation or any of the other Obligated Group Members or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Bond Trustee the pledgee's right to vote such Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or - 104- OHS West260411958.4 under direct or indirect common control with, the City, the Corporation or any of the other Obligated Group Members or any other obligor on the Bonds. In case of a dispute as to such right, any decision by the Bond Trustee taken upon an Opinion of Counsel shall be full protection to the Bond Trustee. SECTION 11.10. Money Held for Particular Bonds. The money held by the Bond Trustee for the payment of the interest, principal or Redemption Price due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Holders of the Bonds entitled thereto, subject, however, to the provisions of Section 10.04. SECTION 11.11. Funds and Accounts. Any fund required by this Bond Indenture to be established and maintained by the Bond Trustee may be established and maintained in the accounting records of the Bond Trustee either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds shall at all times be maintained in accordance with customary standards of the industry, to the extent practicable, and with due regard for the requirements of Section 6.06 and for the protection of the security of the Bonds and the rights of every Holder thereof SECTION 11.12. Waiver of Personal Liabilitv. No member, officer, agent or employee of the City shall be individually or personally liable for the payment of the principal (or Redemption Price) of or interest on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law or by this Bond Indenture. SECTION 11.13. Business Days. If any date specified herein shall not be a Business Day, any action required on such date may be made on the next succeeding Business Day with the same effect as if made on such date. SECTION 11.14. Affiliates Not Liable. No organization with whom the Corporation is affiliated in any manner, other than the Obligated Group Members, is liable under this Bond Indenture, the Master Indenture, Obligation No. 4 or the Loan Agreement for the commitments of the Corporation or any of the Obligated Group Members: SECTION 11.15. Govemine Law; Venue. This Bond Indenture and the Bonds are contracts made under the laws of the State of California, and shall be governed by and construed in accordance with the Constitution and such laws applicable to contracts made and performed in said State. SECTION 11.16. Execution in Several Counterparts. This Bond Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the City and the Bond Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. -105- OHS West:260411958d IN WITNESS WHEREOF, CITY OF NEWPORT BEACH has caused this Bond Indenture to be signed in its name by its Mayor and its seal to be hereunto affixed and attested by its City Clerk, and WELLS FARGO BANK, NATIONAL ASSOCIATION, in token of its acceptance of the trusts created hereunder, has caused this Bond Indenture to be signed in its corporate name by its duly authorized officer, all as of the day and year first above written. [SEAL] Attest: m City Clerk CITY OF NEWPORT BEACH a Mayor WELLS FARGO BANK, NATIONAL ASSOCIATION, as Bond Trustee Um Authorized Officer -106- OHS Ww:260411958.4 EXHIBIT A ARS PROVISIONS [ATTACH] [Review Defined Terms for Consistent use in forepart] OHS West:20411958.4 A -1 EXHIBIT B FORM OF REQUISITION — PROJECT FUND REQUISITION NO. _ - PROJECT FUND Re: City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presb3lerian), Series 2008A, 2008B, 2008C, 2008D and 2008E Hoag Memorial Hospital Presbyterian (the "Corporation ") hereby requests Wells Fargo Bank, National Association (the "Bond Trustee "), as trustee under that certain bond indenture between the City of Newport Beach (the "City') and the Bond Trustee, dated as of May 1, 2008, relating to the City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008A, 2008B, 2008C, 2008D and 2008E (the "Bonds "), to pay to the following Persons the following amounts for the following purposes from the Project Fund: Item No. To Amount Purpose The Corporation hereby certifies that obligations in the amounts stated above have been incurred by the Corporation and are presently due and payable, and that each item is a proper charge against the Project Fund, has not been previously paid from said fund or from the proceeds of the Bonds and is only made with respect to elements of the Project for which all approvals, if any, required under the California Environmental Quality Act have been previously finalized. Dated: HOAG MEMORIAL HOSPITAL PRESBYTERIAN LM Authorized Representative OHS West26C411958.4 B -1 1D/4:11t3 FORM OF REQUISITION - COSTS OF ISSUANCE FUND REQUISITION NO. _ - COSTS OF ISSUANCE FUND Re: City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008A, 2008B, 2008C, 2008D and 2008E Hoag Memorial Hospital Presbyterian (the "Corporation ") hereby requests Wells Fargo Bank, National Association (the "Bond Trustee "), as Bond Trustee under that certain . bond indenture between the City of Newport Beach (the "City ") and the Bond Trustee, dated as of May 1, 2008, relating to the City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008A, 2008B, 2008C, 2008D and 2008E (the "Bonds "), to pay to the following Persons the following amounts for the following purposes from the Costs of Issuance Fund: ITEM NO. TO AMOUNT PURPOSE The Corporation hereby certifies that obligations in the amounts stated above have been incurred by the Corporation and are presently due and payable, and, that each item is a proper charge against the Costs of Issuance Fund and has not been previously paid from said fund or from the proceeds of the Bonds. Dated: , 200_ HOAG MEMORIAL HOSPITAL PRESBYTERIAN Authorized Representative OHS West:260411958.4 C -1 Section 1.01. Section 1.02. Section 1.03. Section 2.01. Section 2.02. Section 2.03. Section 2:04. Section 2.05. Section 2.06. Section 2.07. Section 2.08. Section 2.09. Section 2.10. Section 2.11. Section 2.12. Section 2.13. Section 2.14. TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Definitions....................................................................... ............................... 17 Content of Certificates and Opinions .............................. ............................... 38 Interpretation................................................................... ............................... 38 ARTICLE II THE BONDS Authorization of Bonds ......................................... ............................... Terms of the Bonds; Registration; Denominations; Payment of Principaland Interest ............................................ ............................... Initial Interest Rate; Subsequent Interest Rates .... ............................... Weekly Interest Rate Period ................................. ............................... Serial Bond Interest Rate Period ........................... ............................... Short-Term Interest Rate Periods .......................... ............................... Notice of Conversion; Conditions ........................ ............................... Executionof Bonds ............................................... ............................... Transferof Bonds ................................................. ............................... Exchangeof Bonds ............................................... ............................P.. BondRegister ........................................................ ............................... TemporaryBonds .................................................. ............................... Bonds Mutilated, Lost, Destroyed or Stolen ......... ............................... Use of Securities Depository .............................. .. ............................... 39 .......... 39 .......... 42 .......... 43 .......... 44 .......... 47 .......... 49. .......... 50 .......... 51 .......... 51 .......... 51 .......... 52 .......... 52 ARTICLE IV REDEMPTION AND TENDER OF BONDS Section 4.01. Terms of Redemption ..................................................... ............................... 56 Section 4.02. ARTICLE III 58 Section 4.03. ISSUANCE OF BONDS; APPLICATION OF PROCEEDS 58 Section 3.01. Issuance of Bonds ........................................................... ............................... 54 Section 3.02. Application of Proceeds of Bonds .................................. ............................... 54 Section 3.03. Establishment and Application of Costs of Issuance Fund ............................ 54 Section 3.04. Establishment and Application of the Project Fund ....... ............................... 54 Section 3.05. Validity of Bonds ............................................................ ............................... 56 ARTICLE IV REDEMPTION AND TENDER OF BONDS Section 4.01. Terms of Redemption ..................................................... ............................... 56 Section 4.02. Selection of Bonds for Redemption ................................ ............................... 58 Section 4.03. Notice of Redemption ..................................................... ............................... 58 Section 4.04. Partial Redemption of Bonds .......................................... ............................... 59 Section 4.05. Effect of Redemption ....................:................................. ............................... 59 Section 4.06, Optional Tender During Weekly Interest Rate Period .... ............................... 59 Section 4.07. Mandatory Tender for Purchase On Day Next Succeeding the Last Day of Each Bond Interest Term .................................... ............................... 60 OHS West:260411958.4 -i: TABLE OF CONTENTS (continued) Page Section 4.08. Mandatory Tender for Purchase on First Day of Each Interest Rate ARTICLE V REVENUES Section 5.01. Period.............................................................................. ............................... 60 Section 4.09. Mandatory Tender for Purchase upon Termination, Replacement or 71 Section 5.03. Expiration of Liquidity Facility or Credit Facility; Mandatory 71 Section 5.04. Credit/Liquidity Tender .................................................. . .I............................. 60 Section 4.10. General Provisions Relating to Tenders ......................... ............................... 61 Section 4.11. Notice of Mandatory Tender for Purchase on First Day of Each 77 Section 5.07. Interest Rate Period ......................................................... ............................... 65 Section 4.12. Irrevocable Notice Deemed to be Tender of Bond; Undelivered Bonds....... 66 Section 4.13. Remarketing of Bonds; Notice of Interest Rates ............ ............................... 66 Section 4.14. The Remarketing Agent ............................................. "...... .I.............................. 67 Section 4.15. Qualifications of Remarketing Agent; Resignation; Removal ...................... 67 Section 4.16. Successor Remarketing Agents ....................................... ............................... 68 Section 4.17. The Tender Agent ........................................................... ............................... 68 Section 4.18. Qualifications of Tender Agent; Resignation; Removal . ............................... 69 Section 4.19. Successor Tender Agents .....................................:.......... ............................... 69 Section 4.20. Inadequate Funds for Tenders ......................................... ............................... 69 ARTICLE V REVENUES Section 5.01. Pledge and Assignment; Revenue Fund ......................... ............................... 70 Section 5.02. Allocation of Revenues ................................................... ............................... 71 Section 5.03. Application of Interest Account .................................................. :.................. 71 Section 5.04. Application of Principal Account .............................................. :................... 71 Section 5.05. Application of Redemption Fund .................................... ............................... 77 Section5.06. Rebate Fund .................................................................... ............................... 77 Section 5.07. Investment of Moneys in Funds and Accounts ............... ............................... 78 Section 5.08. Credit Facility; Credit Facility Fund ............................... ............................... 79 ARTICLE VI PARTICULAR COVENANTS Section 6.01. Punctual Payment ............................................................ ............................... 81 Section 6.02. Extension of Payment of Bonds ... : .................................................... :............ 81 Section 6.03. Against Encumbrances .................................................... ............................... 81 Section 6.04. Power to Issue Bonds and Make Pledge and Assignment ............................. 81 Section 6.05. Accounting Records and Financial Statements ............... ...............:............... 81 Section 6.06. Tax Covenants ................................................................ ............................... 82 Section 6.07. Enforcement of Loan Agreement and Obligation No. 4 . ............................... 82 Section 6.08. Amendment of Loan Agreement .........................:.......... ............................... 82 Section 6.09. Waiver of Laws ............. :................................................................................ 84 Section 6.10. Further Assurances .......................................................... ............................... 84 Section 6.11. Continuing Disclosure .................................................... ............................... 84 OHS West:260411958.4 -ii- TABLE OF CONTENTS (continued) Page Section 6.12. Replacement of Obligation No. 4 ................................... ............................... 84 ARTICLE VIII THE BOND TRUSTEE Section 8.01. Duties, Immunities and Liabilities of Bond Trustee ....... ............................... 91 Section 8.02. Merger or Consolidation ................................................. ............................... 93 Section 8.03. Liability of Bond Trustee ................................................ ............................... 93 Section 8.04. Right of Bond Trustee to Rely on Documents ................ ............................... 95 Section 8.05. Preservation and Inspection of Documents ..................... ............................... 95 Section 8.06. Compensation and Indemnification ................................ ............................... 95 Section 8.07. Bond Trustee's Relationship to City ............................... ............................... 96 ARTICLE IX MODIFICATION OR AMENDMENT OF THE BOND INDENTURE Section 9.01. Amendments Permitted ................................................... ............................... 96 Section 9.02. Effect of Supplemental Bond Indenture .......................... ............................... 98 Section 9.03. Endorsement of Bonds; Preparation of New Bonds ....... ............................... 98 Section 9.04. Amendment of Particular Bonds ..................................... ............................... 99 ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture .................................................... ............................... 99 Section 10.02. Discharge of Liability on Bonds ................................... ............................... 100 Section 10.03. Deposit of Money or Securities with Bond Trustee ...... ............................... 100 Section 10.04. Payment of Bonds After Discharge of Bond Indenture ............................... 101 ARTICLE XI MISCELLANEOUS Section 11.01. Limited Liability of City OHS West260411958.4 -iii- ............................... ............................... 102 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS Section 7.01. Events of Default ............................................................ ............................... 85 Section 7.02. Acceleration of Maturities .............................................. ............................... 86 Section 7.03. Application of Revenues and Other Funds After Default .............................. 88 Section 7.04. Bond Trustee to Represent Bondholders ........................ ............................... 89 Section 7.05. Credit Facility Provider's and Bondholders' Direction of Proceedings........ 89 Section 7.06. Limitation on Bondholders' Right to Sue ....................... ............................... 90 Section 7.07. Absolute Obligation of City ............................................ ............................... 90 Section 7.08. Termination of Proceedings ............................................ ............................... 90 Section 7.09. Remedies Not. Exclusive ................................................. ............................... 91 Section 7.10. No Waiver of Default ...................................................... ............................... 91 ARTICLE VIII THE BOND TRUSTEE Section 8.01. Duties, Immunities and Liabilities of Bond Trustee ....... ............................... 91 Section 8.02. Merger or Consolidation ................................................. ............................... 93 Section 8.03. Liability of Bond Trustee ................................................ ............................... 93 Section 8.04. Right of Bond Trustee to Rely on Documents ................ ............................... 95 Section 8.05. Preservation and Inspection of Documents ..................... ............................... 95 Section 8.06. Compensation and Indemnification ................................ ............................... 95 Section 8.07. Bond Trustee's Relationship to City ............................... ............................... 96 ARTICLE IX MODIFICATION OR AMENDMENT OF THE BOND INDENTURE Section 9.01. Amendments Permitted ................................................... ............................... 96 Section 9.02. Effect of Supplemental Bond Indenture .......................... ............................... 98 Section 9.03. Endorsement of Bonds; Preparation of New Bonds ....... ............................... 98 Section 9.04. Amendment of Particular Bonds ..................................... ............................... 99 ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture .................................................... ............................... 99 Section 10.02. Discharge of Liability on Bonds ................................... ............................... 100 Section 10.03. Deposit of Money or Securities with Bond Trustee ...... ............................... 100 Section 10.04. Payment of Bonds After Discharge of Bond Indenture ............................... 101 ARTICLE XI MISCELLANEOUS Section 11.01. Limited Liability of City OHS West260411958.4 -iii- ............................... ............................... 102 TABLE OF CONTENTS (continued) Page Section 11.02. Successor is Deemed Included in All References to Predecessor ............... 102 Section 11.03. Limitation of Rights to Parties, City, Bond Trustee the Corporation, the Liquidity Facility Provider, the Credit Facility Provider and Bondholders.................................................................. ............................... 102 Section 11.04. Waiver of Notice ........................................................... ............................... 102 Section 11.05. Destruction of Bonds .................................................... ............................... 102 Section 11.06. Severability of Invalid Provisions ................................. ............................... 102 Section11.07. Notices .......................................................................... ............................... 103 Section 11.08. Evidence of Rights of Bondholders .. ............................... ............................104 Section 11.09. Disqualified Bonds ........................................................ ............................... 105 Section 11.10. Money Held for Particular Bonds ................................. ............................... 105 Section 11.11. Funds and Accounts ...................................................... ............................... 105 Section 11.12. Waiver of Personal Liability ................................................... :.................... 105 Section11.13. Business Days ............................................................... ............................... 105 Section 11.14. Affiliates Not Liable ..................................................... ............................... 106 Section 11.15. Governing Law; Venue ................................................. ............................... 106 Section 11.16. Execution in Several Counterparts ................................ ............................... 106 EXHIBITA ARS PROVISIONS ...................................................... ............................... A -1 EXHIBIT B FORM OF REQUISITION — PROJECT FUND REQUISITION NO. _ - PROJECT FUND ........................................... ............................... B -1 EXHIBIT C FORM OF REQUISITION - COSTS OF ISSUANCE FUND ................... C -1 OHS West:260411958.4 -iv- CITY OF NEWPORT BEACH and HOAG MEMORIAL HOSPITAL PRESBYTERIAN LOAN AGREEMENT Dated as of May 1, 2008 relating to $[PAR AMOUNT] CITY OF NEWPORT BEACH VARIABLE RATE REVENUE BONDS (HOAG MEMORIAL HOSPITAL PRESBYTERIAN) SERIES 2008A, 2008B, 2008C, 2008D and 2008E OHS Wes1260412606.3 OH &S DRAFT 4/21/08 This LOAN AGREEMENT, dated as of May 1, 2008 (the "Loan Agreement "), between the CITY OF NEWPORT BEACH, a municipal corporation and charter city duly organized under a freeholder's charter under the Constitution and laws of the State of California (the "City "), and HOAG MEMORIAL HOSPITAL PRESBYTERIAN, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation'; WITNESSETH: WHEREAS, the City has the right and power to make and enforce all laws and regulations in respect to municipal affairs and certain other matters in accordance with and as more particularly provided in Sections 3, 5 and 7 of Article XI of the Constitution of the State of California and Section 200 of Article II of the charter of the City (the "Charter "); WHEREAS, the City Council of the City, acting under and pursuant to the powers reserved to the City under Sections 3, 5 and '7 of Article XI of the Constitution of the State of California and Section 200 of Article II of the Charter, has duly enacted Ordinance No. 85 -23 and 84 -4 of the City (the "Law "), establishing a procedure for the authorization, sale and issuance of revenue bonds by the City for the purpose, inter alia, of making loans to participating health institutions to finance and refinance health facilities as provided in the Law; WHEREAS, the Corporation has requested the assistance of the City in the financing and refinancing of the acquisition, construction, and equipping of health facilities located within the City; WHEREAS, the City provided such assistance through the issuance of its Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2005A, Series 2005B and Series 2005C and its Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2007A, Series 2007B, Series 2007C, Series 2007D and Series 2007E (collectively, the "Prior Bonds "); WHEREAS, the Corporation has requested the assistance of the City in the refunding of all the outstanding Prior Bonds; WHEREAS, the Corporation has made an additional request for the assistance of the City in the financing of the acquisition, construction, and equipping of health facilities located within the City; WHEREAS, after due investigation and deliberation, the City has approved said request and authorized the issuance of its Variable Rate Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008A, 2008B, 2008C, 2008D and 2008E (collectively, the "Bonds ") in the aggregate principal amount of dollars ($[PAR AMOUNT]) to accomplish such purposes in accordance with the Law; WHEREAS, pursuant to a master trust indenture, dated as of May 1, 2007 (the "Master Indenture"), between the Corporation, Newport Healthcare Center LLC, a California limited liability company, the sole corporate member of which is the Corporation and such other Members as may join the obligated group as defined therein (the "Obligated Group ") and Wells Fargo Bank, National Association, as master trustee (the "Master Trustee "), and a Supplemental OHS We t2604126063 Master Indenture for Obligation No. 4, dated as of May 1, 2008, between the Corporation and the Master Trustee ( "Supplement No. 4'), the Corporation has issued its Obligation No. 4 to evidence the joint and several obligation of the Members to make all payments required of the Corporation under this Loan Agreement, including amounts sufficient to pay the principal of and premium and interest on the Bonds; WHEREAS, payments of the principal of, interest on, and Purchase Price of the Bonds, will be initially secured by a direct pay letter of credit to be issued by simultaneously with the issuance and delivery of the Bonds. WHEREAS, the Corporation has requested the City to enter into this loan agreement specifying the terms and conditions of a loan by the City to the Corporation of the proceeds of the Bonds and of the payment by the Corporation to the City of the amounts required for the payment of the principal of, and interest and premium, if any, on the Bonds and certain related expenses; WHEREAS, the City and the Corporation have each duly authorized the execution, delivery and performance of this Loan Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto hereby agree as. follows: ARTICLE I DEFINITIONS; INTERPRETATION Section 1.1. Definitions. Unless otherwise required by the context, all terms used herein shall have the meanings assigned to such terms in Section 1.01 of the Bond Indenture between the City and Wells Fargo Bank, National Association, as trustee (the "Bond Trustee "), dated as of May 1, 2008, as originally executed and as amended or supplemented from time to time. Section 1.2. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to mean and include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. Section 1.3. Content of Certificates and Opinions. Every certificate or opinion provided for in this Loan Agreement with respect to compliance with any provision hereof shall include the requirements set forth in Section 1.02 of the Bond Indenture. OHS West260412606.3 2 ARTICLE II ISSUANCE OF BONDS AND OBLIGATION NO.4 Section 2.1. The Bonds. Pursuant to the Bond Indenture, the City has authorized the issuance of the Bonds in the aggregate principal amount of dollars ($[PAR AMOUNT]). The Corporation hereby approves the Bond Indenture, the assignment thereunder to the Bond Trustee of the right, title and interest of the City (with certain exceptions noted therein) in this Loan Agreement and Obligation No. 4 and the issuance thereunder by the City of the Bonds. All rights accruing to or vested in the City with respect to Obligation No. 4 may be exercised by the Bond Trustee. Section 2.2, Issuance of Obligation No. 4. In consideration of the issuance of the Bonds by the City and the application of the proceeds thereof as provided in the Bond Indenture, the Corporation agrees to issue and to cause to be authenticated and delivered to the City or its designee, pursuant to the Master Indenture and Supplement No. 4, concurrently with the issuance and delivery of the Bonds, Obligation No. 4 in substantially the form set forth in Section 11 of Supplement No. 4. The.City agrees that Obligation No. 4 shall be registered in the name of the Bond Trustee. The Corporation agrees that the aggregate principal amount of Obligation No. 4 shall be limited to dollars ($[PAR AMOUNT]), except for any Obligation No. 4 authenticated and delivered in lieu of another Obligation No. 4 as provided in Section 6 of Supplement No. 4 with respect to the mutilation, destruction, loss or theft of Obligation No. 4, issuance and delivery of the Bonds by the City shall be a condition of the issuance and delivery of Obligation No. 4. Section 2.3. Restrictions on Number and Transfer of Obligation No. 4. (a) The Corporation agrees that, except as provided in subsection (b) of this Section, so long as any Bond remains Outstanding, Obligation No. 4 shall be issuable only as a single obligation without coupons, registered as to principal and interest in the name of the Bond Trustee, and no transfer of Obligation No. 4 shall be registered under the Master Indenture or be recognized by the Corporation except for transfers to a successor Bond Trustee. (b) Upon the principal of all Obligations Outstanding (within the meaning of that term as used in the Master Indenture) being declared immediately due and payable, Obligation No. 4 may be transferred if and to the extent that the Bond Trustee requests that the restrictions of subsection (a) of this Section on transfers be terminated. ARTICLE III LOAN OF PROCEEDS; PAYMENTS Section 3.1. Loan of Proceeds, Payments of Principal, Premium and Interest. (a) The City hereby lends and advances to the Corporation, and the Corporation hereby borrows and accepts from the City a loan in a principal amount equal to the aggregate principal amount of the Bonds, the net proceeds of which loan shall be equal to the net proceeds received from the sale of the Bonds, such proceeds to be applied under the terms and conditions of this Loan Agreement and the Bond Indenture. In consideration of the loan of such OHS Wmt260412606.3 3 proceeds to the Corporation, the Corporation agrees to pay, or cause to be paid, "Loan Repayments" in an amount sufficient to enable the Bond Trustee to make the transfers and deposits required at the times and in the amounts pursuant to Section 5.02 of the Bond Indenture. Each Loan Repayment shall be made in immediately available funds at least three days prior to the time the Bond Trustee must make each transfer and deposit pursuant to Section 5.02 of the Bond Indenture. Notwithstanding the foregoing, the Corporation agrees to make payments, or cause payments to be made, at the times and in the amounts required to be paid as principal or Redemption Price of and interest on the Bonds from time to time Outstanding under the Bond Indenture and other amounts required to be paid under the Bond Indenture, as the same shall become due whether at maturity, upon redemption, by declaration of acceleration or otherwise. (b) Except as otherwise expressly provided herein, all amounts payable with respect to Obligation No. 4 or hereunder by the Corporation to the City shall be paid to the Bond Trustee or other parties entitled thereto as assignee of the City and this Loan Agreement and all right, title and interest of the City in any such payments are hereby assigned and pledged to the Bond Trustee so long as any Bonds remain Outstanding. Section 3.2. Additional Payments. In addition to Loan Repayments and payments on Obligation No. 4, the Corporation Shall also pay to the City, the Bond Trustee, the Tender Agent, (if any), the Liquidity Facility Provider (if any), the Credit Facility Provider (if any), the Remarketing Agent (if any); the Auction Agent (if any), the Broker- Dealer (if any) or the designated agent of any of them, as the case may be, "Additional Payments," as follows: (a) All taxes and assessments of any type or character charged to the City of to the Bond Trustee affecting the amount available to the City or the Bond Trustee from payments to be received hereunder or in any way arising due to the transactions contemplated hereby (including taxes and assessments assessed or levied by any public agency or governmental authority of whatsoever character having power to levy taxes or assessments) but excluding franchise taxes based upon the capital and/or income of the Bond Trustee and taxes based upon or measured by the net income of the Bond Trustee; provided, however, that the Corporation shall have the right to protest any such taxes or assessments and to require the City or the Bond Trustee, at the Corporation's expense, to protest and contest any such taxes or assessments levied upon them and that the Corporation shall have the right to withhold payment of any such taxes or assessments pending disposition of any such protest or contest unless such withholding, protest or contest would adversely affect the rights or interests of the City or the Bond Trustee; (b) All reasonable fees, charges, expenses and indemnities of the Bond Trustee and the Tender Agent (if any) hereunder and under the Bond Indenture, the reasonable fees, charges, expenses and indemnities of the Credit Facility Provider (if any) under the related Credit Facility, the Liquidity Facility Provider (if any) under the related Liquidity Facility, the Remarketing Agent (if any), the Auction Agent (if any) and the Broker - Dealer (if any), as and when the same become due and payable; (c) The reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the City or the Bond Trustee toprepare audits, financial statements, reports, opinions or provide such other services required under this Loan Agreement, Supplement No. 4, Obligation No. 4 or the Bond Indenture; OHS West:260412606.3 4 (d) The reasonable fees and expenses of the City, or any agent or attorney selected by the City to act on its behalf, in connection with this Loan Agreement, Supplement No. 4, Obligation No. 4, the Bonds or the Bond Indenture, including any and all fees and expenses incurred in connection with the authorization, issuance, sale and delivery of any such Bonds or by the City's attorneys in connection with any litigation which may at any time be instituted involving this Loan Agreement, Supplement No. 4, Obligation No. 4, the Bonds or the Bond Indenture or any of the other documents contemplated thereby, or in connection with the supervision or inspection of the Corporation, any Members, their properties, assets or operations or otherwise in connection with the administration of this Loan Agreement; and (e) All other reasonable and necessary fees and expenses attributable to the Bonds, this Loan Agreement, Obligation No.4 or related documents, including without limitation all payments required pursuant to the Tax Agreement. Such Additional Payments shall be billed to the Corporation by or upon direction of the City, the Bond Trustee, the Tender Agent, (if any), the Auction Agent (if any), the Broker - Dealer (if any), the Credit Facility Provider (if any), the Remarketing Agent (if any) or the Liquidity Facility Provider (if any) from time to time, together with a statement certifying that the amount billed has been incurred or paid for one or more of the above items. After such a demand, amounts so billed shall be paid by the Corporation within thirty (30) days after receipt of the bill by the Corporation. The obligations of the Corporation under this Section shall survive the resignation or removal of the Bond Trustee, the Tender Agent (if any), the Auction Agent (if any), the Broker - Dealer (if any), the Credit Facility Provider (if any), the Liquidity Facility Provider (if any), or the Remarketing Agent (if any) under the Bond Indenture and payment of the Bonds and discharge of the Bond Indenture. Section 3.3. Credits for Payments. The Corporation shall receive credit against its payments required to be made under Section 3.1, in addition to any credits resulting from payment or repayment from other sources, as follows: (a) on installments of interest in an amount equal to moneys deposited in the Interest Account, which amounts are available to pay interest on the Bonds, to the extent such amounts have not previously been credited against such payments; (b) on installments of principal in an amount equal to moneys deposited in the Principal Account, which amounts are available to pay principal of the Bonds, to the extent such amounts have not previously been credited against such payments; (c) on installments of principal and interest in an amount equal to the principal amount of Bonds for the payment at maturity or redemption of which sufficient amounts (as determined by Section 10.03 of the Bond Indenture) in cash or United States Government Obligations are on deposit as provided in Section 10.03 of the Bond Indenture to the extent such amounts have not previously been credited against such payments, and the interest on such Bonds from and after the date fixed for payment at maturity or redemption thereof, such credits shall be made against the installments of principal and interest which would have been OHS Wes[:260412606.3 5 used, but for such call for redemption, to pay principal of and interest on such Bonds when due; and (d) on installments of principal and interest in an amount equal to the principal amount of Bonds acquired by the Corporation and surrendered to the Bond Trustee for cancellation or purchased by the Bond Trustee on behalf of the Corporation and canceled, and the interest on such Bonds from and after the date interest thereon has been paid prior to cancellation, such credits shall be made against the installments of principal and interest which would have been used, but for such cancellation, to pay principal of and interest on such Bonds when due. Section 3.4. .Prepayment. The Corporation shall have the right, so long as all amounts which have become due hereunder have been paid, at any time or from time to time to prepay all or any part of the Loan Repayments and the City agrees that the Bond Trustee shall accept such prepayments when the same are tendered. Prepayments may be made by payments of cash, deposit of United States Government Obligations or surrender of Bonds, as contemplated by subsections 3.3(c) and (d). All such prepayments (and the additional payment of.any amount necessary to pay the applicable premium, if any, payable upon the redemption of Bonds) shall be deposited upon receipt at the Corporation's direction in (i) the Principal Account, (ii) the Optional Redemption Account of the Redemption Fund if the Bonds are to be redeemed pursuant to Section 4.01(B), (C), (D) Or (E) of the Bond Indenture, or (iii) the Special Redemption Account of the Redemption Fund . if the Bonds are to be redeemed pursuant to Section 4.01(A) or (G) of the Bond Indenture and, at the request of and as determined by the Corporation, credited against payments. due hereunder or used for the redemption or purchase of Outstanding Bonds in the manner and subject to the terms and conditions set forth in the Master Indenture and the Bond Indenture. Notwithstanding any such prepayment or surrender of Bonds, as long as any Bonds remain Outstanding or any Additional Payments required to be made hereunder remain unpaid, the Corporation shall not be relieved of its obligations hereunder. [BDV Note: Add Corporation right to surrender Bonds acquired by it for cancellation so that such bonds are deemed paid ?] Section 3.5. Payment of Purchase Price of Purchased.Bonds. (a) The Corporation agrees that, 1f a Liquidity Facility is not in effect with respect to a Series of Bonds [or if the Liquidity Facility Provider for a Series of Bonds has not paid the full amount required by the Bond Indenture at the times required by the Bond Indenture], it shall pay to the Tender Agent all amounts necessary for the purchase of Bonds of such Series pursuant to Section 4.10 of the Bond Indenture and not deposited with the Tender Agent by the Remarketing Agent from the proceeds of the sale of such Bonds pursuant to Section 4.10 of the Bond Indenture: Each such payment by the Corporation to the Tender Agent pursuant to this Section shall be in immediately available funds and paid to the Tender Agent at its Principal Office by 3:00 p.m., New York City time, on each date upon which a payment is to be made pursuant to Section 4.10 of the Bond Indenture. (b) If the Fixed Rate Conversion Date for a Series of Bonds is established pursuant to the Bond Indenture, the obligations of the Corporation pursuant to this Section 3.5 with respect to such Bonds shall be terminated following the Fixed Rate Conversion Date. OHS West:260412606.3 6 Section 3.6. Obligations Unconditional. The obligations of the Corporation hereunder and under Obligation No. 1 are absolute and unconditional, notwithstanding any other provision of this Loan Agreement, Supplement No. 4, Obligation No. 4, the Master Indenture or the Bond Indenture. Until this Loan Agreement is terminated and all payments hereunder are made, the Corporation: (a) will pay all amounts required hereunder without abatement, deduction or setoff except as otherwise expressly provided in this Loan Agreement; (b) will not suspend or discontinue any payments due hereunder or under Obligation No. 1 for any reason whatsoever, including, without limitation, any right of setoff or counterclaim; (c) will perform and observe all its other agreements contained in this Loan Agreement; and (d) except as provided herein, will not terminate this Loan Agreement for any cause, including, without limiting the generality of the foregoing, damage, destruction or condemnation of the facilities financed or refinanced with the proceeds of the Bonds or any part thereof, commercial frustration of purpose, any change in the tax or other laws of the United States of America, the State of California or any political subdivision of either, or any failure of the City to perform and observe any agreement, whether express or implied, duty, liability or obligation arising out of or connected with this. Loan Agreement. Nothing contained in this Section 3.6 shall be construed to release the City from the performance of any of the agreements on its part contained herein, and in the event the City should fail to perform any such agreement on its part, the Corporation may institute such action against the City as the Corporation may deem necessary to compel performance. The rights of the Bond Trustee or any party or parties on behalf of whom the Bond Trustee is acting shall not be subject to any defense; setoff, counterclaim or recoupment whatsoever, whether arising out of any breach of any duty or obligation of the City, the Master Trustee or the Bond Trustee owing to the Corporation, or by reason of any other indebtedness or liability at any time owing by the City, the Master Trustee or the Bond Trustee to the Corporation. Section 3.7. Condition Precedent. The obligation of the City to make the loan as herein provided shall be subject to the receipt by it of the proceeds of the issuance and sale of the Bonds. ARTICLE IV FINDINGS BY THE CITY; REPRESENTATIONS AND WARRANTIES OF THE CORPORATION Section 4.1. Findings by the City. The City hereby finds and determines based upon the representations, warranties and agreements of the Corporation and such other information as the City deems necessary that (i) the Corporation is a "participating health institution" and the Project is a "health facility" as such terms are defined in the Law; (ii) the loan to be made hereunder with the proceeds of the Bonds will promote the purposes of the Law OHS West260412606.3 7 by providing funds to pay the cost of acquiring, constructing, rehabilitating or improving health facilities or to refinance indebtedness incurred for that purpose; (iii) said loan is in the public interest, serves a public purpose, promotes the health, welfare and safety of the citizens of the State of California, and meets the requirements of the Law; (iv) the portion of the proceeds of the Bonds allocable to the cost of financing of the Project does not exceed the total cost thereof as determined by the Corporation; and (v) no member of the City council, department head or other officer of the City (except a member of any board or commission) is financially interested, directly or indirectly (as interpreted in accordance with Section 608 of the Charter of the City) in the transactions contemplated by this Loan Agreement. Section 4.2. Representations and Warranties of the Corporation. The Corporation represents and warrants to the City that, as of the date of execution of this Loan Agreement and as of the date of delivery of the Bonds to the initial purchasers thereof and of Obligation No. 4 to the Bond Trustee (such representations and warranties to remain operative and in full force and effect regardless of the issuance of the Bonds or any investigation by or on behalf of the City or the results thereof): (a) the Corporation is a nonprofit public benefit corporation duly incorporated and in good standing under the laws of the State of California; the Corporation has full legal right, power and authority to enter into this Loan Agreement, the Master Indenture, Supplement No.4 and Obligation No.4 and to carry out and consummate all transactions contemplated hereby and thereby and by proper corporate action has duly authorized the execution; delivery and performance of this Loan Agreement, the Master Indenture, Supplement No.4 and Obligation No. 4; (b) the. officers of the Corporation executing this Loan Agreement, Supplement No. 4 and Obligation No. 4 are duly and properly in office and fully authorized to execute the same; (c) this Loan Agreement, Supplement No. 4 and Obligation No. 4 have been duly authorized, executed and delivered by the Corporation; (d) this Loan Agreement and Obligation No. 4,. when assigned to the Bond Trustee pursuant to the Bond Indenture, will constitute the legal, valid and binding agreements of the Corporation, enforceable against the Corporation in accordance with their terms for the benefit of the Holders of the Bonds, and any rights of the City and obligations of the Corporation not so assigned to the Bond Trustee constitute the legal, valid, and binding agreements of the Corporation enforceable against the Corporation, as applicable, in accordance with their terms; except as enforcement may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles if equitable remedies are sought; (e) the execution and delivery of this Loan Agreement, Supplement No. 4, Obligation No. 4 and the consummation of the transactions herein and therein contemplated and the fulfillment of or compliance with the terms and conditions hereof and thereof, will not conflict with or constitute a violation or breach of or default under the articles of incorporation of the Corporation, its bylaws or any applicable: law or administrative rule or, regulation, or any applicable court or administrative decree or order, or any indenture, mortgage, deed of trust, loan OHS West:260412606.3 8 agreement, lease, contract or other agreement or instrument to which the Corporation is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Corporation, which conflict, violation, breach, default, lien, charge or encumbrance might have consequences that would materially and adversely affect the consummation of the transactions contemplated by this Loan Agreement, the Master Indenture, Obligation No. 4, Supplement No. 4 or the financial condition, assets, properties or operations of the Corporation; (f) no consent or approval of any trustee or holder of any indebtedness of the Corporation and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority is necessary in connection with the execution and delivery of this Loan Agreement, Supplement No. 4 or Obligation No. 4 or heretofore required for the consummation of any transaction herein or therein or in the Master Indenture contemplated, except as have been obtained or made and as are in full force and effect; (g) there is no action, suit, proceeding, inquiry or investigation, before or by any court or federal, state, municipal or other governmental authority, pending, or to the knowledge of the Corporation, after reasonable investigation, threatened, against or affecting the Corporation or the assets, properties or operations of the Corporation which, if determined adversely to the Corporation or its interests, would have a material adverse effect upon the consummation of the transactions contemplated by, or the validity of, this Loan Agreement, the Master Indenture, Obligation No. 4 or Supplement No. 4 or upon the financial condition, assets, properties or operations of the Corporation, and the Corporation is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority, which default might have consequences that would materially and adversely affect the consummation of the transactions contemplated by this Loan . Agreement, the Master Indenture, Obligation No.4 or Supplement No.4 or the financial condition, assets, properties or operations of the Corporation. All tax returns (federal, state and local) required. to be filed by or on behalf of the Corporation have been filed, and all taxes, shown thereon to be due, including interest and penalties, except such, if any, as are being actively contested by the Corporation, in good faith, have been paid or adequate reserves have been made for the payment thereof, (h) the Corporation enjoys, the peaceful and undisturbed possession of all of the premises upon which it is operating its facilities; (i) the consolidated audited financial statements of the Corporation and its affiliates (described in such financial statements) as of August 31, 2007, and the other financial information and consolidated related statements of operations and changes in net assets and cash flows for the year ended on such date. (copies of which, certified by Ernst & Young, LLP independent auditors, have been furnished . to the City), fairly state the financial position of the Corporation and its affiliates at August 31, 2007, and the results of operations of the Corporation and its affiliates for the year ended on such date, and since August 31, 2007, there has been no material adverse change in the condition (financial or otherwise) of the Corporation and its affiliates, except as is specifically disclosed in the Official Statement; OHS West.260412606.3 1 9 0) no written information, exhibit or report furnished to the City by the Corporation in connection with the negotiation of this Loan Agreement, Obligation No. 4 or Supplement No. 4 (including, without limitation, information in the Official Statement of the City for the Bonds) contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (k) the Corporation is an organization described in Section 501(c)(3) of the Code, is exempt from federal income tax under Section 501(a) of the Code and is not a private foundation as described in Section 509(a) of the Code; (1) the Corporation is and has at all times been in compliance with all applicable Environmental Laws in all respects material to the ability of the Corporation to perform its obligations with respect to the transactions contemplated by this Loan Agreement, the Master Indenture, Obligation No. 4 or Supplement No. 4; (m) there has been no spill, discharge, release, cleanup, contamination of any Hazardous Materials or toxic waste or substance used, generated, treated, stored, disposed of or handled by the Corporation which spill, discharge, release, cleanup,.or contamination is material to the ability of the .Corporation to perform its obligations with respect to the transactions contemplated by this Loan Agreement, the Master Indenture, Obligation No. 4 or Supplement No. 4; (n) except for such Hazardous Materials or toxic substances or wastes as occur, are handled, and are disposed of in the ordinary course of business of the Corporation and in all respects material to the ability of the. Corporation to perform its obligations with respect to the transactions contemplated by this Loan Agreement, the Master Indenture, Obligation No. 4 or Supplement No. 4, no Hazardous Materials or toxic substances or wastes are located at, or have been removed from the Corporation's properties other than as is disclosed in the Official Statement with respect to the Bonds under the caption "BONDHOLDERS' RISKS" — Other Risk Factors —Natural Gas.'; (o) The Corporation is a "participating health institution" and operates "health facilities," as those terms are defined in the "Law"; and (p) the Corporation has good title to the facilities it owns and operates free and clear from all encumbrances other than Permitted. Liens; ARTICLE V COVENANTS Section 5.1. Incorporation by Reference. The covenants of the Obligated Group as set forth in the Master Indenture are hereby incorporated by reference and reaffirmed for the benefit of the City and the Holders of the Bonds. Section 5.2. Prohibited Uses. No portion of the proceeds of the Bonds will be used to finance or refinance any facility, place or building used or to be used (1) primarily for sectarian instruction or study or as a place for devotional activities or religious worship or (2) by OHS WesC260412606.3 10 a Person that is not an organization described in Section 501(c)(3) of the Code or a Governmental Unit or by an organization described in Section 501(c)(3) of the Code (including the Corporation) in an "unrelated trade or business" (as set forth in Section 513(a) of the Code), in such a manner or to such extent as would result in any of the Bonds being treated as an obligation not described in Section 103(a) of the Code. Section 5.3. Nonliability of the City. (a) The City shall not be obligated to pay the principal of, premium, if any, and interest on the Bonds, except from payments received hereunder, under Obligation No. 4 and other Revenues. Neither the faith and credit nor the taxing power of the City or the State of California or any political subdivision thereof is pledged to the payment of the principal of, premium or interest on the Bonds. The City shall not be liable for any costs, expenses, losses, damages, claims or actions, of any conceivable kind or any conceivable theory, under or by reason of or in connection with this Loan Agreement, Obligation No. 4, the. Bonds or the Bond Indenture, except only to the extent amounts are received for the payment thereof from the Corporation under this Loan Agreement or under Obligation No. 4. (b) The Corporation hereby acknowledges that the City's sole source of moneys to repay the Bonds will be provided by the payments made by the Corporation hereunder and pursuant to Obligation No. 4 and other Revenues, together with amounts on deposit in, and investment income on, certain funds and accounts held by the Bond Trustee under the Bond Indenture, and hereby agrees that if the payments to be made hereunder and under Obligation No. 4 shall ever prove insufficient to pay all principal of, premium, if any, and interest on or Purchase Price of the Bonds as the same shall become due (whether by maturity, redemption, acceleration, tender or otherwise), then upon notice from the Bond Trustee, the Corporation shall pay such amounts as are required from time to time to prevent any deficiency or default in the payment of such principal, premium, interest or Purchase Price, including, but not limited to, any deficiency caused by acts, omissions, nonfeasance or malfeasance on the part of the Bond Trustee, the Auction Agent, if any, the Broker - Dealer, if any, the Tender Agent, if any, the Remarketing Agent (if any), the Liquidity Facility Provider, if any, the Master Trustee, the Members, the City or any third party, as the case may be. Section 5.4. Expenses. The Corporation covenants and agrees to pay and to indemnify the City and the Bond Trustee against all costs and charges, including reasonable fees of attorneys, accountants, consultants and other experts, incurred in good faith and arising out of or in connection with the transactions contemplated hereby and by the Bonds, the Bond Indenture, the Master Indenture, Supplement No. 4, Obligation No. 4, or the Tax Agreement. The obligations under this Section and Section 5.6 shall remain valid and in effect notwithstanding the. repayment of the loan hereunder or termination of this Loan Agreement or the Bond Indenture. Section 5.5: Tax Covenant. The Corporation covenants and agrees that it will at all times do and perform all acts and things permitted by law,. the Tax Agreement and this Loan Agreement which are necessary in order to assure that interest paid on the Bonds (or any of them) will be excluded from gross income for federal income tax purposes . and will take no action that would result in such interest not being so excluded. Without limiting the generality of the foregoing, the Corporation agrees to comply with the provisions of the Tax Agreement. This covenant shall survive payment in full or defeasance of the Bonds. OHS WesC260412606.3 I I Section 5.6. Indemnification of the Bond Trustee and the City. (a) To the fullest extent permitted by law, the Corporation agrees to indemnify, hold harmless and defend the City, the Bond Trustee, and each of their respective officers, governing members, directors, officials, employees, attorneys and agents (collectively, the "Indemnified Parties "), against any and all losses, damages, claims, actions, liabilities, costs and expenses of any conceivable nature, kind or character (including, without limitation, reasonable attorneys' fees, litigation and court costs, amounts paid in settlement and amounts paid to discharge judgments) to which the Indemnified Parties, or any of them, may become subject under or any statutory law (including federal or state securities laws) or at common law or otherwise, arising out of or based upon or in any way relating to: (i) the Bonds, the Bond Indenture, this Loan Agreement, the Master Indenture, Supplement No. 4, Obligation No.4 or the Tax Agreement or the execution or amendment hereof or thereof or in connection with transactions contemplated hereby or thereby, including the issuance, sale or resale of the Bonds; (ii) any act or omission of the Corporation or any of the Members or their agents, contractors, servants, employees or licensees in connection with the Project or any of their facilities, the operation of the Project or any of their facilities, or the condition, environmental or otherwise, occupancy, use, possession, conductor management of work done in or about, or from the planning, design, acquisition, installation or construction of, the Project or any of their facilities or any part thereof, (iii) any lien or charge upon payments by the Corporation to the City and the Bond Trustee hereunder, or any taxes (including, without limitation, all ad valorem taxes and sales taxes), assessments, impositions and other charges imposed on the City or the Bond Trustee in respect of any portion of the Project or any of their facilities; (iv) any violation of any Environmental Laws with respect to, or the release of any Hazardous Materials from, the Project or any of their facilities or any part thereof, (v) the defeasance and/or redemption, in whole or in part, of the Bonds; (vi) any untrue statement or misleading statement or alleged untrue statement or alleged misleading statement of a material fact contained in any offering statement or disclosure or continuing disclosure document for the Bonds or any of the documents relating to the Bonds, or any omission or alleged omission from any offering statement or disclosure or continuing disclosure document for the Bonds of any material fact necessary to be stated therein in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading; (vii) any declaration of taxability of interest on the Bonds, or allegations (or regulatory inquiry) that interest on the Bonds is taxable, for federal tax purposes; (viii) the Bond Trustee's acceptance or administration of the trust of the Bond Indenture, or the exercise or performance of any of its powers or duties thereunder or under any of the documents relating to the Bonds to which it is a party; OHS West:260412606.3 12 except (A) in the case of the foregoing indemnification of the Bond Trustee or any of its respective officers, members, directors, officials, employees, attorneys and agents, to the extent such damages are caused by the negligence or misconduct of such Indemnified Party; or (B) in the case of the foregoing indemnification of the City or any of its officers, members, directors, officials, employees, attorneys and agents, to the extent such damages are caused by the willful misconduct of such Indemnified Party. In the event that any action or proceeding is brought against any Indemnified .Party with respect to which indemnity may be sought hereunder, the Corporation, upon written notice from the Indemnified Party, shall assume the investigation and defense thereof, including the employment of counsel selected by the Indemnified Party and reasonably acceptable to the Corporation, and shall assume the payment of all expenses related thereto, with full power to litigate, compromise or settle the same in its discretion; provided that the Indemnified Party shall have the right to review and approve or disapprove any such compromise or settlement. Each Indemnified Party shall have the right to employ separate counsel in any such action or proceeding and participate in the investigation and defense thereof, and the Corporation shall pay the reasonable fees and expenses of such separate counsel; provided, however, that such Indemnified Party may only employ separate counsel at the expense of the Corporation if in the reasonable judgment of such Indemnified Party a conflict of interest exists by reason of common representation or if all parties commonly represented do not agree as to the action (or inaction) of counsel. (b) The rights of any Persons to indemnity hereunder and rights to payment of fees and reimbursement of expenses pursuant to Section 5.4 or this Section 5.6 and Section 6.6 shall survive the final payment or defeasance of the Bonds and in the case of the Bond Trustee any resignation or removal. The provisions of this Section shall survive the termination of this Loan Agreement. Section 5.7. Credit Facility; Alternate Credit Facility. (a) While a Series of Bonds bears interest at a Weekly Rate or Bond Interest Term Rate, the Corporation shall maintain or furnish, as the case may be, a Credit Facility (or, if a Credit Facility is then in existence, an Alternate Liquidity Facility in substitution for the Liquidity Facility then, in effect) or otherwise make funds available pursuant to a Credit Facility to the Bond Trustee to provide for the payment of principal .of and interest on such Bonds in accordance with the Bond Indenture. Any Credit Facility (or Alternate Credit Facility) shall be a facility provided by a commercial bank or other financial institution in an amount equal to the Required Stated Amount with a term of at least 360 days from the effective date thereof and shall be subject to the approval of the Liquidity Facility Provider (if any) for such Bonds if the Liquidity Facility Provider is a separate entity from the Credit Facility Provider. The Corporation shall give at least forty -five (45) days' advance written notice to the Bond Trustee of (1) its intent to furnish a Credit Facility or Alternate Credit Facility to the Bond Trustee, which notice shall specify the nature of such Credit Facility, the identity of the Credit Facility Provider and the proposed effective date of the Credit Facility and (2) its intent to terminate a Credit Facility then in effect, which notice shall specify the proposed termination date for such. Credit Facility. (b) If a Credit Facility has been delivered, or otherwise made available to the Bond Trustee in accordance with subsection (a) of this Section, the Corporation (1) shall maintain the Credit Facility or an Alternate Credit Facility, in an amount equal to the Required Stated Amount OHS West260412606.3 13 prior to its termination, and (2) shall not voluntarily terminate the Credit Facility or any Alternate Credit Facility without the written consent of the Liquidity Facility Provider (if any) for the Series of Bonds subject to such Credit Facility, if such Liquidity Facility Provider is a separate entity from the applicable Credit Facility Provider. Section 5.8. Liquidity Facility; Alternate Liquidity Facility. (a) In the case of a Conversion of a Series of Bonds from any Interest Rate Period to any other Interest Rate Period (except a Serial Bond Interest Rate Period effective to the Maturity Date for such Series or an ARS Interest Rate Period for such Series) the Corporation may furnish a Liquidity Facility (or, if a Liquidity Facility is then in existence, an Alternate Liquidity Facility in substitution for the Liquidity Facility then in effect) to provide for the purchase of Bonds of any Series upon their optional or mandatory tender in accordance with the Bond Indenture. Any Liquidity Facility (or Alternate Liquidity Facility) shall be approved in writing by the Credit Facility Provider (if any) securing such Series of Bonds, if such Liquidity Facility Provider is a separate entity from the applicable Credit Facility Provider, and shall be a facility provided by a commercial bank or other financial institution in an amount equal to the Required Stated Amount for such Series with a term of at least 364 days from the effective date thereof. The Liquidity Facility Provider shall be of sufficient financial strength to cause the short-term ratings for any Series of Bonds to be secured by such Liquidity Facility Provider's Liquidity Facility to be rated at least "A -1" by S &P and VMIG -1 by Moody's; the Corporation shall provide written evidence of such rating to the Bond Trustee and the applicable Credit Facility Provider (if any), if such Liquidity Facility Provider is a separate entity from such Credit Facility Provider, prior to delivery of a Liquidity Facility. [BDV Note: Self-Liquidity - rating threshold for self - liquidity?] (b) If a Liquidity Facility has been delivered in accordance with subsection (a) of this Section with respect to a Series of'Bonds, prior to the Fixed Rate Conversion Date for such Series of Bonds, the Corporation (1) shall maintain the Liquidity Facility or an Alternate Liquidity Facility, in an amount equal to the Required Stated Amount for such Series prior to its termination, and (2) shall not voluntarily terminate the Liquidity Facility or any Alternate Liquidity Facility without at least sixty (60) days' written notice to the Bond Trustee, the Tender Agent and the Credit Facility Provider (if any) for such Series of Bonds and without providing for an Alternate Liquidity Facility prior to the effective date of termination. [BDV Note: Self- Liquidity - Let LF lapse at option of the Corporation ?] (c) The Corporation hereby covenants and agrees that if the Liquidity Facility Provider for a Series of Bonds (1) receives a short-term rating downgrade below the highest short-term Rating Categories or below the top three highest long -term Rating Categories of any Rating Agency then rating such Bonds or (2) defaults in payment under the Liquidity Facility for such Series-of Bonds, the Corporation shall, unless waived by the Credit Facility Provider (if any) for such Series of Bonds, use its best efforts to obtain an Alternate Liquidity Facility for such Series of Bonds provided by a Liquidity Facility Provider that meets the requirements of Section 5.8(a) hereof within 90 days of receipt of notice of such downgrade or payment default. [BDV Note: Self- Liquidity] (d) The Credit Facility Provider (if any) for a Series of Bonds shall be provided by the Corporation with notice (and a copy) of all renewals, amendments and OHS Wet:260412606.3 14 supplements to a Liquidity Facility for such Bonds, if such Credit Facility Provider is a separate entity from the applicable Liquidity Facility Provider. Section 5.9. Continuing Disclosure. The Corporation hereby covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Loan. Agreement or the .Master Indenture, failure of the Corporation to enter into and comply, with the Continuing Disclosure Certificate shall not be considered a Loan Default Event or an Event of Default; however, the Bond Trustee may (and, at the request of any Participating Underwriter (as defined in the Continuing Disclosure Certificate) or the Holders of at least 25% in aggregate principal amount of Outstanding Bonds, shall) or any Bondholder or Beneficial Owner may, take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause. the Corporation to comply with its obligations under this Section 5.9. Section 5.10. Acquisition. Construction and .Installation of the Project. The Corporation shall acquire, construct and install the New Money Project (as defined in the Tax Agreement) or cause such New Money Project to be acquired, constructed and installed and shall proceed with due diligence and use its best efforts to cause the construction and installation of the Project elements financed with proceeds of the Bonds to be completed by no later than.the third anniversary date of the Date of Issuance, delays beyond the reasonable control of the Corporation only excepted. The Corporation has entered or will enter into purchase commitments and agreements which provide, in the aggregate, for the acquisition, installation and construction of the Project elements financed with proceeds of the Bonds by such date and at a price which will permit completion of the New Money Project for an amount not to exceed the amount of money deposited in the Project Fund and other available funds. The Corporation hereby grants, subject to applicable law, to the City, until completion of the Project, all reasonable rights of access necessary for the City to carry out its obligations and to enforce its rights hereunder. It is expressly understood and agreed that the City and the Bond Trustee shall be under no liability of any kind or character whatsoever for the payment of any cost of the Project, or any expense incurred in connection with the Project and that all such costs and expenses shall be paid by the Corporation. The acquisition, installation and construction of the Project elements financed with proceeds of the Bonds and related and abutting facilities shall be in accordance with all, applicable zoning, planning and building regulations, and the Corporation shall obtain all necessary governmental permits, licenses, certificates, authorizations and approvals necessary to be obtained for the acquisition, installation, construction and operation of the Project. Section 5.11. Disbursements from the Project Fund. Disbursements will be made from the Project Fund to pay the costs of the Project and subject to the terms and conditions set forth in the Bond Indenture. If amounts in the Project Fund are not sufficient to pay the costs of the Project in full, the Corporation shall use its best efforts to cause the completion of the Project elements financed with proceeds of the Bonds and shall pay at its own expense such costs in excess of amounts available in the Project Fund, from its own funds, without any diminution or postponement of any Loan Repayment or Additional Payment and without any right of reimbursement from the City or the Bond Trustee. Nothing herein shall obligate the Corporation to complete every element of the Project. OHS West260412606.3 15 Section 5.12. Compliance with Bond Indenture. The Corporation hereby covenants and agrees that it will comply with and carry out all of the provisions of the Bond Indenture to be performed by the Corporation or the Obligated Group. Section 5.13. Waiver of Personal Liability. No official, officer, agent or employee of the City or any member, officer, director, agent or employee of the Corporation or any other Member shall be individually or personally liable for the payment of any principal of or interest or premium on any Bonds or any other sum hereunder or under the Bond Indenture or be subject to any personal liability or accountability by reason of the execution and delivery of this Loan Agreement; but nothing herein shall relieve any such member, director, officer, agent or employee from the performance of any official duty provided by law or by this Loan Agreement. ARTICLE VI EVENTS OF DEFAULT AND REMEDIES Section 6.1. Events of Default. Each of the following events shall constitute and be referred to herein as a "Loan Default Event ": (a) failure by the Corporation to pay in full any payment required hereunder or under Obligation No. 4 when due, whether on an interest payment date at maturity, upon a date fixed for prepayment, by declaration, upon tender of the Bonds for purchase pursuant to the Bond Indenture, or otherwise pursuant to the terms hereof or thereof, (b) if any material representation or warranty made by the Corporation herein or made by the Corporation or any Member in any document, instrument or certificate furnished to the Bond Trustee or the City in connection with the issuance of Obligation No. 4 or the Bonds shall at any time prove to have been incorrect in any respect as of the time made; (c) if the Corporation shall fail to. observe or perform any other covenant, condition, agreement or provision in this Loan Agreement on its part to be observed or performed, other than as referred to in subsection (a) or (b) of this Section, or shall breach any warranty by the Corporation herein contained, 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 City, the Credit Facility Provider (if any) or the Bond Trustee; except that, if such failure or. breach can be remedied but not within such sixty -day period and if the Corporation has taken all action reasonably possible to remedy such failure or breach within such sixty -day period, such failure or breach shall not become a Loan Default Event for so long as the Corporation shall diligently proceed to remedy such failure or breach in accordance with and subject to any directions or limitations of time established by the Bond Trustee with the written consent of the Credit Facility Provider (if any); (d) 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; OHS West:2604126063 16 (e) if a court of competent jurisdiction shall enter an order, judgment or decree declaring the Corporation an insolvent, or adjudging 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, (f) 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; (g) if the Corporation shall abandon the Corporation's facilities or any substantial part thereof and such abandonment shall continue for a period of sixty (60) days after written notice thereof shall have been given to the Corporation by the City or the Bond Trustee; (h) any Event of Default as defined in and under the Bond Indenture; or (i) . any Event of Default as defined in and under the Master Indenture. Section 6.2. Remedies on Default. If a Loan Default Event shall occur, then, and in each and every such case during the continuance of such Loan Default Event, the Bond Trustee on behalf of the City, but subject to the limitations in the Bond Indenture as to the enforcement of remedies, take such action as it deems necessary or appropriate to collect amounts due hereunder, to enforce performance and observance of any obligation or agreement of the Corporation hereunder or to protect the interests securing the same, and may, without limiting the generality of the foregoing: (a) Exercise any or all rights and remedies given hereby or available hereunder or given by or available under any other instrument of any kind securing the Corporation's performance hereunder (including, without limitation, Obligation No. 4 and the Master Indenture); (b) . By written notice to the Corporation declare all Loan Repayments and Additional Payments to be immediately due and payable under this Loan Agreement, whereupon the same shall become immediately due and payable; and (c) Take any action at law or in equity to collect the payment required hereunder then due, whether on the stated due date or by declaration of acceleration or otherwise, for damages or for specific performance or otherwise to. enforce performance and observance of any obligation, agreement or covenant of the Corporation hereunder. Section 6.3. Discontinuance or Abandonment of Default Proceedings. If any proceeding taken by the Bond Trustee on account of any Loan Default Event shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Bond Trustee, then and in every case the City, the Bond Trustee, the Credit Facility Provider (if any) and the Corporation shall be restored to their former position and rights hereunder, respectively, OHS West:260412606.3 17 and all rights; remedies and powers of the City, the Credit Facility Provider (if any), the Bond Trustee and the Corporation shall continue as though no such proceeding had taken place. Section 6.4. Remedies Cumulative. No remedy conferred upon or reserved to the City or the Bond Trustee hereby or now or hereafter existing at law or in equity or by statute, shall be exclusive but shall be cumulative with all others. Such remedies are not mutually exclusive and no election need be made among them, but any such remedy or any combination of such remedies may be pursued at the same time or from time to time so long as all amounts realized are properly applied and credited as provided herein. No delay or omission to exercise any right or power accruing upon any Loan Default Event shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient by the City or the Bond Trustee. In the event of any waiver of a Loan Default Event hereunder, the parties shall be restored to their former positions and rights hereunder, but no such waiver shall extend to any other or subsequent Loan Default Event or impair any right arising as a result thereof. In order to entitle the Bond Trustee to exercise any remedy reserved to it, it shall not be necessary to give notice other than as expressly required herein. Section 6.5. Application of Moneys Collected. Any amounts collected pursuant to action taken under this Article VI shall be applied in accordance with the provisions of Article VII of the Bond Indenture and to the extent applied to the payment of amounts due on the Bonds shall be credited against amounts due on Obligation No. 4. Section 6.6. AttomeyLsFees and Other Expenses. If, as a result of the occurrence of a Loan Default Event, the City, the Credit Facility Provider (if any), or the Bond Trustee employs attorneys or incurs other expenses for the collection of payments due hereunder or for the enforcement of performance or Observance of any obligation or agreement on the part of the Corporation, the Corporation will, on demand, reimburse the City, the Credit Facility Provider (if any) or the Bond Trustee, as the case may be, for the reasonable fees of such attorneys and such other reasonable expenses so incurred. Section 6.7. Notice of Default. The Corporation agrees that, as soon as is practicable, and in any event within ten (10) days, the Corporation will furnish the Bond Trustee and the Credit Facility Providerjif any) notice of any event which is a Loan. Default Event pursuant to Section 6.1 which has occurred and is continuing on the date of such notice, which notice shall set forth the nature of such event and the action which the Corporation proposes to take with respect thereto; provided, however, that with respect to a Loan Default Event pursuant to Section 6.1(a), the Bond Trustee shall give the Corporation and the Credit Facility Provider (if any) immediate telephonic notice on the date such default occurs. OHS West260412606.3 18 ARTICLE VII MISCELLANEOUS Section 7.1. Amendments and Supplements. This Loan Agreement may be amended, changed or modified only as provided in Section 6.08 of the Bond Indenture. Section 7.2. Time of the Essence; Non - Business Days. Time shall be of the essence for purposes of this Loan Agreement. When any action is provided for herein to be done on a day named or within a specified time period, and the day or the last day of the period falls on a day other than a Business Day, such action may be performed on the next ensuing Business Day with the same effect as though performed on the appointed day or within the specified period. Section 7.3. Binding Effect. This instrument shall inure to the benefit of and shall be binding upon the City and the Corporation and their respective successors and assigns, subject to the limitations contained herein; provided, however, that the Bond Trustee shall have only such duties and obligations as are expressly given to it hereunder. Section 7.4. Entire Agreement, Third Party Beneficiaries. This Loan Agreement, together with all agreements and documents incorporated by reference herein, constitutes the entire agreement of the parties and is not subject to modification, amendment, qualification or limitation except as expressly provided herein.. The City and the Corporation recognize and agree that the Credit Facility Provider (if any) is a third -party beneficiary to the provisions of this Loan Agreement. No other Person shall be deemed a third -party beneficiary hereof. Section 7.5. Severability. If any covenant, agreement or provision, or any portion thereof contained in this Loan Agreement, where the application thereof to any Person or circumstance is held to be unconstitutional, invalid or unenforceable, the remainder of this Loan Agreement and the application of such covenant, agreement or provision, or portion thereof, to other Persons or circumstances, shall be deemed severable and shall not be affected thereby, and this Loan Agreement shall. remain valid, and the Bondholders shall retain all valid rights and benefits accorded to them under this Loan Agreement. and the Constitution and laws of the State of California. Section 7.6. Notices. (a) Unless otherwise expressly specified or permitted by the terms hereof, all notices, consents or other communications required of permitted hereunder shall be deemed sufficiently given or served if given by confirmed facsimile transmission or in writing, mailed by first -class mail, postage prepaid and addressed as follows: OHS West:260412606.3 19 (1) to the City at: City of Newport Beach 3300 Newport Boulevard; P.O. Box 1768 Newport Beach, California 92658 -8915 Attention: Telephone: (949) 644 -3123 Facsimile: (949) 644 -3339 (2) to the Corporation at: Hoag Memorial Hospital Presbyterian One Hoag Drive P.O. Box 6100 Newport Beach, California 92658 -6100 Attention: Chief Financial Officer Telephone: (949) 764 -4411 Facsimile: (949) 764 -4416 (3) to the Bond Trustee at: Wells Fargo Bank, National Association 707 Wilshire Boulevard, 17th Floor Los Angeles, CA 90017 Attention: Corporate Trust Services Telephone: (213) 614 -3350 Facsimile: (213) 614 -3355 (4) to the initial Credit Facility Provider at: Attn: Telephone: Q - Facsimile: Q - (b) The Corporation, the City, the Credit Facility Provider (if any) and the Bond Trustee may at any time and from time to time by notice in writing to the other Persons listed in Section 7.6(a) designate a different address or addresses for notice under this Loan Agreement. Section 7.7. Term. Except as otherwise provided herein this Loan Agreement shall remain in full force and effect from the date of execution hereof until no Bonds remain Outstanding under the Bond Indenture and all payments required hereunder have been made. Section 7.8. Counterparts. This Loan Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute one and the same instrument. OHS Wes[:2604126%.3 20 Section 7.9. Governing Law; Venue. This Loan Agreement shall be governed by and construed according to the Constitution and laws of the State of California applicable to contracts made and performed within such State. OHS West:260412606.3 21 IN WITNESS WHEREOF, the City and the Corporation have caused this Loan Agreement to be executed in their respective names as of the date first written above. [Seal] Attest: an City Clerk CITY OF NEWPORT BEACH U-1 Mayor HOAG MEMORIAL HOSPITAL PRESBYTERIAN LIM Authorized Representative OHS West:260412606.3 . 22 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; INTERPRETATION Section1.1. Definitions ........................................................................... ..............................2 Section1.2. Interpretation ...................................................................... ..............................2 Section 1.3. Content of Certificates and Opinions ........................:....... ............................... 2 ARTICLE II ISSUANCE OF BONDS AND OBLIGATION NO. 1 Section2.1. The Bonds ......................................................................... ............................... 2 Section 2.2. Issuance of Obligation No. 1 ............................................ ............................... 3 Section 2.3. Restrictions on Number and Transfer of Obligation No. 1 .............................. 3 ARTICLE III LOAN OF PROCEEDS; PAYMENTS Section 3.1. Loan of Proceeds; Payments of Principal, Premium and Interest .................... 3 Section 3.2. Additional Payments ......................................................... ............................... 4 Section 3.3. Credits for Payments ..................................................:...... ............................... 5 Section14. Prepayment ....................................................................... ............................... 6 Section 3.5. Payment of Purchase Price of Purchased Bonds ............... ............................... 6 Section 3.6. Obligations Unconditional ................................................ .........................::.... 6 Section 3.7. Condition Precedent .......................................................... ............................... 7 ARTICLE IV FINDINGS BY THE CITY; REPRESENTATIONS AND WARRANTIES OF THE CORPORATION Section 4.1. Findings by the City .......................................................... ............................... 7 Section 4.2. Representations and Warranties of the Corporation ......... ............................... 8 ARTICLE V COVENANTS Section 5.1. Incorporation by Reference ............................................. ............................... 10 Section 5.2. Prohibited Uses ........:...................................................... ............................... 10 Section 5.3. Nonliability of the City ................................................... ............................... 10 Section5.4. Expenses ......................................................................... ............................... 11 Section 5.5. Tax Covenant .................................................................. ............................... 11 OHS West:260412606.3 _i_ TABLE OF CONTENTS (continued) Page Section 5.6. Indemnification of the Bond Trustee and the City .......... ............................... 11 Section 5.7. Credit Facility; Alternate Credit Facility ........................ ............................... 13 Section 5.8. Liquidity Facility; Alternate Liquidity Facility .............. ............................... 13 Section 5.9. Continuing Disclosure .................................................... ............................... 14 Section 5.10. Acquisition, Construction and Installation of the Project .............................. 14 Section 5.11 Disbursements from the Project Fund ............................. ............................... 14 Section 5.12. Compliance with Bond Indenture ..............................:.... ............................... 15 Section 5.13. Waiver of Personal Liability ........................................... ............................... 15 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES Section6.1. Events of Default ............................................................ ............................... 15 Section 6.2. Remedies on Default ....................................................... ............................... 16 Section 6.3. Discontinuance or Abandonment of Default Proceedings ............................. 17 Section 6.4. Remedies Cumulative ..................................................... ............................... 17 Section 6.5. Application of Moneys Collected ......................................... ;........................ 17 Section 6.6. Attorney's Fees and Other Expenses .............................. ............................... 17 Section 6.7. Notice of Default ..........:.................................................. ............................... 18 ARTICLE VII MISCELLANEOUS Section 7.1. Amendments and Supplements ....................................... ............................... 18 Section 7.2. Time of the Essence; Non - Business Days ...................... ............................... 18 Section7.3. Binding Effect ................................................................. ............................... 18 Section 7.4. Entire Agreement; Third Party Beneficiaries ................. ..................I............. 18 Section7.5. Severability ..................................................................... ............................... 18 Section7.6. Notices ............................................................................ ............................... 19 Section7.7. Tenn ................................................................................ ............................... 20 Section7.8. Counterparts .................................................................... ............................... 20 Section 7.9. Governing Law; Venue ................................................... ............................... 20 OHS WesC260412606.3 -ii- OH &S DRAFT 4/21108 NEW ISSUE - BOOK -ENTRY ONLY Ratings t In the opinion of Orrtck Herrington & Sutcliffe LLP. Bond Counsel to the City, based upon an analysis of existing laws, regulations, rulings and Caul, decisions, and assuming among other matters, the accuracy of certain representations and compliance with certain covenaas, interest on the Bonds is excluded from gross income for federal iwome tax purposes under section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal inreome mses. /n the feather opinion of Bond Counsel, interest on the Bonds is not a specfrc preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in ac#wwd current earnings in calculating federal corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences relating to the ownership or deposition of, or the accrual or receipt of interest on the Bonds. See "TAXMATTERS "herein $[PAR AMOUNT] City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008 Series 2008A Series 2008B Series 2008D Series 2008E Price: 100% Dated: DateofDelivery Series 2008C Due: As shown on the inside cover The City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008A (the "Series 2008A Bonds "), Series 2008B (the "Series 2008B Bonds "), Series 2008C (the "Series 2008C Bonds "h Series 2008D (the "Series 2008D Bonds ") and Series 2008E (the "Series 2008E Bonds" and collectively with the Series 2008A Bonds, the Series 20098 Bonds, the Series 2008C Bonds and the Series 2008D Bonds, the "Bonds" and each a `Series" of Bonds) will be issued only in initial denominations of in denominations of $100,000 army integral multiple of $5,000 in excess thereof and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ('DTC'), under the book -entry only system maintained by DTC. So long as Cede & Co, is the registered owner of the Bonds, (i) principal of, premium, if any, and interest on the Bonds will be payable by Wells Fargo Bank, National Association, as bond trustee, to DTC, which in turn will remit such payments to its participants for subsequent disbursement in beneficial owners of the Bonds, as more fully described herein, and (it) all notices, including any notice of redemption or notice of conversion in another Interest Rate Period, shall be mailed only to Cede & Co. See "THE BONDS - Book - Entry-Only System' herein. Concurrently with the Bonds offered hereby, the City expects to issue for the benefit of Hoag Memorial Hospital Presbyterian ( "Hoag Hospilaf7 additional variable rate bonds (the "Additional Bonds "). The Bonds and the Additional Bonds,ase being issued to refund certain outstanding auction rate securities issued by the City for the benefit of Hoag Hospital in 2005 and 2007: See "PLAN OF REFUNDING.' The Bonds will accrue interest from the Date of Delivery and initially will bear interest at a Weekly Interest Rate. During the Weekly Interest Rate Period, interest is payable on the Bust Wednesday of each calendar month, or, if such Wednesday is not a Business Day the next, succeeding Business Day, commencing, June 4, 2008. At the election of Hoag Hospital, a Series of Bonds may be converted, in whole, to other Interest Rate Periods in accordance with the Bond Indenture . This Official Statement describes certain terms of each Series of Bonds applicable while such Series accrue interest at Weekly Interest Rates. There are significant changes in the terms of the Bonds while such Bonds accrue interest in other Interest Rate Periods. This Official Statement is not intended to provide information with respect to any Series ofBonds other than Bonds that bear mterestat Weekly interest Rates. The Bonds are limited obligations of the City of Newport Beach (the "City"), secured under the provisions of the Bond Indaemro and the Loan Agreement, as described herein, and will be payable from Loan Repayments made by Hoag Hospital under the Loan Agreement and from terrain foods held under the Bond Indenture. The obligation of Hoag Hospital to make such payments is evidenced and secured by Obligation No. 4 issued under the Master Indenture, described herein, whemunder the members of the obligated group (the "Obligued Group'), in which Hoag Hospital is the Credit Group Representative, are obligated to make payments on Obligation No. 4 in amomns sufficient to pay principal of and premium, if any, and interest on the Bonds when due. THE BONDS ARE LIMITED OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM PAYMENTS REQUIRED TO BE MADE BY HOAG HOSPITAL PURSUANT TO THE LOAN AGREEMENT AND OBLIGATION NO. 4 ISSUED PURSUANT TO THE MASTER INDENTURE.. NEITHER THE STATE OF CALIFORNIA NOR THE CITY SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF THE BONDS, OR THE PREMIUM OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED UNDER THE LOAN AGREEMENT, OBLIGATION NO.4 AND THE BOND INDENTURE, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE STATE OF CALIFORNIA OR OF ANY POLITICAL SU13DMSION THEREOF, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE PREMIUM OR INTEREST ON THE BONDS. THE ISSUANCE OF THE BONDS SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SU13DMSION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. The Bonds are subject to optional, mandatory sinking fund and extraordinary optional redemption prior to their stated maturity and to optional and mandatory tender for purchase and remarketing in certain circumstances, all as described herein as described herein. The Bonds are supported initially by an irrevocable, direct -pay fella of credit (the "Letter of Credit"), being issued in the time of the Bond Trustee concurrently with the issuance of the Bonds by Bank of America, N.A. . [Logo) . The Letter of Credit will permit the Bond Trustee to draw, with respect to the Bonds, an amount sufficient to pay the aggregate principal of and up to [—I days' accrued interest m each series of the Bonds (at an assumed maximum rate of _ %pa annum). The Letter of Credit will expire on. 20_ mless temdnated earlier or extended, is provided deerein This cover page contains certain information for quick reference only. It is not intended to be a summary of the security or terms of the Bonds..lnveslors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. Tire Bonds are offered when, as and if received by the Underwriter, subject in prior sale and in the approval of the validity of the Bonds and certain . legal matters by Orrick, Herrington & Sutcliffe UP, Bond Counsel to the City, the approval of certain matters for the City by the City Attorney, for Hoag Hospital by Sttadling Yocca Carlson & Routh, a Professional Corporation, and for the Underwriter by its counsel, Foley & Lardner LLP, Chicago, Illinois. Certain legal matters will be passed upon for the letter of credit provider by John S. Barry, Assistant General Counse], Bank of America, N. A. Legal Department and by Morrison & Poisoner LLP special comsel in such provider. It is expected that the Bonds in book-entry form will be available for delivery to DTC in New York, New York, on or about May - 2008. Cltl Date: May .2008 t Form explanation of the ratings, see "RATINGS" herein. OHS West260418306.4 Iu Ely Y411VW .Y4111011111B�1 $[PAR AMOUNT] City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008 Series 2008A Bonds Year Principal (December 1) Amount CUSIP" Year (December 1) Year Series 2008B Bonds Principal Amount Series 2008C Bonds Principal (December 1) Amount $ Year (December 1) Year (December 1) Series 2008D Bonds Principal Amount Series 2008E Bonds Principal Amount CUSIP" CUSIP" CUSIP" CUSIP" Copyright 2008, American Bankers Association. CUSIP data herein are provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw -Hill Companies, Inc. The CUSIP numbers listed above are being provided solely for the convenience of bondholders only and neither the City nor the Corporation makes any representation with respect to such number or undertake any responsibility for their accuracy. The CUSIP numbers are subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of the_ Bonds! OHS West:260418306.4 The information relating to the City contained herein under the headings "THE CITY" and "LITIGATION — The City" has been furnished by the City. The information set forth herein under the headings "THE BANK, THE LETTER OF CREDIT AND THE REIMBURSEMENT AGREEMENT" has been furnished by Bank of America, N.A. (the `Bank "). The information relating to DTC and the Book - Entry-Only System has been fumished by DTC. Such information is believed to be reliable but is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the City, Hoag Hospital and its affiliates or the Underwriter. Other information contained herein has been obtained from Hoag Hospital and other sources (other than the City) that are believed to be reliable. Such other information is not guaranteed as to accuracy or completeness and is not to be relied upon or construed as a promise or representation by the City 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 responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. No dealer, broker, salesperson or other person has been authorized by the City, Hoag Hospital or the Underwriter to give any information or to make any representations, other than those contained in this Official Statement, and, if given or made, such information or representation 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 Bonds by any person in any jurisdiction in which it is nlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any statement nor any sale made hereunder shall create under any circumstances any implication that there has been no change in the affairs of the City, Hoag Hospital, DTC or the Bank since the date hereof. This Official Statement is submitted in connection with the issuance of securities referred to herein and may not be used, in whole or in part, for any other purpose. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVER - ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE BONDS AND OBLIGATION NO.4 HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THE BOND INDENTURE NOR THE MASTER INDENTURE HAVE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF LAWS OF THE STATES IN WHICH THE BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. CAUTIONARY STATEMENTS REGARDING FORWARD - LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT Certain statements included or incorporated by reference in this Official Statement constitute "forward - looking statements." Such statements generally are identifiable by the terminology used such as "plan ," "expect," "estimate," "budget" or other similar words. Such forward - looking statements include but are not limited to certain statements contained in the information under the captions `BONDHOLDERS' RISKS," and APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — FACILITIES DESIGN AND CONSTRUCTION," "— SELECTED UTILIZATION AND FINANCIAL INFORMATION— Management's Discussion and Analysis of Financial Information" and " — POTENTIAL AFFILIATIONS AND TRANSACTIONS" in this Official Statement. The achievement of certain results or other expectations contained in such Forward - looking statements involve OHS West260418306.4 known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward - looking statements. Hoag Hospital does not plan to issue any updates or revisions to those forward - looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur. OHS WesC260418306.4 TABLE OF CONTENTS INTRODUCTORY STATEMENT Page, THECITY ..........:.......................................................................... ............................... ................1111........... 4 THEBONDS ................................................................................................................ ............................... 4 General............................................................................................................ ............................... 4 WeeklyInterest Rate Mode ............................................................................. ............................... 5 Redemption.................................................................................................... ............................... 6 Certain Considerations Relating to the Remarketing Agent ............................................. :.......... 12 Book -Entry-Only System .............................................................................. ............................... 13 Transferand Payment .................................................................................... ............................... 13 SECURITYFOR THE BONDS ................................................................................ ............................... 14 General.......................................................................................................... ............................... 14 TheMaster Indenture .................................................................................... ............................... 14 Security and Enforceabil ity ........................................................................... ............................... 17 Other..........................:............................................................................... ............................... 19 THE BANK, THE LETTER OF CREDIT AND THE REIMBURSEMENT AGREEMENT ................. 20 Bankof America, N. A .....................:................:............................................ ............................... 20 TheLetter of Credit ....................................................................................... ............................... 21 The Reimbursement Agreement .................................................................... ......................I........ 22 PLANOF REFUNDING ........................................................................................... ............................... 23 General.......................................................................................................... ............................... 23 TheProject ....................................................................... ............................... ...........................1.23 InterestRate Swaps ....................................................................................... ............................... 24 ESTIMATED SOURCES AND USES OF FUNDS ................... ............................... .:.........................1111 25 CONTINUING DISCLOSURE ................................................................................. ............................... 25 BONDHOLDERS' RISKS ........................................................................................... .............................26 General.......................................................................................................... ............................... 26 Significant Risk Areas Summarized ................:............................................. ............................... 26 Nonprofit Health Care Environment ............................................................................................. 30 Healthcare Reform Initiatives ........................................................................ ............................... 32 PatientService Revenues .............................................................................. ............................... 32 RegulatoryEnvironment .........................................................................:..... ............................... 35 Business Relationships and Other Business Matters ..................................... ............................... 39 Tax- Exempt Status and Other Tax Matters ................................................... ............................... 42 OtherRisk Factors ......................................................................................... ............................... 45 TAXMATTERS ........................................................................................................ ............................... 48 APPROVALOF LEGALITY .................................................................................... ............................... 49 OHS West:260418306.4 I -i- TABLE OF CONTENTS (continued) Page INDEPENDENTAUDITORS ................................................................................... ............................... 50 LITIGATION............................................................................................................. ............................... 50 HoagHospital and NHC ................................................................................ ............................... 50 TheCity ......................................................................................................... ............................... 50 RATINGS................................................ :................................................................................................. 50 UNDERWRITING..................................................................................................... ............................... 51 CERTAIN RELATIONSHIP ..................................................................................... ............................... 51 FINANCIAL ADVISOR TO HOAG HOSPITAL ..................................................... ............................... 51 MISCELLANEOUS................................................................................................... ............................... 51 APPENDIX A — INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL FORM OF CONTINUING DISCLOSURE CERTIFICATE .... ............................... PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC, APPENDIX F — AND OTHERAFFILIATES .................:................................ ............................... A -1 APPENDIX B -1— FINANCIAL STATEMENTS OF HOAG MEMORIAL HOSPITAL OHS West:260418306.4 -ji- PRESBYTERIAN AND OTHER AFFILIATES ......................... .......................:..B -1 -1 APPENDIX B -2 HOAG MEMORIAL HOSPITAL PRESBYTERIAN AND AFFILIATES UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION ............................ B -2 -1 APPENDIX C — SUMMARY OF PRINCIPAL DOCUMENTS .......................... ............................... C -1 APPENDIX D — FORM OF OPINION OF BOND COUNSEL ........................... ............................... D -1 APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE .... ............................... E -1 APPENDIX F — BOOK -ENTRY SYSTEM ......................................................... ............................... F -1 OHS West:260418306.4 -ji- OFFICIAL STATEMENT $[PAR AMOUNT] City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008 S S $ Series 2008A Series 2008B Series 2008C $ $ Series 2008D Series 2008E INTRODUCTORY STATEMENT The following introductory statement is subject in all respects to the more complete information set forth in this Official Statement. All descriptions and summaries of documents referred to herein do not purport to be comprehensive or definitive and are qualified in their entirety by reference to each such document. Terms used in this Official Statement, including the Appendices, and not otherwise defined have the same meanings as in the Bond Indenture (as defined below) or if not defined therein in the Master Indenture (as defined below). See APPENDIX C — "SUMMARY OF PRINCIPAL DOCUMENTS — Defmitions of Certain Terms." Purpose of the Official Statement This Official Statement, including the cover page, the inside cover page and the appendices hereto, is provided to furnish information in connection with the sale and delivery of the following Series of Bonds issued by the City of Newport Beach (the "City "): $ aggregate principal amount of the Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008A (the "Series 2008A Bonds "), $ aggregate principal amount of the Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008B (the "Series 2008B Bonds "), $ aggregate principal amount of the Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008C (the "Series 2008C Bonds"), $ aggregate principal amount of the Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008D (the "Series 2008D Bonds ") and $ aggregate principal amount of the Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008E (the "Series 2008E Bonds "). The Series 2008A Bonds, the Series 2008B Bonds, the Series 2008C Bonds, the Series 2008D Bonds and the Series 2008E Bonds, collectively, are referred to herein as the `Bonds" and each series as a "Series" of Bonds. The Bonds will be issued pursuant to and secured by a bond indenture (the "Bond Indenture"), dated as of May 1, 2008, between the City and Wells Fargo Bank, National Association, as bond trustee (the "Bond Trustee "). The City will lend the proceeds of the Bonds to Hoag Hospital, which loan will be evidenced by a Loan Agreement, dated as of May 1, 2008 (the "Loan Agreement"), between the City and Hoag Hospital. The Bond Trustee will also serve as Tender Agent for the Bonds. The Obligated Group and the Master Indenture Hoag Memorial Hospital Presbyterian is a California nonprofit public benefit corporation which owns and operates a general acute care hospital in Newport Beach, California (both the corporation and the facility are referred to as "Hoag Hospital"). Hoag Hospital is licensed to operate a total of 511 general acute care beds. Newport Healthcare Center, LLC ( "NHC "), a wholly -owned subsidiary of Hoag OHS West:260418306.4 1. Hospital, owns and expects to operate a medical office complex providing outpatient services, physician office space and administrative functions. For a description of Hoag Hospital and NHC, their facilities and financial performance, see APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES." As of the date of the issuance of the. Bonds, Hoag Hospital and NHC are the only Members (defined below) of the Obligated Group (the "Obligated Group ") established under the Master Indenture dated as of May 1, 2007, between Hoag Hospital and Wells Fargo Bank, National Association, as master. trustee (the Master Trustee "). Other entities may become members of the Obligated Group (each, a "Member") in accordance with the procedures set forth in the Master Indenture. Each Member of the Obligated Group is jointly and severally obligated to pay when due the principal of, premium, if any, and interest on each Obligation issued under the Master Indenture, including Obligation No. 4 (as hereinafter defined), which will evidence and secure the loan of the proceeds of the Bonds from the City to Hoag Hospital. In addition, Hoag Hospital has secured interest rate swap agreements, with Obligations entitled to certain benefits of the Master Indenture. For more information about Hoag Hospital and its affiliates, see APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — GENERAL." Under the Master Indenture, Hoag Hospital, as Credit Group Representative, may designate "Designated Affiliates" from time to time: and rescind any such designation at any time. Designated Affiliates are not obligated to make payments with respect to Obligation No.4 or any other Master Indenture Obligations issued under the Master Indenture, but may be required to pay or otherwise transfer to the Credit Group Representative amounts necessary to enable Hoag Hospital to pay when due the principal of and premium, if any, and interest on Outstanding Master Indenture Obligations. No entities have been designated as of the date hereof as Designated Affiliates. Provision is made in the Master Indenture for adding Members to the Obligated Group and for the withdrawal of Members from the Obligated Group under certain circumstances. For more information, see APPENDIX C — "SUMMARY OF PRINCIPAL DOCUMENTS — MASTER INDENTURE — Membership in the Obligated Group" and "— Withdrawal From the Obligated Group." Hoag Hospital, NHC and any other party, upon becoming a Member of the Obligated Group under the Master Indenture, are herein sometimes collectively referred to as the "Obligated Group," "Obligated Group Members" or the "Members of the Obligated Group" and individually as a "Member of the Obligated Group" or an "Obligated Group Member." Weekly Interest Rate Each Series of Bonds initially will bear interest at Weekly Interest Rates. During the Weekly Interest Rate Period, interest is payable on the first Wednesday of each calendar month, or, if such Wednesday is not a Business Day the next succeeding Business Day, commencing, June 4, 2008. A Series of Bonds may be converted, in whole, to other Interest Rate Periods in accordance with the Bond Indenture.. See "THE BONDS" and APPENDIX C — "SUMMARY OF PRINCIPAL DOCUMENTS — BOND INDENTURE." The Bonds are subject to optional, mandatory sinking fund and extraordinary optional redemption prior to their stated maturity and to optional and mandatory tender for purchase and remarketing in certain circumstances, all as described herein.. See "THE BONDS — " and "— " herein. OHS WesC260418306.4 Security for the Bonds Each Series of Bonds will be payable from payments made by Hoag Hospital under the Loan Agreement (the "Loan Repayments "), the Loan Repayments are secured by payments made by the Members of the Obligated Group on Obligation No. 4 (defined below) and from certain funds held under the Bond. Indenture. In order to secure the obligation of Hoag Hospital to make payments under the Loan Agreement, Hoag Hospital will deliver to the Bond Trustee its Master Indenture Obligation No.4 ( "Obligation No. 4 ") issued pursuant to the Master Indenture, as supplemented and amended by the Supplemental Master Indenture for Obligation No. 4, dated as of May 1, 2008, between. Hoag Hospital, as Credit Group Representative and the Master Trustee ( "Supplement No. 4 "). Pursuant to the Master Indenture, Hoag Hospital and NHC and any future Members of the Obligated Group agree to make payments on Obligation No. 4 in amounts sufficient to pay, when due, the principal of and premium, if any, and interest on each Series of Bonds. Each Member of the Obligated Group is jointly and severally obligated to make payments on all Master Indenture Obligations issued under the Master Indenture, including Obligation No. 4. The Members of the Obligated Group receive a credit on payments due on Obligation No. 4 to the extent of payments made by Hoag Hospital under the Loan Agreement. Obligation No. 4 will entitle the Bond Trustee, as the holder thereof, to the benefit of the covenants, restrictions and other obligations imposed upon the Obligated Group under the Master Indenture. As of the date of issuance and delivery of the Bonds, Hoag Hospital and NHC are the only Members of the Obligated Group. The Initial Letter of Credit The Series 2008 Bonds will be issued as variable rate bonds initially bearing interest at a Weekly Rate. While the Series 2008 Bonds are in the Weekly Rate Period, payment of the principal and Purchase Price of, and interest on the Series 2008 Bonds will be supported initially by an irrevocable, direct -pay letter of credit (the "Letter of Credit ") issued by Bank of America, N.A. (the `Bank "), pursuant to and subject to the terms of a Letter of Credit Agreement dated as of May _, 2008 (the "Reimbursement Agreement"), among Hoag Hospital, the Bank, as issuer of the Letter of Credit (the "L/C Issuer"), certain Lenders (the "Lenders ") and the Bank, as Administrative Agent (the "Administrative Agent "). The Letter of Credit will permit the Bond Trustee, in accordance with the terms thereof, to draw an amount sufficient to pay (a) the aggregate principal amount of, or the portion of the Purchase Price constituting principal of, each Series of Bonds, plus (b) the interest on, or the portion of the Purchase Price constituting interest on, each series of Bonds up to [_] days' interest at a maximum annual interest rate of % based on a 365/366 -day year for the actual number of days elapsed. The Letter of Credit will expire on May _I, 20. unless extended or earlier terminated pursuant to its provisions as more fully described herein and may, under certain circumstances, be replaced by a substitute letter of credit. See "SECURITY AND SOURCES OF PAYMENT," "THE BANK" and "LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT" herein. In such event, the Bonds are subject to a mandatory tender for purchase. See "THE BONDS - Mandatory Tender for Purchase" herein. [So long as a Letter of Credit is in effect, the provider of such Letter of Credit shall, upon the occurrence of an event of default, control the exercise of the rights and remedies of the Holders of the Bonds.] [Review Term Sheet] Remarketing Agent Hoag Hospital has appointed Citigroup Global Markets Inc, as Remarketing Agent (the "Remarketing Agent ") for each Series of Bonds under the Bond Indenture. The Remarketing Agent maintains an office at [Address]. The Remarketing Agent may be removed or replaced by Hoag OHS Wesk260418306.4 Hospital, or Hoag Hospital may appoint an additional Remarketing Agent for a particular Series of Bonds, at any time, subject to and the terns and conditions of the Bond Indenture and the Remarketing Agreement, dated as of May _, 2008 (the "Remarketing Agreement"), between the Hoag Hospital and the Remarketing Agent. Tender Agent and Bond Trustee The City, at the request of Hoag Hospital, has appointed Wells Fargo Bank, National Association to serve as tender agent (the "Tender Agent ") under the Bond Indenture in addition to serving as Bond Trustee. The corporate trust office of the Tender Agent and Bond Trustee for purposes of notices is located at [Address]. The corporate trust office of the Tender Agent and Trustee for purposes of the payment, redemption, exchange, transfer, surrender and cancellation of the Bonds is located at [Address], if Bonds are being delivered by hand or overnight delivery, and at [Address], if Bonds are being delivered by United States mail. The Tender Agent may be removed or replaced with respect to the Bonds at any time, subject to the terms and conditions of the Bond Indenture. Plan of Refunding Hoag Hospital will use the proceeds of the Bonds to (a) refinance the 2007 Prior Bonds identified under the caption "PLAN OF REFUNDING," and (b) pay certain of the costs of issuing the Bonds. In addition, Hoag Hospital will use the proceeds of the Additional Bonds to (a) refinance the 2005 Prior Bonds identified under the caption "PLAN OF REFUNDING," and (b) pay certain of the costs of issuing the Additional Bonds. For a description of the plan of refunding in connection with the Bonds and the Additional Bonds, see "PLAN OF REFUNDING" herein. THE CITY The City of Newport Beach, California was incorporated in 1906. The City operates under a freeholder's charter providing for a Council- Manager form of government with a Council- member City Council. Councilpersons are elected by district for four-year terms, and.the Mayor is elected by the Council from among its members. On February 13, 1984, the City Council adopted the "Health Care Facility Revenue Bond Ordinance" (the "Law ") establishing a method and powers and procedures whereby revenue Bonds may be issued for the purpose of providing financing to participating health institutions for specified purposes. THE BONDS The following is a summary of certain provisions of the Bonds. Reference is made to the Bonds for the complete text thereof and to the Bond Indenture for all of the provisions relating to each Series of Bonds. The discussion herein is qualified by such reference. This Official Statement describes certain terms of each Series of Bonds applicable while such Series bear interest at Weekly Interest Rates. There are significant changes in the terms of the Bonds while such Bonds accrue interest in other Interest Rate Periods. This Official Statement is not intended to provide information with respect to any Series of Bonds other than Bonds that that bear interest at Weekly Interest Rates.. General The Bonds will be issued in the aggregate principal amount set forth on the cover of this Official Statement. Purchases of each Series of Bonds will be made in book -entry only form in denominations of OHS West:260418306.4 $100,000 or any integral multiple of $5,000 in excess thereof while such Series of Bonds bears interest at a Weekly Interest Rate. The Bonds will be delivered in fully registered form without coupons. Each Series of the Bonds will be dated their date of delivery and will be payable as to principal, subject to the redemption provisions set forth herein, on the dates and in the amounts set forth on the inside cover page hereof The Bonds will be transferable and exchangeable as set forth in the Bond Indenture and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC." DTC will act as securities depository for the Bonds. See "THE BONDS — Book -Entry Only System" Each Series of Bonds will accrue interest from the Date of Delivery and initially will bear interest at a Weekly Rate. During the Weekly Interest Rate Period, interest is payable on the first Wednesday of each calendar month, or, if such Wednesday is not a Business Day the next succeeding Business Day, commencing, June 4, 2008. The interest rate on each Series of Bonds may be converted in accordance with the Bond Indenture to bear interest at an ARS Interest Rate, Bond Interest Term Rates; a Serial Bond Interest Rate or Weekly Interest Rate. This Official Statement generally describes the Bonds while they bear interest at a Weekly Interest Rate. If the Interest Rate Period for the Bonds of a Series is converted to a different Interest Rate Period, Hoag Hospital may supplement this Official Statement or deliver a new official statement describing the new Interest Rate Period. While The Bonds are book -entry bonds, as described below, payment of the principal and tender price of, premium, if any, and interest on the Bonds will be made by wire transfer to The Depository Trust Company, New York, New York ( "DTC "), to the account of Cede & Co. In the event The Bonds are no longer book -entry bonds, principal and tender price of and premium, if any, on the Bonds will be payable at the designated corporate trust office of the Bond Trustee, and interest payments on the Bonds are to be made by check mailed on the date due by the Bond Trustee to the registered owners of such Bonds as of the Record Date (as defined below); provided, however, that, if a Holder of $1,000,000 or more aggregate outstanding principal amount of the Bonds gives the Bond Trustee written notice of such holding accompanied by sufficient wire transfer instructions, the payments of interest on such Bonds (other than the final payment of principal thereof) will be payable by wire transfer of immediately available funds on the date due: The "Record Date" means with respect to any Bonds bearing interest at a Weekly Interest Rate the Business Day immediately preceding the related Interest Payment Date. See "THE BONDS — Book -Entry Only System" Weekly Interest Rate Mode General. During any Weekly Interest Rate Period for a Series of the Bonds, interest on the such Bonds will be payable on each Interest Payment Date for such Series of Bonds for the period commencing on the immediately preceding Interest Accrual Date (or, if any Interest Payment Date is not a Wednesday, commencing on the second preceding Interest Accrual Date) and ending on the Tuesday immediately preceding the Interest Payment Date (or, if sooner, the last day of the Weekly Interest Rate Period). Interest shall be computed on the basis of a 365- or 366- day year, as the case may be, for the actual number of days elapsed. The term "Interest Accrual Date" means with respect to any Weekly Interest Rate Period, the fast day thereof and, thereafter, the first Wednesday of each calendar month during such Weekly Interest Rate Period (whether or not a Business Day). The term " Interest Payment Date" means with respect to any Weekly Interest Rate Period, the fast Wednesday of each calendar month or, if such first Wednesday shall not be a Business Day, the next succeeding Business Day. Weekly Interest Rate Period. During each Weekly Interest Rate Period with respect to a Series of Bonds, the Bonds of such Series shall bear interest at the Weekly Interest Rate, which shall be determined by the Remarketing Agent by no later than 5:00 p.m., New York City time, on Tuesday of each week during such Weekly Interest Rate Period, or if such day shall not be a Business Day, then on OHS Wmt:260418306.4 the next succeeding Business Day. The first Weekly Interest Rate for each Weekly Interest Rate Period shall be determined on or prior to the first day of such Weekly Interest Rate Period and shall apply to the period commencing on the first day of such Weekly Interest Rate Period and ending on the next succeeding Tuesday (whether or not a Business Day). Thereafter, each Weekly Interest Rate shall apply to the period commencing on the first Wednesday on or after the date of determination thereof (whether or not a Business Day) and ending on the next succeeding Tuesday (whether or not a Business Day), unless such Weekly Interest Rate Period shall end on a day other than Tuesday, in which event the last Weekly Interest Rate for such Weekly Interest Rate Period shall apply to the period commencing on the Wednesday (whether or not a Business Day) preceding the last day of such Weekly Interest Rate Period and ending on the last day of such Weekly Interest Rate Period. The Weekly Interest Rate shall be the rate of interest per annum determined by the Remarketing Agent to be the minimum interest rate which, if borne by the Bonds of such Series, would enable the Remarketing Agent to sell such Bonds on the effective date and at the time of such determination at a price (without regarding accrued interest) equal to the principal amount thereof. In the event that the Remarketing Agent fails to establish a Weekly Interest Rate for any week, then the Weekly Interest Rate for such week shall be the same as the Weekly Interest Rate for the immediately preceding week if the Weekly Interest Rate for such preceding week was determined by the Remarketing Agent. In the event that the Weekly Interest Rate for the immediately preceding week was not determined by the Remarketing Agent, or in the event that the Weekly Interest Rate determined by the Remarketing Agent shall be held to be invalid or unenforceable by a court of law, then the interest rate for such week shall be equal to 110% of the SIFMA Swap Index on the day such Weekly Interest Rate would otherwise be determined as provided herein for such Weekly Interest Rate Period until the Remarketing Agent determines the Weekly Interest Rate as required hereunder. Redemption Optional Redemption. While any Weekly Interest Rate is in effect with respect to a Series of Bonds, the Bonds of such Series are subject to redemption prior to their stated maturity, at the option of the City (which option shall be exercised upon Request of the Corporation given to the Bond Trustee (unless waived by the Bond Trustee) at least twenty -five (25) days prior to the date fixed for redemption), in whole or in part (in such amounts as may be specified by the Corporation), on any date at a redemption price equal to the principal amount of Bonds called for redemption, plus accrued interest thereon (if any) to the date fixed for redemption, without premium but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds. Extraordinary Optional Redemption. The Bonds are subject to extraordinary optional redemption prior to their stated maturity, at the option of the City (which option shall be exercised upon request of Hoag Hospital), in whole or in part at any time in the event of any damage to or destruction or condemnation of any part of Hoag Hospital's or NHC's facilities (or the facilities of any future additional Members) to the extent that the proceeds of any hazard insurance or condemnation award relating thereto are not applied to the repair, reconstruction or restoration of such facilities and Hoag Hospital elects to use such unapplied proceeds for an optional redemption. If called for redemption prior to maturity as described in this paragraph, the Bonds may be redeemed at a redemption price equal to the principal amount of Bonds . called for redemption, plus accrued interest thereon (if any) to the date fixed for redemption, without premium but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds. Optional Redemption in the Event of a Change in Law. The Bonds are subject to optional redemption prior to their stated maturity, at the option of the City (which option shall be exercised upon request of Hoag Hospital), in whole at any time at a redemption price equal to the principal amount thereof, without premium, plus accrued interest to the redemption date but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds, if as a result of any OHS West:260418306.4 change in the Constitution of the United States of America or any state, or legislative or administrative action or inaction by the United States of America or any state, or any agency or political subdivision thereof, or by reason of any judicial decisions there is a good faith determination by any Member that (a) the Master Indenture has become void or unenforceable or impossible to perform, or (b) unreasonable burdens or excessive liabilities have been imposed on such Member, including without limitation, federal, state or other ad valorem property, income or other taxes being then imposed which were not being imposed on the date of issuance of the Bonds. Mandatory Redemption. The Series 2O08A Bonds are also subject to redemption prior to their stated maturity in part, by lot, from Sinking Fund Installments, on any December 1, on or after December 1, 20—, at the principal amount thereof and interest accrued thereon to the date fixed for redemption, without premium but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds, as follows: Redemption Date (December 1) ' Final Maturity OHS West260418306.4 Sinking Fund Installment Redemption Date Sinking Fund (December 1) Installment The Series 2OO8B Bonds are also subject to redemption prior to their stated maturity in part, by lot, from Sinking Fund Installments, on any December 1, on or after December 1, 20. at the principal amount thereof and interest accrued thereon to the date fixed for redemption, without premium, but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds, as follows: 'Redemption Date (December 1) * Final Maturity Sinking Fund Installment Redemption Date (December 1) Sinking Fund Installment The Series 2OO8C Bonds are also subject to redemption prior to their stated maturity in part, by lot, from Sinking Fund Installments, on any December 1, on or after December 1, 20_, at the principal amount thereof and interest accrued thereon to the date fixed for redemption, without premium, but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds, as follows: Redemption Date (December 1) * Final Maturity OHS WeaC260418306.4 Sinking Fund Installment Redemption Date Sinking Fund (December 1) Installment The Series 2008D Bonds are also subject to redemption prior to their stated maturity in part, by lot, from Sinking Fund Installments, on any December 1, on or after December 1, 20, at the principal amount thereof and interest accrued thereon to the date fixed for redemption, without premium, but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds, as follows: Redemption Date (December 1) * Final Maturity Sinking Fund Redemption Date Installment (December 1) Sinking Fund Installment The Series 2008E Bonds are also subject to redemption prior to their stated maturity in part, by lot, from Sinking Fund Installments, on any December 1, on or after December I, 20. at the principal amount thereof and interest accrued thereon to the date fixed for redemption, without premium, but only with Available Moneys at any time at which there is a Credit Facility in effect with respect to such Bonds, as follows: Redemption Date Sinking Fund Redemption Date Sinking Fund (December 1) Installment (December 1) Installment * Final Maturity OHS West:260418306.4 Notice of Redemption of The Bonds. Notice of redemption will be mailed by the Bond Trustee not less than 10 nor more than 60 days prior to the redemption date, to the respective Holders of any Bonds designated for redemption at their addresses appearing on the bond registration books of the Bond Trustee, to the Bank, the Remarketing Agent and to one or more securities information services specified by Hoag Hospital. Failure by the Bond Trustee to give notice to the Bank, the Remarketing Agent or any one or more of the securities information services or securities depositories or the insufficiency of any such notice shall not affect the sufficiency of the proceedings for redemption. Failure by the Bond Trustee to mail notice of redemption as described to any one or more of the respective Holders of any Bonds designated for redemption shall not affect the sufficiency of the proceedings for redemption with respect to the Holders to whom such notice was mailed. In the event any of the Bonds are called for redemption, the Bond Trustee will give notice of the redemption of such. Bonds, which notice must (i) specify the Bonds to be redeemed, the Series designation, the redemption date, the redemption price, and the place or places of redemption, the maturity, CUSIP numbers, if any, and, if less than all of the Bonds are to be redeemed, the portions of the principal amount thereof to be redeemed, and (ii) state that, on said date, there will become due and payable on each of said Bonds the redemption price thereof or of said specified portion of the principal amount thereof in the case of a Bond to be redeemed in part only, together with.interest accrued thereon to the redemption date, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered. Such notice may set forth any additional information relating to such redemption, including the fact that redemption is conditional. upon receipt by the Bond Trustee of sufficient funds. Any redemption notice may be rescinded by written notice from Hoag Hospital to the Bond Trustee at least two Business Days prior to the date specified for such redemption. The Bond Trustee shall give notice of such rescission in the same manner as for the notice of redemption. As of the date of redemption, interest on The Bonds so called for redemption shall cease to accrue from and after the date fixed for redemption thereof, if,.on the date fixed for redemption, sufficient moneys for the redemption of such Bonds, together with interest to the date fixed for redemption, are held by the Bond Trustee for such purposes. Said Bonds shall cease to be entitled to any benefit or security under the Bond Indenture after the date of redemption, and Holders of said Bonds shall have no rights in respect thereof except to receive payment of the Redemption Price plus accrued interest to the date fixed for redemption from funds held by the Bond Trustee for such payment. Redemption of Portion of Bonds. The Bonds will be redeemed only in auth orized denominations. If less than all of the Bonds of a Series are called for redemption, the Bond Trustee will select the Bonds of such Series or portions thereof by lot, and the remaining Bonds of a Series that have not been so called for redemption will be in authorized denominations. SO LONG AS THE.ONLY OWNER OF THE BONDS IS DTC, SUCH SELECTION WILL, HOWEVER, BE MADE BY DTC. If a portion of a Bond is called for redemption, a new Bond in the principal amount equal to the unredeemed portion thereof will be issued to the Holder upon surrender thereof. Converting to other Interest Rate Periods Hoag Hospital, by written direction to the Bond Trustee and the Credit Facility Provider, may elect that the Bonds of a Series.shall bear interest at an ARS Interest Rate, Bond Interest Term Rates, a OHS We t:260418306.4 10 Serial Bond Interest Rate or Weekly Interest Rate. Such direction of Hoag Hospital shall specify (i) the proposed effective date of the new Interest Rate Period, which date shall be a Business Day not earlier than the tenth (30th) day following the second Business Day after receipt by the Bond Trustee of such direction and an Interest Payment Date for the Bonds of the Series to be converted. The direction of Hoag Hospital shall be accompanied by a letter of Bond Counsel that it expects to be able to give a Favorable Opinion of Bond Counsel on the effective date of the adjustment to the new Interest Rate Period and a form of the notice to be mailed by the Trustee to the Holders of the Bonds. In connection with any Conversion of the Interest Rate Period of Bonds of a series, Hoag Hospital shall have the right to deliver to the Bond Trustee, the Credit Facility Provider, the Remarketing Agent and the City on or prior to 10:00 a.m., New York City time, on the second Business Day preceding the effective date of any such Conversion a notice to the effect that Hoag Hospital elects to rescind its election to make such Conversion. If Hoag Hospital rescinds its election to make such Conversion, then the Interest Rate Period shall not be converted, such Bonds shall not be subject to mandatory tender (unless the notice from the Bond Trustee to the Holders of the Bonds has already been mailed, in which case, such Bonds shall continue to be subject to mandatory tender for purchase on the date which would have been the date of the Conversion), and such Bonds shall continue to bear interest at the Weekly Rate as in effect immediately prior to such proposed Conversion. No Conversion from one Interest Rate Period to another shall take effect under the Bond Indenture unless each of the following conditions, to the extent applicable, among others, shall have been satisfied. (i) The Bond Trustee and the City shall have received a Favorable Opinion of Bond Counsel with respect to such Conversion. (ii) In the case of any Conversion with respect to which there shall be no Liquidity Facility in effect to provide funds for the purchase of Bonds on the Conversion Date, the remarketing proceeds available on the Conversion Date shall not be less than the amount required to purchase all of the Bonds at the Purchase Price (unless Hoag Hospital, in its sole discretion, elects to transfer to the Tender Agent the amount of such deficiency on or before the Conversion Date). If any condition to the Conversion shall not have been satisfied, then the Interest Rate Period shall not be converted and such Bonds shall continue to bear interest at the Weekly Interest Rate as in effect immediately prior to such proposed Conversion. Mandatory Tender Bonds other than those owned by, for the account of or on behalf of Hoag Hospital, and other Members of the Obligated Group or the City, or Liquidity Facility Bonds shall be subject to mandatory tender for purchase on the first day of each Interest Rate Period at a purchase price equal to the principal amount of such Bonds plus accrued interest to the date of purchase, payable in immediately available funds. If at any time the Bonds shall cease to be subject to purchase pursuant to the Liquidity Facility or the Credit Facility then in effect as a result of (i) the termination, replacement or expiration of the term, as extended, of that Liquidity Facility or Credit Facility, including but not limited to termination at the option of Hoag Hospital in accordance with the terms of such Liquidity Facility or Credit Facility, or (ii) the occurrence of a Mandatory Credit(Liquidity Tender, then the Bonds shall be purchased or deemed purchased at a purchase price equal to the principal amount of such Bonds plus accrued interest to the OHS West:260418306.4 I I date of purchase. Any purchase of the Bonds pursuant to mandatory tender under the circumstances described immediately above shall occur: (1) on the fifth Business Day preceding any such expiration or termination of such Liquidity Facility or Credit Facility without replacement by an Alternate Liquidity Facility, a Credit Facility, an Alternate Credit Facility or a Liquidity Facility or upon any termination of a Liquidity Facility as a result of a Mandatory Credit/Liquidity Tender, and (2) on the proposed date of the replacement of a Liquidity Facility or a Credit Facility, in any case where an Alternate Liquidity Facility or an Alternate Credit Facility is to be delivered to the Tender Agent pursuant to the Bond Indenture is to become effective. The Bonds will not be subject to mandatory tender upon the replacement of a Liquidity Facility or a Credit Facility in the case where the Liquidity Facility Provider or the Credit Facility Provider is failing to honor conforming draws. Optional Tender During any Weekly Interest Rate Period, any Bonds (other than Liquidity Facility Bonds or Bonds owned by, for the account of, or on behalf of, the City or Hoag Hospital) shall be purchased from a Holder at the option of the Holder on any Business Day at a purchase price equal to the principal amount thereof, plus accrued interest, if any, payable in immediately available funds, upon delivery to the Tender Agent at its Principal Office for delivery of notices and to the Remarketing Agent of an irrevocable written notice which states the name and Series designation of the Bond, the principal amount and the date on which the same shall be purchased, which date shall be a Business Day not prior to the seventh day next succeeding the date of the delivery of such notice to the Tender Agent. Any notice delivered to the Tender Agent after 4:00 p.m., New York City time, shall be deemed to have been received on the next succeeding Business Day. For payment of such Purchase Price on the date specified in such notice, such Bond must be delivered, at or prior to 10:00 am., New York City time, on the date specified in such notice, to the Tender Agent at its Principal Office, accompanied by an instrument of transfer thereof, in form satisfactory to the Tender Agent, executed in blank by the Holder thereof or by the Holder's duly - authorized attorney, with such signature guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange Certain Considerations Relating to the Remarketing Agent . The Remarketing Agent is Paid by Hoag Hospital. The Remarketing Agent's responsibilities include determining the interest rate from time to time and remarketing Bonds that are optionally or mandatorily tendered by the owners thereof (subject, in each case, to the terms of the Remarketing Agreement), all as further described in this Official Statement. The Remarketing Agent is appointed by Hoag Hospital and is paid for its services by Hoag Hospital. As a result, the interest of the Remarketing Agent may differ from those of existing holders and potential purchasers of Bonds. The Remarketing Agent Routinely Purchases Bonds for its Own Account. The Remarketing Agent acts as Remarketing Agent for a variety of variable rate demand obligations and, in its sole discretion, routinely purchases such obligations for its own account. The Remarketing Agent is permitted, but not obligated, to purchase tendered bonds in order to achieve a successful remarketing of the Bonds (i.e., because there otherwise are not enough buyers to purchase the bonds) or for other reasons. However, the Remarketing Agent is not obligated to purchase bonds, and may cease doing so at any time without notice. The Remarketing Agent may also make a market in the bonds by routinely purchasing and selling bonds other than in connection with an optional or mandatory tender and remarketing. Such purchases and sales may.be at or below par. However, the Remarketing Agent is not required to make a market in the bonds. The Remarketing Agent may also sell any Bonds it has purchased to one or more affiliated investment vehicles for collective ownership or enter into derivative arrangements with affiliates or others in order to reduce its exposure to the bonds. The purchase of bonds by the Remarketing Agent may create the appearance that there is greater third -party demand for the OHS We t:260418306.4 12 Bonds in the market than is actually the case. The practices described above also may result in fewer Bonds being tendered in a Remarketing. Bonds May be Offered at Different Prices on Any Date Including an Interest Rate Determination Date. Pursuant to the Remarketing Agreement, the Remarketing Agent is required to determine the applicable rate of interest that, in its judgment, is the lowest rate that would permit the sale of the Bonds bearing interest at the applicable interest rate at par plus accrued interest, if any, on and as of the applicable Rate Determination Date. The interest rate will reflect, among other factors, the level of market demand for the Bonds (including whether the Remarketing Agent is willing to purchase Bonds for its own account). There may or may not be Bonds tendered and remarketed on a Rate Determination Date, the Remarketing Agent may or may not be able to remarket any Bonds tendered for purchase on such data at par and the Remarketing Agent may sell Bonds at varying prices to different investors on such data or any other date. The Remarketing Agent is not obligated to advise purchases in a remarketing if it does not have third -party buyers for all of the Bonds at the remarketing price. The Remarketing Agent, in its sole discretion, may offer Bonds on any data, including the Rate Determination Date, at a discount to par to some investors. The Ability to Sell the Bonds other than through Tender Process May Be Limited The Remarketing Agent may buy and sell Bonds other than through the tender process. However, it is not obligated to do so and may cease doing so at any time without notice and may require holders that wish to tender their Bonds to do so through the Tender Agent with appropriate notice. Thus, investors who purchase Bonds, whether in a remarketing or otherwise, should not assume that they will be. able to sell their Bonds other than by tendering the Bonds in accordance with the tender process. Under Certain Circumstances, the Remarketing Agent May Be Removed, Resign or Cease Remarketing the bonds, Without a Successor Being Named Under certain circumstances, the Remarketing Agent may be removed or have the ability to resign or cease its remarketing efforts, subject to the terms of the Remarketing Agreement.' In the event there is no Remarketing Agent, Bondholders will be required to tender their Bonds to the Tender Agent, as described under THE BONDS — "Optional Tender." [In that event, the Bonds will bear interest at 110% of the SIFMA Swap Index, remarketings of the Bonds will cease until a successor remarketing agent has been appointed, and tendering Bondholders will be paid from draws on the Letter of Credit.] Book- Entry -Only System The Bonds, when issued, will be registered in the name of Cede & Co., DTC's partnership nominee. When the Bonds are issued, ownership interests will be available to purchasers only through a book - entry-only system maintained by DTC (the `Book- Entry-Only System "). One fully- registered bond certificate will be issued for the entire aggregate principal amount of each Series of Bonds and will be deposited with DTC. See APPENDIX F – `BOOK -ENTRY SYSTEM." Transfer and Payment. In the event the book -entry system is discontinued, the following provisions will apply. The Bonds may be transferred by the registered owner thereof or such owner's attorney duly authorized in writing, upon presentation thereof accompanied by a written instrument or instruments of transfer or authorization for exchange, in form and with guaranty of signature satisfactory to the Bond Trustee, duly executed by the registered owner or by such owner's duly authorized attorney. Any Bond may be exchanged at the designated corporate trust office of the Bond Trustee for a like aggregate principal amount of Bonds of the same Series and maturity and of other authorized denominations. The Bond Trustee and the City may charge a fee covering taxes, fees or other governmental charges required to be OHS West:260418306.4 13 paid in connection with any exchange or registration of transfer of any Bond, except in the case of issuance of a Bond for the unredeemed portion of a Bond surrendered for redemption. For a description of the registration of transfer procedures while The Bonds are in the book -entry-only system, see "THE BONDS — Book -Entry-Only System" herein. SECURITY FOR THE BONDS General In the Loan Agreement, Hoag Hospital agrees to make the Loan Repayments to the Bond Trustee, which payments, in the aggregate, will be in amounts sufficient for the payment in full of all amounts payable with respect to each Series of Bonds, including the total interest payable on each Series of Bonds to the date of maturity of such Bonds or earlier redemption, the principal amount of such Bonds, any redemption premiums, and certain other fees and expenses (the "Additional Payments'), less any amounts available for such payment as provided in the Bond Indenture. Each Series of Bonds is also payable from payments made on Obligation No. 4, proceeds of such Series of Bonds (to the extent available), investment earnings on proceeds of the Bonds, certain amounts on deposit under the Bond Indenture and proceeds of insurance or condemnation awards, each in the manner and to the extent set forth in the Bond Indenture. A portion of the proceeds of the Bonds will be deposited to an Escrow Fund held by the Bond Trustee which funds may only be used to redeem the 2007 Prior Bonds on the Redemption Date (as defined and discussed under the caption "PLAN OF REFUNDING" below). Such amounts will not be available for payment of the Bonds. As security for its obligation to make the Loan Repayments, Hoag Hospital, as Credit Group Representative, concurrently with the issuance of the Bonds will issue Obligation No. 4 to the Bond Trustee pursuant to which the Obligated Group and any future Members of the Obligated Group agree to make payments to the Bond Trustee in amounts sufficient to pay, when due, the principal of and premium, if any, and interest on the Bonds. As of the date of issuance and delivery of the Bonds, Hoag Hospital and NHC are the only Members of the Obligated Group under the Master Indenture. Each Member is jointly and severally liable for payment of the Obligations issued under the Master Indenture, including Obligation No. 4. See "SECURITY FOR THE BONDS — The Master Indenture" below.. There is no debt service reserve fund far the Bonds. The Master Indenture The Master Indenture includes covenants that require Members of the Obligated. Group to restrict certain actions, including incurring Additional Indebtedness. In determining whether Hoag.Hospital, NHC.and future Members of the Obligated Group have satisfied such covenants and tests, the Master Indenture, requires the Obligated Group to combine all Members' income and assets at any point of calculation, including any other future Members of the Obligated Group, in determining whether such covenants and tests are satisfied under the Master Indenture. See APPENDIX C— "SUMMARY OF PRINCIPAL DOCUMENTS — MASTER INDENTURE — Membership in the Obligated Group." Grant of Security Interest in Gross Receivables. Pursuant to Supplement No. 4, Hoag Hospital and NHC, as the Members of the Obligated Group, each agree to pledge, assign, convey, transfer and grant to the Master Trustee, for the benefit of the Holders of Obligations, subject in all cases to Permitted Liens, a security interest in, general lien upon, and the right of setoff against all right, title and interest in the Gross Receivables (as defined in Supplement No. 4), whether now owned or hereafter acquired. See APPENDIX C "SUMMARY OF PRINCIPAL DOCUMENTS — SUPPLEMENTAL MASTER INDENTURE NO.4 — Gross Receivables Pledge." OHS WesC260418306.4 - 14 The security interest in Gross Receivables described above has been perfected to the extent, and only to the extent, that such security interest may be perfected under the Uniform Commercial Code of the State of California ( "UCC ") by filing and maintenance of UCC financing statements. The grant of a security interest in Gross Receivables may be subordinated to the interest and claims of others in several instances. See "SECURITY FOR THE BONDS — Security and Enforceability." Unsecured Debt. Master Indenture Obligations issued under the Master Indenture are not secured by a lien on real or personal property of any Member, including Hoag Hospital and NEC. Accordingly, holders of Master Indenture Obligations would be unsecured creditors in any bankruptcy or insolvency proceeding involving Hoag Hospital, NHC or any other Member of the Obligated Group. Covenant Against Liens. Pursuant to the Master Indenture, each Member of the Obligated Group agrees that it will not, and each Controlling Member covenants that it will not permit any of its Designated Affiliates to, create, assume or suffer to be created or permit the existence of any Lien upon any of its Property, except for Permitted Liens. Permitted Liens include Liens on Property of the Obligated Group, including Liens which may be granted to secure additional Master Indenture Obligations and other Indebtedness, provided that the Value of the Property that is encumbered is not more than 30% of the Value of all Property. See the definition of "Permitted Liens" in APPENDIX C — "SUMMARY OF PRINCIPAL DOCUMENTS — Definitions of Certain Terns" and"— MASTER INDENTURE — Particular Covenants of Each Member of the Obligated Group — Against Encumbrances." Additional Indebtedness. Additional Indebtedness on a parity with Master Indenture Obligations issued under the Master Indenture may be issued by Hoag Hospital, NHC or any other Member for the purposes, upon the terns and subject to the conditions provided in the Master Indenture. Each Master Indenture Obligation will be the full and unlimited obligation of the issuing Member and each Member will jointly and severally guarantee the payment of any and all amounts payable under the Master Indenture Obligation. Subject to the conditions therein, the Master Indenture also permits Hoag Hospital, NEC and any other Member to incur secured and unsecured indebtedness in addition to Master Indenture Obligations and to enter into Guarantees. See APPENDIX C — "SUMMARY OF PRINCIPAL DOCUMENTS" and "— MASTER INDENTURE — Particular Covenants of Each Member of the Obligated Group." As of March 31, 2008, Hoag Hospital had an aggregate principal amount of obligations previously issued and outstanding under the Master Indenture, dated as of October I, 1984 (the "Prior Master Indenture "), between Hoag Hospital and Wells Fargo Bank, National Association, as successor master trustee of $ (.with the Prior Master Indenture obligations securing a standby liquidity facility relating to existing bonds secured by a separate Prior Master Indenture obligation only counted one time). As of the Redemption Date, the Interest Rate Swap Agreements (defined below) will also be secured by an Obligation issued under the Master Indenture. See also APPENDIX A— "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — SELECTED UTILIZATION AND FINANCIAL INFORMATION — Capitalization." Release of Obligation No. 4. Under the circumstances described in the Bond Indenture, the Bond Trustee is required to exchange Obligation No.4 for a note or similar obligation (the "Replacement Obligation ") of a credit group that could be financially and operationally different from the Obligated Group, and the new credit group could have substantial debt outstanding that would rank on a parity with the Replacement Obligation. Such exchange could adversely affect the market price for and marketability of the Bonds. For a summary of the conditions that must be satisfied before a Replacement Obligation OHS West:260418306.4 15 could be exchanged for Obligation No. 4, see APPENDIX C — "SUMMARY OF PRINCIPAL DOCUMENTS — BOND INDENTURE — Replacement of Obligation No. 4." Designated Aff Mates. Under the Master Indenture, Hoag Hospital, as the Credit Group Representative, may by resolution designate "Designated Affiliates" from time to time, and may rescind any such designation at any time. Currently no entities have been designated by Hoag Hospital, as Designated Affiliates. Management of Hoag Hospital has no intention of designating any Designated Affiliates in the immediately foreseeable future. The Master Indenture provides that Hoag Hospital, as Credit Group Representative, must, by resolution, designate a Controlling Member (who must be a Member of the Obligated Group) for each Designated Affiliate. Each Controlling Member is required under the Master Indenture to cause each of its Designated Affiliates to pay or otherwise transfer to the Credit Group Representative or other Member amounts necessary to enable the Members to pay when due the principal of, premium, if any, and interest on any Outstanding Master Indenture Obligations. Designated Affiliates are not obligated under Obligation No. 4 or any other Master Indenture Obligations, nor may the Bond Trustee or any Holder seek to enforce compliance with the Master Indenture against any Designated Affiliate. Compliance with the Master Indenture by a Designated Affiliate may only be enforced by its Controlling Member or the Credit Group Representative and the ability of such Controlling Member or the Credit Group Representative to enforce compliance with the Master Indenture will vary and the available remedies may be limited depending on the nature of the relationship between the Designated Affiliate and the Controlling Member. Under the Master Indenture the Controlling Member for a Designated Affiliate must either: (i) maintain, directly or indirectly, control of the Designated Affiliate, including the power to direct the management, policies, disposition of assets and actions of such Designated Affiliate to the extent required to cause the Designated Affiliate to comply with the Master Indenture, or (ii) have in effect such contracts or other agreements, which in the judgment of the Governing Bodies of the Credit Group Representative and the Controlling Member, are sufficient to allow such Controlling Member to enforce compliance by the Designated Affiliate with the terms of the Master Indenture. If the Controlling Member maintains organizational control of the Designated Affiliate, compliance with the Master Indenture generally may be enforced by the Controlling Member exercising its reserved powers to direct actions of the Designated Affiliate, including replacing the members of the governing body of such Designated Affiliate, if necessary. The level of organizational control and the procedures for exercising such control may vary among Designated Affiliates and there is no assurance that a Controlling Member would be able to enforce compliance by its Designated Affiliate in a timely manner. With respect to those Designated Affiliates who are not subject to organizational control but have only a contractual relationship with a Controlling Member, the ability of the Controlling Member to enforce compliance with the Master Indenture will be based solely on the applicable contract. Should any such non - controlled Designated Affiliate refuse to comply with the covenants and requirements of the Master Indenture, the Controlling Member's remedies would be limited to litigation to specifically enforce the provisions of the applicable written contract. In particular, the execution of a written contract may not give the Obligated Group the power or authority to replace the governing body or management of a Designated Affiliate. Moreover, the Designated Affiliate may have certain defenses to such litigation, and there is no assurance that the Controlling Member would prevail in such an action. See "SECURITY FOR THE BONDS — Security and Enforceability — Enforceability of the Master Indenture, the Loan Agreement and Obligation No. 4." OHS West:2604I8306.4 16 The Master Indenture provides that after an entity is designated as a Designated Affiliate, the Credit Group Representative may at any time declare that such entity is no longer a Designated Affiliate. Accordingly, there can be no assurance that an entity designated as a Designated Affiliate will continue to be a Designated Affiliate for the term of Obligation No. 4. Security and Enforceability Enforceability of the Master Indenture, the Loan Agreement and Obligation No. 4. The state of the insolvency, fraudulent conveyance and bankruptcy laws relating to the enforceability of guaranties or obligations issued by one corporation in favor of the creditors of another or the obligations of an Obligated Group Member to make debt service payments on behalf of an Obligated Group Member is unsettled, and the ability to enforce the Master Indenture and the Master Indenture Obligations against NHC or any other Obligated Group Member that would be rendered insolvent thereby could be subject to challenge. In particular, such obligations may be voidable under the Federal Bankruptcy Code or applicable state fraudulent conveyance laws if the obligation is incurred without "fair" and/or "fairly equivalent" consideration to the obligor and if the incurrence of the obligation thereby renders the Obligated Group Member insolvent. The standards for determining the fairness of consideration and the manner of determining insolvency are not clear and may vary under the Federal Bankruptcy Code, state fraudulent conveyance statutes and applicable cases. The joint and several obligation described herein of each Member of the Obligated Group to pay debt service on Obligation No. 4 may not be enforceable under any of the following circumstances: W to the extent payments on Obligation No. 4 are requested to be made from assets of a Member (such as NHC or any, future Member) other than Hoag Hospital which are donor- restricted or which are subject to a direct,. express or charitable trust that does not permit the use of such assets for such payments; (ii) if the purpose of the debt created and evidenced by Obligation No.4 is not consistent with the charitable purposes of the Member (other than Hoag Hospital) from which such payment is requested or required, or if the debt was incurred or issued for the benefit of an entity other than a nonprofit corporation that is exempt from federal income taxes under sections 501(a) and 501(c)(3) of the Internal, Revenue Code of 1986, as amended (the "Code ") and is not a "private foundation" as defined in section 509(a) of the Code; (iii) to the extent payments on Obligation No.4 would result in the cessation or discontinuation of any material portion of the health care or related services previously provided by such Member (other than Hoag Hospital); or (iv) if and to the extent payments are requested to be made pursuant to any loan violating applicable usury laws. These limitations on the enforceability of the joint and several obligations of the Members of the Obligated Group on Obligation No. 4 also apply to their obligations on all Master Indenture Obligations. If the obligation of a particular Member of the Obligated Group to make payment on a Master Indenture Obligation is not enforceable and payment is not made on such Master Indenture Obligation when due in full, then Events of Default will arise under the Master Indenture. In addition, common law authority and authority under state statutes exists for the ability of courts in such states to terminate the existence of a nonprofit corporation or undertake supervision of its affairs on various grounds, including a finding that such corporation has insufficient assets to carry out its OHS west2604 r 8306.4 17 stated charitable purposes. Such court action may arise on the court's own motion or pursuant to a petition of the attorney general of such states or such other persons who have interests different from those of the general public, pursuant to the common law and statutory power to enforce charitable trusts and to see to the application of their funds to their intended charitable uses. The legal right and practical ability of the Bond Trustee to enforce its rights and remedies against Hoag Hospital under the Loan Agreement and related documents and of the Master Trustee to enforce its rights and remedies against Obligated Group Members under Obligation No. 4 may be limited by laws relating to bankruptcy, insolvency, reorganization, fraudulent conveyance or moratorium and by other similar laws affecting creditors' rights. In addition, the Bond Trustee's and the Master 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. The various legal opinions delivered concurrently with the issuance of the Bonds are qualified as to the enforceability of the various legal instruments by limitations imposed by state and federal laws, rulings, policy and decisions affecting remedies and by bankruptcy, reorganization or other laws of general application affecting the enforcement of creditors' rights, including fraudulent conveyance considerations, or the enforceability of certain remedies or document provisions. . For a further description of the, provisions of the Bond Indenture, the Loan Agreement and the Master Indenture, including covenants that secure the Bonds, events of default, acceleration and remedies under the Master Indenture, see APPENDIX C — "SUMMARY OF PRINCIPAL DOCUMENTS." Security for Obligations. All Master Indenture Obligations issued and Outstanding under the Master Indenture are equally and ratably secured by the Master Indenture except to the extent specifically provided otherwise in the Master Indenture. Any one or more series of Master Indenture Obligalions issued under the Master Indenture may, so long as any Liens created in connection therewith constitute Permitted Liens, be secured by security (including, without limitation, letters or lines of credit, insurance, Liens on Property of the Members or Designated Affiliates, or security interests in a depreciation reserve, debt service or interest reserve or debt service or similar funds). Such security need not extend to any other Indebtedness (including any other Master Indenture Obligations or series of Master Indenture Obligations). Consequently, the Related Supplement pursuant to which any one or more series of Master Indenture Obligations is issued may provide for such supplements or amendments to the provisions of the Master Indenture, as are necessary to provide for such security and to permit realization upon such security solely for the benefit of the Master Indenture Obligations entitled thereto. Bankruptcy. In the event of bankruptcy of an Obligated Group Member, the rights and remedies of the Bondholders are subject to various provisions of the federal Bankruptcy Code. If an Obligated Group Member were to file a petition in bankruptcy, payments made by that Obligated Group Member during the 90 -day (or perhaps one -year) 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 such Obligated Group Member's liquidation. Security interests and other liens granted to a Bond Trustee or the Master Trustee and perfected during such preference period also may 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 Obligated Group Member 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 Bond Trustee and the Master Trustee. If the bankruptcy court so ordered, the property of the Obligated Group Member, including accounts receivable and OHS west:260418306.4 18 proceeds thereof, could be used for the financial rehabilitation of such Obligated Group Member despite any security interest of the Bond Trustee therein. The rights of the Bond Trustee and the Master Trustee to enforce their respective security interests and other liens could be delayed during the pendency of the rehabilitation proceeding. Such Obligated Group Member could file a plan for the adjustment of its debts in any such proceeding, which plan 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 conditions that the plan be feasible and that it shall have 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. In the event of bankruptcy of any Member, there is no assurance that certain covenants, including tax covenants, contained in the Loan Agreement and certain other documents would survive. Accordingly, a bankruptcy trustee could take action that would adversely affect the exclusion of interest on the Bonds from gross income of the Bondholders for federal income tax purposes. Unsecured Debt. In addition, the obligations of Hoag Hospital under the Loan Agreement and of Hoag Hospital, NHC and any future Members under the Master Indenture are not secured by a lien on or security interest in any real or personal property assets of the Members. In the event of a bankruptcy of Hoag Hospital, NHC or any future Members, Bondholders would be unsecured creditors and would be in an inferior position to any secured creditors and on a parity with all other unsecured creditors. Initial Letter of Credit As described herein, the Bank will issue and deliver the Letter of Credit to the Bond Trustee. Under the Letter of Credit, funds will be available to be drawn on by the Bond Trustee in an amount sufficient to pay the principal of and interest on each series of Bonds when due, at maturity, upon redemption or upon acceleration, and the purchase price.of any tendered Bonds that.are not remarketed. See "THE BANK, THE LETTER OF CREDIT AND THE REIMBURSEMENT AGREEMENT" and "ALTERNATE LETTER OF CREDIT" herein. Other THE BONDS ARE LIMITED OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM PAYMENTS REQUIRED TO BE MADE BY HOAG HOSPITAL PURSUANT TO THE LOAN AGREEMENT AND OBLIGATION NO.4 ISSUED PURSUANT TO THE MASTER INDENTURE. NEITHER THE STATE OF CALIFORNIA NOR THE CITY SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF THE BONDS, OR THE PREMIUM OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED UNDER THE LOAN AGREEMENT, OBLIGATION NO.4 AND THE BOND INDENTURE, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE PREMIUM OR INTEREST ON THE BONDS. THE ISSUANCE OF THE BONDS SHALL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. OHS West:260418306.4 19 THE BANK, THE LETTER OF CREDIT AND THE REIMBURSEMENT AGREEMENT [UPDATE] Bank of America, N.A The following information relating to Bank of America, N.A. (the "Bank ") has been furnished by the Bank for inclusion herein.. Such information is not guaranteed as to accuracy or completeness by Hoag Hospital or the Underwriter and is not to be construed as a representation by Hoag Hospital or the Underwriter. Neither Hoag Hospital nor either Underwriter has verified this information. The delivery of this Official Statement shall not create any implication that there has been no change in the affairs of the Bank since the date hereof, or that the information contained or incorporated by reference under this section `Bank of America, N.A." is correct as of any time subsequent to the date as of which such information is provided. Bank of America, N.A. (the "Bank ") is a national banking association organized under the laws of the United States, with its principal executive offices located in Charlotte, North Carolina. The Bank is a wholly -owned indirect subsidiary of Bank of America Corporation (the "Parent ") and is engaged in a general consumer banking, commercial banking and trust business, offering a wide xange of commercial, corporate, international, financial market, retail and fiduciary banking services. As of September 30, 2007, the Bank had consolidated assets of $1.29 trillion, consolidated deposits of $772 billion and stockholder's equity of $109 billion based on regulatory accounting principles. The Parent is a bank holding company and a financial holding company, with its. principal executive offices located in Charlotte, North Carolina. Additional information regarding the Parent is set forth in its Annual Report on Form 10 -K for the fiscal year ended December 31, 2006, together with any subsequent documents it filed with the Securities and Exchange Commission (the "SEC ") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Recent Developments. On October 1, 2007, the Parent acquired all the outstanding shares of ABN Amro North America Holding Company, parent of LaSalle Bank Corporation (LaSalle), for $21.0 billion in cash. With this acquisition, the Parent significantly expanded its metropolitan Chicago and Michigan presence by adding LaSalle's commercial banking clients, retail customers, and banking centers. LaSalle's results of operations will be included in the Parent's results beginning October I, 2007. Additional information regarding the foregoing is available from the filings made by the Parent with the SEC, which filings can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 205.49, United States, at prescribed rates. In addition, the SEC maintains a website at http: / /www.sec.gov, which contains reports, proxy statements and other information regarding registrants that file such.information electronically with the SEC. The information concerning the Parent, the Bank and the foregoing mergers contained herein is furnished solely to provide limited introductory information and does not purport to be comprehensive. Such information is qualified in its entirety by the detailed information appearing in the documents and financial statements referenced herein. The Letter of Credit has been issued by the Bank. Moody's Investors Service, Inc. ( "Moody's') currently rates the Bank's long -tern debt as "Aria" and short-term debt as "P -I." The outlook is stable. Standard & Poor's rates the Bank's long -tern debt as "AA +" and its short-term debt as "A -1 +" The outlook is stable. Fitch, Inc. ( "Fitch ") rates long -tern debt of the Bank as "AA" and short-term debt as "FI +." The outlook is stable. Further information with respect to such ratings may be obtained from OHS West:260418306.4. 20 Moody's, Standard & Poor's and Fitch, respectively. No assurances can be given that the current ratings of the Bank's instruments will be maintained. The Series Bank will provide copies of the most recent Bank of America Corporation Annual Report on Form 10 -K, any subsequent reports on Form 10-Q, and any required reports on Form 8 -K (in each case as filed with the Commission pursuant to the Exchange Act), and the publicly available portions of the most recent quarterly Call Report of the Bank delivered to the Comptroller of the Currency, without charge, to each person to whom this document is delivered, on the written request of such person. Written requests should be directed to: Bank of America Corporate Communications 100 North Tryon Street, 18th Floor Charlotte, North Carolina 28255 Attention: Corporate Communications PAYMENTS OF PRINCIPAL AND INTEREST ON THE BONDS WILL BE MADE FROM DRAWINGS UNDER THE LETTER OF CREDIT. PAYMENTS OF THE PURCHASE PRICE OF THE BONDS WILL BE MADE FROM DRAWINGS UNDER THE LETTER OF CREDIT IF REMARKETING PROCEEDS ARE NOT AVAILABLE. ALTHOUGH THE LETTER OF CREDIT 1S A BINDING OBLIGATION OF THE BANK, THE BONDS ARE NOT DEPOSITS OR OBLIGATIONS OF THE PARENT OR ANY OF ITS AFFILIATED BANKS AND ARE NOT GUARANTEED BY ANY OF THESE ENTITIES. THE BONDS ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY AND ARE SUBJECT TO CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. The delivery hereof shall not create any implication that there has been no change in the affairs of the.Parent or the since.the date hereof, or that the information contained or referred to in this section is correct as of any time subsequent to its date. The Letter of Credit The Bank is issuing for the account of Hoag Hospital and for the benefit of the Bond Trustee, a direct -pay letter of credit securing the Bonds (the "Letter of Credit'). The Letter of Credit is an irrevocable obligation of the Bank, to pay to the Bond Trustee, upon drawings made by the Bond Trustee in strict compliance with the terms and conditions of the Letter of Credit, up to (a) an amount equal to the outstanding principal amount of the Bonds to enable the Bond Trustee to pay the principal amount of the Bonds when due at maturity or upon acceleration, redemption, purchase pursuant to a mandatory or option tender, upon a failed remarketing or otherwise, plus (b) an amount equal to _ days' interest on the Bonds at the maximum rate of _% per annum to enable the Trustee to pay (i) interest on the Bonds when due and (ii) the portion of the purchase price of Bonds tendered pursuant to the Bond Indenture and not remarketed corresponding to the accrued interest on such Bonds. The original stated amount of the Letter of Credit of $ , of which $ is equal to the aggregate principal amount of the Bonds, the "principal component' and $ is in respect of interest on the Bonds, the "interest component ". [add how notional amount of interest calculated]. Under the Bond Indenture, the Bond Trustee is directed to draw upon the Letter of Credit in the following circumstances: (a) to make timely payment. of the interest on the Bonds; OHS Wot:260418306.4 21 (b) to make timely payment of the principal of the Bonds at maturity, upon optional or mandatory call for redemption or upon acceleration of the Bonds; and (c) to make timely payment of the purchase price of Bonds required to be purchased upon an optional or mandatory tender for purchase pursuant to the provisions the Bond Indenture, to the extent remarketing proceeds or other funds are not available to make such payment under the Bond Indenture. Each drawing honored by the Bank under the Letter of Credit shall immediately reduce the principal component and/or the interest component (as the case may be) of the amount available under the Letter of Credit by the amount of such drawing, and the aggregate amount available under the Letter of Credit shall be correspondingly reduced. The amount available under the Letter of Credit, as so reduced, shall be reinstated only as follows: (a) with respect to a drawing under the Letter of Credit to pay periodic interest, the interest component shall be reinstated automatically and immediately upon receipt by the Bank of a certificate of periodic interest demand with reinstatement in substantially the form prescribed by the Letter of Credit; and (b) with respect to a drawing under the Letter of Credit to pay the Purchase Price of any Bonds, the principal component and the interest component shall be reinstated when and to the extent that the Bank has received the certificate from the Bond Trustee in the form prescribed by the Letter of Credit that the Bank has received remarketing proceeds. The Letter of Credit shall not apply to the payment of principal and interest payable with respect to any Bonds which are held in the name of the Corporation or any affiliate or held by the Bond Trustee for the account of the Corporation or any affiliate or to the payment of principal of and interest on any Bonds held in the name of the Bank. The Letter of Credit will expire upon the first to occur of the following: (a) the Stated Expiration Date (as defined in the Letter of Credit and used herein), (b) the date on which the Bank receives a final drawing certificate in the form prescribed by the Letter of Credit that the accompanying sight draft constitutes the final drawing under the Letter of Credit and canceling such Letter of Credit; (c) 2 Business Days following the first day on which the interest rate with respect to the Bonds is converted to a Fixed Rate pursuant to the Bond Indenture; or (d) 30 days after receipt by the Bond Trustee of a certificate from the of notice of event of default under the Reimbursement Agreement from the Bank. . The Reimbursement Agreement The Letter of Credit is being issued pursuant to a Letter of Credit Agreement, dated as of May 2008 (the "Reimbursement Agreement'), among Hoag Hospital, the Bank, as L/C Issuer, the Lenders and the Administrative Agent. Under the Reimbursement Agreement, Hoag Hospital be obligated, among other things, to reimburse the Bank, with interest, for each drawing under the Letter of Credit. The Reimbursement Agreement establishes various representations, warranties and covenants of Hoag Hospital and establishes various events of default. The terms of the Reimbursement Agreement and certain related documents may be modified, amended or supplemented by the Bank, as L/C Issuer, the Lenders, the Administrative Agent and Hoag Hospital from time to time without giving notice to or obtaining the consent of the Bondholders, the Bond Trustee. Any amendment, modification or supplement to the Reimbursement Agreement may contain amendments or modifications to the covenants of the Corporation or additional covenants of the Corporation and these amended or modified covenants may be more or less restrictive OHS West:260418306.4 22 than those in effect at the date of issuance of the Bonds. See APPENDIX C — "SUMMARY OF PRINCIPAL DOCUMENTS — Reimbursement Agreement." Events of Default and Remedies. The Reimbursement Agreement provides for various events of default and remedies available to the Bank, as L/C Issuer, the Lenders and the Administrative Agent in the case of an event of default, thereunder. Upon an event of default under either Reimbursement Agreement, the Administrative Agent (at the direction of the requisite Lenders) may instruct the Bank to cause acceleration or mandatory tender of the applicable Series of the Bonds but the Letter of Credit must remain in effect for a period of time sufficient to allow the Bond Trustee to make a drawing thereunder for the principal and accrued interest and Purchase Price of Bonds of the respective Series. See APPENDIX C — "SUMMARY OF PRINCIPAL DOCUMENTS — Reimbursement Agreement." ALTERNATE LETTER OF CREDIT At any time a letter of credit, including the initial Letter of Credit, is in effect, Hoag Hospital may, at its option, provide for the delivery to the Bond Trustee of an extension of such Letter of Creditor an alternate letter of credit ( "Alternate Letter of Credit ") upon compliance with the conditions contained in the Bond Indenture. The Bonds will be subject to mandatory tender for purchase upon the effective date of an Alternate Letter of Credit. See "THE BONDS — Mandatory Tender" herein. PLAN OF REFUNDING General The issuance of the Bonds and the loan of the proceeds thereof is for the benefit of Hoag Hospital to (i)refund the 2007 Prior Bonds identified below and (ii) pay for costs of issuing the Bonds. In addition to the Bonds, the concurrent issuance of the Additional Bonds and the loan of the proceeds thereof is also for the benefit of Hoag Hospital to (i) refund the 2005 Prior Bonds identified below and (ii) pay costs of issuing the Additional Bonds. Refunding the Prior Bonds Hoag Hospital has determined to refund certain outstanding bonds (the "Prior Bonds ") to limit Hoag Hospital's exposure to certain financial markets for bonds issued as auction rate securities. See "BONDHOLDERS' RISKS — Turmoil in U.S. Bond Markets." Refunding of 2007 Prior Bonds. The net proceeds of the Bonds (the "Refunding Proceeds ") will be applied to redeem all of the City's Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2007A and Series 2007D and [a portion of] the City's Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2007E (collectively, the "2007 Prior Bonds "). The 2007 Prior Bonds are to be redeemed on , 2008 at a redemption price equal to the principal amount thereof, plus accrued interest thereon. Hoag Hospital will use the Refunding Proceeds to pay the redemption price of the 2007 Prior Bonds. On 2008, Hoag Hospital caused a notice of redemption to be delivered with respect to the Refunded Bonds. Such notice is conditional in that it is subject to being revoked OHS West260418306.4 23 by Hoag Hospital upon written notice of such revocation given to the Bond Trustee not less than five (5) Business Days prior to the Redemption Date, in accordance with the Bond Indenture. Additional Bonds; Refunding of Series 2005 Bonds. Concurrently with the issuance of the Bonds, the City plans to issue one or more additional series of bonds in an aggregate principal amount not exceeding $ to (a) refund the City's Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2005A and Series 2005B [and the remaining portion of Series 2007E] and (b) reimburse Hoag Hospital for a draw on a line of credit used to refund the Series 2005C Bonds in April of 2008. Hoag Hospital's plan of refunding is intended to reduce Hoag Hospital's exposure to certain markets for bonds bearing interest at auction rates due to the volatility, uncertainty and disruption in such markets. See `BONDHOLDERS' RISKS — Turmoil in U.S. Bond Markets." The total amount of Bonds and Additional Bonds is not expected to exceed $ . Following issuance of the Bonds and the Additional Bonds and redemption of the Prior Bonds, the only outstanding bonds secured under the Master Indenture will be the Bonds, the Additional Bonds and $ million of bonds issued in 2007. Interest Rate Swaps Hoag Hospital has entered into interest rate swap agreements (the "Interest Rate Swap Agreements ") relating to the Series 2008_, 2008_ and 2008— Bonds, in the aggregate principal amount of $250 million, to achieve a targeted mix of fixed and floating rate indebtedness. Citibank N.A., New York (the "Swap Provider ") is the counterparty to the Interest Rate Swap Agreements. The Interest Rate Swap Agreements will have a term equal to the term of the applicable Series of the Bonds, respectively, and the aggregate notional amount and amortization of the Interest Rate Swap Agreements will be equal to the aggregate principal amount and approximately equal to the amortization of each such Series of the Bonds. Under.the Interest Rate Swap Agreements, Hoag Hospital will pay a fixed rate equal to 3.229% and will receive a floating rate based on an index, in each case based on a notional amount set forth in the respective Interest Rate Swap Agreement. The Interest Rate Swap Agreements will be secured by Master Indenture Obligations entitled to the benefits of the Master Indenture approximately 90 days following the issuance of the Bonds. [To Be Updated; Reflect if any ISA remain in place for 2007 Bonds] Under certain circumstances, each Interest Rate Swap Agreement is subject to termination by Hoag Hospital or the Swap Provider prior to the maturity of the Series of the Bonds to which it relates and prior to the scheduled termination date thereof. In the event of an early termination of any Interest Rate Swap Agreement, there can be no assurance that (i) Hoag Hospital will receive any termination payment payable to it by the Swap Provider, (ii) Hoag Hospital will have sufficient amounts to make a termination payment payable by it to the Swap Provider, or (iii) Hoag Hospital will be able to obtain a replacement swap agreement with comparable ,terms. Payments due upon early termination may be substantial. Hoag Hospital is obligated to make debt service payments on the Bonds regardless of the performance by the Swap Provider of its obligations under the Interest Rate Swap Agreements. The Swap Provider has no obligation to make any payments with respect to the principal of premium, if any, and interest on the Bonds and is only obligated to make certain payments to Hoag Hospital pursuant to the terns of the Interest Rats Swap Agreements. The agreement by the Swap Provider to pay amounts to Hoag Hospital under the Interest Rate Swap Agreements does not alter or affect Hoag Hospital's obligation to pay the principal of, premium, if any and interest on the Bonds. Neither the holders of the Bonds nor any other person other than Hoag Hospital will have any rights under the Interest Rate Swap Agreements or against the Swap Provider. OHS west260419306.4 24 ESTIMATED SOURCES AND USES OF FUNDS The proceeds to be received from the sale of the Bonds and an equity deposit expected to be made by Hoag Hospital will be applied approximately as set forth below: Sources of Funds: $[PAR Bond Proceeds AMOUNT] Hoag Hospital Equity Total Sources of Funds $ Uses of Funds: . Project Costs Refunding of Prior Bonds* Costs of IssuancOl Total Uses of Funds (D Includes legal,.printing, rating agency, accounting, Bond Trustee and City fees, underwriting discount, and other miscellaneous costs of issuance. \ 1►I 11► 1 11: Since the Bonds are limited obligations of the City, payable solely from amounts received from Hoag Hospital under the Loan, Agreement and from the Obligated Group pursuant to Obligation No. 4, financial or operating data concerning the City is not material to an evaluation of the offering of the Bonds or to any decision to purchase, hold or sell the Bonds, and the City is not providing any such information. Hoag Hospital has undertaken all responsibilities for any continuing disclosure to Holders of the Bonds, as described below, and the City shall have no liability to the Holders of the Bonds or any other person with respect to Rule 15c2 -12 promulgated by the Securities and Exchange Commission (the "Rule "). Hoag Hospital has covenanted for the benefit of holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to Hoag Hospital by not later than six months following the end of Hoag Hospital's fiscal year (which currently is August 31) (the "Annual Report"), commencing with the report for the fiscal year ending August 31, 2008 (due on or before February 28, 2009) and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by Hoag Hospital or its dissemination agent with each Nationally Recognized Municipal Securities Information Repository and with a repository designated by the State of California, if any, as the state depository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission (the "State Repository"). As of the date of this Official Statement, there is no State Repository. The notices of material events will be filed by Hoag Hospital or its dissemination agent with the State Repository, if any, and with the Municipal Securities Rulemaking Board or each Nationally Recognized Municipal Securities Information Repository. See APPENDIX E — "FORM OF CONTINUING DISCLOSURE AGREEMENT." These covenants have been made to assist the Underwriter in complying with the Rule. Hoag Hospital has never failed to comply in all material respects with any previous undertaking with regard to said Rule to provide annual reports or notices of material events. [Modify, if not taking on this obligation for VRDOs.) OHS Wesr.260418306.4 25 BONDHOLDERS' RISKS The purchase of the Bonds involves investment risks that are discussed throughout this Official Statement. Prospective purchasers of the Bonds should evaluate all of the information presented in this Official Statement. This section on Bondholders' Risks focuses primarily on the general risks associated with hospital or health system operations; whereas APPENDIX A describes Hoag Hospital and the Obligated Group specifically. These should be read together. General Except as noted under "SECURITY FOR THE BONDS," the Bonds are payable from Loan Repayments made pursuant to the Loan Agreement and funds provided under Obligation No. 4 and the Bond Indenture. No representation or assurance can be made that revenues will be realized by Hoag Hospital or the Obligated Group in amounts sufficient to make the payments under the Loan Agreement or Obligation No. 4 and thus, to pay principal of and interest on the Bonds. . Hoag Hospital is subject to a wide variety of federal and state regulatory actions and legislative and policy changes by those governmental and private agencies that administer Medicare, Medicaid and other payors and are subject to actions by,.among others, the National Labor Relations Board, The Joint Commission, the Centers for Medicare and Medicaid. Services ( "CMS ") of the U.S. Department of Health and Human Services ( "DHHS "), and other federal, state and local government agencies. The future financial condition of Hoag Hospital and NHC could be adversely affected by, among other things, changes in the method and amount of payments for healthcare services by nongovernmental payors, the financial viability of these payors, increased competition from other health care entities, demand for health care, other forms of care or treatment, changes in the methods by which employers purchase health care for employees, capability of management, changes in the structure of how health care is delivered and paid for (e.g., a "single payor" system). future changes in the economy, demographic changes, availability of physicians, nurses, and other healthcare professionals, and malpractice claims and other litigation. These factors and others may adversely affect both payment by Hoag Hospital under the Loan Agreement and payment by the Obligated Group on Obligation No.4 and, consequently, payment of principal of and interest on the Bonds. Turmoil in U.S. Bond Markets In recent months the U.S. financial markets have experienced significant turmoil, including dislocations in the hospital tax- exempt bond markets. Accompanying the downgrading of certain bond insurers and concerns about the ongoing stability of others, obligations insured by these insurers have been negatively impacted. In particular, auction rate securities ( "ARS ") insured by these insurers have been dramatically impacted, with reports of many ARS auctions failing and with interest rates on ARS bonds increased significantly. In addition, interest rate swaps, which are now in relatively common use in the tax- exempt bond markets, have experienced unexpected negative trading patterns, causing many to cease to function effectively to hedge variable rate exposure. Currently, Hoag Hospital has approximately $_ million of ARS debt, and approximately $_ million of variable rate bond obligations subject to interest rate swaps intended to hedge variable rate interest exposure. While Hoag Hospital intends to substantially reduce its ARS, and possibly its swap, exposure through a series of transactions described herein (see "PLAN OF REFUNDING"), there can be no assurance that this remediation plan will succeed, nor can there be any assurance that continued turmoil in the financial and bond markets will not negatively impact other Hoag Hospital debt obligations or the remediation effort. OHS West260418306A 26 Significant Risk Areas Summarized Certain of the primary risks associated with the operations of Hoag Hospital are briefly summarized in general terms below and are explained in greater detail in subsequent sections. The occurrence of one or more of these risks could have a material adverse effect on the financial conditions and results of operations of one or more Members of the Obligated Troup and, in turn, the ability of the Obligated Group to make payments under the Loan Agreement and Obligation No. 4. General Economic Conditions; Bad Debt and Indigent Care. Hospitals are economically influenced by the environment in which they are located. To the extent that state, county or city governments are unable to provide a safety net of medical services, pressure is applied to local hospitals to increase free care. Economic downturns and lower funding of federal Medicare and state Medicaid and other state health. care programs may increase the number of patients treated by hospitals who are uninsured or otherwise unable to pay for some or all of their care. These conditions may give rise to increased bad debt and higher indigent care utilization. At the same time, nonoperating revenue from investments may be reduced or eliminated. These factors may have a material adverse impact on hospitals. Nonprofit Healthcare Environment. As a nonprofit tax- exempt organization, Hoag Hospital is subject to federal, state and local laws, regulations, rulings and court decisions relating to its organization and operation, including its operation for charitable purposes. There can be a tension between the rules designed to regulate a wide range of charitable organizations and the day -to -day operations of a complex healthcare organization. As a result, an increasing number of the operations or practices of healthcare providers have been challenged or questioned to determine if they are consistent with the regulatory requirements for nonprofit tax- exempt organizations. Areas which have come under examination have included pricing practices, billing and collection practices, charitable methods of providing and reporting community benefit, executive compensation, exemption of property from real property taxation, private use of tax- exempt bond financed assets and others. These challenges and questions have, come from a variety of sources, including the California Attorney General, the Internal Revenue Service, labor unions, Congress, state legislatures and other state attorneys general and patients; these issues have been raised in a variety of fortuns, including hearings, audits and litigation. The challenges and examinations, and any resulting legislation, regulations, judgments or penalties, could have a material adverse effect on Hoag Hospital and.the Obligated Group. Reliance on Medicare. Inpatient hospitals such as Hoag Hospital rely to a high degree on payment from the federal Medicare program. Future changes in the underlying law and regulations, as well as in payment policy and timing, create uncertainty and could have a material adverse impact on hospitals' payment stream from Medicare. With health care and hospital spending reported to be increasing faster than the rate of general inflation, Congress and/or CMS may take action in the future to decrease or restrain Medicare outlays for hospitals. The current federal budget submitted by the Bush Administration proposes further reduction in the Medicare spending growth. Rate Pressure from Insurers and Major Purchasers. Certain hospital markets, including many communities in California, are strongly impacted by managed care and major purchasers of health services. In those areas, managed care companies have significant influence over hospital rates, utilization and competition. Rate pressure imposed by managed care payors or other major purchasers may have a material adverse impact on hospitals, particularly if major purchasers put increasing pressure on payors to restrain rate increases. Business failures by managed care companies.also could have,a material adverse impact on contracted hospitals in the form of payment shortfalls or delay, and/or continuing obligations to care for managed care patients without receiving payment. OHS West:260418306.4 27 Capital Needs vs. Capital Capacity. Hospital operations are capital intensive. Regulation, technology and physician/patient expectations require constant and often significant capital investment. In California, seismic requirements mandated by the State of California may require that many hospital facilities be substantially modified, replaced or closed. Nearly all hospitals in California are affected. Estimated construction costs are substantial and actual costs of compliance may exceed estimates. Total capital needs may outstrip capital capacity. Furthermore, capital capacity of hospitals and health systems may be reduced as a result of recent credit market dislocations. It is uncertain how long those conditions may persist and it is possible that capital capacity may be negatively affected over the long term for reasons related to the credit markets. Hoag Hospital's expected capital expenditures are significant. See APPENDIX A — INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — FACILITIES DESIGN AND CONSTRUCTION. Government "Fraud" Enforcement "Fraud" in government funded health care programs is a significant concern of DHHS, CMS and many states, and is one of the federal government's prime law enforcement priorities. The federal government, and to a lesser degree, state governments impose a wide variety of extraordinarily complex and technical requirements intended to prevent over - utilization based on economic inducements, misallocation of expenses, overcharging and other forms of "fraud" in the Medicare and Medicaid programs, as well as other state and federally- funded health care programs. This body of regulation impacts a broad spectrum of hospital commercial activity, including billing, accounting, recordkeeping, medical staff oversight, physician contracting and recruiting, cost allocation, clinical trials, discounts and other functions and transactions. Violations and alleged violations may be deliberate, but also frequently occur in circumstances where management is unaware of the conduct in question, as a result of mistake, or where the individual participants do not know that their conduct is in violation of law. Violations may occur and be prosecuted in circumstances that do not have the traditional elements of fraud, and enforcement actions may extend to conduct that occurred in the past. The government periodically conducts widespread investigations covering categories of services or certain accounting or billing practices. Violations carry significant sanctions. The government and/or private "whistleblowers" often pursue aggressive investigative and enforcement actions. The government has a wide array of civil, criminal and monetary penalties, including withholding essential hospital payments from the Medicare or Medicaid programs, or exclusion from those programs. Aggressive investigation tactics, negative publicity and threatened penalties can be, and often are, used to force settlements, payment of tines and prospective restrictions that may have a materially adverse impact on hospital operations, financial condition, results of operations and reputation. Multi- million dollar tines and settlements are common. These risks are generally uninsured. Government enforcement and private whistleblower suits may increase in the hospital sector. Similarly, parties contracting with hospitals regarding research and clinical trials may also pursue investigations and claims that could result in negative publicity, penalties, tines or uninsured settlements. Interest Rate Swaps and Other Hedge Risk. Any interest rate swap or other hedge agreement to which Hoag Hospital is a party, including the Interest Rate Swap Agreements, may, at any time, have a negative value to Hoag Hospital. If either a swap or other hedge. counterparty or Hoag Hospital terminates such an agreement when the agreement has a negative value to Hoag Hospital, Hoag Hospital would generally be obligated to make a termination payment to the counterparty in the amount of such negative value, and such payment could be substantial and potentially materially adverse to Hoag Hospital's financial condition. A counterparty may generally only terminate such an agreement upon the occurrence of defined termination events such as nonpayment by Hoag Hospital, noncompliance with certain covenants by the Obligated Group Members or in the event ratings agencies withdraw or OHS WM260418306.4 28 downgrade the ratings of the Obligated Group below specified levels. See "PLAN OF REFUNDING - Interest Rate Swaps" herein. Nursing and Other Shortages. Currently, a nursing shortage exists which may have its primary impact on hospitals. Various studies have predicted that this nursing shortage will become more acute over time and grow to significant proportions. In California, state regulation of nursing staff to patient ratios may intensify the nursing shortages. In addition, shortages of other professional and technical staff such as pharmacists, therapists, laboratory technicians and others may occur or worsen. Hospital operations, patient and physician satisfaction, financial condition, results of operations and future growth could be negatively affected by these shortages, resulting in material adverse impact to hospitals. Technical and Clinical Developments. New clinical techniques and technology, as well as new pharmaceutical and genetic developments and products, may alter the course of medical diagnosis and treatment in ways that are currently unanticipated; and that may dramatically change medical and hospital care. These could result in higher hospital costs, reductions in patient populations and/or new sources of competition for hospitals. Costs and Restrictions from Governmental Regulation. Nearly every aspect of hospital operations is regulated, in some cases by multiple agencies of government. The level and complexity of regulation and compliance audits appear to be increasing, imposing greater operational limitations, enforcement and liability risks, and significant and sometimes unanticipated costs. Proliferation of Competition. Hospitals increasingly face competition from specialty providers of care. This may cause hospitals to lose essential inpatient or outpatient market share. Competition may be focused on services or payor classifications where hospitals realize their highest margins, thus negatively affecting programs that are economically important to hospitals. Specialty hospitals or special use surgery and imaging centers may attract specialists as investors and may seek to treat only profitable classifications of patients, leaving full- service hospitals with higher acuity and/or lower paying patient populations. These new sources of competition may have a material adverse impact on hospitals, particularly where a group of a hospital's principal physician admitters may curtail their use of a hospital service in favor of competing facilities. See APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — POTENTIAL AFFILIATIONS AND TRANSACTIONS." Labor Costs and Disruption.. Hospitals are labor intensive. Labor costs, including salary, benefits and other liabilities associated with the workforce are a significant component of hospital expenses and therefore, have significant impact on hospital operations and financial condition. Hospital employees are increasingly organized in collective bargaining units and may be involved in work actions of various kinds, including work stoppages and strikes. Overall costs of the hospital workforce are high, and turnover is high. Pressure to recruit, train and retain qualified employees is expected to accelerate. These factors may materially increase hospital costs of operation. Workforce disruption may negatively impact hospital revenues and reputation. See APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES —EMPLOYEES." Pension and Beneflt Funds. As large employers, hospitals may incur significant expenses to fund pension and benefit plans for employees and former employees, and to fund required workers' compensation benefits. Funding obligations in some cases may be erratic or unanticipated and may require significant commitments of available cash needed for other purposes. Hoag Hospital does not provide a defined benefit pension plan for its employees or former employees although it does maintain a defined contribution plan. OHS West:260418306.4 29 State Medicaid Programs. While state Medicaid and other state healthcare programs are rarely as important to hospital financial results as Medicare, they nevertheless constitute an important payor source to many hospitals. These programs often pay hospitals at levels that may be below the actual cost of the care provided. As Medicaid is partially funded by states, if the financial condition of states significantly deteriorates then a result is lower Medicaid funding levels and/or payment delays. These could have a material adverse impact on hospitals. General Economic Conditions; Bad Debt and Indigent Care. Hospitals are economically influenced by the environment in which they are located. To the extent that the State of California or surrounding county governments are unable to provide a safety net of medical services, pressure is applied to local hospitals to increase free care. Economic downturns and lower funding of state Medicaid programs may increase the number of patients treated by hospitals who are uninsured or otherwise unable to pay for some or all of their care. These conditions may give rise to increased bad debt and higher indigent care utilization. These factors may have a material adverse impact on hospitals. Medical Liability Litigation and Insurance. Medical liability litigation is subject to public policy determinations and legal and procedural rules that may be altered from time to time, with the result that the frequency and cost of such litigation, and resultant liabilities, may increase in the future. Hospitals may be affected by negative financial and liability impacts on physicians. Costs of insurance, including self - insurance, may increase dramatically. Facility Damage. Hospitals are highly dependent on the condition and functionality of their physical facilities. Damage from earthquake, other natural causes, fire, deliberate acts of destruction, or various facilities system failures may have a material adverse impact on hospital operations and financial conditions and resulting operations. Nonoperating Revenues. Nonoperating revenue from investments can be significant to hospitals and is particularly important to the strategies and future plans of Hoag Hospital._ Such nonoperating revenue may be reduced or eliminated as a result of general market conditions or specific investment selection and performance. See APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — SELECTED UTILIZATION AND FINANCIAL INFORMATION - Management's Discussion and Analysis of Financial Information." Nonprofit Health Care Environment As nonprofit tax- exempt organizations, the Members of the Obligated Group are subject to federal, state and local laws, regulations, rulings and court decisions relating to their organization and operation, including their operation for religious and charitable purposes. At the same time, the Members of the Obligated Group conduct large -scale complex business transactions and are often the major employers in their geographic areas. There can often be a tension between the rules designed to regulate a wide range of charitable organizations and the day -to -day operations of a complex, multi -state healthcare organization. Recently, an increasing number of the operations or practices of healthcare providers have been challenged or questioned to determine if they are consistent with the tax exemption benefits conferred on such providers or the regulatory requirements for nonprofit tax- exempt organizations. These challenges, in some cases, are broader than concerns about compliance with federal and state statutes and regulations, and instead in many cases are examinations of core business practices of the healthcare organizations. An overarching concern is that nonprofit hospitals may not confer community benefits that exceed or are equal to the benefit received from their tax- exempt status. Areas which have come under examination OHS West:260418306.4 30 have included pricing practices, billing and collection practices, charitable care, providing and reporting community benefit, executive compensation, exemption of property from real property taxation, and others. These challenges and questions have come from a variety of sources, including state attorneys general, the Internal Revenue Service, labor unions, Congress,. state legislatures, the press, and patients, and in a variety of forums, including hearings, audits and litigation. These challenges or examinations include the following, among others: Congressional Hearings. In recent years, three Congressional Committees have conducted hearings and other proceedings inquiring into various practices of nonprofit hospitals and health agencies. The House Committee on Energy and Commerce (the "House Committee") launched a nationwide investigation of hospital billing and collection practices and prices charged to uninsured patients. Twenty large hospital and healthcare systems were requested by the House Committee to provide detailed historical charge and billing practice information for acute care services. The Senate Finance Committee (the "Senate Committee ") also conducted hearings on required reforms to the nonprofit sector and released a staff discussion draft on proposals for reform in the area of tax- exempt organizations, including a proposal for a five -year review.of tax- exempt status by the Internal Revenue Service requesting information from a number of nonprofit hospitals and hospital systems regarding their charitable activities, patient billing and ventures with for - profit corporations and hospitals. The House Committee on Ways and Means has held several hearings to examine the tax- exempt sector and hospital tax - exemption and the use of tax- prefen•ed bond financing. It is uncertain what action, if any, these Committees may take as a result of these hearings. Internal Revenue Service Examination of Compensation Practices. In August 2004, the Internal Revenue Service announced an enforcement effort to address abuses by tax- exempt organizations that pay excessive compensation and benefits to their officers and other insiders. The Internal Revenue Service (the "IRS ") announced that it would contact nearly 2,000 charities and foundations to seek more information about their compensation practices and procedures. This examination project is ongoing and may be extended to review loans made to officers and insiders. [This examination project is ongoing. Hoag hospital has not been contacted by the AtS in connection with this enforcement effort.] Litigation Relating to Billing and Collection Practices. Lawsuits have been filed in federal and state courts alleging, among other things, that hospitals have failed to fulfill their obligations to provide charity care to uninsured patients and have overcharged uninsured patients. Somelboth of these cases have since been dismissed by the courts and some hospitals and health systems have entered into substantial settlements. A number of cases are still pending in various courts around the. country with inconsistent results. Action by Purchasers of Hospital Services and Consumers. Major purchasers of hospital services could take action to restrain hospital charges or charge increases. In California, the California. Public Employees' Retirement System ( "CALPERS "), the nation's third largest purchaser of employee health benefits, has pledged to take action to restrain the rate of growth of hospital charges and has excluded certain California hospitals from serving its covered members. Hoag Hospital is not excluded from serving covered members of CALPERS. As a result of increased public scrutiny, it is also possible that the pricing strategies of hospitals may be perceived negatively by consumers, and hospitals may be forced to reduce fees for their services. Decreased utilization could result, and hospitals' revenues may be negatively impacted. OHS West:260418306.4 31 Charity. Care and Financial Assistance. A newly enacted California law requires California hospitals to maintain written policies about discount payment and charity care and to provide copies of such policies to patients and the Office of Statewide Health Planning and Development. California hospitals are also required to follow specified billing and collection procedures. Challenges to Real Property Tax Exemptions. Recently, the real property tax exemptions afforded to certain nonprofit health care providers by state and local taxing authorities have been challenged on the grounds that the health care providers were not engaged in sufficient charitable activities. These challenges have been based on a variety of grounds, including allegations of aggressive billing and collection practices and excessive financial margins. While Hoag Hospital is not aware of any current challenge to the tax exemption afforded to any material real property of Hoag Hospital, there can be no assurance that these types of challenges will not occur in the future. The foregoing are some examples of the challenges and examinations facing nonprofit health care organizations. They are indicative of a greater scrutiny of the billing, collection and other business practices of these organizations and may indicate an increasingly more difficult operating environment for health care organizations, including Hoag Hospital and, indirectly, NHC. The challenges and examinations, and any resulting legislation, regulations, judgments, or penalties, could have a material adverse effect on one or more Members of the Obligated Group and, in turn, their ability to make payments under the Loan Agreement and under 2008A/B Obligation No. 4. Healthcare Reform Initiatives Healthcare reform has been identified as a priority by business leaders, public advocates, political leaders and candidates for office at the federal, state and local levels. Proposals include: (1) establishing universal healthcare coverage or purchasing pools; (2) modifying how hospitals, physicians and other healthcare providers are paid; and (3) evaluating hospitals, physicians and other healthcare providers on a variety of quality and efficacy standards to support pay- for - performance systems. Although California's recent universal healthcare coverage proposal failed to pass the legislature, similar_reform efforts may be proposed again in the future by legislation or voter initiative. Other developments affecting hospitals as major employers include: (1) imposing higher minimum or living wages; (2) enhancing occupational health and safety standards; and (3) penalizing employers of undocumented immigrants. Legislation or regulation on any of the above or related topics could have a material adverse effect on the Obligated Group and their ability to make payments under the Loan Agreement and Obligation No. 4. Patient Service Revenues The Medicare Program. Medicare is the federal health insurance system under which hospitals are paid for services provided to eligible elderly and disabled persons. Medicare is administered by CMS, which delegates to the states the process for certifying hospitals to which CMS will make payment. To achieve and maintain Medicare certification, hospitals must meet CMS's "Conditions of Participation" on an ongoing basis, as determined by the state and/or The Joint Commission. The requirements for Medicare certification are subject to change, and, therefore, it may be necessary for hospitals to effect changes from time to time in their facilities, equipment, personnel, billing, policies and services. For each of the fiscal years ended August 31, 2005, August 31, 2006 and August 31, 2007, Medicare charges (excluding capitation) represented approximately _ %, _% and _ %, respectively, of Hoag Hospital's gross patient service revenue. See APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — SELECTED UTILIZATION AND FINANCIAL INFORMATION — Sources of Patient Services Revenue." OHS West:260418306.4 32 Hospital Inpatient Reimbursement Hospitals are generally paid for inpatient services provided to Medicare beneficiaries based on established categories of treatments or conditions known as diagnosis related groups ( "DRGs "). The actual cost of care, including capital costs, may be more or less than the DRG rate. DRG rates are subject to adjustment by CMS and are subject to federal budget considerations. There is no guarantee that DRG rates, as they change from time to time, will cover actual costs of providing services to Medicare patients. Hospital Outpatient Reimbursement. Hospitals are also paid 'a pre - determined payment amount for most outpatient services based upon ambulatory payment classification ( "APC ") groups. An APC group includes various services and procedures determined to be similar. There can be no assurance that the hospital APC payment, which bases payment on APC groups rather than on individual services, will be sufficient to cover the actual costs of the outpatient services. Other Medicare Service Payments. Medicare payment for skilled nursing services, psychiatric services, inpatient rehabilitation services, general outpatient services and home health services are based on regulatory formulas or pre - determined rates. There is no guarantee that these rates, as they may change from time to time, will be adequate to cover the actual cost of providing these services to Medicare patients. Reimbursement of Hospital Capital Costs. Hospital capital costs apportioned to Medicare . patient use (including depreciation and interest) are paid by Medicare exclusively on the basis of a standard federal rate (based upon average national costs of capital), subject to limited adjustments specific to the hospital. There can be no assurance that future capital - related payments will be sufficient to cover the actual capital- related costs of Hoag Hospital's facilities applicable to Medicare patient stays or will provide flexibility for Hoag Hospital to meet changing capital needs. Medical Education Payments. Medicare currently pays for a portion of the costs of medical education at hospitals that have teaching programs. These payments are vulnerable to reduction or elimination. Recovery Audit Contractors Demonstration Project. In addition to periodic annual audits of Medicare payments, in 2005, CMS announced a new demonstration project using recovery audit contractors ( "RACs ") as part of CMS' further efforts to assure accurate payments. The project uses the RACs to search for potentially improper Medicare payments that may have been made to healthcare providers in prior years and that were not detected through existing CMS program integrity efforts. The RACs use their own software and their knowledge of Medicare to determine what areas to review. Once a RAC identifies a potentially improper claim as a result of an audit, it. makes an assessment from the provider's Medicare reimbursement in an amount estimated to equal the overpayment from the provider pending resolution of the audit. The project is currently operating in five states (including California), with a nationwide rollout in phases which began in March 2008 and is scheduled to be completed in 2010. Such audits may have the effect of slowing future Medicare payments to providers pending an evolving appeals process with the RACs. Medicaid Program. Medicaid is a program of medical assistance, funded jointly by the federal government and the states, for certain needy individuals and their dependants. Under Medicaid, the federal government provides limited funding to states that have medical assistance programs that meet federal standards. Attempts to balance or reduce federal and state budgets will likely negatively impact Medicaid and other state health care program spending. The Bush administration, proposed a $25.7 billion cut in Medicaid spending over the next five years. This reduction in federal funding, and any reduction in state funding, will likely negatively impact provider reimbursement under the various programs. OHS West260418306.4 33 California Medi -Cal. Medi -Cal is the California Medicaid program. The State of California selectively contracts with general acute care hospitals to provide inpatient services to Medi -Cal patients. The state is obligated to make contractual payments only to the extent the legislature appropriates adequate funding. Except in areas of the state. that have been excluded from contracting, a general acute care hospital generally will not qualify for payment for non - emergency acute inpatient services rendered to a Medi -Cal beneficiary unless it is a contracting hospital. Typically, either party may terminate such contracts on 120 days' notice and the state may terminate without notice under certain circumstances. No assurances can be made that hospitals will be awarded Medi -Cal contracts or that any such contracts will reimburse hospitals for the cost of delivering services. As of the date hereof, Hoag Hospital does not have a Medi -Cal contract. For each of the fiscal years ended August 31, 2004, August 31, 2005 and August 31, 2006, Hoag Hospital received approximately 4.0 %, respectively, of, gross patient service revenues from state Medicaid programs. See APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — SELECTED UTILIZATION AND FINANCIAL INFORMATION — Sources of Patient Services Revenue." California Budget and Other Legislative Matters. Because of well - publicized and continuing state budget problems in California there can be no guarantee that the Medi -Cal program, in the future, will not become the target of State spending cuts adversely affecting the financial condition of the Obligated Group. The California Legislature has enacted or is considering a number of provisions that have resulted or will result in reductions in payments to Medi -Cal providers with respect to various services. It is unknown whether the State will continue to reduce outlays for Medi -Cal programs. Health Plans and Managed Care. Most private health insurance coverage is provided by various types of "managed care" plans, including health maintenance organizations ( "HMOs ") and preferred provider organizations ( "PPOs "), that generally use discounts and other economic incentives to reduce or limit.the cost and utilization of health care services. Medicare and Medicaid also purchase hospital care using managed care options. Payments to hospitals from managed care plans typically are lower than those received from traditional indemnity or commercial insurers. In California,, managed care plans have replaced indemnity insurance as the prime source of non- governmental payment for hospital services, and hospitals must be capable of attracting and maintaining managed care business, often on a regional basis. Regional coverage and aggressive pricing may be required. However, it is also essential that contracting hospitals be able to provide the contracted services without significant operating losses, which may require multiple forms of cost containment. Defined broadly, for each of the fiscal years ended August 31, 2005, August 31, 2006 and August 31, 2007, managed care payments (including capitated Medicare contracts and all capitated and non - capitated managed care) constituted approximately _ %, _% and _ %, respectively, of gross patient service revenues of Hoag Hospital. See APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — SELECTED UTILIZATION AND FINANCIAL INFORMATION — Sources of Patient Services Revenue." Many HMOs and PPOs: currently pay providers on a negotiated fee-for- service basis. or, for institutional care, on a fixed rate per day of care, which, in each case, usually is discounted from the typical charges for the care provided. As a result, the discounts offered to HMOs and PPOs may result in OHS West:260418306.4 34 payment to a provider that is less than its actual cost. Additionally, the volume of patients directed to a provider may vary significantly from projections, and/or changes in the utilization may be dramatic and unexpected, thus jeopardizing the provider's ability to manage this component of revenue and cost. Some HMOs employ a "capitation" payment method under which hospitals are paid a predetermined periodic rate for each enrollee in the HMO who is "assigned" or otherwise directed to receive. care at a particular hospital. A hospital may assume financial risk for the cost and scope of institutional care given. If payment is insufficient to meet the hospital's actual costs of care, or if utilization by such enrollees materially exceeds projections, the financial condition of the hospital could erode rapidly and significantly. Often, HMO contracts are enforceable for a stated term, regardless of hospital losses and may require hospitals to care for enrollees for a certain time period, regardless of whether the HMO is able to pay the hospital. Hospitals from time to'time have disputes with managed care payors concerning payment and contract interpretation issues. Failure to maintain contracts could have the effect of reducing Hoag Hospital's market share and net patient services revenues. Conversely, participation may result in lower net income if participating hospitals are unable to adequately contain their costs. Thus, managed care poses one of the most significant business risks (and opportunities) the hospitals face. Negative Rankings Based on Clinical Outcomes, Cost, Quality, Patient Satisfaction and Other Performance Measures Health plans, Medicare, Medicaid, employers, trade groups and other purchasers of health services, private standard- setting organizations and accrediting agencies increasingly are using statistical and other measures in efforts to characterize, publicize, compare, rank and change the quality, safety and cost of health care services provided by hospitals and physicians. Published rankings such as "score cards," "pay for performance" and other financial and non - fmancial incentive programs are being introduced to affect the reputation and revenue of hospitals and the members of their medical staffs and to influence the behavior of consumers and providers such as the Obligated Group Members. Currently prevalent are measures of quality based on clinical outcomes of patient care, reduction in costs, patient satisfaction, and investment in health information technology. Measures of performance set by others that characterize a hospital negatively may adversely affect its reputation and financial condition. Regulatory Environment "Fraud" and "False Claims." Health care "fraud and abuse" laws have been enacted at the federal and state levels to broadly regulate the provision of services to government program beneficiaries and the methods and requirements for submitting claims for services rendered to the beneficiaries. Under these laws, hospitals and others can be penalized for a wide variety of conduct, including submitting claims for services that are not provided, billing in a manner that does not comply with government requirements or including inaccurate billing information, .billing for services deemed to be medically unnecessary, or billings accompanied by an illegal inducement to utilize or refrain from utilizing a service or product. OHS We t:260418306.4 35 Federal and state governments have a broad range of criminal, civil and administrative sanctions available to penalize and remediate health care fraud, including the exclusion of a hospital from participation in the Medicare/Medicaid programs, civil monetary penalties, and suspension of Medicare/Medicaid payments. Fraud and abuse cases may be prosecuted by one or more government entities and/or private individuals, and more than one of the available sanctions may be, and often are, imposed for each violation. Laws governing fraud and abuse may apply to a hospital and to nearly all individuals and entities with which a hospital does business. Fraud investigations, settlements, prosecutions and related publicity can have a catastrophic effect on hospitals. See "Enforcement Activity," below. Major elements of these often highly technical laws and regulations are generally summarized below. False Claims Act The False Claims Act ( "FCA ") makes it illegal to submit or present a false, fictitious or fraudulent claim to the federal government, and may include claims that are simply erroneous. FCA investigations and cases have become common in the health care field and may cover a range of activity from intentionally inflated billings, to highly technical billing infractions, to allegations of inadequate care.. Violation or alleged violation of the FCA most often results in settlements that require multi- million dollar payments and compliance agreements. The FCA also permits individuals to initiate civil actions on behalf of the government in lawsuits called "qui tam" actions. Qui tam plaintiffs, or "whistleblowers, can share in the damages recovered by the government or recover independently if the government does not participate. The FCA has become one of the govertunent's primary weapons against health care fraud. FCA violations or alleged violations could lead to settlements, fines, exclusion or reputation damage that could have a material adverse impact on a hospital. Anti - Kickback Law. The federal "Anti- Kickback Law" is a criminal statute that prohibits anyone from soliciting, receiving, offering or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for a referral (or to induce a referral) for any item or service that is paid by any federal or state health care program. The Anti- Kickback Law applies to many common health care transactions between persons and entities with which a hospital does business, including hospital - physician joint ventures, medical director agreements, physician recruitment agreements, physician office leases and other transactions. Violation or alleged violation of the Anti - Kickback Law most often results in settlements that require multi- million dollar payments and compliance agreements. The Anti- Kickback Law can be prosecuted either criminally or civilly. Violation is a felony, subject to a fine of up to $250,000 for each act (which may be each item or each bill sent to a federal program), imprisonment and/or exclusion from the Medicare and Medicaid programs. In addition, civil monetary penalties of $10,000 per item or service in noncompliance (which may be each item or each bill sent to a federal program), or an "assessment" of three times the amount claimed may be imposed. Stark Referral Law. The federal "Stark" statute prohibits the referral of Medicare and Medicaid patients for certain designated health services (including inpatient and outpatient hospital services, clinical laboratory services, and radiology and other imaging services) to entities with which the referring physician has a financial relationship. It also prohibits a hospital furnishing the designated services from billing Medicare, or any other payor or individual, for Medicare- covered services performed pursuant to a prohibited referral. The government does not need to prove that, the entity knew that the referral was prohibited to establish a Stark violation. If. certain technical requirements are met, many ordinary business practices and economically desirable arrangements between hospitals and physicians arguably constitute "financial relationships" within the meaning of the Stark. statute, thus triggering the prohibition on referrals and billing. Most providers of the designated health services with physician relationships have some exposure to liability under the Stark statute. The new Stark regulations effective December 4, OHS West:260419306.4 36 2007 and the CMS comments preceding them have made the Stark statute more difficult to interpret clearly; this increases the possibility that inadvertent violations may occur. Medicare may deny payment for all services related to a prohibited referral and a hospital that has billed for prohibited services may be obligated to refund the amounts collected from the Medicare program. For example, if an office lease between a hospital and a large group of heart surgeons is found to violate Stark, the hospital could be obligated to repay CMS for the payments received from Medicare for all of the heart surgeries performed by all of the physicians in the group for the duration of the lease; a potentially significant amount. The government may also seek substantial civil monetary penalties, and in some cases, a hospital may be liable for fines up to three times the amount of any monetary penalty, and/or be excluded from the Medicare and Medicaid programs. Although Stark does not have an extensive enforcement history, potential repayments to CMS, settlements, fines or exclusion for a Stark violation or alleged violation could have a material adverse impact on a hospital. In September 2007, CMS sent a "Disclosure of Financial Relationships Report" ( "DFRR' to approximately 500 specialty and acute -care hospitals that required the hospitals to report on their physician investment, ownership and compensation relationships. The DFRR included questions relating to (i) disclosure of all hospital ownership interests (both physician and non - physician), (ii) disclosure by all investing physicians concerning their ownership interests (including loans or loan guarantees), (iii) disclosure of all leases or "under arrangement' relationships with physicians or their family members and (iv) disclosure of other compensation arrangements between physicians and the hospital, including leases, medical director agreements, on -call stipends, non - monetary compensation arrangements and charitable donations. The DFRR also requires hospitals to provide supporting documentation, including verification of the fair market value of certain arrangements. It is anticipated that further reporting may be mandated for all Medicare participating hospitals thereby opening up additional arrangements to scrutiny and investigation, HIPAA. The Health Insurance Portability and Accountability Act of 1996 ( "HIPAA ") adds additional.criminal sanctions for health care fraud and applies to all health care benefit programs; whether public or private. HIPAA also provides for punishment of a health care provider for knowingly and willfully embezzling, stealing, converting or intentionally misapplying any money, funds, or other assets of health care benefit program. A health care provider convicted of health care fraud could be subject to mandatory exclusion from Medicare. Exclusions from Medicare or Medicaid Participation. The government may exclude a hospital from Medicare/Medicaid program participation that is convicted of a criminal offense relating to the delivery of any item or service reimbursed under Medicare or a state health care program, any criminal offense relating to patient neglect or abuse in connection with the delivery of health care, fraud against any federal, state or locally financed health care program or an offense relating to the illegal manufacture, distribution, prescription, or dispensing of a controlled substance. The government also may exclude individuals or entities under certain other circumstances, such as an unrelated conviction of fraud, or other financial misconduct relating either to the delivery of health care in general or to participation in a federal, state or local government program. Exclusion from the Medicare/Medioaid program means that a hospital would be decertified and no program payments can be made. Any hospital exclusion could be a materially adverse event. In addition, exclusion of hospital employees may be another source of potential liability for hospitals or health systems. Administrative Enforcement. Administrative regulations may require less proof of a violation than do criminal laws, and, thus, health care providers may have a higher risk of imposition of monetary penalties as a result of an administrative enforcement actions. OHS We t:260418306.4 37 Compliance with Conditions of Participation, CMS, in its role of monitoring participating providers' compliance with conditions of participation in the Medicare program, may determine that a provider is not in compliance with its conditions of participation. In that event, a notice of termination of participation may be issued or other sanctions potentially could be imposed. Enforcement Activity. Enforcement activity against health care providers has increased, and enforcement authorities have adopted aggressive approaches. In the current regulatory climate, it is anticipated that many hospitals and physician groups will be subject to an audit, investigation, or other enforcement action regarding the health care fraud laws mentioned above. In addition, enforcement agencies increasingly pursue sanctions for violations of health care fraud and abuse laws through civil administrative actions. Administrative regulations may require less proof of a violation than do criminal laws and, thus, health care providers may have a higher risk of imposition of monetary penalties as a result of administrative enforcement actions. Enforcement authorities are often in a position to compel settlements by providers charged with or being investigated for false claims violations by withholding or threatening to withhold Medicare, Medicaid and/or similar payments and/or by instituting criminal action: In addition, the cost of defending such an action, the time and management attention consumed, and the facts of a case may dictate settlement. Therefore, regardless of the merits of a particular case, a hospital could experience materially adverse settlement costs, as well as materially adverse costs associated with implementation of any settlement agreement. Prolonged and publicized investigations could be damaging to the reputation and business of a hospital, regardless of outcome. Certain acts or transactions may result in violation or alleged violation of a number of the federal health care fraud laws described above, and therefore penalties or settlement amounts often are compounded. Generally these risks are not covered by insurance. Enforcement actions may involve multiple hospitals in a health system, as the government often extends enforcement actions regarding health care fraud to other hospitals in the same organization. Therefore, Medicare fraud related risks identified as being materially adverse as to a hospital could have materially adverse consequences to a health system taken as a whole. Liability Under State "Fraud" and "False Claims" Laws. Hospital providers in California also are subject to a variety of state laws, related to false claims (similar to the FCA or that are generally applicable false claims laws), anti- kickback (similar to the federal Anti - Kickback Law or that are generally applicable anti- kickback or fraud laws), and physician referral (similar to Stark). These prohibitions, while similar in public policy and scope to the federal laws, have not in all instances been avidly enforced to date. However, in the future they could pose the possibility of material adverse impact for the same reasons as the federal statutes: Privacy Requirements. State and federal laws address the confidentiality of individuals' health information. HIPAA, a federal law, addresses the confidentiality, of individuals' health information. Disclosure of certain broadly defined protected health information is prohibited unless expressly permitted under the provisions of the HIPAA statute and regulations or authorized by the patient. HIPAA's confidentiality provisions extend not only to patient medical records, but also to a wide variety of health care clinical and financial settings where patient privacy restrictions often impose new communication, operational, accounting and billing restrictions. These add costs and create potentially unanticipated sources of legal liability. HIPAA imposes civil monetary penalties for violations and criminal penalties for knowingly obtaining or using individually identifiable health information. The penalties range from $50,000 to OHS West:260418306.4 38 $250,000 and/or imprisonment if the information was obtained or used with the intent to sell, transfer or use the information for commercial advantage, personal gain or malicious harm. EMTALA. The Emergency Medical Treatment and Active Labor Act ( "EMTALA ") is a federal civil statute that requires hospitals to treat or conduct a medical screening for emergency conditions and to stabilize a patient's emergency medical condition before releasing, discharging or transferring the patient. A hospital that violates EMTALA is subject to civil penalties of up to $50,000 per offense and exclusion. from the Medicare and Medicaid programs. In addition, the hospital may be liable for any claim by an individual who has suffered harm as a result of a violation. Licensing, Surveys, Investigations and Audits. Health facilities are subject to numerous legal, regulatory, professional and private licensing, certification and accreditation requirements. These include, but are not limited to, requirements of state licensing agencies and The Joint Commission. Renewal and continuation of certain of these licenses, certifications and accreditations are based on inspections or other reviews generally conducted in the normal course of business of health facilities. Loss of, or limitations imposed on, hospital licenses could reduce hospital utilization or revenues, or a hospital's ability to operate all or a portion of its facilities. Environmental Laws and Regulations. Hospitals are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations. These include, but are not limited to: air and water quality control requirements; waste management requirements; specific regulatory requirements applicable to asbestos and radioactive substances; requirements for providing notice to employees and members of the public about hazardous materials handled by or located at the hospital; and requirements for training employees in the proper handling and management of hazardous materials and wastes. Hospitals may be subject to requirements related to investigating and remedying hazardous substances located on their property, including such substances that may have migrated off the property. Typical hospital operations include the handling, use, storage, transportation, disposal and/or discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants and contaminants. As such, hospital operations are particularly susceptible to the practical, financial and legal risks associated with the 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; and may result in investigations, administrative proceedings, civil litigation, criminal prosecution, penalties or other governmental agency actions; and may not be covered by insurance. See "Other Risk Factors — Natural Gas" below. Business Relationships and Other Business Matters Integrated Physician Groups. Hospitals often own, control or have affiliations with relatively large physician groups. For a description of Hoag Hospital's affiliations, see APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — GENERAL — Organizational Structure." Generally, the sponsoring hospital or health system will be the capital and funding source for such alliances and may have an ongoing financial commitment to provide growth capital and support operating deficits. These types of alliances are generally designed to respond to trends in the delivery of medicine to better integrate hospital and physician care, to increase physician availability to the community and/or to enhance the managed care capability of the affiliated hospitals and physicians. However, these goals may OHS West:260418306.4 39 not be achieved, and an unsuccessful alliance may be costly and counterproductive to all of the above - stated goals. Integrated delivery systems carry with them the potential for legal or regulatory risks in varying degrees. The ability of hospitals or health systems to conduct integrated physician operations may be altered or eliminated in the future by legal or regulatory interpretation or changes, or by health care fraud enforcement. In addition, participating physicians may seek their independence for a variety of reasons, thus putting the hospital investment at risk, and potentially reducing its managed care leverage and/or overall utilization. Physician Financial Relationships. In addition to the physician integration relationships referred to above, hospitals and hospital systems frequently have various additional business and financial relationships with physicians and physician groups. These are in addition to hospital- physician contracts for individual services performed by physicians in hospitals. They potentially include: joint ventures to provide a variety of outpatient services; recruiting arrangements with individual physicians and/or physician groups; loans to physicians; medical office leases; equipment leases from or to physicians; and various forms of physician practice support or assistance. These and other financial relationships with physicians (including hospital - physician contracts for individual services) may involve financial and legal compliance risks for the hospitals and systems involved. From a compliance standpoint, these types of financial relationships may raise federal and state "anti- kickback" and federal "Stark" issues (see "Regulatory Environment', above), tax- exemption issues (see "Tax- Exempt Status and Other Tax Matters ", below), as well as other legal and regulatory risks, and these could have a material adverse impact on hospitals. Indigent Care. Tax- exempt hospitals often treat large numbers of indigent patients who are unable to pay in full for their medical care. Typically, urban, inner -city hospitals may treat significant numbers of indigents. These hospitals may be susceptible to economic and.political changes that could increase the number of indigents or their responsibility for caring for this population. General economic conditions that affect the number of employed individuals who have health coverage affects the ability of patients to pay for their care. Similarly, changes in governmental policy, which may result in coverage exclusions under local, state and federal health care programs (including Medicare and Medicaid) may increase the frequency and severity of indigent treatment by such hospitals and other providers. It also is possible that future legislation could require that tax- exempt hospitals and other providers maintain minimum levels of indigent care as a condition to federal income tax exemption or exemption from certain state or local taxes. Physician Medical Staff. The primary relationship between a hospital and physicians who practice in it is through the hospital's organized medical staff. Medical staff bylaws, rules and policies establish the criteria and procedures by which a physician may have his or her privileges or membership curtailed, denied or revoked. Physicians who are denied medical staff membership or certain clinical privileges or who have such membership or privileges curtailed or revoked often file legal actions against hospitals and medical staffs. Such actions may include a wide variety of claims, some of which could result in substantial uninsured damages to a hospital. [Realignment of medical staff along hospital service lines, as is expected to be pursued at Hoag Hospital, may involve such risks.] See APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT . HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — SERVICE AREA AND COMPETITION" and " — POTENTIAL AFFILIATIONS AND TRANSACTIONS." In addition, failure of the hospital governing body to adequately oversee the conduct of its medical staff may result in hospital liability to third parties. OHS West:2604I8306.4 40 Competition Among Health Care Providers. Increased competition from a wide variety of sources, including specialty hospitals, other hospitals and health care systems, inpatient and outpatient health care facilities including surgery centers and imaging centers, long -term care and skilled nursing services facilities, clinics, physicians and others, may adversely affect the utilization and/or revenues of hospitals. Existing and potential competitors may. not be subject to various restrictions applicable to hospitals, and competition, in the future, may arise from new sources not currently anticipated or prevalent. See APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — SERVICE AREA AND COMPETITION" and POTENTIAL AFFILIATIONS. AND TRANSACTIONS." Specialty hospital developments that attract away an important segment of an existing hospital's admitting specialists may be particularly damaging. For example, some large hospitals may have significant dependence on heart surgery programs, as revenue streams from those programs may cover significant fixed overhead costs. If a significant component of such a hospital's heart surgeons develop their own specialty heart hospital (alone or in conjunction with a specialty hospital operator or promoter) taking with them their patient base, the hospital could experience a rapid and dramatic decline in net revenues that is not proportionate to the number of patient admissions or patient days lost. It is also possible that the competing specialty hospital, as a for - profit venture, would not accept indigent patients or other payors and government programs, leaving low -pay patient populations in the full- service. hospital. In certain cases, such an event could be materially adverse to the hospital. A variety of proposals have been advanced to prohibit such investments. Nonetheless, a prior governmental moratorium on certain specialty hospitals has been lifted, and therefore specialty hospitals may continue to represent a competitive challenge for full- service hospitals. Additionally, scientific and technological advances, new procedures, drugs and appliances, preventive medicine and outpatient health care delivery may reduce utilization and revenues of the hospitals in the future or otherwise lead the way to new avenues of competition. In some cases, hospital investment in facilities and equipment for capital• intensive services may be lost as a result of rapid changes in diagnosis, treatment or clinical practice brought about by new technology or new pharmacology. Antitrust. While enforcement of the antitrust laws against hospitals has been less intense in recent years, antitrust liability may arise in a wide variety of circumstances, including medical staff privilege disputes, payor contracting, physician relations, joint ventures, merger, affiliation and acquisition activities, certain pricing or salary. setting activities, as well as other areas of activity. The application of the federal and state antitrust laws to health care is evolving, and therefore not always clear. Currently, the most common areas of potential liability are joint action among providers with respect to payor contracting and medical staff credentialing disputes. Violation of the antitrust laws could result in criminal and/or civil enforcement proceedings by federal and state agencies, as well as actions by private litigants. In certain actions, private litigants may be entitled to treble damages, and in others, governmental entities may be able to assess substantial monetary fines. Employer Status. Hospitals are major employers, with mixed technical and non - technical workforces. Labor costs, including salary, benefits and other liabilities associated with the workforce, have significant impacts on hospital operations and financial condition. Developments affecting hospitals as major employers include: (1) imposing higher minimum or living wages; (2) enhancing occupational health and safety standards; and (3) penalizing employers of undocumented immigrants. Legislation or OHS WM2604r8306.4 41 regulation on any of the above or related topics could have a material adverse effect on one or more Members of the Obligated Group and, in turn, their ability to make payments with respect to the Bonds. Labor Relations and Collective Bargaining. Hospitals are large employers with a wide diversity of employees. Increasingly, various labor unions repeatedly attempt to organize employees at hospitals, and many hospitals have collective bargaining agreements with one or more labor organizations. Employees subject to collective bargaining agreements may include essential nursing and technical personnel, as well as food service, maintenance and other trade personnel. Renegotiation of such agreements upon expiration may result in significant cost increases to hospitals. Employee strikes or other adverse labor actions may have an adverse impact on operations, revenue and hospital reputation. Hoag Hospital's employees currently are not covered by collective bargaining agreements. See APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — EMPLOYEES Wage and Hour Class Actions and Litigation. Federal law and many states, including notably California, impose standards related to worker classification, eligibility and payment for overtime, liability for providing rest periods and similar requirements. Large employers with complex workforces, such as hospitals, are susceptible to actual and alleged violations of these standards. In recent years there has been a proliferation of lawsuits over these "wage and hour" issues, often in the form of large, sometimes multi - state, class actions. For large employers such as hospitals and health systems, such class actions can involve multi - million dollar claims, judgments and/or settlements. A major class action decided or settled adversely to the Corporation or the Obligated Group could have a material adverse impact on their financial conditions and results of operations. Health Care Worker Classification. _Health care providers, like all businesses, are required to withhold income taxes from amounts paid to employees. If the employer fails to withhold the talc, the employer becomes liable for payment of the tax imposed on the employee. On the other hand, businesses are not required to withhold federal taxes from amounts paid to a worker classified as an independent contractor. The IRS has established criteria for determining whether a worker is an employee or an independent contractor for tax purposes. If the IRS were to reclassify a significant number of hospital independent contractors (e.g., physician medical directors) as employees, back taxes and penalties could be material. Staffing. In recent years, the health care industry has suffered from a scarcity of nursing personnel, respiratory therapists, pharmacists and other trained health care technicians. A significant factor underlying this trend includes a decrease in the number of persons entering such professions. This is expected to intensify in the future, aggravating the general shortage and increasing the likelihood of hospital- specific shortages. Competition for employees, coupled with increased recruiting and retention costs will increase hospital operating costs, possibly significantly, and growth may be constrained. This trend could have a material adverse impact on the financial condition and results of operations of hospitals. California imposes mandatory nurse staffing ratios for all hospital patient care areas. The nurse to patient ratio standards increased as of January 1, 2008. The impact on California hospitals will vary by facility, but the required staffing, in aggregate, is more costly than prior staffing patterns. Professional Liability Claims and General Liability Insurance. In recent years, the number of professional and general liability suits and the dollar amounts of damage recoveries have increased in health care nationwide, resulting in substantial increases in malpractice insurance premiums, higher OHS We t:260418306.4 42 deductibles and generally less coverage. Professional liability and other actions alleging wrongful conduct and seeking punitive damages are often filed against health care providers. Insurance does not provide coverage for judgments for punitive damages. Beginning in October 2008, CMS will not reimburse hospitals for medical costs arising from certain "never events," which will include specific preventable medical errors such as performing surgery on the wrong body part. It is anticipated that HMOs and other private insurers may follow suit. The occurrence of "never events" may be more likely to be publicized and may negatively impact a hospital's reputation, thereby reducing future utilization and potentially increasing the possibility of liability claims. Litigation also arises from the corporate and business activities of hospitals, from a hospital's status as an employer or as a result of medical staff or provider network peer review or the denial of medical staff or provider network privileges. As with professional liability, many of these risks are covered by insurance, but some are not. For example, some antitrust claims or business disputes are not covered by insurance or other sources and may, in whole or in part, be a liability of Hoag Hospital if determined or settled adversely. There is no assurance that Hoag Hospital will be able to maintain coverage amounts currently in place in the future, that the coverage will be sufficient to cover malpractice judgments rendered against it or that.such coverage will be available at a reasonable cost in the future. Other Class Actions. Hospitals have long been subject to a wide variety of litigation risks, including liability for care outcomes, employer liability, property and premises liability, and peer review litigation with physicians, among others. In recent years, consumer class action litigation has emerged as a potentially significant source of litigation liability for hospitals and. health systems. These class action suits have most recently focused on hospital billing and collections practices, and they may be used for a variety of currently unanticipated causes of action. Since the subject matter of class action suits may involve uninsured risks, and since such actions often involve alleged large classes of plaintiffs, they may have material adverse consequences on hospitals and health systems in the future. Tax- Exempt Status and Other Tax Matters Maintenance of the Tax - Exempt Status of Hoag Hospital, The tax- exempt status of the Bonds depends upon the maintenance by Hoag Hospital of its status as an organization described in section 501(c)(3) of the Code. The maintenance of such status is dependent on compliance by Hoag Hospital with general rules promulgated in the ,Code and related regulations regarding the organization and operation of tax- exempt entities, including their operation for charitable and other permissible purposes and their avoidance of transactions that may cause their earnings or assets to inure to the benefit of private individuals. As these general principles were developed primarily for public charities that do not conduct large-scale technical operations and business activities, they often do not adequately address the myriad of operations and transactions entered into by a modem health care organization. Although traditional activities of health care providers, such as medical office building leases, have been the subject of interpretations by the IRS in the form of private letter rulings, many activities or categories of activities have not been fully addressed in any official opinion, interpretation or policy of the IRS. Hoag Hospital participates in a variety of joint ventures and transactions with physicians and others either directly or indirectly. Management believes that the joint ventures and transactions to which Hoag Hospital is a party are consistent with the requirements of the Code as to tax- exempt status, but, as noted above, there is uncertainty as to the state of the law. OHS West:260418306.4 43 The IRS has periodically conducted audit and other enforcement activity regarding tax - exempt health care organizations. The IRS conducts special audits of large tax- exempt health care organizations with at least $500 million in assets or $1 billion in gross receipts. Such audits are conducted by teams of revenue agents, often take years to complete and require the expenditure of significant staff time by both the IRS and taxpayers. These audits examine a wide range of possible issues, including tax- exempt bond financing of partnerships and joint ventures, retirement plans and employee benefits, employment taxes, political contributions and other matters. If the IRS were to find that Hoag Hospital has participated in activities in violation of certain regulations or rulings, the tax- exempt status of such entity could be jeopardized. Although the IRS has not frequently revoked the 501(c)(3) tax- exempt status of nonprofit health care corporations, it could do so in the future. Loss of tax- exempt status by Hoag Hospital potentially could result in loss of tax exemption of the Bonds and of other tax- exempt debt of Hoag Hospital and defaults in covenants regarding the Bonds and other related tax- exempt debt and obligations likely would be triggered. Loss of tax - exempt status also could result in substantial tax liabilities on income of Hoag Hospital. For these reasons, loss of tax- exempt status of Hoag Hospital could have a material adverse effect on the financial condition of Hoag Hospital. In some cases, the IRS has imposed substantial monetary penalties on tax- exempt hospitals in lieu. of revoking their tax- exempt status. In those cases, the IRS and tax- exempt hospitals entered into settlement agreements requiring the hospital to make substantial payments to the IRS. Given the size of Hoag Hospital, the wide range of complex transactions entered into by it and potential exemption risks, Hoag.Hospital could be at risk for incurring monetary and other liabilities imposed by the IRS. In lieu of revocation of exempt status, the IRS may impose penalty excise taxes on certain "excess benefit transactions" involving 501(c)(3) organizations and "disqualified persons." An excess benefit transaction is one in which a disqualified person or entity receives more than fair market value from the exempt organization or pays the exempt organization less than fair market value for property or services, or shares the net revenues of the tax- exempt entity. A disqualified person is a person (or an entity) who is in a position to exercise substantial influence over the affairs of the exempt organization during the five years preceding an excess benefit transaction. The statute imposes excise taxes on the disqualified person and any "organization manager" who knowingly participates in an excess benefit transaction. These rules do not penalize the exempt organization itself, so there would be no direct impact on Hoag Hospital or the tax status of the Bonds if an excess benefit transaction were subject to IRS enforcement, pursuant to these "intermediate sanctions" rules. State and Local Tax Exemptton. Until recently, the State of California has not been as active as the IRS in scrutinizing the income tax exemption of health care organizations. In California it is possible that legislation may be proposed to strengthen the role of the California Franchise Tax Board and the Attorney General in supervising nonprofit health systems. It is likely that the loss by Hoag Hospital of federal tax exemption would also trigger a challenge to its state tax- exemption. Depending on the circumstances, such event could be material and adverse. State, county and local taxing authorities undertake audits and reviews of the operations of tax - exempt health care providers with respect to their real property tax exemptions. In some cases, particularly where authorities are dissatisfied with the amount of services provided to indigents, the real property tax- exempt status of the health care providers has been questioned. The majority of the real property of Hoag Hospital is currently treated as exempt from real property taxation. Although the real property tax exemption of Hoag Hospital with respect to its core hospital facilities has not, to the knowledge of management, been under challenge or investigation, an audit could lead to a challenge that could adversely affect the real property tax exemption of Hoag Hospital and/or NHC. OHS WesC260418306.4 . 44 It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to taxation of nonprofit corporations. There can be no assurance that future changes in the laws and regulations of state or local governments will not materially adversely affect the financial condition of Hoag Hospital by requiring payment of income, local property or other taxes. Maintenance of Tax-Exempt Status of Interest on the Bonds. The Code imposes a number of requirements that must be satisfied for interest on state and local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of bond proceeds, limitations on the investment earnings of bond proceeds prior to expenditure, a requirement that certain investment earnings on bond proceeds be paid periodically to the United States Treasury, and a requirement that the City file an information report with the IRS. Hoag Hospital has covenanted in the Loan Agreement that it will comply with such requirements. Future failure by Hoag Hospital to comply with the requirements stated in the Code and related regulations, rulings and policies may result in the treatment of interest on the Bonds as taxable, retroactively to the date of issuance. The City has covenanted in the Bond Indenture that it will not take any action or refrain from taking any action that would cause interest on the Bonds to be included in gross income for federal income tax purposes. IRS officials have recently indicated that more resources will be invested in audits of tax- exempt bonds in the charitable organization sector. IRS officials have recently indicated that more resources will be invested in audits of tax- exempt bonds in the charitable organization sector, with specific review of private use. In addition, the IRS states that it has sent post - issuance compliance questionnaires to several hundred nonprofit corporations that have borrowed on a tax- exempt basis regarding their post - issuance compliance with various requirements for maintaining the federal tax exemption of interest on their bonds. The questionnaire includes questions relating to the borrower's (i)record retention, which the IRS has particularly, emphasized, (ii) qualified use of bond - financed property, (iii) arbitrage yield restriction and rebate requirements, (iv) debt management policies and (v) voluntary compliance and education. IRS representatives indicate that after analyzing responses from the first wave of questionnaires, more will be sent to additional nonprofit organizations. In addition to such questionnaires, the IRS as commenced a number of examinations of hospital tax- exempt bond issuances with wide - ranging focus similar to the questionnaires described above. One,aspect of these examinations may be to determine if certain bond issuances qualify for their tax- exempt status. The IRS has also added a new Schedule H to IRS Form 990 — Return of Organizations Exempt From Income Tax, on which hospitals and health systems will be asked to report how they provide community benefit and to specify certain billing and collection practices. The new schedule also requests detailed information related to all outstanding bond issues of nonprofit borrowers, including information regarding operating, management and research contracts as well as private use compliance. There can be no assurance that responses by Obligated Group Members to an IRS examination or questionnaire, or Form 990, will not lead to an IRS review that could adversely affect the tax- exempt . status or the market value of the Bonds or of other outstanding tax - exempt indebtedness of the Obligated Group. Additionally, the Bonds or other tax- exempt obligations issued for the benefit of the Obligated Group Members, may be, from time to time, subject to examinations by the IRS. Hoag Hospital believes that the Bonds properly comply with the tax laws. In addition, Bond Counsel will render an opinion with respect to the tax- exempt status of the Bonds, as described under the caption "TAX MATTERS." Hoag Hospital has not sought to obtain a private letter ruling from the IRS with respect to the Bonds, and the opinion of Bond Counsel is not binding on the IRS or the courts. There can be no assurance that an examination of the Bonds will not adversely affect the Bonds. See "TAX MATTERS" herein. OHS West2604I8306.4 45 Limitations on Contractual and Other Arrangements Imposed by the Internal Revenue Code. As a tax- exempt organization, Hoag Hospital is limited with respect to its use of practice income guarantees, reduced rent on medical office space, low interest loans, joint venture programs and other means of recruiting and retaining physicians. Uncertainty in this area has been reduced somewhat by the issuance by the IRS of guidelines on permissible physician recruitment practices. The IRS scrutinizes a broad variety of contractual relationships commonly entered into by hospitals and has issued a detailed audit guide suggesting that field agents scrutinize numerous activities of the hospitals in an effort to determine whether any action should be taken with respect to limitations on or revocation of their tax - exempt status or assessment of additional tax. Any suspension, limitation or revocation of Hoag Hospital's tax- exempt status or assessment of significant tax liability would have a materially adverse effect on Hoag Hospital and might lead to loss of tax exemption of interest on the Bonds. Charity Care Legislation. Legislative bodies have considered legislation concerning the charity care standards that nonprofit, charitable hospitals must meet to maintain their federal income tax- exempt status under the Code and legislation mandating that nonprofit, charitable hospitals have an open -door policy toward Medicare and Medicaid patients as well as offer, in a non - discriminatory manner, qualified charity care and community benefits. Excise tax penalties on nonprofit, charitable hospitals that violate these charity care and community benefit requirements could be imposed or their tax- exempt status under the Code could be revoked. The scope and effect of legislation, if any, that may be enacted at the federal or state levels with respect to charity care of nonprofit hospitals cannot be predicted. Any such legislation or similar legislation, if enacted, could have the effect of subjecting a portion of the income of Hoag Hospital and other Obligated Group Members to federal or state income taxes or to other tax penalties and adversely affect the ability of the Obligated Group Members individually and of the Obligated Group, taken as a whole, to generate net revenues sufficient to meet its obligations and to pay the debt service on the Bonds and its other obligations. Other Risk Factors Facility Damage, Earthquakes and other Disasters. The occurrence of a natural or man -made disaster could damage the Obligated Group's facilities, interrupt utility service to such facilities, result in an abnormally high demand for health care services or otherwise impair the Obligated Group's operations and the generation of revenues from the facilities effected. Further, many hospitals in California are in close proximity to active earthquake faults. A significant earthquake in California could destroy or disable the hospital facility of Hoag Hospital or one_or more buildings owned by NHC. California law requires each acute care hospital in the state to have either complied with new hospital seismic safety standards or to have ceased acute care operations by January I, 2008. California law allows three types of extensions of the January I, 2008 deadline. First, the compliance deadline can be extended if a hospital shows that capacity lost in the closure of a facility may not be provided by another facility in the area, or if a hospital agrees that on or before January I, 2013, designated services will be provided by moving into an existing conforming building, relocating to a newly built building or continuing in the building as retrofitted to comply with the standards. The second type of extension allows the above 2013 deadline to be delayed up to an additional two years if the hospital is under construction at the time of the extension request, has submitted building plans, permits, timelines and status reports to OSHPD by the requisite deadlines, and is making reasonable progress in meeting its timeline. The third type of extension allows an acute care hospital that serves an otherwise underserved community and that qualified for the 2013 to further delay the deadline to 2020 upon satisfaction of stated progress timelines set out in the statute. Hoag Hospital expects to achieve compliance with these deadlines. In addition, OSHPD has been directed to review the previously established seismic performance categories for hospital buildings using a software program, "HAZUS" Submission for requests for re- evaluation under HAWS may result in buildings being re-categorized so that they will not be required to meet seismic OHS West:260418306.4 46 standards until 2030. See APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — FACILITIES DESIGN AND CONSTRUCTION." Natural Gas. Hoag Hospital is located in an area subject to the natural gas seepage of methane and hydrogen sulfide. Methane is a malodorous asphyxiate as well as being highly explosive at certain concentrations in the air. The gas seepage is the result of geological conditions that permit the vertical migration of gas from the West Newport Oil Field. This geological condition is in close proximity to the surface underneath the lower campus of Hoag Hospital's Newport Beach facilities. To address the potential hazards associated with this gas seepage Hoag Hospital has designed and constructed a.gas extraction and treatment facility capable of extracting the gas from the underlying strata before it is able to reach the surface. Each year the Hoag Hospital plant removes approximately 42 million cubic feet of gases from the underlying strata. Hoag Hospital utilizes a portion of the extracted gas to assist in the heating and cooling of its facilities. In 2002, the extraction and treatment facility was awarded recognition from the Orange County Chapter of the American Society of Civil Engineers as the "Best Environmental Project of the Year." In addition, certain structures on the lower portion of the Hoag Hospital campus, including structures encompassed by the Capital Plan (as defined in APPENDIX A hereto), were and will be constructed with gas mitigation measures including subslab gas impermeable membrane, interior ventilation and interior gas detection systems, as required. Risks Related to Outstanding [variable Rate Obligations. [To Be Updated] The Bonds will be variable rate obligations, the interest rates on which could rise significantly. Such interest rates vary on a periodic. basis and may be converted to a fixed interest rate. This protection against rising interest rates is limited, however, because Hoag Hospital would be required to continue to pay interest at the variable rate until it is permitted to convert the obligations to a fixed rate pursuant to the terms of the applicable transaction documents. Recent credit market turmoil in the auction rate markets and dislocation among various bond insurers triggered suddenly high interest costs to many healthcare organizations. Hoag Hospital has entered into the Interest Rate Swap Agreements which will be subject to periodic "mark- to- markef' valuations and at any time may have a negative value to Hoag Hospital. The Swap Provider may terminate any Interest Rate Swap Agreement upon the occurrence of certain "termination events" or "events.of default." Hoag Hospital may terminate the Swap at any time. If either the Swap Provider or Hoag Hospital terminates any of the Interest Rate Swap Agreements during a negative value situation, Hoag Hospital may be required to make a termination payment to the Swap Provider, and such payment could be material. See APPENDIX A - "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — SELECTED UTILIZATION AND FINANCIAL INFORMATION." Contributions. Hoag Hospital regularly receives substantial contributions from the Hoag Hospital Foundation and members of the local community. While Hoag Hospital has an active contribution development program, there can be no assurances that Hoag Hospital will be the recipient of substantial contributions in the future. A significant portion of the total cost of the Capital Plan (up to $[315] million) is to be paid from such contributions. Failure to raise this amount would require Hoag Hospital to modify the Project or provide additional funds from other reserves or sources. Any reduction in projected philanthropic support, whether in connection with the Project or otherwise, would have a material adverse impact on the financial condition of Hoag Hospital. Investments. Hoag Hospital has significant holdings in abroad range of investments. Adverse events and market fluctuations may affect the value of those investments and those fluctuations may be and historically have been at times material. For a discussion of Hoag Hospital's investments, see APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL OHS West:260418306.4 47 PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — SELECTED UTILIZATION AND FINANCIAL INFORMATION — Liquidity and Investment Policy." Construction Risks. Construction projects are subject to a variety of risks, including but not limited to delays in issuance of required building permits or other necessary approvals or permits, including environmental approvals, strikes, shortages of materials and adverse weather conditions. Such events could delay occupancy. Cost overruns may occur due to change orders, delays in the construction schedule, changes in scope of development, scarcity of building materials and other factors. Cost overruns could cause the costs to exceed available funds. In particular, substantial portions of the Project and Capital Plan involve construction of new facilities and rehabilitation and retrofitting of existing facilities of Hoag Hospital. In such circumstances, the possibility of cost overruns, scope of work revisions or inadequate initial estimates of cost of completion of the Project and the Capital Plan is particularly acute. Also, some components of the Project are in early stages of development where costs have been estimated based on architects' and engineers' estimates, but plans, specifications and construction drawings have not been developed and have not been bid to contractors or resulted in construction contracts. See APPENDIX A "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — FACILITIES DESIGN AND CONSTRUCTION —The Project." Other Future Risks. In the future, the following factors, among others, may adversely affect the operations of health care providers, including Hoag Hospital, or the market value of the Bonds, to an extent that cannot.be determined at this time. (a) Adoption of legislation that would establish a national or statewide single -payor health program or other health care system legislation or that would establish national, statewide or otherwise regulated rates applicable to hospitals and other health care providers. (b) Reduced demand for the services of Hoag Hospital that might result from decreases in population. (c) Bankruptcy of an indemnity /commercial insurer, managed care plan or other payor. (d) Efforts by insurers and governmental agencies to limit the cost of hospital services, to reduce the number of beds and to reduce the utilization of hospital facilities by such means as preventive medicine, improved occupational health and safety and outpatient care, or comparable regulations or attempts by third -party payors to control or restrict the operations of certain health care facilities. (e) The occurrence of a natural or man-made disaster that could damage Hoag Hospital's facilities, interrupt utility service to the facilities, result in an abnormally high demand for health care services or otherwise impair Hoag Hospital's operations and the generation of revenues from the facilities. (f) Limitations on the availability of, and increased compensation necessary to secure and retain; nursing, technical and other professional personnel. OHS West26041&306.4 48 TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel to the City ( "Bond 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, interest on the Bonds 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. Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate Alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings in calculating corporate alternative minimum taxable income. Bond Counsel expects to deliver an opinion at the time of issuance of the Bonds substantially in the form set forth in APPENDIX D hereto. Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ("Premium Bonds ") will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on 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 Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The 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 Bonds. The City and Hoag Hospital have made certain representations and have covenanted to comply with certain restrictions, conditions and requirements desigued to ensure that interest on the Bonds will not be included in federal gross income. Inaccuracy of these representations. or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants: Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring), or any other matters coming to Bond Counsel's attention after the date.of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and. may not, be relied upon in connection with any such actions, events or matters. In addition, Bond Counsel has relied, among other things, on the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, counsel to Hoag Hospital, regarding the current qualification of Hoag Hospital as an organization described in Section 501(c)(3) of the Code. Such opinion is subject to a number of qualifications and limitations. Bond Counsel has also relied upon representations of Hoag Hospital concerning Hoag Hospital's "unrelated trade or business" activities as defined in Section 513(a) of the Code. Neither Bond Counsel nor counsel to Hoag Hospital has given any opinion or assurance concerning Section 513(a) of the Code and neither Bond Counsel nor counsel to Hoag Hospital can give or has given any opinion or assurance about the future activities of Hoag Hospital, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or th e resulting changes in enforcement thereof by the IRS. Failure of Hoag Hospital 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 Bonds in a manner that is substantially related to Hoag Hospital's charitable purposes under Section 513(a) of OHS West:260418306.4 49 the Code, may result in interest payable with respect to the Bonds being included in federal gross income, possibly from the date of the original issuance of the Bonds. Although Bond Counsel is of the opinion that interest on the Bonds 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 on, the Bonds may otherwise affect a Beneficial Owner's federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel's judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the IRS or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the City or Hoag Hospital, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The City and Hoag Hospital have covenanted, however, to comply with the requirements of the Code. Bond Counsel's engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the City, Hoag Hospital or the Beneficial Owners regarding the tax- exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the City, Hoag Hospital 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 City or Hoag Hospital legitimately disagree, may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the.City, Hoag Hospital or the Beneficial Owners to incur significant expense. Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. As one example, on November 5, 2007, the United States Supreme Court .heard an appeal from a Kentucky state court which ruled that the United States Constitution prohibited the state from providing a tax exemption for interest on bonds issued by the state and its political subdivisions but taxing interest on obligations issued by other states and their political subdivisions.. 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 Bonds. Prospective purchasers of the Bonds.should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. . On November 5, 2007, the United States Supreme Court heard an appeal in the case of Kentucky v. Davis, in which a Kentucky state court had ruled that the United States Constitution prohibited the state from providing a tax exemption for interest on bonds issued by Kentucky and its political subdivisions but taxing interest on obligations issued by other states and their political subdivisions. California law is similar to Kentucky in taxing interest on out -of -state bonds. A ruling by the Supreme Court against the Kentucky law would not change the exemption from California personal income taxes of the interest on the Bonds, but the value of the.Bonds may be adversely affected by changes in the demand for California - origin bonds. There can be no assurance as to the outcome of the Davis case, the potential impact on OHS WesC260418306.4 50 market price or marketability of the Bonds which may result from a decision, or the likelihood of any future action by Congress on this subject. APPROVAL OF LEGALITY Legal matters incident to the issuance of the Bonds are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, as Bond Counsel to the City. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain other legal matters will be passed upon for the City by the City Attorney, for Hoag Hospital by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, for the Underwriter by its counsel, Foley & Lardner LLP, Chicago, Illinois, which also undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement and for the Bank by John S. Barry, Assistant General Counsel, Bank of America, N. A. Legal Department and by Morrison & Foerster LLP special counsel to the Bank. From time to time Stradling Yocca Carlson & Rauth, a Professional Corporation, represents the Underwriter and the City in matters unrelated to the Bonds. INDEPENDENT AUDITORS The consolidated financial statements of Hoag Memorial Hospital Presbyterian as of August 31, 2007 and 2006 and for the years then ended, included in APPENDIX B, have been audited by Ernst & Young LLP, independent auditors, as stated in their report included in APPENDIX B. LITIGATION Hoag Hospital and NHC There is no controversy or litigation of any nature now pending against Hoag Hospital or NHC or, to the knowledge of its officers, threatened, seeking to restrain or enjoin the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds, any proceedings of Hoag Hospital taken concerning the issuance or sale thereof, or the pledge or application of any moneys or security provided for the payment of the Bonds. There can be no assurance, however, that future litigation will not have a material adverse effect on Hoag Hospital, NHC or the Obligated Group as a whole. As with most health care providers, Hoag Hospital and NHC is each subject to certain legal actions that, in whole or in part, are not or may not be covered by insurance (or reinsurance as to certain self - insured risks) because of the type of action or amount or types of damages requested (e.g., punitive damages), because of a reservation of rights by an insurance carrier, or because the action has not proceeded to a stage that permits full evaluation. There are certain legal actions currently pending against Hoag Hospital known to management for which insurance coverage is uncertain or inapplicable for the above reasons. Management does not anticipate that any such suits will ultimately result in punitive damage awards or judgments in excess of applicable insurance limits, or.if such awards or judgments were to be entered, that they would have .a material adverse impact on the financial condition of Hoag Hospital, NHC or the Obligated Group. Other than as described above, there is no litigation of any nature now pending against Hoag Hospital or NHC, to the knowledge of each Member's respective officers, threatened, which, if successful, would materially adversely affect the operations or financial condition of Hoag Hospital, NHC or the Obligated Group. [To Be Updated] OHS West:260418306.4 51 The City To the knowledge of the officers of the City, there is no litigation of any nature now pending or threatened against the City, restraining or enjoining the issuance, sale, execution or delivery of the Bonds, or in any, way contesting or affecting the validity of the Bonds; any proceedings of the City taken concerning the issuance or sale thereof, the pledge or application of any moneys or security provided for the payment of the Bonds, or the existence or powers of the City relating to the issuance of the Bonds. RATINGS Hoag Hospital expects to receive ratings of "_" and " " from. Standard & Poor's Ratings Services, a Division of The McGraw -Hill Companies, Inc. ( "Standard & Poor's ") and Moody's Investors Service ( "Moody's), respectively, for the Bonds, with the understanding that upon the issuance of the Bonds, the Letter of Credit will be issued by the Bank. Standard & Poor's and Moody's assigned underlying ratings on the Bonds of "AA" and "AO," respectively, without regard to the Letter of Credit. Hoag Hospital has furnished to Standard & Poor's and Moody's certain information and materials concerning the Bonds and itself. No application was made to any other rating agency for the purpose of obtaining additional ratings on the Bonds. Any explanation of the significance of such ratings may only be obtained from the rating agency furnishing the same. Generally, rating agencies base their ratings on such information and materials and on investigations, studies and assumptions made by the rating agencies themselves. There is no assurance that the ratings mentioned above will remain in effect for any given period of time or that they might not be lowered or withdrawn entirely by the rating agencies, if in their judgment circumstances so warrant. The City has undertaken no responsibility either to bring to the attention of the Holder or beneficial owners of the Bonds any proposed change in or withdrawal of any rating or to oppose any such proposed revision or withdrawal. Any such downward change in or withdrawal of the ratings might have an adverse effect on the market price or marketability of the Bonds. Wgill MICA 0 1 vlerfl The Bonds are being purchased by Citigroup Global Markets Inc. (the "Underwriter"). Pursuant to the Purchase Contract for the Bonds, the Underwriter has agreed to purchase the Bonds at a, purchase price of $ (consisting of the aggregate principal amount of the Bonds of $[PAR AMOUNT].00, less an underwriter's discount of $ and less the premium for the Bond Insurance Policy. The Purchase Contract for the Bonds provides that the Underwriter will purchase all of the Bonds, if any are purchased, and contains the agreements of Hoag Hospital to indemnify the Underwriter and the City against certain liabilities. The initial public offering price of the Bonds set forth on the inside cover page may be changed without notice by the Underwriter. CERTAIN RELATIONSHIP Citibank N.A., New York, a party to the Interest Rate Swap Agreements, is affiliated with the Underwriter. FINANCIAL ADVISOR TO HOAG HOSPITAL Kaufinan, Hall & Associates, has served as financial advisor to Hoag Hospital in connection with the financing described in this Official Statement. Kaufinan, Hall & Associates is a national consulting OHS west:260418306.4 52 firm which acts as financial advisor to healthcare organizations, particularly in the areas of short- and long -term debt financings, mergers and acquisitions and overall capital planning. MISCELLANEOUS The foregoing and subsequent summaries or descriptions of provisions of the Bonds, the Bond Indenture, the Loan Agreement, the Master Indenture, Supplement No. 4 and Obligation No. 4 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 Bond Indenture, the Loan Agreement, the Master Indenture, Supplement No. 4 and Obligation No. 4 may be obtained during the offering period upon request directed to the Underwriter and, thereafter, upon request directed to the corporate trust office of the Bond Trustee. The information contained in this Official Statement has. been compiled or prepared from information obtained from Hoag Hospital and official and other sources deemed to be reliable and, while not guaranteed as to completeness or accuracy, is believed to be correct as of the date of this Official Statement. The City furnished only the information contained under the headings "THE CITY" and "LITIGATION —The City" and, except for such information, makes no representation as to the adequacy, completeness or accuracy of this Official Statement or the information contained herein. Any statements involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. OHS West:260418306.4 53 This Official Statement has been delivered by the City and approved by Hoag Hospital. The Bond Trustee has not participated in the preparation of this Official Statement. This Official Statement is not to be construed as a contract or agreement among any of the City, Hoag Hospital and the purchasers or Holders of the Bonds. CITY OF NEWPORT BEACH M Approved: HOAG MEMORIAL HOSPITAL PRESBYTERIAN By: /s/ Jennifer C. Mitzner Vice President Finance and Chief Financial Officer OHS West260418306.4 54 Mayor OHS DRAFT 4/21/08 APPENDIX A INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES The information contained in this Appendix A has been obtained from Hoag Memorial Hospital Presbyterian. OHS West:260419520.4 GENERAL History Hoag Memorial Hospital Presbyterian (the "Corporation ") was incorporated as a nonprofit corporation under the laws of the State of California on May 22, 1944. The Corporation is currently operating as a nonprofit public benefit corporation under the laws of the State of California. The Corporation is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code "), and is not a private foundation under Section 509 of the Code. The initial funding for the Corporation was provided in half by the George Hoag Family Foundation and in half by funds raised from the community through the Presbyterian Church. Mission The Corporation's mission as a not - for - profit, faith -based hospital is to provide the highest quality healthcare services to the communities it serves. Inspired by the vision of its founders and community partners and the dedication of its employees and physicians, the Corporation is committed to being a leading hospital in California, renowned for its excellence, specialized healthcare services and exceptional physicians and staff. The Corporation promotes five core values: excellence, respect, integrity, patient centeredness and community benefit. Core Strategies To realize its vision, the Corporation has established a 10 -year strategic plan which includes key initiatives in the areas of quality and service, people, physician partnerships, strategic growth, financial stewardship, and community benefit and philanthropy. In the area of quality and service, the Corporation plans to realign the medical staff along service lines to better meet the needs of patients in specialty areas such as cancer, heart and valve, orthopedics, neurosciences and women's health. The Corporation also plans to enhance capabilities in performance improvement for specific clinical conditions and. patient safety. In the area of physician partnership, the Corporation is committed to creating sustainable, mutually beneficial partnerships with exceptional physicians by looking for additional economic partnership opportunities, expanding the availability of medical office space within its service area, and developing and implementing physician connectivity tools. With respect to strategic growth, the Corporation strives to. become the hospital of choice throughout Orange County. As part of this strategy, the Corporation plans to undertake initiatives to expand the development of its Centers of Excellence to include a comprehensive service line approach to health care and to expand and develop its base of primary care physicians. The Corporation's vision for the next decade centers on becoming a regional referral center of prominence, recognition and significance. Additionally, the Corporation expects to implement an initiative known as "Renaissance Hoag," a capital fundraising campaign targeting donations in the approximate amount of $315 million designed to further the organization's strategies and mission. Hospital Facilities The Corporation established a nonprofit acute care hospital (the "Hospital ") licensed for 75 beds in the City of Newport Beach, California (the "City") in 1952. The primary Hospital facility is on a.37-acre parcel in Newport Beach in a campus -like setting of 36 buildings, including 3 parking structures and approximately 2,271 parking spaces. The square footage is approximately 886,000 square feet. The total gross building area for all buildings, including parking and temporary structures, as well as other spaces that do not count against allowable square footage, is approximately 1,857,000 square feet. The net building area (excluding certain common areas and utilities space) of all buildings, except for parking and temporary buildings/structures, totals approximately 886,000 square feet. The total gross building area for all buildings, including parking and temporary structures is OHS West:260419520.4 A -1 approximately 1,857,000 square feet and includes approximately 2,269 parking spaces. The Hospital underwent major expansions in 1969, 1974, 1990, and 2005 and is currently licensed for 498 general acute care beds. Further major improvement projects have been undertaken in recent years and are ongoing. See "FACILITIES DESIGN AND CONSTRUCTION - The Project" below. The Hospital is licensed by the Department of Health Services of the State of California as a general acute care hospital and is accredited by The Joint Commission (the "Joint Commission "). In January of 1991, the Corporation opened the Patty and George Hoag Cancer Center (approximately 60,000 square feet) located on the Hospital's campus in Newport Beach (the "Cancer Center "). The Cancer Center provides three linear accelerators, a day hospital for chemotherapy, a biotherapeutics laboratory and physician offices for medical oncologists. In October of 2005, the Corporation opened the Sue and Bill Gross Women's Pavilion (the "Pavilion "), located on the Hospital's campus in Newport Beach, which combines progressive technology with patient education and comfort. The building is a seven -story, approximately 320,000 square -foot facility, that has added 102 licensed beds and provides expanded clinical space. The Pavilion serves as the new main entrance for the Hospital and houses more than 15 new and existing services, including Women's Health Services, a Comprehensive Breast Center, Laboratory Services, Patient Registration, Patient Education and a hospitality center, as well as 6 new operating rooms. Additionally, the Pavilion has been designed to address variables such as evolving technologies and healthcare delivery modalities, population growth, aging demographics and healthcare needs specific to Orange County residents. In 2006, the Corporation completed the construction of a Cogeneration Plant, a base - loaded plant to generate power. The new two-story, approximately 24,000 square -foot facility, is located on the lower portion of the Hospital's campus in Newport Beach and houses generators capable of supplying as much as 4.4 megawatts of power. The Cogeneration Plant captures its waste heat and converts it to chilled and hot water which is used for air co�itioning and heating systems of the Hospital to maximize energy output. The Cogeneration Plant became operational in March 2007. The Corporation has funded improvements from its own resources and the proceeds of loans from prior revenue bond issues of the City, as of February 29, 2008, such loans were outstanding in the aggregate principal amount of $622,950,000. The Corporation is utilizing the proceeds of the City's $200,000,000 Auction Rate Securities (Hoag Memorial Hospital Presbyterian) 2005 Series A, B and C (the "2005 Bonds "); and additional monies to fund construction of the Cogeneration Plant, the Sue and Bill Gross Women's Pavilion, replacement of certain Hospital infrastructure and other general capital expenditures. Proceeds of the 2005 Bonds are fully. expended. The Corporation utilized a portion of the proceeds of the City's $422,950,000 Auction Rate Securities (Hoag Memorial Hospital Presbyterian) 2007 Series A, B; C, D and E (the "2007 Bonds "), and additional monies to fund construction, renovation and replacement of certain Hospital infrastructure and other general capital expenditures. The expansion project being financed with a portion of the proceeds of the Bonds is a continuation of the project financed in part with proceeds of the 2007 Bonds and includes other new improvements to the Hospital campus. See "FACILITIES DESIGN AND CONSTRUCTION —The Project" below. The Corporation currently operates two free - standing facilities for outpatient surgery. The first, the James Irvine Surgery Center, was opened on the Hospital campus in 1972 and contains three operating rooms. The second, Newport Surgicare, opened in 1983 and contains four operating rooms; it is located four miles from the Hospital in one of four major medical office buildings in Newport Center. In 2006, the Corporation continued its commitment to provide quality and convenient healthcare to the community by establishing Hoag Health Center — Woodbury and Hoag Health Center— Newport Beach. With these two new additions; the Corporation now operates seven medical office buildings ( "Health Centerel outside the primary Hospital facility in the communities of Irvine (approximately 33,000 square feet), North Irvine - Woodbury (approximately 5,800 square feet), Huntington Beach (approximately 53,000 square _ feet), Costa Mesa (approximately 20,000 square .feet), Aliso Viejo (approximately 33,000 square feet), Fountain Valley (approximately 8,263 square feet) and Newport Beach (approximately 300,000 square feet). The Health Centers are fully operational except for the Hoag Health Center - Newport Beach, which is still under development as further described below. OHS West260419520.4 A -2 The Corporation owns the land and facilities on the main campus in Newport Beach. The Corporation also owns the facilities and land at the Huntington Beach, Irvine and Aliso Viejo Health Centers, and leases space in the Costa Mesa, Fountain Valley, and North Irvine — Woodbury Health Centers. The Health Center in Newport Beach is owned and operated by Newport Healthcare Center, LLC, a wholly owned subsidiary of the Corporation and a Member of the Obligated Group as deemed in the Master Trust Indenture, dated as of May 1, 2007 (the "Master Indenture "). In January 2008, the Corporation purchased a medical office building in close proximity to the Hospital campus. The building, which provides approximately 24,209 square feet of leaseable space, is currently fully occupied. The leases are subject to different terms and there can be no assurance that the various leases will be renewed at the time of expiration. From time to time, the Corporation considers opportunities with regards to its Health Centers and other real estate holdings, including possible sale or monetization of properties. The Corporation would only undertake such an opportunity if, following management and Board review, it was deemed to benefit the Corporation's finances or operations, and to fit within the strategic direction of the organization. Newport Healthcare Center In February 2006, Newport Healthcare Center, LLC ( "NHC "), a wholly -owned subsidiary of the Corporation, purchased the Newport. Technology Center, an approximately 300,000 square -foot facility located several blocks north of the primary Hospital campus. The office complex will provide space for certain administrative support functions and clinical services, including expansion for outpatient imaging services, such as multi -slice CT, Pet Scan and advanced MRI, as well as physician medical office space. The Corporation began relocation of certain administrative functions to the Newport Health Center in 2007 and expects to complete relocation of additional administrative functions in the latter half of 2008: The Corporation expects certain clinical services to be established and operational in the latter half of 2008. The Corporation currently expects to lease approximately 40% to 50% of the leaseable space in the building complex from NHC. NHC has obtained city approvals to frilly transition the property to medical office space. Leasing of medical office space is currently expected to commence in the latter half of 2008, with substantial occupancy expected by 2010. Approximately seventy -eight percent of the complex of buildings remains vacant as of February 29, 2008. The planned use for the facility is subject to change. The total estimated cost of NHC's property improvement plan is approximately $_ million. [To Be Updated] As of February 29, 2008, NHC represented 6% of the Total Assets of the Obligated Group. In its current developmental phase, there are no significant revenues associated with NHC. See "SELECTED UTILIZATION AND FINANCIAL INFORMATION." ORGANIZATIONAL STRUCTURE Obligated Group Pursuant to the Master Indenture, the Corporation and NHC are the sole Members of the Obligated Group. However, the Corporation is the sole shareholder or is otherwise affiliated with several entities consisting of other wholly -owned subsidiaries and affiliates. References herein to the "Obligated Group" or "Members" mean the Corporation and NHC as of this date, although in the future other entities may become Members of the Obligated Group or Members may withdraw from the Obligated Group in accordance with the terms of the Master Indenture. In 2005, the Corporation formed NHC as a Delaware limited liability company, the sole member of which is the Corporation, to own and operate a medical.office building as described above. The Corporation originally capitalized NHC with $85 million. The Board of Directors of the Corporation has authorized additional funding in the amount of $[ 1 million, of which approximately $L] million has been funded as of February. 29, 2008. [To be updated] Although NHC is a Member of the Obligated Group, the Corporation expects to make all payments with respect to the Bonds from its own funds. OHS Wnt:260419520.4 A -3 Other Affiliated Entities Not Members of the Obligated Group Wholly -Owned Subsidiaries Which Are Immaterial Anliates The Corporation is the sole shareholder and appoints one -half of the board members of Coastal Physician Purchasing Group Inc. ( "CPPG "), a for -profit corporation which provides shared purchasing services for physicians. The Corporation is also the sole shareholder and appoints all the board members for Hoag Practice Management Inc. ( "HPMI "), a for -profit corporation which used to provide professional services to other entities including physicians and the Corporation. Effective December 31, 2007, the Corporation discontinued a substantial portion of this line of business, which included the sale of the majority of its assets and assignment of its management contracts to a third party which assumed certain of HPMI's liabilities in consideration. The Corporation is also the sole member of Bluff View, LLC, an entity created in 2006 for the purpose of purchasing certain non - operating property. As of February 29, 2008, the net assets of Bluff View, LLC were $0.8 million. Bluff View, CPPG and HPMI are collectively referred to herein as "Immaterial Affiliates" and they currently constitute Immaterial Affiliates as defined in the Master Indenture. They are not Members of the Obligated Group and are not obligated with respect to the Bonds. References herein to the "Wholly -Owned Subsidiaries" shall mean Bluff View, CPPG, HPMI and NEC; however, Bluff View, CPPG and HPMI are not Members of the Obligated Group and are not obligated with respect to the Bonds. The Corporation is also affiliated with the Hoag Hospital Foundation, Newport Imaging Center, Newport Beach Lido Surgery Center, Hoag Endoscopy Center and Orthopedic Surgery Center of Orange County, and these entities are referred to herein as "Other Affiliates." The Other Affiliates are not Members of the Obligated Group and are not obligated with respect to the Bonds. See "Other Affiliates" below. Hoax Hospital Foundation The Hospital receives support through Hoag Hospital Foundation (the "Foundation ") which is a separate nonprofit 501(x)(3) corporation. The Board of Directors of the Foundation is elected by the Board of Directors of the Corporation. Under the direction of the Foundation, there are four support groups with a total membership of over 3,000 men and women. The audited financial statements of the Foundation are consolidated with those of the Corporation. The assets and liabilities of the Foundation are primarily included in the temporarily and permanently restricted net assets in the consolidated financial statements. As of the fiscal year ended August 31, 2007, the Foundation's total assets and total net assets were $142.7 million and $139.6 million; respectively. In fiscal years ended August. 31, 2007 and 2006, the Foundation distributed funds to the Corporation for property and capital additions in the amount of approximately $6.9 million and $13.7 million, respectively. The Foundation is not a Member of the Obligated Group and is not obligated with respect to the Bonds. In addition to the Foundation, there is also an independent 800 - member Auxiliary that supports the Hospital with volunteers and contributions. In addition to the members of the Auxiliary, there are approximately 700 additional volunteers on the campus in Newport Beach supporting the Corporation. Other Affiliates The Corporation is the general partner in Newport Imaging Center ( "NIC "), a multi - location imaging center, with centers located in Newport Beach and Irvine. The Corporation has controlling interest in the partnership. In 2008, the Corporation increased its partnership interest to 99.9 %. The Corporation has the option to purchase the remaining interest on or after December 31, 2008. This call option may be exercised in September 2008. The Corporation is also a member of Newport Beach Lido Surgery Center, LLC ( "NBLSC "), a joint venture between the Corporation and physicians, formed to operate an ambulatory surgery center ( "ASC ") in a leased building adjacent to the Hospital. After the initial offering in the fourth quarter of 2006, the Corporation's current ownership interest in the company is 57 %. NBLSC plans to conduct a secondary offering to occur sometime OHS West:260419520.4 A -4 in June- August of 2008 and the Corporation's ownership interest is expected to be decreased to 50 %. The ASC commenced operations in the summer of 2007. The Corporation is also a member of Hoag Endoscopy Center, LLC ( "HEC "), a joint venture between the Corporation and physicians, formed to operate an endoscopy surgery center (the ` "Endoscopy Surgery Center"). After the initial offering, the Corporation expects to have a controlling interest of 50% or more. It is anticipated that the Endoscopy Surgery Center will commence operations in the Fall of 2008. HEC will be required to obtain certain licenses upon completion of construction and installation of medical equipment prior to commencement of operations. Additionally, the Corporation is a member of a limited liability company which operates an outpatient orthopedic specialty surgery center, The Orthopedic Surgery Center of Orange County, LLC ( "OSCOC'). The Corporation has a 20% non - controlling interest in OSCOC. The financial statements of NIC, NBLSC and HEC are consolidated with those of the Corporation. The results of operations of OSCOC are not consolidated with the results of operations of the Corporation in its financial statements. OSCOC, NBLSC, HEC and NIC are not Members of the Obligated Group and are not obligated with respect to the Bonds. From time to time the Corporation may modify its level of participation in its existing ventures or consider additional investments in other joint ventures. All such activities are expected to further the Corporation's strategic interests in accordance with its 10 -year strategic plan. See "Potential Affiliations and Transactions" below. Organization Chart The following chart depicts the organizational structure of the Corporation, the Corporation's Wholly - Owned Subsidiaries and Other Affiliates. HOAG MEMORIAL HOSPITAL PRESBYTERIAN AND AFFILIATES Hoag Other Joint Hospital Ventures Foundation ('Other (the Affiliated "Foundation' Entities ") Newport Imaging Bluff Coastal Hoag Center View, LLC Physicians Practice ( "NIC ") (Bluff Purchasing Management, View ") Group, I Inc. Inc. ( "HPMI ") ( "CPPG ^) Newport Hoag Beach Lido Endoscopy Surgery Center, LLC Center, LLC ( "HEC ^) ( "NBLSC ^) *The Corporation and NHC are the only Members of the Obligated Group. OHS Wwt:260419520.4 A -5 Integrated Physician Group Relationship As of the fiscal year ended August 31, 2007, approximately 12% of the Corporation's and its Wholly - Owned Subsidiaries' Operating Revenue was "capitation" revenue derived through Greater Newport Physicians Medical Group, Inc. ( "Greater Newport "). Greater Newport is an independent physicians association ( "IPA ") with approximately 500 physicians contracted to provide care for over 100,000 capitated lives. "Capitation" refers to a financing arrangement whereby an amount is paid periodically to a health care provider for specified health services, regardless of quantity of services rendered; amounts paid are based on a fixed "per member per month" payment. The Hospital is the primary acute care facility utilized by Greater Newport. The Corporation has a risk - sharing agreement with Greater Newport, which expires on December 31, 2008. Because both the Corporation and Greater Newport have agreements with managed care organizations requiring them to provide services to members on a capitated payment basis, the risk - sharing agreement allows for an allocation and reimbursement of costs and expenses between the Corporation and Greater Newport. The Corporation also contracts to provide outpatient radiology services to Greater Newport's capitated members. In connection with Greater Newport, the Corporation has entered into its own capitated agreements with health plans covering approximately 12,000 of the 100,000 capitated lives referenced above, all of which were Senior Medicare risk contracts as of February 29, 2008. See also "SELECTED UTILIZATION AND FINANCIAL INFORMATION — Management's Discussion and Analysis of Financial Information." HOSPITAL SERVICES Description of Services The Hospital is an acute care, not- for -profit hospital located on California's Orange County coastline between Los Angeles and San Diego. Since opening on September 15, 1952, the Hospital has grown from 75 beds to 498; from 68 doctors to over 1,000 and from 60 employees to more than 4,000. In the fiscal year ended August 31, 2007, the Corporation treated approximately 28,000 inpatients and over 337,000 outpatients. The Hospital is among the top five percent of hospitals in the nation based on a recent study by HealthGrades, and is a recipient of the 2008 Distinguished Hospital Award for Clinical Excellence. National Research Corporation has endorsed the Hospital as Orange County's most preferred hospital for the past 12 consecutive years. For the past 12 years, residents have expressed their consumer preference for the Hospital as Orange County's "Best Hospital" in a local newspaper survey. The Corporation provides a full spectrum of health care services including, but not limited to: • cardiology /cardiovascular surgery • comprehensive cancer services • women's health • orthopedics and joint replacement • radiology (e.g., hMs and X -rays) o neurological and neurosurgical services, including Gamma Knife • general acute medical and surgical services • robotics • community medicine • chemicaidependency • critical care • specialty programs such as sleep disorders and epilepsy • other scientific and technical services needed to treat patients Approximately 42% of all inpatient admissions in the fiscal year ended August 31, 2007, excluding newborns, were admitted to the Hospital through the emergency department (ED). Within the last year, the ED has seen in excess of 66,000 patients, approximately IS per day, which is reflected in the continued high census levels. OHS West260419520.4 A -6 Centers of Excellence The Corporation supports Five specialty centers referred to as "Centers of Excellence" — Hoag Cancer Center, Hoag Heart and Vascular Institute, Hoag Orthopedic Services, Hoag Women's Health Services and Hoag Neuroscience Center — through which the Corporation provides a wide range of specialized medical, surgical, diagnostic and therapeutic services. Hoar Cancer Center Designated by the American College of Surgeons as a comprehensive community cancer program in late 1990, Hoag Cancer Center is the largest cancer program in Southern California outside of Los Angeles County, as measured by number of cases reported to the California State Tumor Registry Board. As Orange County's leading provider of radiation therapy and cancer care, the center treats more than 2,100 new patients annually. Hoag Cancer Center provides: • chemotherapy • radiation therapy • sentinel node/lymphatic mapping • gamma knife treatment of brain tumors • radioactive seed implantation for prostate cancer • stereotactic radiotherapy • high dose rate brachythyerapy (HDR) • intensity modulated radiation therapy (IMRT) • TomoTherapy • site specific programs for cancers of the breast, prostate, gastrointestinal, lung and brain cancers • biotherapy and immunotherapy including interleukin -2 and monoclonal antibodies • pheresis • vaccine therapy clinical trials for melanoma, renal cell cancer, and lung cancer • hereditary cancer program • cancer data services • cell biology research laboratory • robotic surgery • patient and family support programs • complementary care program — creative expressions art program, yoga, t'ai chi, aerobics, relaxation/meditation, brighter image, and more • outpatient treatment clinic with ONS certified nurses • inpatient oncology unit with ONS certified nurses • outreach education programs to the community. • weekly continuing medical education conferences for medical staff • annual comprehensive CUE course in medical oncology for physicians, nurse practitioners, physician assistants, and pharmacists • annual comprehensive CME course for oncology nurses • cell biology laboratory that produces investigational, patient- specific cell products for cancer therapy • I -131 therapy for thyroid cancer • radiolabeled antibody therapy for lymphoma • comprehensive support and educational services for patients • multidisciplinary site - specific tumor case conferences Hoag Cancer Center continues to achieve five -year relative survival rates that exceed national figures for most cancers, as reported in 2007 by the National Cancer Institute's Surveillance, Epidemiology and End Results (SEER) data for 1996 -2002. Hoar Heart and Vascular Institute Hoag Heart and Vascular Institute delivers comprehensive care for the cardiovascular patient, from emergency care to complex cardiovascular surgery. With respect to emergency heart care, angioplasty and cardiac stent placement services are available twenty -four hours a day. OHS Wesr260419520.4 A -7 The Hoag Heart and Vascular Institute's team of cardiac surgeons have expertise in complex valve surgery including mitral valve repair, in addition to other advanced surgical techniques, such as minimally invasive heart surgery, surgical treatment of arrhythmia and robotic surgery. The Corporation has received high marks in two recently released reports that evaluate hospital -based cardiac surgical programs: The Society of Thoracic Surgeons' ( "STS' assessment of clinical performance and The Leapfrog Group's Hospital Quality and Safety Survey's examination of high risk treatments. The STS designated the Corporation with a 3 -star rating, the highest possible rating, achieved by only approximately 12 percent of the more than 700 hospitals nationwide that participated in the data submission from which the ratings were the derived. The Leapfrog Hospital Quality and Safety Survey findings also reflected the Corporation's excellence in cardiac surgery in an examination of procedural volume, surgical experience and outcomes. In June 2006, the Corporation introduced the new Hoag Heart Valve Center. The Hospital was the fast hospital on the West Coast, and one of only a few in the nation, to establish a dedicated heart valve center. The center offers screenings, diagnosis, treatment and surgical expertise, and is dedicated to patient and physician education, on -going clinical research and collaboration and early intervention. . The Hoag Heart and Vascular Institute has also been involved in a series of clinical trials for carotid stents to evaluate the potential for these devices to prevent stroke. The Hoag Heart and Vascular Institute is one of a limited number of Regional Education Centers in California authorized to educate other physicians in this new technology. Hoag Heart and Vascular Institute specialties include: • anticoagulation clinic • cardiac rehabilitation • cardiac surgery. • diagnostic & interventional cardiology • electrophysiology services • emergency treatment • endovascular diagnosis and therapy • . arrhythmia center Hoaz Orthopedic Services • patient & community education • clinical trials and research • vascular surgery • vascular lab • heart valve center • cardiac catheterization lab • endovascular lab Hoag Orthopedic Services has the largest medical staff in Orange County, including more than 30 physicians specializing in advanced orthopedic and spine procedures, including minimally invasive techniques and total joint replacement. Based on State of California Office of Statewide Health Planning and Development ( "OSHPD ") data for the last ten years ended as of December 2006, the Corporation's physicians perform more orthopedic inpatient procedures (specifically, total joint replacement), than any other hospital in Orange County, helping to pioneer new treatments that offer promising alternatives to traditional surgeries. Hoag Orthopedic Services offers: • state -of -the-art diagnostic services • advanced surgical treatments • arthroscopic surgery • partial and total joint replacement • complex spinelback surgery • minimally invasive procedures. • non - surgical treatments • emergency treatment of injuries • sports medicine • clinical research • rehabilitation services • community education The Corporation provides an integrative approach to patient care. For example, the Institute for Spine implements a collaborative effort between the neurosurgeons and orthopedic surgeons. The close partnership between the medical specialties creates a synergy that enhances the spine surgery center. Patients are provided access to advanced medical techniques and the opportunity to participate in .a variety of clinical trials. OHS West:260419520.4 A -g Also, through its total joint program, JointWorks®, the Corporation combines joint replacement surgery with patient education and rehabilitation processes to help motivate, encourage and support patients and their families before, during and after surgery. HQaz Women's Health Services Providing high quality health care for women has always been a priority at the Hospital. In late 2005, the Corporation opened the Sue and Bill Gross Women's Pavilion, a comprehensive center that combines progressive technology with patient education, comfort and exceptional care. The many aspects of Women's Health encompassed in the Pavilion include a maternallchild program that provides advanced mother and infant care through the philosophy of Family - Centered Maternity Care. Also available is a wide variety of prenatal and postpartum education resources and support services. Total births were 5,255, or approximately 14 per day, for the fiscal year ended August 31, 2007. The Sue and Bill Gross Women's Wellness Center, the first of its kind in Southern California, strives to promote an integrative approach to healthy living. The center focuses not only on a woman's physical health, but also on the relationship between body, mind and spirit. The Corporation's Breast Care Center provides direct -to- digital mammography, dedicated breast MRI, breast ultrasound, minimally invasive breast biopsy, as well as perioperative consultations by surgical breast specialists. The Corporation's Sexual Medicine Program addresses sexual health and intimacy issues for women of all ages and sexual orientation, specializing in those with chronic or life threatening illness. Additional Hoag Women's Health Services include: • pregnancy & prepared childbirth • neonatal intensive care • minimally invasive surgery and robotics • Obstetrics Education • survivorship medicine Hoa¢ Hospital Neurosciences Center • fetal diagnostics and high -risk obstetrics • patient & family education • community education • gynecologic oncology The Hospital is one of only a few medical centers in Orange County with a dedicated neuroscience center, offering prevention, diagnosis, management and treatment for all complex neurological conditions including stroke, brain tumors, dementia, epilepsy, Parkinson's disease, sleep disorders and more. Hoag Neuroscience Center brings together a multidisciplinary team of medical experts who specialize in the fields of neurology, neurosurgery, neuroradiology, neurovascular telemetry, Gamma Knife, epilepsy, neuro radiation oncology, neuropathology and neuropsychology. With specialty- trained interventional neuroradiologists, the Hospital offers advanced interventional procedures such as carotid stenting and brain aneurysm coiling. With dedicated neurohospitalists, the Hospital is well- equipped to respond to neurological emergencies. OHS West:260419520.4 A -9 Hoag Neuroscience Center provides an integration of services specializing in the following: • stroke • brain tumors • brain aneurysms /vascular malformations • Alzheimer's / Dementia • movement disorders / Parkinson's disease • epilepsy • sleep disorders • spinal tumors • headache • pain and sensory disturbances • neurosurgery • neurology Other Services Community Medicine • neuro radiation oncology • neuroradiology • interventional neuroradiology • epilepsy monitoring • gamma knife • neuro hospitalists • neuropathology • neuropsychology • neuro rehab • neurodiagnostic lab • sleep lab The Corporation provides charitable community benefit programs that meet those required by California law governing community healthcare needs assessments and nonprofit hospital community benefit plans. The Corporation's Community Benefit Plan consists of programs that are conducted primarily as collaborative partnerships within Orange County without financial return to the Corporation or expectation of business augmentation. The Plan is designed to improve access to health care for vulnerable populations and the overall physical and social health status of local communities. Working with in -kind services and direct monetary donations to support nonprofit organizations, and focusing on disproportionate unmet health needs, the Corporation's Community Benefit Plan addresses primary prevention, chronic disease management and health promotion through: • patient & family support groups • financially uncompensated clinical research • health education classes • informational programs & materials • enhancement of access to health care • screening & immunization programs • general & emergency medical services for vulnerable populations • resource referral services • culturally and linguistically appropriate counseling services for at -risk families and youth • community partnerships, such as those with the Share Our Selves (SOS) Free Medical and Dental Clinic and Adult Day Services of Orange County • culturally and linguistically appropriate community case.management for vulnerable populations • support and creation of public health partnership programs targeting specific entities (i.e., domestic violence, teen pregnancy, diabetes, obesity, and youth gangs) • health ministries parish nurse program • senior transportation programs Pediatric Care: Affiliation with Children's Hospital ofOranee County In January, 2007, the Corporation announced a new alliance with Children's Hospital of Orange County ('CHOC"), one of the premier facilities for pediatric care in the county. Through a formal affiliation agreement with CHOC, executed in February 2007, the Corporation expanded its pediatric outpatient services, and created an expedited system of evaluation and transfer of children and infants with critical illnesses and special needs to CHOC. The affiliation significantly benefits pediatric patients in need of emergency care. Using robotic telemedicine technology, critical care specialists stationed remotely at CHOC are available to assist Hoag Emergency Medicine physicians in the evaluation and care of pediatric patients in the Hoag Emergency Department ( "ED "). This enhancement to care is available 24 hours a day to children seen in the Hoag ED. Emergency transport services between the Corporation and CHOC are also improved. Dedicated transport teams from CHOC, consisting of a physician, nurse and respiratory therapist, are readily available to transport pediatric patients via ambulance when a child's complexity of care or severity of illness requires admission at CHOC. OHS Wmt:260419520.4 A -10 Through this new affiliation with CHOC, the Corporation's neonatal care services have been expanded. Pediatric Subspecialty Faculty ( "CHOC PSF ), a nationally recognized specialty physician group affiliated with CHOC, staffs and provides medical management to the Corporation's Neonatal Intensive Care Unit, enhancing clinical capabilities in support of the Corporation's growing obstetrical and perinatal programs. Additionally, a CHOC pediatric specialty clinic at Hoag Health Center — Newport Beach, which is owned and operated by Newport Healthcare Center, LLC, has been planned to open in October 2008. Hoag Health Center - Newport Beach will also house UrgiKids, an after -hours urgent care service for children currently based in Costa Mesa, thereby enhancing the pediatric services that will be available through Hoag Hospital's expanded partnership with CHOC. Effective April 1, 2008, the Corporation plans to phase out its inpatient services for children under the age of 16. However, the Corporation plans to begin new services through its expanded partnership with CHOC in order to bolster its pediatric care program. In the fall of 2008, a CHOC pediatric specialty clinic is expected to open at Hoag Health Center — Newport Beach, which is owned and operated by Newport Healthcare Center, LLC. This CHOC specialty clinic will offer pediatric specialists in diabetes, asthma, cardiology and neurology, among other areas. Hoag Health Center — Newport Beach will also house UrgiKids, an after -hours urgent care service for children currently based in Costa Mesa, thereby enhancing the pediatric services that will be available through Hoag Hospital's expanded partnership with CHOC. Bed Distribution Hoag Hospital is currently licensed for 498 beds, 419 of which are currently staffed and operating. The following table shows the existing distribution of licensed and staffed beds by bed category and the proposed distribution of licensed and staffed beds following the completion of a component of the West Building Renovation and the Heart and Vascular Institute projects ("Post Project"). See also "The Project" below. OHS west:260419520.4 A -11 Licensed Beds Staffed Beds Post Post Current Project Current Project Medical/Surgical 320 309 274 288 Intensive Care 57 75 31 75 Maternity/LDR 70 70 74 74 Intensive Care Nursery 21 21 21 21 Pediatrics 9 0 0 0 Chemical Dependency 21 21 J-2 =12 Total 498 496 419 477 OHS west:260419520.4 A -11 MEDICAL STAFF The Board of Directors of the Corporation requires an organized medical staff to have a critical role in the process of providing oversight of quality care, treatment and services delivered by the physicians, dentists, oral surgeons, and podiatrists who are credentialed and privileged to utilize the Hospital's services and facilities and participate in the medical activities of the Hospital on a regular basis. As of February 29, 2008, the Hospital's Medical Staff was comprised of 1,125 physicians, dentists; oral surgeons and podiatrists. The average age of the medical staff is approximately 48.9 years. For the six months ended February 29, 2008, the top 20 attending physicians, whose average age was 39.8 years, accounted for approximately 32.1 % of the Hospital's inpatient admissions, excluding newborns as separate admissions. The following chart includes all physicians on the Hospital's Medical Staff as of February 29, 2008: Specialty Number of Physicians Allergy & Immunology 10 Anesthesia 49 Cardiology 54 Cardiovascular Surgery 3 Colon- Rectal Surgery 4 Critical Care 18 Dental/Oral Surgery 26 Dermatology 36 Emergency Medicine. 19 Endocrinology 10 Family Medicine 117 Gastroenterology 26 General Internists 129 General.Surgery 30 Infectious Diseases 13 Nephrology 15 Neurologists 17 Neurosurgeons 14 Obstetrics/Gynecology 78 Oncology 29 Ophthalmology 55 Orthopedic Surgery 34 Otolaryngology 26 Pathology 8 Pediatrics 71 Pediatric Surgery 6 Perinatology & Neonatology 21 Physical Medicine/Rehab 10 Plastic Surgery 71 Podiatry 13 Psychiatry 13 Pulmonologists 26 Radiology & Radiation Oncology 37 Rheumatologists 7 Thoracic Surgery 6 Urology 15 Vascular Surgery 9 TOTAL 1,125 Source: Corporation OHS Wost:260419520.4 A -12 SERVICE AREA AND COMPETITION Service Area The Hospital is located in Newport Beach, California, approximately 50 miles south of Los Angeles and 90 miles north of San Diego, on the coast of the Pacific Ocean. The Corporation defines the Hospital's service area by patient origin, geographic accessibility to the Hospital and location of a majority of the physician offices of its Medical Staff. The Hospital's Primary Service Area includes Newport Beach/Corona Del Mar, Costa Mesa, Huntington Beach, Irvine, Fountain Valley and Laguna Beach. The Hospital's patient discharges from its Primary Service Area averaged 66% of its inpatient discharges for the fiscal years ending August 31, 2006 and 2007. Central u Hoaa Hospital Service Areas ■ Hogg Health Centers Primary Contral South North ® Hospital Primary Service Area includes Newport Beach/Corona Del Mar; Costa Mesa, Huntington Beach, Irvine, Fountain Valley, and Laguna Beach. South Service Area includes Aliso Viejo, Capistrano Beach, Dana Point, Foothill Ranch, Ladera Ranch, Laguna Hills, Laguna Niguel, Lake Forest, Mission Viejo, Rancho Santa Margarita, San Clemente, San loan Capistrano, and Trabuco Canyon. North Service Area includes Buena Park, .Cypress, Garden Grove, La Palma, Los Alamitos, Westminster, Seal Beach, and Stanton. Central Service Area includes Anaheim, Brea, Fullerton, La Habra, Orange, Santa Ana, Tustin, and Yorba Linda OHS West:260419520.4 A -13 Market Share and Competition The following illustrates market share data for some of the general acute care providers of service for the Hospital's Primary Service Area for the calendar years 2004, 2005 and 2006. This data is based solely upon discharges from the Hospital's Primary Service Area which are determined by zip code. The 2006 data is the most recent data available. The Hospital's market share has remained the highest in the service area over the three years shown. Hospital 2004 2005 2006 Hoag Memorial Hospital Presbyterian 32.5% 33.0% 34.9% Orange Coast Memorial Medical Center121 8.2 8.7 8.8 Fountain Valley Regional Hospital & Medical Centerl'I 9.5 9.5 8.6 Irvine Regional Hospitall'I 7.7 7.2 7.2 Huntington Beach Hospital & Medical Center[;[ 4.6 4.5 4.5 St. Joseph Hospital- Orange [41 4.0 4.1 3.9 University of California - Irvine Medical Center[SI 4.1 3.9 3.6 Kaiser Anaheint[61 2.4 2.5 2.6 Saddleback Memorial Medical Center[21 2.2 2.3 2.2 South Coast Medical Centetlsl 2.4 2.2 2.1 Western Medical Center - Santa Anai71 2.1 2.1 2.1 Coastal Communities Hospital['[ 1.5 1.4 1.2 Mission Hospital Regional Medical Center[4l 1.4 1.4 1.6 Source for Market Share information: Office of Statewide Health Planning and Development, State of Califomia. Excludes discharges with DRG =391 (normal newbom). The following footnotes each indicate the name of the system or organization that owns or operates the referenced facility: "I Tenet Healthcare Corporation C11 Memorial Care 1rt Prime Healthcare Services, Inc. E41 St. Joseph Health System 151 University of California 161 Kaiser Foundation Hospitals r7J Integrated Healthcare Holdings Inc. BI Adventist Healthcare Demographics The following table presents an estimate of population growth in Orange County. The Hospital's Primary Service Area is estimated to experience an approximately 8.5% increase in population through 2012. The Corporation provides no assurance regarding the accuracy of such estimates. Orange County Area 2007 2012 % Change Primary Service Area 676,557 734,346 8.5% North 493,048 508,658 3.2 Central 1,367,976 1,424,575 4.1 South 572.908 620,545 8_3 Total Orange County 3,058,315* 3,234,405* 5.8% * Source: Medstat Market Expert using information provided by Claritas OHS Wegt:260419520.4 A -14 The table below summarizes average income per household for the calendar year 2007 for the City of Newport Beach and each of the Hospital's Service Areas (as referenced below and defined above). The Corporation provides no assurance regarding the accuracy of the household and average income numbers below. rvewport iseacn — 149,479 Number of Households 37,919 % Household Income > $75K 62.2% % Household Income > $ I OOK 50.0% Primary Service Area 391,024 Number of Households 255,256 % Household Income > $75K 52.7% %Householdlncome >$IOOK 38.0% South Service Area Number of Households 208,125 % Household Income >$75K 56.3% %Household Income> $TOOK 41.1% North Service Area Number of Households 149,479 %Household Income> $75K 37.0% % Household Income >$IOOK 22.9% Central Service Area Number of Households 391,024 % Household Income >$75K 38.8% • Household Income > $ I OOK 25.0% 19 The Hospital is located in Newport Beach. Data includes Newport Beach, Newport Coast & Corona] Del Mar. Source: Medstat Market Expert using information provided by Claritas. FACILITIES DESIGN AND CONSTRUCTION The Capital Plan The Corporation's Board of Directors developed a Master Plan of Development (the "Master Plan ") for the Hospital in the early 1990's. The Master Plan was designed to meet the Corporation's mission and strategy to serve its community and includes a comprehensive capital improvement program which has been revised over time as various elements have been constructed. Implementation of the Master Plan's capital improvements set forth below also results in the Hospital complying with the State of California's seismic requirements (discussed below). The Corporation maintains a comprehensive capital plan (the "Capital Plan ") of which the Master Plan is a Significant component. "The Project," described below, consists of elements of the Capital Plan which will be financed in part with proceeds of the Bonds. The Capital Plan projected through 2017 includes approximately $ million of future capital expenditures. Approximately $_ million of Bond proceeds will finance Project expenditures related to the primary Hospital campus expected to be incurred in the upcoming 36 months. The major elements of the Project are described below. The Corporation expects that Bond proceeds will be used for Project elements (as described in greater detail below) based on specific timing of such elements. Precise expenditure decisions will be dictated by eligibility for financing under the Loan Agreement, applicable federal tax restrictions, project timing and entitlement, among other factors. Total Project and other Capital Plan requirements far exceed the available OHS West:260419520.4 A -15 proceeds of the Bonds; the. Corporation expects to pay for the remaining Project expenses from existing and future operating revenues, investment income, investment reserves and from future charitable contributions. As of the fiscal year ended August 31, 2007, the Corporation and NHC had approximately $1 billion of unrestricted cash and investments. See "SELECTED UTILIZATION AND FINANCIAL INFORMATION" below. The Project Major elements of the Project include: (1) Ancillary Building Renovation and Structural Upgrade. The Ancillary Building which currently houses the Emergency Department, portions of Radiology Services and other ancillary services, is being renovated to accommodate the expansion of the Emergency Department and the improvement and consolidation of inpatient imaging services. In addition, the Ancillary Building will be structurally upgraded in order to meet Senate Bill 1953 seismic requirements ( "SB 1953 "). Upon completion of this element of the Project, the number of ED beds will increase from 30 to 56. The total estimated cost of this element of the Project is approximately $_ million, of which approximately $12 million has been spent as of February 28, 2009. [To Be Updated] (2) West Building Renovation. In conjunction with required seismic upgrades, the aging infrastructure of the West Building is being upgraded or replaced to meet the Hospital's anticipated needs. In addition, the finishes on each of the floors are being modernized and infrastructure for new technologies is being put in place. The renovation of the tenth through fourth floors has been completed. Renovation of the third floor is currently underway. The estimated total remaining cost of the West Building renovation is approximately $_ million and includes the installation of base isolators to complete the structural upgrade in order to meet SB 1953. [To Be Updated] (3) Lower Campus Outpatient Services. Beginning in 2007, certain expanded outpatient services facilities and related parking are being incorporated with the existing Cancer Center on the lower portion of the Hospital's campus. When completed, these facilities will expand outpatient cancer treatment capabilities as well as provide needed space for growing neurosciences and related imaging services. By late 2008 /early 2009, these new facilities will accommodate the expansion of the outpatient cancer and neurosciences programs and will allow a significant part of the Hospital's outpatient imaging, chemotherapy, Gamma Knife, other radiation oncology and additional outpatient treatment services to be consolidated on the lower campus. This element of the Project entailed excavation and construction of a retaining wall to primarily, facilitate the construction of the planned facilities and related parking. The total estimated cost of this facility expansion is approximately $_ million, with approximately $_ million for the retaining wall. [To Be Updated] (4) Seismic Upgrades. SB 1953 requires all acute care hospitals to be upgraded to new seismic standards by the following deadlines: by 2008, all general acute -care inpatient buildings at risk of collapsing during a strong earthquake must be rebuilt, retrofitted or closed; and by 2030, all hospital buildings in the State must be operational following a major earthquake. The Sue and Bill Gross Women's Pavilion is compliant with seismic standards of inpatient care and meets the requirements of SB 1953. However, some of the other buildings are currently not compliant. In conjunction with the infrastructure replacements and upgrades, these buildings will be retrofitted to meet most of the new seismic standards. The Corporation has received approval for a five -year extension of SB 1953 compliance to 2013. Estimated cost of seismic upgrades or retrofits are included in specific Project element cost estimates. (5) Heart and Vascular Institute. In 2008, subject to availability of City approvals; design is expected to begin on a building on the upper portion of the primary Hospital campus to house predominantly inpatient services associated with the Hoag Heart and Vascular Institute. The new building will provide space for extensive cardiovascular program enhancements including dedicated cardiovascular operating rooms, expanded oath labs and endovascular suites. The facility will also provide much needed expansion in surgical intensive care beds, resulting in a net gain of 18 intensive care beds. The total estimated cost of this element of the Project is approximately $[_1 million in its most current configuration. See "Project Approvals" below. [To Be Updated] OHS West:260419520.4 A -16 (6) Routine Capital Improvement Expenditures. A portion of the routine capital expenditures of the Corporation during the fiscal years ending August 31, 2008, 2009, and 2010 is expected to be funded from proceeds of the Bonds. The estimated cost of these routine capital expenditures in total is approximately $_ million. [To Be Updated] (7) Information Technology. The Hospital plans to acquire and/or replace certain informations systems, including software and hardware. Some of the key efforts include acquisition of electronic chart and physician documentation, enterprise patient scheduling system, physician electronic medical record connectivity and infrastructure, server/network/storage upgrades, telecommunications upgrades, infrastructure upgrades and redundancy system, and radiology system replacement. The Hospital continues to invest in state -of -the -art information technology solutions which contribute to the Hospital's success. The estimated cost of these information technology expenditures for the fiscal years ending August 71; 2008, 2009 and 2010'in total is approximately $ million. [To Be Updated] The artist rendering below, which is not to scale, depicts the current and planned transformation of the Hospital campus over the next several years in accordance with the Master Plan. Hoag Memorial Hospital Presbyterian (As of Spring 2008) LEGEND 1. HvHh Hnniig6minere 2. kmeslAt outpelat: Suger]Cemei 3. PMrr.Hanl a. le Mtry BLMillg. S. Nleitwung 6. W9.1ndidleq' 7. 6Aer lDepentlar6 renter B. 15b SP lan 9. OHgbul 1967HUialny5ile of Imae Henr &YasmWilmAntte lo. South HpWrg Sinxtuie 11. Fmret6enter 12. 6mlaatieceneparng Amnuie 13:. fmfertne(alM arA Ne�dikntn6wlHUq 10. FWGeAManWIfea'nWpp Harken 15. re.&nnv 16. Chlidudrenter 17. W6ee Pmam3 It Haag Heallhtraer off Project Approvals. Pursuant to a Development Agreement between the Corporation and the City, adopted in 1994, the Corporation has a vested right 1:6 develop the Hospital site in accordance with its Master Plan, approved by the 'City in 1992, subject to compliance with the Development Agreement, supplemental requirements of the California Environmental Quality Act ( "CEQA ") and certain other conditions, including preparation of certain traffic report studies for consideration by the City.' The Development Agreement imposes limits on the allowable development on the upper and lower portions of the campus. OHS west:260419520.4 A -17 The Corporation has been processing with the City an amendment to the Development Agreement which would allow a transfer of 225,000 square feet of building from that allowed on the lower campus to the upper campus. If ultimately approved, the Corporation expects the Master Plan to be implemented within the constraints of the Development Agreement as so amended. In particular, the Corporations preferred design and location of the Heart and Vascular Institute is affected by the effectiveness of the Development Agreement amendment. [To Be Updated with description of salient terns of approval, dates and remaining conditions]. If the Corporation does not receive this proposed modification to its land use entitlement with the City, the Heart and Vascular Institute and other Project elements will be redesigned and development will occur within the existing entitlement applicable at the time, if at all. In any case, the Project will be developed in compliance with the Development Agreement and the Master Plan. However, building permits are required prior to construction. In addition, State approval is required for the design of new inpatient and certain other facilities. Buildings on the lower campus are subject to review by the California Coastal Commission. Moreover, significant elements of the Project will need to be licensed by the State upon completion. Although the Corporation expects to receive all required land use approvals on a timely basis to allow completion of Project elements, there can be no assurance that the required approvals will be obtained in a timely manner or at all. Cost Estimates. Construction of portions of the Capital Plan and Project is expected to occur over a 10- year period. In addition to Bond proceeds and earnings thereon, the Corporation expects to fund certain Project costs through charitable contributions. Through the Foundation's Renaissance Hoag campaign, the Corporation has begun the fundraising effort associated with the Capital Plan. The Foundation has established a 10 -year strategic plan (the "Strategic Plan") which includes a number of campaign initiatives to support the Corporation's capital projects and program development, as well as endowment growth. Key initiatives focus on raising funds for the Heart and Vascular Institute, the Cancer Center, Neurosciences, Women's Services and Nursing. The Strategic Plan is consistent with and supports the Corporation's Capital Plan. The Corporation expects to receive as much as $_ million in charitable contributions, a portion of which may be applied to the cost of the Project. Through 2008, the Foundation has raised approximately. $80 million in the first two years of the Renaissance Hoag campaign. Although the Foundation has a history of successful fundraising, there can be no assurance such efforts will in this case raise the estimated funds. The remainder of the Project costs are expected to be funded from cash flow from operations and investment income during the course of construction and from existing resources. The estimated contribution from cash flow has been derived from certain cash flow plans prepared by the Corporation's finance staff. In the event such sources are inadequate, the Corporation would expect to fund costs from existing reserves, or to modify elements of the Project, if feasible. At times in the past, the Corporation's estimates of Capital Plan and Project costs have increased significantly in response to rapid increases in the cost of new materials and other construction costs. This in turn has necessitated reassessment of Capital Plan and Project elements and scope. The Corporation cannot predict whether such conditions will continue, but the Corporation.expects to revise its Capital Plan and Project elements from time to time as needed in response to changes in cost estimates, as well as changes in Corporation needs, goals, finances and other factors. Both the size of the Capital Plan and the concentrated time period during which it is expected to occur increase the risk that escalating costs may necessitate revisions in the scope and timing of elements of the Capital Plan. Such revisions could impact the Corporation's business plan and future results of operation. For a further discussion of certain risks relating to cost overruns on the Project, please refer to the section of this Official Statement entitled BONDHOLDERS' RISKS - Other Risk Factors — "Contributions" and "Construction Risks." The Corporation has estimated the costs of the improvements to be financed with the proceeds of the Bonds and other Project elements based on architects' and engineers' estimates. It is expected that the work for that portion of improvements to be constructed in and around the existing Corporation activities will be conducted in a manner to minimize disruption to Corporation services. While this effort is expected to be successful, it will involve significant increased cost and occasional disruption to construction work. The degree of this disruption is hard to predict, and may cause costs to exceed the estimates shown. The Corporation has not let contracts for a portion of the Project, including some elements expected to be funded with proceeds of the Bonds. Therefore, the Corporation's estimates are imprecise. In addition, the scope of some Project components is subject to periodic internal review and revision which may cause estimates to increase. OHS west:260419520.4 A -I8 Especially in light of the substantial rehabilitation work to be conducted, it is possible the Corporation will experience significant cost overruns with respect to part or all of the Project, and such overruns could be in amounts which would in the aggregate be material to the Corporation's operating results. While contingencies have been included in all Corporation cost estimates set forth here, it is possible that the scope of some Project elements may need to be reduced if actual costs exceed estimates. SELECTED UTILIZATION AND FINANCIAL INFORMATION Sources of Patient Services Revenue The Corporation receives payment for its services from several sources with a variety of payment arrangements. Insurance payments include preferred provider organizations (PPOs) and health maintenance organizations (HMOs). The federal government, through the Medicare program; pays for most services for persons over 65 years old and the State of California pays for indigent patients through the Medi -Cal program. Orange County also funds certain indigent patients through the Medical Services for the Indigent (MSI) program and other patients through the Cal - Optima program. The following table shows the Corporation's distribution of gross patient revenue by payor for the past three fiscal years. n Includes capitated commercial and Medicare contracts For a further discussion of Medicare, Medi -Cal and other payors, please refer to the section of this Official Statement entitled `BONDHOLDERS' RISKS." Historical Utilization The Corporation's utilization statistics for the past three fiscal years are presented below. Fiscal Year Ended August 31, 2005 2006 2007 Licensed Beds — acute care Fiscal Year Ended August 31, 511 2005 2006 2007 Medicare 35.4% 34.8% 34.5% PPO 27.9 27.5 26.7 HMO t11 29.3 29.7 30.9 Medi -Cal & MSl 4.0 3.9 3.9 Other 3.4 4.1 4:0 n Includes capitated commercial and Medicare contracts For a further discussion of Medicare, Medi -Cal and other payors, please refer to the section of this Official Statement entitled `BONDHOLDERS' RISKS." Historical Utilization The Corporation's utilization statistics for the past three fiscal years are presented below. Fiscal Year Ended August 31, 2005 2006 2007 Licensed Beds — acute care 511 511 498 Inpatient Statistics 260,924 Outpatient Surgeries 10,314 10,653 Staffed Beds - acute care 354 417 419 Admissions — acute care 25,267 26,704 27,909 Average Length of Stay (days) 4.17 4.23 4.11 Patient Days — acute care 105,133 112,885 114,741 Births 4,602 4,993 5,240 Percent Occupancy (staffed bed) 81.4% 74.2% 75.0% Average Daily Census — acute 288. 309 314 Case Mix Index — All 1.37 1.38 1.35 Case Mix Index— Medicare 1.67 1.71 1.64 Outpatient Statistics Emergency Visits 58,276 62,089. 64,844 Outpatient Visits 231,690 248,675 260,924 Outpatient Surgeries 10,314 10,653 11,442 Total Outpatient VolumeQQ 33�1� 337.210 OHS West:260419520.4 A -19 Summary of Financial Information The following statement of operations and balance sheet of the Obligated Group for the fiscal year ended August 31, 2007 is derived by management from the consolidating statements of operations and balance sheets to the consolidated financial statements of the Corporation and Affiliates, which is included with the unaudited "Other Financial Information following the audited consolidated financial statements in APPENDIX B (the "Audited Financial Statements'. For purposes of analysis by the Corporation's management, the financial information of the Obligated Group is consolidated and presented in the column named "Hospital and NHC" in the consolidating statements of operations and balance sheets to the Annual Financial Statements. The summary of financial information should be read in conjunction with the consolidated financial statements and related notes contained in APPENDIX B, which have been audited by Ernst & Young, LLP, independent auditors. The following chart illustrates the components of the "Hospital and NHC" column of the Other Financial Information that accompanies the Audited Financial Statements as of and for the year ended August 31, 2007, as well as the unaudited financial information of the Obligated Group as of and for the year ended August 31, 2006: The financial information for the six months ended February 29,.2008 and February 28, 2007, is derived by management from the internal unaudited financial statements of the Obligated Group. The unaudited financial data for the six months ended February 29, 2008 and February 28, 2007 includes all adjustments which the Corporation's management considers necessary to fairly present such information in accordance with accounting principles generally accepted in the United States. Operating results for the six months ended February 29, 2008, are not necessarily indicative of the results which may be expected for the entire fiscal year ending August 31, 2008. The following charts illustrate certain components of the unaudited financial, statements of the Obligated Group as of and for the six-month periods ended February 29, 2008 and February 28, 2007: Percentages of Obligated Group . Percentages of Obligated Group As of and for the year-ended As of and for the year ended As of and for the six-month August 31, 2007 August 31, 2006 period ended Obligated ended February 28, 2007 Obligated Corporation NHC Group Corporation NHC Group Income from Operations 103% -3% 100% 100% 0% 100% Excess of Revenue over Expenses 101% -1% 100% 99% 1 % 100% Total Assets 95% 5% 100% 95% 5% 100% Total Net Assets 93% 7% 100% 92% 8% 100% The financial information for the six months ended February 29,.2008 and February 28, 2007, is derived by management from the internal unaudited financial statements of the Obligated Group. The unaudited financial data for the six months ended February 29, 2008 and February 28, 2007 includes all adjustments which the Corporation's management considers necessary to fairly present such information in accordance with accounting principles generally accepted in the United States. Operating results for the six months ended February 29, 2008, are not necessarily indicative of the results which may be expected for the entire fiscal year ending August 31, 2008. The following charts illustrate certain components of the unaudited financial, statements of the Obligated Group as of and for the six-month periods ended February 29, 2008 and February 28, 2007: OHS West260419520.4 A -20 . Percentages of Obligated Group As of and for the six-month As of and for the six-month period period ended February 29, 2008 ended February 28, 2007 Obligated Obligated Corporation NHC Group Corporation NHC Group Income from Operations 102% -2% 1000/0 104% 4%0 100% Excess of Revenue over Expenses 101 %. -1% 1000/0 101% -1% 100% Total Assets 94% 6% 1000/0 95% 5 % 100% Total Net Assets 91 %. 9% 1000/0 92% 8% 100.% OHS West260419520.4 A -20 Statements of Operations of the Obligated Group Condensed and Consolidated (Dollars in Thousands) OHS West:260419520.4 A -21 Fiscal Years Ended Six Months Ended August 31, February 28, February 29, 2006 2007 2007 2008 Unaudited Unaudited Net Patient Service Revenue $474,169 $508,475 $245,550 $276,240 Revenue Earned on Prepaid Contracts 70,960 80,267 38,584 35,772 Other Operating Revenue 32.660 39.534 18 852 13 741 TOTAL OPERATING REVENUE 577,789 628,276 302,986 325,753 Operating Expenses: Salaries & Benefits 266,845 286,129 139,043 141,793 Supplies 99,937 104,037 .49,749 54,982 Purchased Services 68,936 . 71,498 33,962 34,423 Professional Fees 7,721 8;075 4,133 4,253 Depreciation and Amortization 39,692 40,542 19,983 21,645 Provision for Doubtful Accounts 21,159 18,546 10,219 11,150 Interest 17,651 24,317 9,235 13,231 Other 39.206 40 072 20 641 23 175 TOTAL OPERATING EXPENSES 561,147 593,216 286,965 304,652 INCOME FROM OPERATIONS 16,642 35,060 16,021 21,101 Nonoperating Revenues/Expenses: Investment Income, Net 56,292 95,027 54,891 6,367 Other 1693 7174 200 1,072 TOTAL NONOPERATING 54,599 87,853 54,691 7,439 REVENUES/EXPENSES EXCESS OF REVENUE OVER EXPENSES 71,241 122,913 70,712 28,540 Transfers from (to) Foundation, restricted contributions and other changes in net assets 15 156 5.601 910 5.878 INCREASE IN NET ASSETS 86,397 128,514 69,802 34,418 NET ASSETS, BEGINNING OF THE PERIOD 1003.343 1,089,740 1,089.740 1.218.254 NET ASSETS, END OF THE PERIOD $l yI$ 2$4 159,542 1"252.67 OHS West:260419520.4 A -21 Balance Sheet of the Obligated Group Condensed and Consolidated (Dollars in Thousands) ASSETS CURRENT ASSETS: Cash and Cash Equivalents Patient accounts receivable, net of allowance for doubtful accounts Investments Other Current Assets Due From Related Parties TOTAL CURRENT ASSETS: ASSETS LIMITED AS TO USE: Board designated for Capital Improvements Under indenture agreement held by trustee Under malpractice claims funding arrangement held by trustee TOTAL ASSETS LIMITED AS TO USE PROPERTY AND EQUIPMENT, NET OTHER ASSETS TOTAL ASSETS LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Account payable Accrued expenses Accrued liabilities under capitated contracts Estimated third -party payor settlements Due to Related Parties TOTAL CURRENT LIABILITIES: NONCURRENT LIABILITIES: August 31, February 29, 2006 2007 2008 Unaudited $36,415 $78,801 $16,626 59,903 63,056 74,599 5,099 5,378 5,276 16,249 16,517 17,186 2,242 1,932 2,306 119,908 165,684 115,993 864,701 937,885 991,344 50,806 131,485 130,964 17,496 18,830 14,800 933,003 1,088,200 1,137,108 629,615 651,625 683,290 23,918 30,61.6 36,426 $1,706,444 $1,936,125 $1,972,817 $23,146 $23,562 $17,138 47,839 44,986 40,894 12,861 11,119 10,436 1,485 918 688 255 238 223 85,586 80,823 69,379 Estimated malpractice claims 12,200 11,269 12,024 Bonds payable 516,000 622,950 622,950 Other long -term liabilities 2,918 2,829 15,792 TOTAL NONCURRENT LIABILITIES 531,118 637,048 650,766 TOTAL LIABILITIES 616,704 717,871 720,145 TOTAL NET ASSETS 1,089,740 1,218,254 1,252,672 TOTAL LIABILITIES & NET ASSETS $.1,706,444 $1,936,125 $1,972,817 . OHS West:260419520.4 A -22 Management's Discussion and Analysis of Financial Information For the fiscal year ended August 31, 2007, the Corporation reported Net Patient Service Revenue totaling approximately $508 million in comparison to $474 million for the year prior. The approximate $34 million, or 7.2 %, increase is due primarily to both growth in inpatient and outpatient services. Inpatient volume, as measured by admissions, grew 4.5% over the prior year. Similar growth was experienced in the outpatient setting with total outpatient visits for the year at 337,210; a 49% increase over the prior year. The Emergency Department experienced moderate growth of 4% while outpatient surgeries grew 7% over the year prior. Referred outpatients, which include services such as imaging and lab, grew solidly at 5% during the year. For the interim six month periods ended February 29, 2008 and February 28, 2007, Net Patient Service Revenue totaled approximately $276 and $246 million, respectively. The year - over -year growth of approximately 12.2 %e is the result of increased admissions of 1.8 %, outpatient visits of 7.9% and strong price gains with contracted health insurance companies. Slightly over 1% of the year- over -year increase is directly attributed to the Corporation's termination of one capitated contract effective December 31, 2007, discussed further below. For the fiscal year ended August 31, 2007, the Corporation "reported Revenue Earned on Prepaid Contracts of approximately $80 million in comparison to $71 million for the year prior. Revenue Earned on Prepaid Contracts consists of revenue earned by the Corporation through capitated payment arrangements with payors. For the interim six month periods ended February 29, 2008 and February 28, 2007, Revenue Earned on Prepaid Contracts totaled approximately $36 and $39 million, respectively. The Corporation converted one such prepaid contract to discounted fee for service effective January 1, 2008. While capitated contracts remain an active payor category, the Corporation does not expect to grow this business. As of the fiscal year ended August 31, 2007, the Corporation had approximately 56;300 equivalent lives covered under prepaid contracts. As of February 29, 2008, equivalent covered lives under prepaid contracts was approximately 35,700. The Corporation's inpatient activity remains strong as evident in the continued high occupancy rates of 81 %, 74% and 75% for 2005, 2006 and 2007, respectively, with the decline in 2006 a result of increased capacity associated with the Women's Pavilion. Results for the fiscal year ended August 31, 2007 benefited from strength in outpatient surgeries volume which grew 7% over the prior year. Successful outreach strategies and investment in key outpatient technologies and programs have contributed to this continued growth. Other Operating Revenue of the Obligated Group was $40 million in the fiscal year ended August 31, 2007 as compared to $33 million for 2006 and is comprised mainly of certain management agreements between the Corporation, its wholly -owned subsidiaries and physician related entities as part of the Corporation's physician integration strategies. For the six months ended. February 29, 2008 and February 28, 2007, Other Operating Revenue totaled $14 and $19 million, respectively, the decline in 2008 is the result of the termination of a management agreement with physician related entities effective December 31, 2007. Salaries and benefits for the fiscal year ended August 31, 2007 totaled $286 million, a 7% increase over 2006 at $267 million. The increase in salaries and benefits is largely attributable to increased volume. The Corporation continues to manage outside registry and traveler costs to less than 2% of labor. Despite the significant labor shortages in California, the Corporation's overall turnover rate remains 'below 20% with nursing at approximately 15% as of February 29, 2008. For the six months ended February 29, 2008 and February 28, 2007, salaries and benefits totaled approximately $142 and $139 million, respectively. The Corporation staffs to the current State - mandated nurse - staffing ratios. Supplies expense for the fiscal year ended August 31, 2007 totaled approximately $104 million. This represents an approximate 4% increase over the 2006 total of $100 million, which is due largely to volume. The Corporation remains committed to supporting its Centers of Excellence, including advancements in technologies which often contain supply related components. For the six months ended February 29, 2008 and February 28, 2007, supplies expense totaled approximately $55 and $50 million, respectively. Purchased Services for the fiscal year ended August 31, 2007 totaled approximately $71 million as compared to $69 million for the year prior. Purchased services include such items as medical services, repairs and maintenance, IT related maintenance fees and marketing. For the six months ended February 29, 2008 and February 28, 2007, purchased services totaled approximately $34 million. OHS West:260419520.4 A -23 Professional fees represent the Corporation's investment in certain physician coverage programs and medical directorships. Examples of coverage programs include contract physician hospitalists and intensivists, as well as Obstetrics night call coverage, to provide needed patient care. For the fiscal years ended August 31, 2006 and 2007, the Corporation reported professional fees of $8 million. For the six months ended February 29, 2008 and February 28, 2007, professional fees totaled approximately $4 million. For the fiscal years ended August 31, 2007 and 2006 depreciation and amortization expense totaled approximately $40 million. For the six months ended February 29, 2008 and February 28, 2007, depreciation and amortization expense totaled approximately $22 and $20 million, respectively. Provisions for doubtful accounts totaled $19 million for the fiscal year ended August 31, 2007, as compared to $21 million for the prior year. Included in the prior fiscal year amounts are amounts attributable to adverse development on prior year accounts and an increase in un- and underinsured patients. For the six months ended February 29, 2008 and February 28, 2007, provisions for doubtful accounts totaled approximately $11 and $10 million, respectively. Interest expense totaled approximately $24 million for the fiscal year ended August 31, 2007 as compared to $18 million for the year prior. The increase in the interest expense was primarily due to higher interest rate environment and the issuance of $423 million auction rate long -term debt in May 2007. The Corporation used approximately $30 million of its own equity and approximately $286 million of the proceeds from the sale of the 2007 Bonds in order to refund its Series 1992, 1996 and 1999 Bonds. During the current refunding escrow period of 89 days, the Corporation paid interest on both the old debt of $316 million and the new debt of $423 million. In addition, interest expense includes the Corporation's auction rate securities ($200 million) issued in August 2005. For the six month period ended February 29, 2008, the Corporation incurred $13 million of interest expense, as compared to $9 million for the same prior year period. As a result of recent disruptions in the auction rate securities markets, the Corporation experienced significant increases in the interest rates borne by its auction rate securities. During the period beginning on January 1, 2008 and ending on February 29, 2008, the reset rates have ranged from 2.97% to 9.84 %. [While the Corporation has not experienced any failed auctions, there is no guaranty that such failed auction will not occur in the future.] [To Be Updated] In addition, the actual interest rates during the remaining six months of the fiscal year ending August 31, 2008 will continue to exceed anticipated interest rates and such higher interest rates may be significantly greater than those experienced through February 29, 2008. The Corporation's interest expense also includes net payments made by the Corporation under interest rate swap agreements, which were executed in April 2007 with an effective date of May 31, 2007. The aggregate notional amount for these swap transactions is $250 million. Under these swap agreements „the Corporation pays a fixed rate of 3.229% and receives 55.7% of 1 -month LIBOR plus a spread of 0.23 %. The floating rate payments received by the Corporation, which are intended to offset interest rate payments on a portion of the Corporation's auction rate securities, have decreased as a result of a fall of short-term interest rates, such as 1 -month LIBOR. As of February 29, 2008, the 1 -month LIBOR was 3.11 %. Total other operating expenses, including utilities, rent, insurance and other expenses totaled $40 and $39 million for the years ended August 31, 2007 and 2006. For the six months ended February 29, 2008 and February 28, 2007, other operating expenses totaled approximately $23 and $21 million, respectively. Insurance expense comprised approximately $2 million and $0.7 million of other operating expenses in the fiscal years ended August 31, 2007 and 2006, respectively. The Corporation is self - insured for the first $2 million of risk with professional and general liability exposures. Reserve methodologies and the actuarial firm remain consistent with prior years. During 2007, the Corporation determined that its investment portfolio, previously, designated as "other - than- trading," should be designated as "trading" in accordance with AICPA.Audit and.Accounting Guide, Health Care Organizations (the "Guide "). The Guide requires that the changes in unrealized gains and losses on marketable securities designated as "trading" be reported within the excess of revenue over expenses. Therefore, a reclassification has been made to adjust the Corporation's investment income in 2006 to include approximately $13 million of changes in net unrealized gains and losses on marketable securities as a decrease in the Corporation's investment income. Investment income for the fiscal year ended August 31, 2007 totaled $95 million in comparison to $59 million for the year prior. Investment income reported in the Summary of Revenue and Expenses represented the net result of realized and unrealized gains and losses on investment activity, as well as dividend and interest income. The fluctuation in periods is due to changes in market conditions. The Corporation yielded gross OHS WesC260419520.4 A -24 investment return on Board - Designated investment reserves of approximately 10% for the twelve -month period ended August 31, 2007. Significant disruptions in the global credit markets throughout 2007 continue to have broad and sweeping effects on companies across all industry sectors. These disruptions began to surface in the subprime mortgage sector but have spread over and adversely affected a broader group of market participants. The current conditions in the credit markets have made determination of fair value for many types of investments significantly more complex. In addition, certain investments have become less liquid as a result of the market credit crunch. Certain of the Corporation's alternative investments have allocations to underlying funds which invest in subprime or structured credit product strategies. Please see "Liquidity and Investment Policy" for a more detailed discussion. Investment income of the Obligated Group for the six month period ended February 29, 2008 totaled $6 million in comparison to $55 million for the same period during the year prior. Investment income also includes the ineffective portion of the change in the fair value of the interest rate swaps described above. The Corporation recognized a negative mark - to- market on these interest rate swaps in the amount of $13 million as of February 29, 2008. For the six months ended February 29, 2008, the Corporation yielded a net of fees return on Board - Designated investment reserves of approximately 1.6 %. In the fiscal year ending August 31, 2008, the Corporation began and completed an asset allocation study for the Board - Designated investment portfolio ($938 million as of August 31, 2007). The Corporation conducted an intensive study of its long -range financial plans and resulting investment and liquidity requirements. As a result, the Board- Designated portfolio was segregated into two pools: Short -Term Assets and Long -Term Assets. For each pool, the Corporation considered the operating characteristics, including time horizon, liquidity requirement, return expectations and risk tolerance, and based on the investment objectives for each pool, the Corporation updated its investment policy and asset allocations. The Short -Term Assets portfolio (approx. $161 million as of February 29, 2008) is invested in fixed income securities of varying maturities, including longer term assets. The allocation targets for the Long -Term Portfolio (approximately $831 million) were established as follows: 25% fixed income, 40% public equity, 7% private equity, 3% real assets, and 25% hedge funds. These target allocations will be examined on an annual basis and adjusted based on the Corporation's long -range financial plans. Actual allocations may differ from target allocations in the short -term or during periods of significant market fluctuations and there can be no assurance that the Corporation will always rebalance its investment portfolios. See "Liquidity and_Investment Policy" below. Investment income has been a significant component of the Obligated Group's profitability and cash flows. For the six months ended February 29, 2008 and the prior two fiscal years, investment income represented approximately 10 %, 50 %, and 42% of net income before depreciation and interest ( "EBDI "), respectively. Achievement of investment income is subject to significant risks and the Corporation can give no assurance that its investments will generate any particular level of return. See `BONDHOLDERS' RISKS" and "Liquidity and Investment Policy" below. If the Corporation suffers significant investment losses, its business plans and financial results could be materially impacted. The Obligated Group's EBDI for fiscal years ended August 31, 2007 and 2006 was approximately $188 and $133 million, respectively, taking into account the $13 million of investment income reclassification in 2006. The Obligated Group's EBDI for the six months ended February 29, 2008 and February 28, 2007 was approximately $63 and $100 million, respectively. Overall, the Corporation's operations have remained financially strong. Top line revenue grew 8.7% in the fiscal year ended August 31, 2007 and 7.5% in the six month period ended February 29, 2008 over same prior year periods, while operating expenses have increased approximately 5.5% and 6.2% in the year and six month periods. The Corporation continues to be successful in rate negotiations, implementing certain cost containment strategies, focusing on recruitment and retention and maintaining market share in its primary and secondary service areas. It is management's expectation that downward pressure from payors and employers on rate increases will strengthen in 2008. However, management expects to maintain overall positive operating margins and strong cash flow margins while continuing to invest in facilities, programs and technologies to maintain and then grow market share, particularly in support of the Corporation's Centers of Excellence. OHS West:260419520.4 A -25 For the fiscal year ended August 31, 2007, Newport Healthcare Center ( "NHC ") generated a loss of $1.1 million as compared to a loss of $897,000 budgeted. Operating revenues, comprised of rental income, fell short of budget due to the early termination of one lease and a delay in the timing of transitioning certain administrative and other services into leased space at the property. For the six month period ended February 29, 2008, NHC generated a loss of $0.3 million. As of February 29, 2008, approximately 70,000 of the 330,000 square feet was leased. The Other Operating Revenues and Other Expenses of NHC are incorporated in the above discussions of individual line items of the Obligated Group's statement of operations. Liquidity and Investment Policy The Obligated Group had approximately $1 billion of unrestricted cash, cash equivalents and investments, including board designated funds and other investments, at August 31, 2007. The following table sets forth the Obligated Group's unrestricted cash and investments for fiscal years ended August 31, 2006 and 2007 and the six months ended February 29, 2008. Cash and cash equivalents consist mainly of bank deposits and short-term investments in money market funds and commercial paper. In accordance with its updated investment and operating objectives for the Board- Designated investment reserves, in the fiscal year ending August 31, 2008, the Corporation consolidated its portfolios previously designated as "Building Plan" and "Liquidity" portfolios into a "Short-Term Assets" pool into two distinct portfolios: Board - Designated Short-Term Assets Portfolio and Long -Tenn Assets Portfolio. The Corporation consolidated its portfolios previously designated as `Building Plan" and "Liquidity" portfolios and segregated its Board - Designated investment into two distinct portfolios: "Short-Tenn Portfolio" and "Long -Tenn Portfolio." Market Value (in 000's) August 31, 2006 August 31, 2007 February 29,2008 Cash & Cash Equivalents $36,415 4.0% $ 78,801 7.7% $16,626 . 1.6% Other Short-Term InvestmentsEll 5,099. 0.6% 5,378 0.5% 5,279 0.5% Board- Designated Short-Term Portfolio Fixed Income Securities 146,999 16.2% 175,835 17.2% 160,747 15.9% Board - Designated Long -Term Portfolio Fixed Income Securities 214,079 223,671 229,938 U.S. Equity 140,112 139,944 112,282 International Equity 0 0 101,532 Global Equity 130,853 137,996 106,588 Hedge Fund7ll 232,097 257,483 276,491 Private Equity 561 2,956 3,766 Total Long -Term Portfolio 717,702. 79.2% 762,050 74.6% 830,597 82.0% Total Cash & Investmentslal $ 906,215 100.0% $ 1,022,064 100.0% $1,013,249 100.0% Ell Comprised of investments in debt and equity mutual funds. 121 The Hedge Funds allocation as of February 29, 2008, includes positions from two hedge fund -of -fund managers which the Corporation has terminated. On March 7, .2008, the Corporation received full redemption proceeds in the amount of approximately $62.8 million from one of these managers. The Corporation transferred $40 million of the redemption proceeds to its operating account which is invested in cash & cash equivalents, and the remaining funds in the amount of approximately $22.8 million were transferred to the Board- Designated Short-Tern Assets portfolio. The remaining positions associated with the liquidation of the second hedge fund-of-fund manager with an estimated value of approximately $12.7 million. P1 Total Cash & Investments does not include unspent bond proceeds and assets held by trustee under indenture agreement which totaled $51 million and $132 million as of August 31, 2006 and 2007, respectively. The total amount of unspent bond proceeds and assets held by trustee under indenture agreement was $131 million as of February 29, 2008. OHS west:260419520.4 A -26 The Corporation's Board - Designated Investment Reserves are invested pursuant to an investment policy, which has been approved by the Corporation's Board of Directors, and is designed to provide a framework within which to manage the assets. The Board has delegated the implementation of this policy to an Investment Management Committee ( "IMC "), which consists of members of the Board and other appointed members. The IMC is authorized to take any and all actions consistent with the investment policy and may further delegate authority to act within the guidance provided by this policy to the Corporation's management. The IMC may also designate an investment adviser. The overall investment objective, as delineated in the Corporation's investment policy, is to invest the Board - Designated Investment Reserves in a manner that ensures sufficient resources will be available to meet the Corporation's immediate and long -term cash flow requirements, while preserving principal and maximizing returns, given appropriate risk. constraints. The policy seeks to identify acceptable risk levels associated with reaching long- term rate of return objectives. In the fiscal year ending August 31, 2008, the Corporation began and completed an asset allocation study for the Board - Designated Investment Reserves which had a total market value of approximately $937.9 million as of August 31, 2007. The Corporation conducted a study of its long -range financial plans and resulting investment and liquidity requirements. As a result, the Board - Designated. Reserves portfolio was segregated into two pools: Short- Term Assets and Long -Term Assets. For each pool, the Corporation considered the operating characteristics, including time horizon, liquidity requirement, return expectations and risk tolerance, and based on the investment objectives for each pool, the Corporation updated its investment policy and asset allocations. The Corporation's investments are currently managed by a number of professional investment managers under the supervision of the Investment Management Committee of the Corporation's Board of Directors and the internal and external investment staff. The Corporation may hire new managers, expand the authority of or terminate existing ones subject to an approval process established by the IMC. Portfolio investments undergo significant turnover and are actively managed by the investment managers retained by the Corporation. Individual investment guidelines are established for separately managed accounts. The Corporation may also invest in commingled funds maintained by third parties. Investment guidelines for commingled funds should be consistent with the intent of the Corporation's investment policy, but need not comply with the policy in its entirety. Short-Term Portfolio The Short-Term Portfolio is dedicated to meeting the funding requirements of Corporation's Long -Term Capital Plan plus other short-term liquidity needs, such as potential purchase of tendered bonds in the event of a failed remarketing, provided that the Corporation expects to manage portions of the self - liquidity program with certain assets held in the Long -Term Portfolio. The Corporation is negotiating a self - liquidity arrangement with certain of the bond rating agencies whereby it will be required to maintain, in the aggregate, sufficient assets, primarily marketable fixed income securities, publicly traded equity securities and other liquidity support vehicles, to be used to repurchase the bonds in the unlikely event that tendered bonds were not resold in the open market. The Short-Term portfolio is to be invested in high quality fixed income securities of varying maturities, including longer term assets. At February 29, 2008, the Short-Term Portfolio had an aggregate market value of approximately $161 million and represented approximately 15.9% of the Obligated Group's cash and investments. In March 2008, the Corporation transferred an additional $23 million to the Short-Term Portfolio. [TO BE UPDATED] Long -Term Portfolio The Long -Term Portfolio functions as a quasi - endowment. While not intended to experience a significant withdrawal of reserves, this pool would serves as a source of cash to cover economic risks and strategic opportunities and to the extent necessary, self - liquidity associated with funding the repurchase of Bonds. The investment objectives for the Long -Tern Portfolio are structured as long -term goals designed to maximize returns without exposure to undue risk. With the understanding that fluctuating rates of return are characteristic of the securities markets, the investment managers' greatest concern is expected to be long -term appreciation of the assets and consistency of total portfolio returns. OHS West260419520.4 A -27 At February 29, 2008, the Long -Term Portfolio had an aggregate market value of approximately $831 million and represented approximately 82% of the Obligated Group's total unrestricted cash and investments. The table below summarizes the Asset Allocation Ranges approved by the Corporation's Board of Directors, the Long - Term Targets for each assets class established by the IMC, as well as the actual asset allocation as of February 29, 2008. Actual allocation may vary over time based on economic and market conditions, as well as during periods when the Corporafion,is rebalancing its portfolios. Actual investments at February 29, 2008 were not in compliance with the current investment policy as a result of asset allocation rebalancing efforts which are still in progress, as more fully described below. Long -Term Portfolio Asset Allocation In November 2007, the Corporation commenced the implementation of a transition plan to rebalance the Long -Term Portfolio in accordance with the newly established asset allocation ranges and targets. The transition was divided into several phases and is still in, progress. Subject to the availability of desired investment vehicles and other factors, the Corporation expects to achieve its allocation targets by December 31, 2008. Long -Term Portfolio — Fixed Income The fixed income assets held in the Corporation's Long -Term Portfolio are managed by an investment manager who must maintain a minimum average portfolio quality of "A -" and a minimum credit quality at purchase of "B -" or equivalent rating by at least one of the major rating services.. The investment manager is specifically directed to target an average duration of two years above or below the Lehman Aggregate Index and to limit its holdings to no more than (i) 30% in non -U.S. dollar denominated instruments, (ii) 20% in securities rated below "BBB ", and (iii) 25% in nonleveraged derivatives (including futures), among other additional guidelines. At February 29; 2008, the fixed income portfolio had an aggregate market value of approximately $230 million with portfolio effective duration of 5.04 years. The average credit quality of the holdings in the fixed income portfolio was in the "AA" category from the major rating services. Long -Term Portfolio — Equity Currently, ten investment managers manage the Corporation's equity investments, with specific investment mandates among the following categories: • U.S./Domestic Equity • International Equity, including emerging markets • Global Equity Each separate account equity manager has specific investment guidelines and defined portfolio benchmarks appropriate for the managed asset class. The Corporation also has significant allocations, approximately $176 million as of February 29, 2008, to commingled investment vehicles, which are managed in accordance with the offering documents for each commingled fund investment and may may have limited liquidity subject to prior redemption notice requirements. One of the international equity investments (approximately $33 million) is through OHS West260419520.4 A -28 Asset Allocation Long -Term as of February Ranges Target 29,2008 Fixed Income 10% to 30% 25% . 27.7% Public Equity 30% to 60% 40% 38.5% Domestic 5% to 25% 12% 13.5% Global 5% to 25% 12% 12.8% International 5% to 25% 16% 12.2% Private Equity 0% to 20% 7% 0.5% Real Assets 0% to 10% 3% 0% Hedge Funds 15% to 45% 25% 33.3% In November 2007, the Corporation commenced the implementation of a transition plan to rebalance the Long -Term Portfolio in accordance with the newly established asset allocation ranges and targets. The transition was divided into several phases and is still in, progress. Subject to the availability of desired investment vehicles and other factors, the Corporation expects to achieve its allocation targets by December 31, 2008. Long -Term Portfolio — Fixed Income The fixed income assets held in the Corporation's Long -Term Portfolio are managed by an investment manager who must maintain a minimum average portfolio quality of "A -" and a minimum credit quality at purchase of "B -" or equivalent rating by at least one of the major rating services.. The investment manager is specifically directed to target an average duration of two years above or below the Lehman Aggregate Index and to limit its holdings to no more than (i) 30% in non -U.S. dollar denominated instruments, (ii) 20% in securities rated below "BBB ", and (iii) 25% in nonleveraged derivatives (including futures), among other additional guidelines. At February 29; 2008, the fixed income portfolio had an aggregate market value of approximately $230 million with portfolio effective duration of 5.04 years. The average credit quality of the holdings in the fixed income portfolio was in the "AA" category from the major rating services. Long -Term Portfolio — Equity Currently, ten investment managers manage the Corporation's equity investments, with specific investment mandates among the following categories: • U.S./Domestic Equity • International Equity, including emerging markets • Global Equity Each separate account equity manager has specific investment guidelines and defined portfolio benchmarks appropriate for the managed asset class. The Corporation also has significant allocations, approximately $176 million as of February 29, 2008, to commingled investment vehicles, which are managed in accordance with the offering documents for each commingled fund investment and may may have limited liquidity subject to prior redemption notice requirements. One of the international equity investments (approximately $33 million) is through OHS West260419520.4 A -28 an offshore fund. The investment restrictions for the commingled investment funds need not be in compliance with, but should be consistent with, the Corporation's investment policy. Long -Term Portfolio — Alternative Investments In 2003, the Corporation recognized the need to further diversify its investments to reduce overall portfolio volatility in light of its planned capital needs. In accordance with the Corporation's current investment policies and procedures, the Corporation current long -term target is to invest up to 35% of its Long -Term Portfolio in alternative investments, such as private equity, real assets, hedge funds and absolute return investments. Such investments involve a high degree of risk. The Corporation's allocation to alternative investments currently includes direct hedge fund investments, "fund -of- funds" hedge funds, direct and fund -of -fund private equity investments, as well as investments under multiple asset class mandates with broad investment manager discretion. As of February 29, 2008, approximately 20% of the alternative investments portfolio was invested in a mutual fund -of -funds which seeks a positive return regardless of market direction and which is not restricted with respect to its exposure to any particular asset class. At the investment manager's discretion, the fund may invest all or substantially all of its assets in a limited number of underlying funds that primarily invest in equity and fixed income securities denominated in both U.S. and foreign currencies with an exposure to both emerging markets and developed markets. This absolute return investment is classified as "mutual fund" in the audited financial statements of the Corporation. However, for purposes of investment management and compliance with investment policy, this absolute return investment is included in the hedge fund category and contributes towards the hedge fund target allocation. As of February 29, 2008, approximately 9% of the alternative investments portfolio was invested in three offshore hedge funds which employ primarily long/short equity hedge fund strategies. The investment strategies of these hedge funds are speculative and involve significant risk of loss. The funds' portfolios may be highly concentrated and include short positions. Short selling involves selling securities which may or may not be owned and borrowing the same securities for delivery to the purchaser, with an obligation to replace the borrowed securities at a later date. A short sale creates the risk of a theoretically unlimited loss, in that the price of the underlying security could theoretically increase without limit, thus increasing the cost to the funds of buying these securities to cover the short position. In addition, there can be no assurance that the security necessary to cover a short position will be available for purchase. The funds may also use leverage and such leverage may significantly increase the adverse. consequences to which the funds' investment portfolios may be subject. The Corporation's risk of loss is limited to its investment in the funds. Additional risk factors include, but are not limited to, limited transferability, liquidity, and transparency. There can be no assurance that the hedge fund managers will achieve their investment objectives. The Corporation expects to increase its direct commitments to hedge funds in the future within the limits of its investment policy. As of February 29, 2008, approximately 43% of the alternative investments portfolio was invested in three offshore multi - manager "fund -of- funds" hedge funds which implement a range of alternative investment strategies including but not limited to long/short equity, market neutral, diversified futures, commodities, emerging country debt, event driven, merger arbitrage, distressed and high yield, convertibles, interest -rate driven and credit driven. The funds are subject to strategy risk whereby failure or deterioration of an entire strategy can lead to significant losses due to excess concentration by multiple managers in the same investments or broad events that adversely affect particular strategies. Additionally, it is possible that the performance of the fund managers may be closely correlated, resulting in significant losses in adverse market conditions. If the Corporation's "fund -of- funds" hedge fund managers are concentrated in a particular underlying investment manager, asset category, trading style or financial or economic market, the Corporation's investment portfolio may become more susceptible to fluctuations in value and potential losses. The Corporation does not manage correlation risk. This is the risk that the "fund of fund" managers may invest with the same underlying investment managers or that the underlying managers may invest in the same securities and sectors, resulting in less diversification than would be suggested by the number of managers being employed. OHS West260419520.4 A -29 The level of risk associated with "fund -of- funds" hedge fiord investments is generally greater than the risk associated with traditional fixed income or equity investments. Risk factors associated with these "fund -of -fiords" hedge funds include but are not limited to the use of leverage, limited transferability and liquidity. Leverage involves increased risk as well as substantial interest expense. The use of leverage by the funds can, in certain circumstances, increase the adverse impact to which the investment portfolio may be subject. Additional risk factors include limited transferability and liquidity. Some of the "fiord- of-funds" hedge fiords are subject to liquidity restrictions such as redemption provisions which provide for specified redemption windows with certain advance notice requirements. The success of "fund -of- funds" hedge fiords depends primarily on the investment manager's ability to choose the underlying fiord managers as the multi - manager approach delegates control of the fiords' investments to persons other than the manager of the "fiord -of ands" hedge fiords. Furthermore, the success of the fiord- of-funds depends on the ability of the manager of each underlying fiord to implement the fiend's investment strategy. There can be no assurance that the hedge fund managers will achieve their investment objectives. The Corporation is in the process of liquidating two fund -of and hedge fund managers which represented approximately 27% of the alternative investments portfolio as of February 29, 2008. In March 2008, the Corporation received full redemption proceeds in the approximate amount of $63 million from one of these managers. Approximately $40 million of the liquidation proceeds was transferred to the Corporation's operating cash account, and the remaining $23 million was moved to the Corporation's Short-Term Portfolio. The Corporation was the sole investor in the second "fiord -of- funds" hedge fund manager. Due to the limited liquidity, as well as certain holdback requirements of the underlying hedge fiords, the "fund- of-funds" transferred in -kind approximately $10 million of its underlying fund positions to the Corporation, and retained approximately $3 million in cash and receivables pending receipt of holdback amounts and completion of fund audit and liquidation, of this amount approximately $_ may be uncertain of ultimate recovery based upon difficulties with or characteristics of underlying assets. The remaining positions transferred in -kind by the fiord -of ands, which had an aggregate market value of approximately $8 million as of February 29, 2008, employ a range of strategies, including but not limited to long/short equity, distressed subprime, special opportunities /event driven, and multi - strategy. These hedge fiords have various lock -up periods and redemption notice requirements. The Corporation expects that it will redeem out of these fiords at the next available opportunity. In mid -2006, the Corporation made a capital commitment in the amount of $6 million to a private equity buyout fund. The fiord invests primarily in privately negotiated investments that have equity -like returns often involving leverage. Leveraged buyout transactions typically involve private ownership of companies that have greater- than-usual levels of debt on their balance sheets.. Such high levels of leverage produce a correspondingly high degree of variability in outcomes, both positive and negative. The leveraged capital structure of such investments increases the exposure of the portfolio companies to adverse economic factors. As a result, the fiord may incur significant losses. In March 2008, the Corporation made an additional commitment in the amount of $9.25 million to a venture capital fiord -of ands. The fiord invests in a select group of venture capital firms who in turn invest in a number of early stage and growth companies, primarily in the information technology and Hfe science sectors, both domestically as well as internationally. The fiend's objective is to generate substantial long -teen returns commensurate with the above average risks of venture capital investing. The business of identifying, completing and realizing on attractive venture capital fiord investments is competitive and involves a high degree of uncertainty. There can be no assurance that the fiord manager will be able to locate and complete attractive investments which satisfy the fiend's investment objectives or realize upon their values or that it will be able to invest fully the fiend's committed capital. There can be no assurance that the private equity managers will achieve their. investment objectives. The success of the fiords depends, in large part, upon the skill and expertise of their key management personnel. Additionally, the activity of identifying, completing and realizing attractive investments is highly competitive, and involves a high degree of uncertainty. There can be no assurance that the funds will be able to locate, consummate and exit investments that satisfy the funds' rate of return objectives or realize upon their values. The private equity investments are highly illiquid and difficult to value. There is no organized secondary market for interests in the OHS West260419520.4 A -30 funds, and none is expected to develop. The Corporation has limited transferability and withdrawal rights with respect to the funds.` The Corporation is subject to capital calls with generally ten days prior notice. As of February 29, 2008, the Corporation's unused capital commitments which are subject to future capital calls by the leverage buyout and venture capital funds were approximately $2 million and $9 million, respectively. The Corporation may increase its allocation to private equity investments in the future subject to any limitations imposed by its investment policies. The investment policies are subject to revision from time to time by the Corporation's Board of Directors. There can.be no assurance that the Corporation will achieve its investment objectives or that it will receive any return on its investments. Investment performance may be volatile and the Corporation may lose a significant portion of Its investment portfolio. Adverse economic and market conditions or other events could result in substantial or total loss to the Corporation in respect of some or all.of its investments. Certain Indebtedness and Liabilities In 2007, the Corporation entered into interest rate swap agreements (the `Interest Rate Swaps ") with respect to a portion of the 2007 Bonds, for the purpose of managing the Corporation's exposure to fluctuations in interest rates. The Interest Rate Swaps, which convert a portion of the Corporation's floating -rate debt to a fixed rate, hedge a total initial notional amount of $250 million at a 3.229% fixed interest rate against 55.7% of the USD- L1BOR -BBA rate plus 0.23 %. Settlements are made on a monthly basis with the counterparty, Citibank, N.A., over the term of the agreements, each of which expire in December 2040. In 2007, the Corporation executed a limited guaranty (the " NBLSC Limited Guaranty") in connection with the establishment of a revolving credit line facility (the " NBLSC Facility") in the amount of one million dollars ($1,000,000) to be provided to NBLSC by Bank of America, N:A. The Corporation's liability under this NBLSC Limited Guaranty for the principal amount of indebtedness incurred by NBLSC under the NBLSC Facility shall not exceed at any one time the greater of (i) fifty -one percent (51 %) of the principal amount of such indebtedness or (ii) a pro rata portion equal to the Corporation's percentage ownership interest in NBLSC tines the principal amount of the indebtedness under the NBLSC Facility, calculated at the time a claim under the NBLSC Limited Guaranty is made by the bank. The Corporation's current ownership interest in NBLSC is 57 %. See "Organizational Structure — Other Affiliated Entities Not Members of the Obligated Group" above. In 2008, the Corporation executed an irrevocable standby letter of credit in the amount of $500,000, issued by Bank of America in favor of the City of Newport Beach. This letter of credit is intended to serve as security for certain of the Corporation's obligations to the City of Newport Beach. This letter of credit expires on January 5, 2009 but may be extended without amendment for one year periods from current or future expiration dates, subject to the bank's agreement to renew. Self- Liquidity The Corporation expects to maintain self - liquidity in connection with a portion of the 2008 Bonds. The Corporation is subject to an arrangement with certain of the bond rating agencies related to a portion of the 2008 Bonds whereby it must maintain, in the aggregate, sufficient assets, primarily marketable fixed income securities, certain publicly traded equity securities and other liquidity support vehicles, to be used to repurchase the bonds in the event that tendered bonds are not resold in the open market. The total investments in securities with same day liquidity was approximately $_ million as of February 29, 2008, including cash equivalents held as operating reserves, fixed income securities of varying maturities held in the Corporation's Short-Term Assets pool, and certain fixed income fund holdings part of the Corporation's Long -Tenn Assets pool. Total investments with same day liquidity represented about _x the outstanding principal amount of the 2008 Bonds expected to be supported by self - liquidity. Such investments include approximately $_ held in the Long -Tenn Portfolio. See "Liquidity and Investment Policy" for detailed. discussion of investment program. OHS Wmt:260419520.4 A -31 Capitalization The following table sets forth the capitalization foi the Obligated Group as of the fiscal year ended August 31, 2007. The pro forma capitalization has been adjusted to reflect (i) the issuance of the Bonds, as if such transaction had occurred on August 31, 2007, (ii) the redemption of $70 million of Prior Bonds (the "Series 2005C Bonds ") which occurred in April 2008 whereby, to redeem the Series 2005C Bonds, the Corporation used loan proceeds drawn on a taxable line of credit pursuant to a credit agreement with Bank of America, N.A, (iii) the expected subsequent repayment of the loan described above using a portion of the bond proceeds from the issuance of the Bonds, and (iv) the refunding of approximately $383 million of the, Prior Bonds, all such transactions reflected as if they had occurred on August 31, 2007. Actual Pro Forma August 31, 2007 August 31, 2007 - (000's)- Outstanding Long -Term Debt $622,950 Less: Redemption of 2005C Less: Refunded Bonds Plus: The 2008 Bonds Subtotal 622,950 Total Net Assets 1,218,254 Total Capitalization $1,841,204 Percent Long -Term Debt to Capitalization 1 33.8% Estimated Debt Service Coverage The following table sets forth the Obligated Group's estimated debt service coverage for the fiscal years ended August 31, 2006 and August 31, 2007. The pro forma debt service coverage has been adjusted to reflect (a) the issuance of the Bonds, as if such transaction had occurred on September 1, 2007, in the aggregate principal amount of $453 million, (b) the assumption that a portion of the proceeds of the Bonds have been applied to refund Prior Bonds in the aggregate principal amount of $383 million and to repay a loan under a taxable line of credit used to redeem $70 million of Prior Bonds (as more fully described in the "PLAN OF REFUNDING" in this Official Statement). Actual August 31, 2006 Net Income(l) $ 71,241 Depreciation and Amortization 39,692 Interest 17.651 Income Available. for Debt Service (2) $128,584 Maximum Annual Debt Service i'i 37,300 Actual Pro Forma August 31, 2007 August 31, 2008 $ 148,350 40,542 24,317 $213,209 37,300 Debt Service Coverage Ratio (times) 3.45 5.72 [I] In fiscal year 2007, the Corporation reclassified its marketable securities as `trading" under SFAS No. 124. In accordance, the Corporation recognized unrealized gainstlosses on securities previously considered "other- than- trading." However, for purposes of calculating income available for debt service, the Corporation has adjusted the Net Income for fiscal year 2007 to exclude the change in unrealized gains/losses. [2] The presentation of Income Available for Debt Service does not include transfers to the Obligated Group Members from Hoag Hospital Foundation. Thus, it does not correlate to the determination of Income Available for Debt Service under the Master Indenture dated as of May 1, 2007, as supplemented. [31 The actual and pro forma Maximum Annual Debt Service is calculated pursuant to the Master Indenture. Such calculations require certain assumptions of interest and amortization of existing debt. The actual interest rates and amortization will vary from these assumptions and could have the effect of increasing or decreasing Maximum Annual Debt Service and Debt Service Coverage Ratios. OHS West:260419520.4 A -32 ORGANIZATION AND MANAGEMENT Corporate Structure The Corporation has fifty members, twenty -five appointed by the George Hoag Family Foundation and twenty -five by the Association of Presbyterian Members of Orange Comity. The members elect the Board of Directors of the Corporation. Nominations to the Board are made as follows: a nominating committee of the Board — between nine and thirteen; the Medical Staff — three, and the President & CEO as a director; for a total of thirteen to seventeen nominations. Board of Directors The current members of the Board are listed below. There is currently one vacancy on the Board. Name Stephen Jones, Chair Robert W. Evans, Vice Chair Max W. Hampton, Secretary Richard F. Afable, MD Dick P. Allen John L Benner Allyson Brooks, MD John L. Curci Jake Easton III Martin J. Fee, MD Joanne D. Fix Kris V. Iyer, MD Gary S. McKitterick Richard M. Ortwein, Chair Melinda Hoag Smith Virginia Ueberroth Vacancy Itl The terms ending in 2008 will expire at the end of the fiscal year ending on August 31, 2008. Effective November 2007, there is a limit of four three -year terms, except that those trustees on the Board in 2007 with more than 12 years of service may elect to serve one additional tern. Management The management of the Corporation has been delegated by the Board of Directors to the administrative staff. Brief resumes of members of senior management are included below. President and Chief Executive Officer. Richard Afable, M.D., MPH, age 54, has been President and Chief Executive Officer of the Corporation since August, 2005. Prior to his selection as President and Chief Executive Officer of the Corporation, Dr. Afable served as executive vice president and chief medical officer at Catholic Health East, the largest not - for -profit health care system on the East Coast, and was part of their senior management team, which guided the strategic operation and management of the health system. As executive vice president, he was responsible for all aspects of clinical performance and quality management and had corporate responsibility for information technology, managed care, patient safety, communication, and physician relationships. Before joining Catholic Health East, Dr. Afable was the founder and presidenVCEO of Preferred Physician. Partners (PPP), a physician practice management company that supported physician groups and provider networks. Prior to hospital administration, Dr. Afable was in private practice in Chicago, specializing in internal medicine and geriatrics. Dr. Afable received his BS degree from Loyola University in Chicago and an MD from the Loyola Stritch School of Medicine. He obtained his MPH degree from the University of Illinois School of Public Health and a certificate in business administration from Villanova University in Pennsylvania. OHS West:260419520.4 A -33 Years on Term Occupation Board Expires Commercial Construction Executive 6 2010 Retired Sales & Marketing Executive 10 2009 Retired Merrill Lynch Executive 11 2010 Hospital President & CEO 3 2008 Independent Investment Professional 17 2008 Retired Financial Management Consultant 3 - 2010 Physician, Gynecology 1 2009 Independent Real Estate Investment Manager 11 2009 Management Consultant 4 - 2009 Physician, Internal Medicine, Infectious Diseases 6 mo. 2010 Retired Accountant - - 16 2008 Physician, Endocrinology 2 - 2008 Attorney, Real Estate Law 6 mo. 2010 Independent Real Estate Developer 8 2008 Philanthropist - 13 2008 Philanthropist 4 2009 nla Itl The terms ending in 2008 will expire at the end of the fiscal year ending on August 31, 2008. Effective November 2007, there is a limit of four three -year terms, except that those trustees on the Board in 2007 with more than 12 years of service may elect to serve one additional tern. Management The management of the Corporation has been delegated by the Board of Directors to the administrative staff. Brief resumes of members of senior management are included below. President and Chief Executive Officer. Richard Afable, M.D., MPH, age 54, has been President and Chief Executive Officer of the Corporation since August, 2005. Prior to his selection as President and Chief Executive Officer of the Corporation, Dr. Afable served as executive vice president and chief medical officer at Catholic Health East, the largest not - for -profit health care system on the East Coast, and was part of their senior management team, which guided the strategic operation and management of the health system. As executive vice president, he was responsible for all aspects of clinical performance and quality management and had corporate responsibility for information technology, managed care, patient safety, communication, and physician relationships. Before joining Catholic Health East, Dr. Afable was the founder and presidenVCEO of Preferred Physician. Partners (PPP), a physician practice management company that supported physician groups and provider networks. Prior to hospital administration, Dr. Afable was in private practice in Chicago, specializing in internal medicine and geriatrics. Dr. Afable received his BS degree from Loyola University in Chicago and an MD from the Loyola Stritch School of Medicine. He obtained his MPH degree from the University of Illinois School of Public Health and a certificate in business administration from Villanova University in Pennsylvania. OHS West:260419520.4 A -33 Senior Vice President — Clinical Excellence and Chief Quality Officer. Jack Cox, M.D., MMM, age 54, joined the organization in 2006 and directs the quality and performance improvement initiatives for the Corporation, directs Risk Management and Clinical Research, as well as oversees the five Centers of Excellence (Women's Health Services, Cardiovascular Services, Orthopedic Services, Neuroscience Services, Cancer Services) and the Diabetes Center. Prior to Hoag, he served as Chief Medical Officer and Senior Vice President with Premier, Inc, a national healthcare alliance. There he developed a model for quality improvement initiatives in conjunction with the Institute of Healthcare Improvement and was instrumental in designing a medical technology evaluation process that incorporated quality and safety for Premier. Dr. Cox was a medical director for Intermountain Health Care, Inc. where he led operational and quality improvement for eight outpatient physician group practices. He has served on the clinical faculty for five medical schools and was previously involved in academics and research for 13 years, including serving as director for two residencies. He has served on a number of boards and committees including the American Hospital Association, the Health Technology Center, an IOM subcommittee and the Joint Commission Journal on Quality. Dr. Cox is a board certified Family Physician, a fellow of the American Board of Family Practice, a fellow of the American College of Physician Executives and holds a master's degree in Medical Management from Tulane University. He has published and spoken nationally and internationally on various aspects of healthcare. Senior Vice President — Resource Development. Ronald Guziak, age 61, is responsible for direction and supervision of the Corporation's fund raising activities, which are coordinated with Hoag Hospital Foundation. Mr. Guziak is also the Executive Director of Hoag Hospital Foundation. Mr. Guziak graduated from West Virginia University where he received his bachelor's degree in journalism. He earned his master's degree in social science from Wesleyan University in Middletown, Connecticut. Prior to assuming his position with the Corporation, Mr. Guziak served as president of Little Company of Mary Hospital Foundation (Torrance, California) and San Pedro Peninsula Hospital Foundation (San Pedro, California). He has also held positions at St. Luke's Episcopal Hospital (Houston, Texas), California Hospital Medical Center (Los Angeles, Calif.), Memorial Hospital of Glendale (Glendale, California), Northwestern Memorial Hospital (Chicago, Illinois), and Wesleyan University (Middletown, Connecticut). Mr. Guziak is a Fellow in the Association for Healthcare Philanthropy (AHP) and a member of the Association of Fundraising Professionals (AFP). Senior Vice President — Clinical Operations and Chief Nursing ®rcer. Richard Martin, MSN, RN, age 50, has been with the Corporation for 16 years and oversees all nursing departments and clinical operations departments, including the emergency care unit, chemical dependency, perioperative services, pharmacy, laboratory services and imaging services. Mr. Martin is active on numerous nursing committees and boards. Additionally, Mr. Martin participates in several professional organizations including: American College of Healthcare Executives, Association of California Nurse Leaders, American Organization of Nurse Executives, National League of Nurses, American Society for Quality and Leadership Tomorrow. He is also an active community member, serving as Administrative Representative on the Board of Directors for the Share Our Selves Clinic. Prior to joining the Corporation, Mr. Martin was Assistant Vice President of Patient Care Services at HCA Lewis -Gale Hospital in Salem, Virginia. Mr. Martin received his Masters in Nursing from the University of Virginia and a Bachelor of Science in Nursing from West Virginia University. Senior Vice President Corporate Services — Chief Financial Officer. Jennifer C. Mitzner, age 39, has been with the Corporation since 1994. As Chief Financial Officer, she is responsible for all aspects of corporate finance including treasury, accounting, finance, materials management, managed care contracting, patient financial services, patient access functions, and internal audit of the Corporation. Ms. Mitzner is also responsible for all corporate services including human resources, marketing, legal and compliance. Ms. Mitzner received her Master of Public Administration degree in Health Care Administration from the University of San Francisco and her Bachelor of Business Administration, Accounting from Texas Christian University and is a Certified Public Accountant. Ms. Mitzner was previously with KPMG Peat Marwick in the advisory services group for both the healthcare and insurance industry (1990- 1994). EMPLOYEES As of February 29, 2008, the Corporation and its Wholly -Owned Subsidiaries had approximately 2,932 full-time and 1,115 part-time employees, or 3,773 full -time equivalents. This includes all hospital related functions as well as support functions. Support functions include the Child Care Center, seven outreach medical office OHS West:260419520.4 A -34 buildings, a physicians billing service, management of the Foundation, management and operating staff for the . Independent Physicians Association (IPA) and several practice management sites. Generally, the markets in which the Corporation operates are experiencing nursing shortages which the Corporation expects to continue for the foreseeable future. To address this shortage, the Corporation has implemented a number of initiatives to fund nursing education programs and expand the supply of nurses. In the fiscal year ending August 31, 2008, the Corporation expects to award approximately $40,000 in scholarships to its employees. The scholarship funds help nursing students buy books and pay for tuition and fees. In addition, to support local colleges and universities, the Corporation directly funds professorships for nursing instructors. A one - year professorship, valued at $100,000, enables 12 nursing students to enroll from a waiting list. Presently, the Corporation partners with Golden West College, California State University, Long Beach, Saddleback College, California State University, Fullerton and Santa Ana College. In the fiscal year ending August 31, 2008, the Corporation expects to fund approximately $1,000,000 in nursing professorships. In addition, the Corporation recently celebrated the opening of The Marion Knott Nursing Education Center, an on- campus Nursing Education Center featuring classroom space, and the latest technology and equipment to educate current staff, new hires and nursing students performing clinical rotations. To maximize the learning experience, the education center duplicates the Hospital's patient environment. In 2005, the Hospital was designated as a Magnet hospital by the American Nurses Credentialing Center (ANCC). The Magnet designation is a key component of the Corporation's nursing recruitment and retention strategy. The Magnet Recognition Program was developed by ANCC to recognize health care organizations that provide nursing excellence and is based on quality indicators and standards of nursing practice as defined in the American Nurses Association's Scope and Standards for Nurse Administrators (2004). The Corporation's certification as a Magnet Hospital is subject to a renewal process every 5 years. Employees of the Corporation are not represented by any union and management of the Corporation has not observed any significant union activity at the Hospital in recent years. Management considers its relations with its employees to be good. The Corporation does not sponsor any defined benefit plans. The Corporation offers a defined contribution plan with a match provision that is funded annually. For additional information, See APPENDIX B. LEGAL & REGULATORY MATTERS The Corporation is involved in various liability disputes, governmental and regulatory inspections, inquiries, investigations, proceedings and litigation matters that arise from time to time in the ordinary course of business. The Corporation is self - insured with respect to professional liability and comprehensive general liability risks, subject to certain limitations. Professional and comprehensive general liability risks. in excess of $2,000,000 per occurrence are reinsured with major independent insurance companies. See "BONDHOLDERS' RISKS — Business Relationships and Other Business Matters — Professional Liability Claims and General Liability Insurance" and "LITIGATION — Hoag Hospital and NHC" in the forepart of this Official Statement for additional information regarding litigation and claims risks. POTENTIAL AFFILIATIONS AND TRANSACTIONS Management expects competitive pressures from competing health care delivery systems to intensify in the future: In particular, competition from specialty providers of cafe is expected to increase and may negatively affect programs that are economically important to the Corporation. See the section of this Official Statement entitled "BONDHOLDERS' RISKS — Significant Areas Summarized —. Proliferation of Competition" and " — Competition Among Healthcare Providers" and " — Integrated Physician Groups. ". Pursuant to the Corporation's strategic plan, the Corporation is committed to actively pursuing additional economic partnership opportunities with physicians and physician groups, including arrangements which are responsive to these competitive pressures, and may seek opportunities with other healthcare groups as well. OHS Wese260419520.4 A -35 The Corporation may negotiate for and enter into affiliations, joint ventures or contractual arrangements in the future in furtherance of its strategic plans and community mission. Further acquisitions; affiliations or joint ventures may involve substantial capital expenditures, all or a portion of which may be financed through debt incurred by the Corporation. Such affiliations or joint ventures may involve inpatient or outpatient specialty services performed at or outside the primary Hospital campus and may result in a significant transfer of patient revenues to the joint venture or affiliated entity. Taken individually or in the aggregate, such transactions may be material to the Corporation's finances. Overall, the Corporation expects that such arrangements would be beneficial to the Corporation and have a positive impact on the operating results of the Corporation, although short-term impact may be negative. Such transactions may involve significant risks. While the Corporation considers such opportunities as they are presented or in response to strategic initiatives, no definitive agreements with respect to any pending affiliations or joint ventures have been reached at this time. In any case, implementation of specific strategic affiliations and joint ventures is subject to significant risks and conditions precedent. The Corporation cannot predict whether any such material arrangements will be entered into or the ultimate terms on which they may be developed. [To Be Updated] OHS West260419520.4 A -36 TABLE OF CONTENTS HOSPITAL SERVICES A-6 Descriptionof Services ............................................................................................... ............................... Page GENERAL................................... : ........................................................................................ :.................................. A -1 History......................................................................................................................... ............................A -1 Mission......................................................................................................................... ............................A -1 CoreStrategies .............................................................................................................. ............................A -1 HospitalFacilities ....................................................................................................... ............................... A -1 NewportHealthcare Center ........................................................................................ ............................... A -3 ORGANIZATIONALSTRUCTURE ...................................................................................... ............................... A -3 ObligatedGroup ......................................................................................................... ............................... A -3 Other Affiliated Entities Not Members of the Obligated Group ................................ ............................... A4 Wholly -Owned Subsidiaries Which Are Immaterial Affiliates .................... ............................... A4 HoagHospital Foundation ........................................................................... ............................... A4 OtherAffiliates ........................................................................:.................... ............................... A4 OrganizationChart ........................................................................................................ ............................A -5 Integrated Physician Group Relationship ................................................................... ............................... A -6 HOSPITAL SERVICES A-6 Descriptionof Services ............................................................................................... ............................... A-6 Centersof Excel lence ................................................................................................. ............................... A -6 HoagCancer Center ..................................................................................... ............................... A -7 Hoag Heart and Vascular Institute ............................................................... ............................... A -7 HoagOrthopedic Services ............................................................................ ............................... A -8 Hoag Women's Health Services ................................................................... ............................... A -9 Hoag Hospital Neurosciences Center ........................................................... ............................... A -9 OtherServices .....................................................:.................................................... ...I........................... A -10 CommunityMedicine ................................................................................. ............................... A -10 Pediatric Care: Affiliation with Children's Hospital of Orange County ... ............................... A -10 BedDistribution ....................................................................................................... ............................... A -1 I MEDICALSTAFF ................................................................................................................. ............................... A -12 SERVICE AREA AND COMPETITION .............................................................................. ............................... A -13 ServiceArea ............................................................................................................. ............................... A -13 Market Share and Competition ................................................................................. ............................... A -14 Demographics........................................................................................................... ............................... A -14 FACILITIES DESIGN AND CONSTRUCTION ...................................................................... ...........................A -15 TheCapital Plan ....................................................................................................... ............................... A -15 TheProject ............................................................................................................... ............................... A -16 SELECTED UTILIZATION AND FINANCIAL INFORMATION ..................................... ...... .I........................ A -19 Sources of Patient Services Revenue ........................................................................ ............................... A -19 HistoricalUtilization ................................................................................................ ............................... A -19 Summary of Financial Informat ion .......................................................................... ............................... A -20 Management's Discussion and Analysis of Financial Information .......................... ............................... A -23 Liquidityand Investment Policy ............................................................................... ............................... A -26 Short-Term Assets Portfolio ..................................................................................... ............................... A -27 Long -Term Assets Port folio ..................................................................................... ............................... A -27 Long -Term Portfolio — Fixed Income ....................................................................... ..:............................ A -28 Long -Term Portfolio — Equity ................................................................:................. ............................... A -28 Long -Term Portfolio — Alternative Investments .................................................... ............................... A -29 Certain Indebtedness and Liabilities ......................................... ............................................................... A -31 Self- Liquidity ........................................................................................................... ............................... A -31 Capitalizat ion............................................................................................................ ............................... A -32 OHS Wwt,260419520.4 TABLE OF CONTENTS (continued) Page Estimated Debt Service Coverage ............................................................................ ............................... A -32 ORGANIZATION AND MANAGEMENT ............................................................................ ............................... A -33 CorporateStructure .................................................................................................. ............................... A -33 Boardof Directors .................................................................................................... ............................... A -33 Management............................................................................................................. ............................... A -33 EMPLOYEES......................................................................................................................... ............................... A -35 LEGAL & REGULATORY MATTERS ................................................................................ ............................... A -35 POTENTIAL AFFILIATIONS AND TRANSACTIONS ...................................................... ............................... A -35 OHS West:260419520.4 -ii- APPENDIX B -1 FINANCIAL STATEMENTS OF HOAG MEMORIAL HOSPITAL PRESBYTERIAN AND AFFILIATES OHS Wmt:260418306.4 . B -1 APPENDIX B-2 HOAG MEMORIAL HOSPITAL PRESBYTERIAN AND AFFILIATES UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION Hoag Memorial Hospital Presbyterian and Affiliates Six-Month Periods Ended February 29, 2008 and February 28, 2007 OHS West:260418306.4 C -1 APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS OHS Wot:260418306.4 C -1 APPENDIX D FORM OF OPINION OF BOND COUNSEL [Date of Delivery of Bonds] City of Newport Beach Newport Beach, California 92658 Re: City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to the City of Newport Beach (the "City ") in connection with the issuance of $[PAR AMOUNT] aggregate principal amount of its Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008A, Series 2008B,.Series 2008C, Series 2008D and Series 2008E (collectively, the "Bonds "), issued pursuant to the provisions of Ordinance No. 85 -23 and 84 -4 adopted by the City Council of the City on February 13, 1984; under Sections 3, 5 and 7 of Article XI of the Constitution of the State of California and Section 200 of Article II of the Charter of the City, a resolution adopted by the City Council on April 24, 2008 and a Bond Indenture dated as of May 1, 2008 (the "Bond Indenture "), between the City and Wells Fargo Bank, National Association, as bond trustee (the "Bond Trustee "). The Bond Indenture pro vides that the Bonds are issued for the purpose of making a loan of the proceeds thereof to Hoag Memorial Hospital Presbyterian (the "Corporation ") pursuant to a Loan Agreement dated as of May 1, 2008 (the "Loan Agreement"), between the City and the Corporation. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Bond Indenture. In such connection, we have reviewed the Bond Indenture; the Loan Agreement; the Tax Certificate and Agreement, dated the date hereof (the "Tax Certificate and Agreement"), between the City and the Corporation; opinions of counsel to the City and the Corporation; certificates of the City, the Bond Trustee, the Corporation, 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 Stradling Yocca Carlson & Rauth, a Professional Corporation, 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 "). We note that the opinion is subject to a number of qualifications and limitations. We have also relied upon representations of the Corporation regarding the use of the facilities financed with the proceeds of Bonds in activities that are not considered unrelated trade or business activities of the Corporation within the meaning of Section 513 of the Code. We note that the opinion of counsel to the Corporation does not address Section 513 of the Code. 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 use of the bond - financed facilities in activities that are considered unrelated trade or business activities of the Corporation within the meaning of Section 513 of the Code, may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of issuance of the Bonds. OHS We 060418306.4 D-1 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 is not intended to, and may not, be relied upon in connection with any such actions, events or matters. 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 City. 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 Bond Indenture, the Loan Agreement and the Tax Certificate and Agreement, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Bond Indenture, the Loan Agreement and the Tax Certificate and 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 and to the exercise of judicial discretion in appropriate cases. 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 as subject to the lien of the Bond Indenture 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 Bonds 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 Bonds constitute the valid and binding limited obligations of the City. 2. The Bond Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the City. The Bond Indenture creates a. valid pledge, to secure the payment of the principal of and interest on the Bonds, of the Revenues and any other amounts (including certain proceeds of the sale of the Bonds) held by the Bond Trustee in any fund or account established pursuant to the Bond Indenture, except the Escrow Fund, the Rebate Fund and the Bond Purchase Fund, subject to the provisions of the Bond Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Bond Indenture. 3. The Loan Agreement has been duly executed and delivered by, and constitutes the valid and binding agreement of, the City. 4. The Bonds are not a lien or charge upon the funds or property of the City except to the extent of the aforementioned pledge and assignment. Neither the faith and credit nor the taxing power of the City, the State of California or of any political subdivision thereof is pledged to the payment of the principal of or interest on the Bonds. The Bonds are not a debt of the State of California, and said State is not liable for the payment thereof. OHS West:260418306.4 D -2 5. Interest on the Bonds 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. Interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP per OHS West260418306.4 D -3 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate ") is executed and delivered by Hoag Memorial Hospital Presbyterian ( "Hospital "), a nonprofit public benefit corporation duly organized and existing under the laws of the State of California in connection with the execution and delivery of $[PAR AMOUNT] City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008A, 2008B, 2008C, 2008D and 2008E (the `Bonds "). The Bonds are being issued pursuant to a bond indenture, dated as of May I, 2008 (the "Indenture"), between the City of Newport Beach (the "City ") and Wells Fargo Bank, National Association, as Trustee. The proceeds of the Bonds are being loaned by the City to Hospital pursuant to a loan agreement, dated as of May 1, 2008 (the "Loan Agreement"), between the City and the Hospital. The Hospital covenants and agrees as follows: SECTION I. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Hospital for the benefit of the Holders and Beneficial Owners of the Bonds. The Hospital acknowledges that the City has not undertaken any responsibility with respect to any reports, notices or disclosures provided or required under this Disclosure Certificate, and has no liability to any person, including any Holder or Beneficial Owner of the Bonds, with respect to the Rule. SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the Hospital pursuant to, and as described in, Section 3 and 4 of this Disclosure Agreement. "Beneficial Owner" or "Holder" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Dissemination Agent" shall mean any Dissemination Agent designated in writing by the Hospital. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purpose of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are listed at h!W:/ /www/ sec .gov /info/municipal/nrmsir.htFn. "Participating Underwriter" shall mean the original underwriter of the Bonds required to comply with the Rule in connection with the offering of the Bonds. . "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2 12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. OHS West:260418306.4 E -1 "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. SECTION 3. Provision of Annual Resorts. The Hospital shall, or shall cause the Dissemination Agent to, not later than six months following the end of its fiscal year (which fiscal year as of the date hereof ends August 31, 2008), commencing with the report for the 2008 fiscal year, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. In each case, 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 4 of this Disclosure Certificate; provided that audited financial statements may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the Hospital's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 4. SECTION.4. Content of Annual Reports. The Hospital's Annual Report shall contain or include by reference the following: (a) The audited financial statements of the Obligated Group (which may be the audited financial statements of the Hospital consolidated with its Wholly -Owned Subsidiaries (as defined in Appendix A of the Official Statement) and/or affiliates so long as the Hospital and Newport Healthcare Center, LLC are the sole Members of the Obligated Group and all other Wholly -Owned Subsidiaries are Immaterial Affiliates as such terms are defined in the Master Indenture) for the prior fiscal year, audited by a firm of nationally recognized independent certified public accountants approved by the Hospital as having been prepared in accordance with generally accepted accounting principles (except in the case of special purpose financial statements, for required consolidations). If such audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement (defined below), and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Unless a single financial statement (including a single special purpose financial statement) is delivered pursuant to clause (a) above for the Obligated Group, an unaudited combined balance sheet and an unaudited combined statement of operations for such fiscal year for the Obligated Group, prepared by the Hospital; provided, if the Hospital is the only Member of the Obligated. Group during the applicable fiscal year, such unaudited statement may include operations of the Hospital and its Wholly -Owned Subsidiaries. (c) An update of the following information contained in Appendix A to the Official Statement, dated May 15, 2008 (the "Official Statement"), related to the Bonds: List of Obligated Group Members; 2. Updated information provided in tabular form under the caption . "MEDICAL STAFF"; 3. Updated information provided in tabular form , under the heading "Sources of Patient Service Revenue," for the most recent fiscal year; OHS West260413306.4 E -2 4. Updated information provided in tabular form under the heading "Historical Utilization ;" 5. Updated information provided in tabular form under the heading "Capitalization" presenting the actual capitalization of the Hospital and its Wholly -Owned Subsidiaries for the most recent fiscal year; 6. Updated information provided in tabular form under the heading "Estimated Debt Service Coverage," with no pro forma adjustments, for the Hospital and its Wholly - Owned Subsidiaries for the most recent fiscal year; and 7. Number of employees and percentage of employees subject to collective bargaining agreements. SECTION 5. Reporting of Significant Events. The Hospital shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. principal and interest payment delinquencies; 2. non- payment related defaults; 3. unscheduled draws on debt service reserves reflecting financial difficulties; 4. unscheduled draws on credit enhancements reflecting financial difficulties; 5. substitution of credit or liquidity providers or their failure to perform; 6. adverse tax opinions or events affecting the tax - exempt, status of the Bonds; 7. modifications to rights of Bondholders; 8. optional, contingent or unscheduled bond calls; 9. defeasances; 10. release, substitution or sale of property securing repayment of the Bonds; and 11. rating changes. SECTION 6. Manner of Filing. Any filing under this Disclosure Certificate may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the "MAC ") as provided at http: / /www.disclosureusa.org unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004. SECTION 7. Termination of Reoorting Obligation. The Hospital's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If the Hospital's obligations under the Loan Agreement are assumed in full by some other entity, such person shall be responsible for compliance with this Disclosure Certificate in the same OHS West:260418306.4 E3 manner as if it were the Hospital and the Hospital shall have no further responsibility hereunder. If such termination or substitution occurs prior to the final maturity of the Bonds, the Hospital shall give notice of such termination or substitution in the same manner as for a Listed Event under Section 5. SECTION 8. Dissemination Agent. The Hospital may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Hospital pursuant to this Disclosure Certificate. The Dissemination Agent may resign by providing thirty (30) days written notice to the Hospital. If at any time there is not any other designated Dissemination Agent, the Hospital shall_be the Dissemination Agent. The initial Dissemination Agent shall be the Hospital. SECTION 9. Amendment, Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Hospital may amend this Disclosure Certificate (and the Dissemination Agent shall agree to any amendment so requested by the Hospital which does not impose any greater duties, nor greater risk of liability, on the Dissemination Agent) and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied (a) If the amendment or waiver relates to the provisions of Sections 3, 5 or 7, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law or change in the identity, nature or status of an obligated person with respect to the Bonds or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Eolders or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the Hospital shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Hospital. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5, and (ii) the Annual Report for the year in which the change is made Should present a comparison in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Hospital from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in. any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Hospital chooses to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by this OHS West:260418306.4 E4 Disclosure Certificate, the Hospital shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 11. Default. In the event of a failure of the Hospital or the Dissemination Agent to comply with any provision. of this Disclosure Certificate, the Trustee may, (and, at the written request of the Participating Underwriter or the Holders of at least twenty -five percent (25 %) aggregate principal amount of Outstanding Bonds, shall) or any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Hospital or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture or Loan Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the Hospital or the Dissemination Agent to comply with this Disclosure Certificate shall be an action to compel performance. follows: SECTION 12. Notices. Any notices or communications to the Hospital may be given as One Hoag Drive P.O. Box 6100 Newport Beach, CA 92658 -6100 Attention: President The Hospital may, by written notice, designate a different address to which subsequent notices or communications should be sent. SECTION 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent (if any), the Participating Underwriter and Holders and Beneficial Owners from. time to time of the Bonds, and shall create no rights in any other person or entity. Dated: 2008. HOAG MEMORIAL HOSPITAL PRESBYTERIAN Authorized Representative OHS West:260418306.4 E-5 APPENDIX F BOOK -ENTRY SYSTEM THE INFORMATION PROVIDED IN THIS APPENDIX D HAS BEEN PROVIDED BY DTC. NO REPRESENTATION IS MADE BY THE CITY, HOAG HOSPITAL, NHC, THE UNDERWRITER OR THE BOND TRUSTEE AS TO THE ACCURACY OR ADEQUACY OF SUCH INFORMATION PROVIDED BY DTC OR AS TO THE ABSENCE OF MATERIAL ADVERSE CHANGES IN SUCH INFORMATION SUBSEQUENT TO THE DATE OF THIS REOFFERING CIRCULAR. The Depository Trust Company ( "DTC ") New York, NY, acts as securities depository for the Bonds. The Bonds will be offered 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 Bond certificate will be issued for each Series of the Bonds, each in the aggregate principal amount of such Series, and deposited with DTC. DTC, is a limited - purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. 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 of 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.ore. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ( "Beneficial Owner ") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are however expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their beneficial ownership interests in the Bonds, except in the event that use of the book -entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be OHS Wot:260418306.4 F -1 requested by an authorized representative of DTC. The deposit of the Bonds 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 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, defaults,, and proposed amendments to the bond documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds 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 Bond Trustee and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of a Series of the Bonds are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in the Bonds of such Series to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, premium, redemption proceeds and interest payments on the.Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the City or the Bond Trustee, on a payment date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participants and not of DTC, its nominee, the Bond Trustee, Hoag Hospital, the Members of the Obligated Group, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, redemption proceeds and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Bond 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 the Direct and Indirect Participants. A Beneficial Owner shall give notice to elect to have its Bonds purchased or tendered (in the appropriate Interest Rate Period and subject to the terms of the Indenture); through its Participant, to the Tender Agent, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant's interest in the Bonds, on DTC's records, to the Tender Agent. The requirement for physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are transferred by Direct Participants on DTC's records and followed by a book -entry credit of tendered Bonds to the Tender Agent's DTC account. OHS West:260418306.4 F -2 DTC may discontinue providing its services as depository with respect to any Series of the Bonds at any time by giving reasonable notice to the City or the Bond Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book -entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates for such Bonds will be printed and delivered to DTC. THE BOND TRUSTEE, AS LONG AS A BOOK -ENTRY ONLY SYSTEM IS USED FOR THE BONDS OF A SERIES, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS OF SUCH SERIES ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY PARTICIPANT, OR OF ANY PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY SUCH NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OR SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE BONDS OF SUCH SERIES CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. The City, Hoag Hospital, NHC, and the Bond Trustee cannot and do not give any assurances that DTC will distribute to Participants, or that Participants or others will distribute to the Beneficial Owners, payments of principal or purchase price of and interest and premium, if any, on the Bonds paid or any redemption or other notices or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. None of the City, Hoag Hospital, NHC or the Bond Trustee is responsible or liable for the failure of DTC or any Direct Participant or Indirect Participant to make any payments or give any notice to a Beneficial Owner with respect to the Series Bonds or any error or delay relating thereto. OHS West:260418306.4 F -3 BOND PURCHASE CONTRACT CITY OF NEWPORT BEACH VARIABLE RATE REVENUE BONDS (HOAG MEMORIAL HOSPITAL PRESBYTERIAM SERIES 2008A CHI2 1307425.1 Draft Dated: April 15, 2008 TABLE OF CONTENTS Section Page 1. Purchase, Sale and Delivery of the Bonds . ................................................................. : 2. Representations, Warranties and Agreements of the City ..................... ..............................4 3. Conditions to Obligations of the Underwriter ....................................... ..............................6 4. Conditions to the Obligations of the City ............................................. .............................11 5. Expenses / Fees ....................................................................................... .............................11 6. Notices .................................................................................................. .............................12 7. Governing Law ..................................................................................... .........................:...12 8. Miscellaneous ....................................................................................... .............................12 9. Counterpart s .......................................................................................... .............................12 Exhibit A Letter of Representation Exhibit B Schedule of Maturity and Initial [Weekly Interest Rate] Exhibit C Form of Agreed -Upon Procedures Letter of Ernst & Young LLP Exhibit D Form of Opinion of City Attorney Exhibit E Form of Opinion of Counsel to the Borrower Exhibit F Form. of Opinion of Underwriter's Counsel Exhibit G Form of Opinion of Bank's Counsel Exhibit H Officer's Certificate -i- Errorl Unknown document properly name. CITY OF NEWPORT BEACH VARIABLE RATE REVENUE BONDS (HOAG MEMORIAL HOSPITAL PRESBYTERIAN) SERIES 2008A BOND PURCHASE CONTRACT 2008 City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92658 Ladies and Gentlemen: Citigroup Global Markets Inc. (the "Underwriter") offers to enter into this Bond Purchase Contract, including the Letter of Representation attached hereto as Exhibit A (the "Letter of Representation "), being herein called the `Bond Purchase Contract," with the City of Newport Beach (the "City ") with the approval of Hoag Memorial Hospital Presbyterian, as Borrower (the "Borrower"), which, upon acceptance, will be. binding Upon the City and the Underwriter. This offer is made subject to the City's acceptance on or before 11:59 p.m., Newport Beach, California time, on the date hereof, and, if not so accepted; will be subject to withdrawal by the Underwriter upon written notice_ delivered to the City by the Underwriter at any time prior to acceptance. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Bond Indenture (defined below): 1. Purchase, Sate and Delivery of the Bonds. (a) Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein and in the Letter of Representation, dated the date hereof, executed and delivered contemporaneously herewith by the Borrower and attached hereto as Exhibit A, the Underwriter hereby agrees to purchase from the City, and the City hereby agrees to sell to the Underwriter,. all (but not less than all) of the $ aggregate principal amount of the City's Variable Rate Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008A (the "Series 2008A Bonds" or the "Bonds ") identified on Exhibit B hereto, such Bonds to be dated the date of delivery, to be issued in the aggregate principal amounts and bearing interest and maturing on the dates set forth in Exhibit B hereto. The aggregate purchase price for the Bonds shall be $ consisting of the par amount of the Bonds of $ less an underwriting discount of $ Errort Unknown document property name. The Bonds shall be substantially in the form described in, shall be issued and secured under the provisions of, and shall be payable as provided in, that certain Bond Indenture dated as of 1, 2008 (the "Bond Indenture "), by and between the City and Wells Fargo Bank, National Association, as bond trustee (the "Trustee "). The Bonds shall be limited obligations of the City payable solely from Loan Repayments (as that term is defined in the Bond Indenture) made by the Borrower under that certain Loan Agreement dated as of 1, 2008 (the "Loan Agreement ") by and between the City and the Borrower, from payments made on Obligation No. _ (as hereinafter defined) by the Obligated Group (as hereinafter defined), from amounts held in certain funds established pursuant to the Bond _ Indenture (including certain proceeds of the sale of the Bonds), and from proceeds of draws on the Letter of Credit. The Bonds will be further secured by an assignment of the right, title and interest of the City in the Loan Agreement and in Obligation No. _, to the extent and as more particularly described in the Bond Indenture, and the Letter of Credit (defined below). The Bonds will initially bear interest at a [Weekly Interest Rate]. During each Weekly Interest Rate Period, the Bonds will bear interest at the Weekly Interest Rate, which will be determined by Citigroup Global Markets Inc., as remarketing agent (the "Remarketing Agent "), pursuant to a Remarketing Agreement dated as of 1, 2008 (the "Remarketing Agreement ") by and between the Borrower and the Remarketing Agent. Subject to the terms of a Reimbursement Agreement, dated as of 1, 2008 (the "Reimbursement. Agreement "), between the Borrower and Bank of America, N.A. (the `Bank'), the Bank will issue its irrevocable transferable direct pay Letter of Credit (the "Letter of Credit ") in favor of the Trustee to provide for the payment of (i) principal of and interest on, the Bonds when due, whether upon maturity, redemption or acceleration and (ii) the purchase price of Bonds optionally or mandatorily tendered for purchase, to the extent such purchase price is not paid from proceeds of remarketing such tendered Bonds. The proceeds from the sale of the Bonds will be loaned to the Borrower pursuant to the Loan Agreement and will be used, together with other available funds to refund the City's (i) Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2007A, Series 2007D and Series 2007E, and (ii) to pay costs of issuance of the Bonds, including costs relating to the issuance of the Letter of Credit. The Borrower, as Credit Group Representative (as defined in the Master Indenture, defined below) will issue its Obligation No. _ ( "Obligation No. _ ") to evidence the obligation of the Obligated Group Members to make payments sufficient to pay the principal of, premium, if any, and interest on the Bonds pursuant to the Supplemental Master Indenture for Obligation No. _, dated as of 1, 2008 (the `.`Supplemental Master Indenture for Obligation No. _ "), by and between the Borrower, as Credit Group Representative, and Wells Fargo Bank, National Association, as master trustee (the "Master Trustee "), supplementing the Master Indenture dated as of May 1, 2007 (the "Master Indenture ") between the Borrower, Newport Healthcare Center, LLC ( "NHC ") and such other Members as may join the obligated group as defined therein (the "Obligated Group ") and the Master Trustee. The Borrower, as Credit Group Representative, will issue its Obligation No. ( "Obligation No. _" and together with Obligation No. _, the "Obligations ") to evidence and secure the obligation of the Obligated Group Members to the Bank under the Reimbursement -2- Errorl Unknown document property name. Agreement pursuant to the Supplemental Master Indenture for Obligation No. _, dated as of 1, 2008 (the "Supplemental Master Indenture for Obligation No. _" and together with Supplemental Master Indenture for Obligation No. the "Supplemental Master Indentures "), by and between the .Borrower, as Credit Group Representative, and the Master Trustee, supplementing the Master Indenture. The Borrower will undertake, pursuant to a Continuing Disclosure Certificate, dated as of the date of issuance and delivery of the Bonds (the "Continuing Disclosure Certificate "), by and between the Borrower and the Trustee, to provide certain annual financial information and notices of the occurrence of certain events, if material. A description of this undertaking is set forth in the Official Statement, as hereinafter described. (b) The Borrower will deliver or cause to be delivered to the Underwriter copies of the Official Statement dated , 2008, (the "Official Statement "), signed on behalf of the City by the Mayor of the City and approved by the Borrower by its Vice President and Chief Financial Officer (or such other officer as is acceptable to the Underwriter). Such Official Statement shall be delivered in sufficient quantity as may reasonably be requested by the Underwriter in order to comply with Rule 1.5c2 -12 of the Securities and Exchange Commission ( "Rule 15c2 -12'� and the rules of the Municipal Securities Rulemaking Board ( "MSRB ") within seven business days of the date hereof and, in the event the Closing Date is less than seven business days after the date hereof, upon request of the Underwriter, in sufficient time to accompany any confirmation requesting payment from any customers of the Underwriter. The City has deemed the information contained in the Official Statement regarding the City under the captions "THE CITY" and "LITIGATION — The City" to be final as of its date. The City hereby ratifies, confirms and approves the use and distribution by the Underwriter prior to the date hereof of the Official Statement, and hereby authorizes the Underwriter to use and distribute the Official Statement and drafts of the Master Indenture, the Bond Indenture and the Loan Agreement in connection with the offer and sale of the Bonds. (c) No later than 1:00 p.m., New York time, on 2008, or at such earlier or later time or date as shall be agreed by the City and the Underwriter (such time and date being herein referred to as the "Closing Date "), the City will deliver to or upon the order of The Depository Trust Company ( "DTC ") in New York, New York, for the account of the Underwriter (or such other location as may be designated by the Underwriter and approved by the City), the Bonds in the form of a separate, single, fully registered Bond (which may be typewritten) for each series of Bonds (all of the Bonds bearing CUSIP numbers), duly executed by the City and authenticated by the Trustee, and will deliver to the Underwriter at the offices of Orrick, Herrington & Sutcliffe LLP in Los Angeles, California, the other documents herein mentioned. The Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in paragraph (a) of this Section by certified or official bank check payable in, or wire transfer of, immediately available funds (such delivery and payment being herein referred to as the "Closing'. Notwithstanding the foregoing, neither the failure to print CUSIP numbers on any Bond nor any error with respect thereto shall constitute cause for a failure or refusal by the Underwriter to accept delivery of and pay for the Bonds on the Closing Date in accordance with the terms of this Bond Purchase Contract. -3- Errorl Unknown document property name. (d) On or prior to the date hereof, the Underwriter shall have received (i) from Ernst & Young LLP, an executed copy of its letter, substantially in the form of Exhibit C hereto (the "Procedures Letter "), and (ii) from Ernst & Young LLP, its consent to the inclusion of its audit report on the financial statements of the Borrower that are included. in the Official Statement and to the references to its name in the Official Statement. 2. Representations, Warranties and Agreements of the City. The City represents and warrants to and agrees with the Underwriter and the Borrower as follows: (a) The City is and will be at the Closing Date a municipal corporation and charter city duly organized and existing under a freeholder's charter under the Constitution and laws of the State of California (the "State ") and pursuant to the Charter of the City with the full power and authority to issue the Bonds and to execute this Bond Purchase Contract, the Bond Indenture and the Loan Agreement. (b) When delivered to and paid for by the Underwriter at the Closing in accordance with the provisions of this Bond Purchase Contract, the Bonds will have been duly authorized, executed, issued and delivered, and will constitute valid and binding limited obligations of the City in conformity with, and entitled to the benefit and security of, the Bond Indenture (subject as to enforcement to any applicable bankruptcy, reorganization, insolvency, moratorium or other law or laws affecting the enforcement of creditors' rights generally or against municipal corporations such as the City from time to time in effect and further subject to the availability of equitable remedies). (c) By official action of the City prior to or concurrently with the acceptance hereof, the City has consented to the distribution of the Official Statement and authorized and approved the execution and delivery of and the performance by the City of, the obligations on its part contained in the Bonds, the Loan Agreement, the Bond Indenture and this Bond Purchase Contract and the consummation by the City of all other transactions contemplated by the Official Statement and this Bond Purchase Contract, including approval of the issuance and delivery Letter of Credit. (d) Other than as described in the Official Statement, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental agency, public board or body, known to the City to be pending or threatened against the City seeking to restrain or enjoin the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting any proceedings of the City taken concerning the issuance or sale thereof, the pledge or application of any moneys or security provided for the payment of the Bonds, in any way contesting the validity or enforceability of the Bonds, the Bond Indenture, the Loan Agreement or this Bond Purchase Contract or contesting in any way the completeness or accuracy of the Official Statement, as amended or supplemented, or the existence or powers of the City relating to the issuance of the Bonds or any of the transactions contemplated by the Official Statement or this Bond Purchase Contract. -4- Erred Unknown document property name. (e) As of the date thereof and both at the time of acceptance hereof by the City and at the Closing Date, the statements and information contained in the Official Statement relating to the City and its functions, duties and responsibilities under the captions "THE CITY" and "LITIGATION — The City" do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (f) The City will famish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order for the Underwriter (i) to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may. designate and (ii) to determine the eligibility of the Bonds for investment under the laws of such states. and other jurisdictions, and to continue such qualification in effect so long as required for distribution of the Bonds; provided, however, that in no event shall the City be required to take any action which would subject it to general or unlimited service of process in any jurisdiction in which it is not now so subject. (g) If, between the date of this Bond Purchase Contract and up to and including the 25th day following the end of the underwriting period (as such term is defined in Rule 15c2 -12), an event occurs, of which the City has knowledge, which might or would cause the information relating to the City and its functions, duties and responsibilities contained in the Official Statement under the captions "THE CITY" and "LITIGATION— The City," as then supplemented or amended, to contain an untrue statement of a. material fact or to omit to state a material fact required to be stated therein or necessary to make such information therein not misleading in the light of the circumstances under which it was presented or if the City is notified by the Borrower pursuant to Section 20 of the Letter of Representation, or otherwise requested to amend, supplement or otherwise change the Official Statement, the City will notify the Underwriter and the Borrower. If, in the opinion of the Underwriter, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the City will amend or supplement the Official Statement in a form and in a manner approved by the Underwriter, provided all expenses thereby incurred will be paid by the Borrower or the Underwriter pursuant to Section 22 of the Letter of Representation. (h) The execution and delivery of the Bonds, the Loan Agreement, the Bond Indenture and this Bond Purchase Contract, and compliance with the provisions on the City's part contained therein, will not conflict with or constitute a breach of or default under any existing law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the City is a party or is otherwise subject, nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets of the City under the terms of any such law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument, except as provided by the Bond Indenture and the Loan Agreement. (i) The execution and delivery of this Bond Purchase Contract by the City shall constitute a. representation by the City to the Underwriter that the representations and agreements contained in this Section 2 are true as of the date hereof; and as to all matters of law 11,11 Errorl Unknown document property name. the City is relying on the advice of counsel to the City; and provided ftuther that no member of the City shall be individually liable for the breach of any representation, warranty or agreement contained herein. 3. Conditions to Obligations of the Underwriter. The obligation of the Underwriter to accept delivery of and pay for the Bonds on the Closing Date shall be subject; at the option of the Underwriter, to the accuracy in all material respects of the representations, warranties and agreements on the part of the City contained herein as of the date hereof and as of the Closing Date, to the, accuracy in all material respects of the statements of the officers and other officials of the City made in any certificates or other documents furnished pursuant to the provisions hereof, to the performance by the City of its obligations to be performed hereunder at or prior to the Closing Date and to the following additional conditions. (a) At the Closing Date, the Master Indenture shall be in full force and effect, and the Supplemental Master Indentures, the Obligations, the Bond Indenture, the Official Statement, the Loan Agreement, the Remarketing Agreement, the Reimbursement Agreement, the Letter of Credit and the Continuing Disclosure Certificate shall have been duly authorized, executed and delivered by the respective parties thereto, in substantially the forms heretofore submitted to the Underwriter, with only such changes as shall have been agreed to in writing by the Underwriter and the City, and said agreements shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and there shall have been taken in connection therewith, with the issuance of the Bonds and with the transactions contemplated thereby and by this Bond Purchase Contract all such actions as, in the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel ( "Bond Counsel ') and City of Newport Beach City Attorney ( "City Attorney'), shall be necessary and appropriate. (b) At the Closing Date, the Official Statement shall not have been amended, modified or supplemented, except as may have been agreed to by the Underwriter. (c) At the time of Closing, there shall not have occurred any change or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings or operations of the Borrower from that set forth in the Official Statement that in the judgment of the Underwriter, is material and adverse and that makes it, in the judgment of the Underwriter, impracticable or inadvisable to proceed with the offer, sale or delivery of the Bonds on the terms and in the manner contemplated in the Official Statement. (d) Between the date hereof and the Closing Date, the market price or marketability of the Bonds; at the initial offering prices set forth in the Official Statement, shall not have been materially adversely affected, in the judgment of the Underwriter (evidenced by a written notice to the City and the Borrower terminating the obligation of the Underwriter to accept delivery of and pay for the Bonds), by reason of any. of the following' (1) legislation shall be introduced in or enacted by.the Congress of the United States or adopted by either House thereof or introduced in or enacted by the legislature of the State, or a decision by a federal court (including the Tax -6- Errorl Unknown document property name. Court of the United States of America) or State court shall be rendered, or a ruling, regulation (proposed, temporary or final) or official statement by or on behalf of the Treasury Department of the United States of America, the Internal Revenue Service or other federal or State agency shall be made, with respect to federal or State taxation upon revenues or other income of the general character expected to be derived by the City or upon interest received on bonds of the general character of the Bonds, or which would have the effect of changing directly or indirectly the federal or State income tax consequences of interest on bonds of the general character of the Bonds in the hands of the holders thereof, which legislation, ruling, regulation or official statement would, in the Underwriter's reasonable judgment, materially adversely affect the market price of the Bonds; (2) legislation enacted, introduced in the Congress or recommended for passage by the President of the United States of America, or a decision rendered by a court established under Article III of the Constitution of the United States of America, or an order, ruling, regulation (final, temporary or proposed) or official statement issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds, or the Bonds, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Bond Indenture or the Master Indenture are not exempt from qualification under the. Trust Indenture Act of 1939, as amended; (3) the outbreak or escalation of hostilities involving the United States of America, including, but not limited to, acts of terrorism, or the declaration by the United States of America of a national emergency or war or the occurrence of any .other national emergency, calamity or. crisis, the effect of which on the financial markets is such as to make it, impractical or inadvisable to proceed with the offering or delivery of the Bonds as contemplated by the Official Statement; (4) the declaration of a general banking moratorium by federal, New York or California authorities, or the general suspension of trading on any national securities exchange; (5) the imposition by the New York Stock Exchange or other national securities exchange; or any governmental authority, of any material restrictions not now in force with respect to the Bonds or obligations of the general character of the Bonds or securities generally, or the material increase of any such restrictions now in force, including those relating to the extension of credit by, or the charge to the net capital requirements of, underwriters; (6) an order, decree or injunction of any court of competent jurisdiction, or order, ruling, regulation or official statement by the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, issued or made to the effect that the issuance, offering or sale -7- Errorl Unknown document property name. of obligations of the general character of the Bonds, or the issuance, offering or sale of the Bonds, including any or all underlying obligations, as contemplated hereby or by the Official Statement, is or would be in violation of the federal securities laws as amended and then in effect; (7) the withdrawal or downgrading of any rating of the Bonds by a national rating agency; (8) any event occurring or information becoming known which, in the reasonable judgment of the Underwriter, makes untrue in.any material respect any statement or information contained in the Official Statement or has the effect that the Official Statement contains any untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made; or (9) a material disruption in securities settlement, payment or clearance services in the United States shall have occurred. (e) At or prior to the Closing Date, the Underwriter and the City shall have received executed or, as noted below, conformed copies of the following documents, in each case satisfactory in form and substance to the Underwriter and the City: (1) The Master Indenture, Obligation No. _ (specimen copy), Obligation No. _ (specimen copy), the Supplemental Master Indentures, the Bond Indenture, the Loan Agreement, the Remarketing Agreement, the Reimbursement Agreement and the Continuing Disclosure Certificate, duly executed and delivered by the respective parties thereto, with such amendments, modifications or supplements as may have been agreed to in writing by the Underwriter; (2) The unqualified approving opinion of Bond Counsel, dated the Closing Date and addressed to the City, in substantially the form attached as Appendix E to the Official Statement, together with a reliance letter addressed to the Underwriter and a supplemental opinion of Bond Counsel in a form acceptable to the Underwriter, dated the Closing Date and addressed to the Underwriter, to the effect that: (i) the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Bond Indenture is exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended; (ii) this Bond Purchase Contract has been duly executed and delivered by the City and, assuming due authorization, execution and delivery by the Underwriter and approval by the Borrower, is a valid and binding agreement of the City, subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and Errorl Unknown document property name. other laws relating to or affecting creditors' rights, to the application of equitable principles and to the exercise of judicial discretion in appropriate cases; and (iii) the statements contained in the Official Statement under the captions " " "SECURITY FOR THE BONDS," "TAX MATTERS," . "APPENDIX C — Summary of Principal Documents," insofar as such statements expressly summarize certain provisions of the Bonds, the Master Indenture, the Obligations, the Bond Indenture, the Loan Agreement, the Supplemental Master Indentures or the opinion of Bond Counsel concerning certain tax matters, are accurate in all material respects; (3) The opinion of City Attorney, dated the Closing Date, in substantially the form attached hereto as Exhibit D; (4) The opinion, dated the Closing Date and addressed to the City, the Underwriter, the Borrower, Bond Counsel and the Bank, of Stradling Yocca Carlson &, Rauth, a Professional Corporation, counsel to the Borrower, in substantially the form attached hereto as Exhibit E; (5) The opinion of Foley & Lardner LLP, counsel to the Underwriter, dated the Closing Date and addressed to the Underwriter, in substantially the form attached hereto as Exhibit F; (6) The opinion of counsel to the Bank, dated.the Closing Date and addressed to the City, the Trustee, the Borrower and the Underwriter, in a form satisfactory to Bond Counsel and Underwriter's Counsel; (7) A certificate, dated the Closing Date and signed by an authorized official of the City, to the effect. that (a) to the best of such official's knowledge, no litigation is pending or threatened against the City (i) to restrain or enjoin the issuance or delivery of any of the Bonds or the collection of the Revenues (as defined in the Bond Indenture) pledged under the Bond Indenture; (ii) in any way contesting or affecting the authority for the issuance of the Bonds or the validity of the Bonds, the Bond Indenture, the Loan Agreement; the Letter of Credit or this Bond Purchase Contract; or (iii) in any way contesting the existence or powers of the City; and (b) no event affecting the City or its functions, duties and responsibilities has occurred since the date of the Official Statement that would cause as of the Closing Date any statement or information concerning the City or its functions,. duties and responsibilities contained in the Official Statement under the .captions "THE CITY" and "LITIGATION — The City" to contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made concerning the City or its functions, duties and responsibilities contained under such caption not misleading in the light of the circumstances under which they were made;. -9- Errorl Unknown document property name. (8) A certificate of the Vice President and Chief Financial Officer of the Borrower, or such other officer as is acceptable to the Underwriter and the City, dated the Closing Date, substantially in the form attached hereto as Exhibit G; (9) A certificate of the Bank, dated the Closing Date, in a form satisfactory to Bond Counsel and Underwriter's Counsel; (10) Certified copies of the resolution of the City authorizing the execution and delivery of the Bond Indenture, the Loan Agreement, the Bonds, this Bond Purchase Contract and the Official,Statement; (11) Copies of each of the Borrower's and NHC's articles of incorporation or certificate of formation, certified as of a date not earlier than fifteen (15) days prior to the Closing Date by the Secretary of State of the State of California or Delaware, as applicable; a good standing certificate of recent date certified by the Franchise Tax Board of the State of California; and certified copies of the Borrower's and NHC's bylaws or operating agreement; (12) Certified copies of the resolutions of the Board of Directors of the Borrower authorizing the execution and delivery of the Loan Agreement, the Master Indenture; the Supplemental, Master Indentures, the Obligations, the Continuing Disclosure Certificate, the Remarketing Agreement, the Reimbursement Agreement and the Letter of Representation, and approving this Bond Purchase Contract, the Bond Indenture and the Official Statement (and distribution thereof); (13) Certified copies of the resolutions of the Board of Directors of the sole member of NHC authorizing the execution and delivery of the Master Indenture; (14) Evidence that the Borrower has been 'determined to be an organization described in Section 501(c)(3) of the Code; (15) A Tax Agreement in form satisfactory to Bond Counsel; (16) Satisfactory evidence that the Bonds have been assigned the long- term municipal bond ratings of " " by Standard & Poor's Ratings Services, a division of The McGraw -Hill Companies, Inc. and "_" by Moody.'s Investors Service and the short-term municipal bond ratings of " " by Standard & Poor's Ratings Services, a. division of The McGraw -Hill Companies, Inc. and by Moody's Investors Service; (17) Two copies of the Official Statement executed as required by Section 1(b) hereof; (18) A specimen copy of the Letter of Credit; Error) Unknown document property name. (19) A properly completed and executed Form 8038 of the Internal Revenue Service relating to the Bonds; and (20) Such additional corporate resolutions, legal opinions, certificates, proceedings, instruments and other documents as the Underwriter, the City or Bond Counsel may reasonably request to evidence compliance by the City, the Borrower and NHC with legal requirements, the truth and accuracy, as of the Closing Date, of the representations of the City contained herein, of the Borrower contained in the Letter of Representation, and the due performance or satisfaction by the City, the Borrower and NHC at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the City, the Borrower and NHC. If the City shall be unable to satisfy the conditions to the' Underwriter's obligations contained in this Bond Purchase Contract or if the Underwriter's obligations shall be terminated for any reason permitted herein, this Bond Purchase Contract shall terminate and neither the Underwriter nor the City shall have any further obligation hereunder. 4. Conditions to the Obligations of the City. The obligations of the City to issue and deliver the Bonds on the Closing Date shall be subject, at the option of the City, to the performance by the Underwriter of its obligations to be performed hereunder at or prior to the Closing Date and to the following additional conditions: (a) The Master Indenture, the Supplemental Master Indentures, the Obligations, the Bond Indenture, the Loan Agreement, the Continuing Disclosure Certificate and this Bond Purchase Contract shall have been executed by the parties thereto; (b) The Letter of Credit shall have been duly issued and delivered; (c) No order, decree, injunction, ruling or regulation of any court, regulatory agency, public board or body shall have been issued, nor shall any legislation have been enacted, with the purpose or effect, directly or indirectly, of prohibiting the offering, sale or issuance of the Bonds as contemplated hereby or by the Official Statement; and (d) The documents contemplated by Section 3(e) (other than those required to be delivered by or on behalf of the City) shall have been delivered in substantially the forms set forth herein or in form and substance satisfactory to Bond Counsel. 5. Expenses/Fees. All reasonable expenses and costs of the City incident to the performance of its obligations in connection with the authorization, issuance and sale of the. Bonds to the Underwriter, including printing costs, fees and expenses of consultants, fees and expenses of rating agencies, fees and expenses of Bond Counsel, City Attorney, Underwriter's Counsel (including fees in connection with qualification of the Bonds for sale under the Blue Sky or other securities laws and regulations of various jurisdictions and preparation and printing of a blue sky Errorl Unknown document property name. survey and legal investment memorandum) and counsel for the Borrower and NHC shall be paid by the Borrower. The Borrower shall pay for expenses incurred on behalf of the Borrower's employees which are incidental to implementing this Bond Purchase Contract, including but not limited to, meals, transportation, lodging and entertainment of those employees (some of which expenses may have been paid for by the Underwriter and included in the expense component of the underwriting discount). All fees and expenses to be paid by the Borrower pursuant to this Bond Purchase Contract may be paid from Bond proceeds to the extent permitted by the Bond Indenture and Tax Agreement. 6. Notices. Any notice or other communication to be given to the City under this Bond Purchase Contract may be given by delivering the same in writing at the City's address as set forth above, and any such notice or other communication to be given to the Underwriter may be given by delivering the same in writing to Citigroup Global Markets Inc., 444 South Flower Street, 27d' Floor, Los Angeles, California 90071. The approval of the Underwriter when required hereunder or the determination of its satisfaction as to any document referred to herein shall be in writing signed by the Underwriter and delivered to you. 7. Governing Law. This Bond Purchase Contract shall be construed in accordance with and governed by the Constitution and the laws of the State of California. S. Miscellaneous. This Bond Purchase Contract is made solely for the benefit of the City, the Borrower and the Underwriter (including the successors or assigns of each),, and not other person, partnership, association or corporation shall acquire or have any right hereunder or by virtue hereof. 9. Counterparts. This Bond Purchase Contract may be executed in any number of counterparts and all such counterparts shall together constitute one and the same instrument. -12- Errorl Unknown document property name. CITIGROUP GLOBAL MARKETS INC. Director Signature Page to Bond Purchase Contract for the CITY OF NEWPORT BEACH VARIABLE RATE REVENUE BONDS (HOAG MEMORIAL HOSPITAL PRESBYTERIAN) SERIES 2008A Errorl Unknown document property name. Accepted and Agreed to: CITY OF NEWPORT BEACH 0 Mayor Signature Page to Bond Purchase Contract for the CITY OF NEWPORT BEACH VARIABLE RATE REVENUE BONDS (HOAG MEMORIAL HOSPITAL PRESBYTERIAN) SERIES 2008A Errorl Unknown document properly name. Approved: HOAG MEMORIAL HOSPITAL PRESBYTERIAN Authorized Representative Signature Page to Bond Purchase Contract for the CITY OF NEWPORT BEACH VARIABLE RATE REVENUE BONDS (HOAG MEMORIAL HOSPITAL PRESBYTERIAN) SERIES 2008A Errorl Unknown document property name. EXHIBIT A TO BOND PURCHASE CONTRACT LETTER OF REPRESENTATION 2008 City of Newport Beach 3300 Newport Boulevard Newport Beach, California 92658 Citigroup Global Markets Inc. 444 South Flower Street 27'' Floor Los Angeles, California 90071 Ladies and Gentlemen: The City of Newport Beach (the "City") proposes to enter into a Loan Agreement with Hoag Memorial Hospital Presbyterian (the `Borrower ") dated as of 1, 2008 (the "Loan Agreement "). Pursuant to a Bond Purchase Contract, dated the date hereof (the "Bond Purchase Contract', between the City and Citigroup Global Markets Inc. (the "Underwriter "), which the Borrower has approved, the City proposes to sell the $ aggregate principal amount of the City's Variable Rate Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008A (the "Series 2008A Bonds" or the "Bonds ") identified on Exhibit B hereto. The offering of the Bonds is described in an Official Statement dated 2008 (the "Official Statement "). The Bonds shall . be issued and secured under the provisions of that certain Bond Indenture dated as of 1, 2008 (the "Bond Indenture "), by and between the City and Wells Fargo Bank, National Association, as bond trustee (the "Trustee "). The Bonds shall be payable from payments made by the Borrower under the Loan Agreement from payments made on Obligation No. _ (as hereinafter defined) by the Obligated Group (as hereinafter defined) and from amounts held in certain funds established pursuant to the Bond Indenture (including certain proceeds of the sale of the Bonds). The Bonds will be further secured by (i) an assignment of the right, title. and interest of the City in the Loan Agreement and in Obligation No. _, to the extent and as more particularly described in the. Bond Indenture and (ii) a letter of credit, issued and delivered by Bank of America, N.A. (the `Bank's pursuant to the terms of a Reimbursement Agreement dated as of 2008 between the Bank and the Borrower. All terms not otherwise defined herein shall have the meanings ascribed thereto in the Bond Purchase Contract. The proceeds from the sale of the Bonds will be loaned to the Borrower pursuant to the Loan Agreement and will be used, together with other available funds to refund the City's (i) Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2007A, Series 2007D A -1 Error! Unknown document property name. and Series 2007E, and (ii) to pay costs of issuance of the Bonds, including the costs of relating to the issuance of the Letter of Credit. The Borrower, as Credit Group Representative (as defined in the Master Indenture, defined below) will issue its Obligation No. _ ( "Obligation No. _ ") to evidence the obligation of the Obligated Group Members to make payments sufficient to pay the principal of, premium, if any, and interest on the Bonds pursuant to the Supplemental Master Indenture for Obligation No. dated as of 1, 2008 (the "Supplemental Master Indenture for Obligation No. _ "), by and between the Borrower, as Credit Group Representative, and Wells Fargo Bank, National Association, as master trustee (the "Master Trustee "), supplementing the Master Indenture dated as of May 1, 2007 (the "Master Indenture ") between the Borrower, Newport Healthcare Center, LLC ( "NHC ") and such other Members as may join the obligated group as defined therein (the "Obligated Group ") and the Master Trustee. The Borrower, as Credit Group Representative, will issue its Obligation No. _ ( "Obligation No. _" and together with Obligation No. _, the "Obligations ") to evidence and secure the obligation of the Obligated Group Members to the Bank under the Reimbursement Agreement pursuant to the Supplemental Master Indenture for Obligation No. _, dated as of 1, 2008 (the "Supplemental Master Indenture for Obligation No.._" and together with Supplemental Master Indenture for Obligation No. _, the "Supplemental Master Indentures "), by and between the Borrower, as Credit Group Representative, and the Master Trustee, supplementing the Master Indenture. Pursuant to the terms of the Master Indenture and the Supplemental Master Indentures, the Borrower, NHC and any future Members of the Obligated Group will be jointly and severally obligated to make payments on the Obligations according to the terms thereof when due. The Borrower and NHC are presently the only Members of the Obligated Group. The Borrower will undertake, pursuant to a Continuing Disclosure Certificate, dated as of the date of issuance and delivery of the Bonds (the "Continuing Disclosure Certificate "), by and between the Borrower and the Trustee, to provide certain annual financial information and notices of the occurrence of certain events, if material. In order to induce the City and the Underwriter to enter into the Bond Purchase Contract and to make the sale and purchase and reoffering of the Bonds therein contemplated, the Borrower hereby represents, warrants and agrees with each of you as follows: 1. The Borrower is a nonprofit public benefit corporation duly organized and existing under the laws of the State of California. . 2. NHC is a limited liability company duly organized and existing under the laws of the State of California. 3. The Borrower and/or NHC has, and at the Closing Date will have, full legal right, power and authority to enter into and perform its obligations under this Letter of Representation, the Loan Agreement, the Master Indenture, the Supplemental Master Indentures, the Obligations, the Reimbursement Agreement, the Remarketing Agreement and the Continuing Disclosure Certificate, to approve the Bond Purchase Contract, the Bond Indenture and the Official A -2 Errorl Unknown document properly name. Statement and to carry out and consummate all transactions contemplated by the Bond Purchase Contract, the Bond Indenture, the Loan Agreement, the Master Indenture, the Supplemental Master Indentures, the Obligations, this Letter of Representation, the Continuing Disclosure Certificate, the Remarketing Agreement, the Reimbursement Agreement and the Official Statement, and by proper corporate action has duly authorized the execution and delivery of this Letter of Representation, the Loan Agreement, the Master Indenture, the Supplemental Master .Indentures, the Obligations, the Reimbursement Agreement, the Remarketing Agreement and the Continuing Disclosure Certificate, the approval of the Bond Purchase Contract, the Bond Indenture and the Official Statement (including the distribution thereof) and the obtaining of the Letter of Credit. 4. The officers of the Borrower and NHC executing the Master Indenture and the officers of the Borrower executing this Letter of Representation, the Loan Agreement, the Supplemental Master Indentures, the Remarketing Agreement, the Obligations, the Reimbursement Agreement, the Remarketing Agreement and the Continuing Disclosure Certificate, approving the Bond Purchase Contract, the Bond Indenture and the Official Statement (including the distribution thereof) and obtaining the Letter of Credit are, or were when executed, fully authorized to execute and approve the same.. 5. The Bond Purchase Contract, the Bond Indenture and the Official Statement have been duly approved by the Borrower; this Letter of Representation has been duly authorized, executed and delivered by the Borrower;. the Letter of Credit has been duly obtained by the Borrower; the Master Indenture has been duly authorized and, at the Closing, will have been duly executed and delivered by the Borrower and NHC; the Loan Agreement, the Supplemental Master Indentures, the Obligations, the Reimbursement Agreement, the Remarketing Agreement and the Continuing Disclosure Certificate have been duly authorized and, at the Closing, will have been duly executed and delivered by the Borrower. 6. This Letter of Representation constitutes and the Loan Agreement, the Remarketing Agreement, the Reimbursement Agreement and the Continuing Disclosure Certificate will constitute the legal, valid and binding agreements of the Borrower, and the Master Indenture, the Supplemental Master Indentures and the Obligations will constitute the legal, valid and binding agreements of the Borrower and NHC, in each case enforceable against the Borrower and NHC, as applicable, in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy; insolvency,. moratorium, reorganization, fraudulent conveyance or other laws affecting the enforcement of creditors' rights generally, including without limitation self -help remedies and applicable foreclosure procedures, and also limited by the application of equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law and except as enforcement may be held to be against public policy. 7. Neither the Borrower nor NHC is in any material way (i) in violation of any applicable law or administrative. regulation of the state in which it is incorporated or the United States of America or any applicable judgment or decree, which violation would materially adversely affect the financial position or operations of the Borrower and the Obligated Group taken as a whole, or (ii) in default under any loan agreement, indenture, bond, note, resolution, agreement or other instrument to .which the Borrower or NHC is a party or is otherwise subject, A -3 Errorl Unknown document properly name. and no event has occurred and is continuing which, with the passage of time or the giving of notice or both, would constitute an event of default under any such instrument which default would materially adversely affect the financial position or operations of the Borrower taken as a whole. 8. The execution and delivery of this Letter of Representation, the approval of the Bond.Purchase Contract, the Bond Indenture and the Official Statement; at the Closing, the execution and delivery of the Loan Agreement, the Master Indenture, the Supplemental Master Indentures, the Obligations, the Reimbursement Agreement, the Remarketing Agreement and the Continuing Disclosure Certificate; the consummation of the transactions contemplated herein and therein; and the fulfillment of or compliance with the terms and conditions hereof and thereof will not conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both) under the articles of incorporation of the Borrower, its bylaws or the articles of organization of NHC or its operating agreement or any applicable law or administrative rule or regulation, or any applicable court or administrative decree or order, or any indenture, mortgage, deed of trust, loan agreement, lease,. contract or other agreement or instrument to which the Borrower or NHC is a party or by which they or their properties are otherwise subject or bound, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Borrower or NHC, which conflict, violation, breach, default, lien, charge or encumbrance might have consequences that would materially and adversely affect the consummation of the transactions contemplated by the Bond Purchase Contract, the Bond Indenture, the Loan Agreement, the Master Indenture, the Supplemental Master Indentures, the Obligations, the Remarketing Agreement, the Reimbursement Agreement, the Remarketing Agreement, the Continuing Disclosure Certificate, this Letter of Representation or the Official Statement or the financial condition, assets, properties or operations of the Borrower or the Obligated Group taken as a whole. 9. No consent or approval of any trustee or holder of any indebtedness of the Borrower or NHC, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental authority (except in connection with Blue Sky proceedings) is necessary in connection with the execution and delivery of this Letter of Representation; at the Closing, the execution and delivery of the Loan Agreement, the Master Indenture, the Supplemental Master Indentures, the Obligations, the Reimbursement Agreement, the Remarketing Agreement or the Continuing Disclosure Certificate; the approval of the Bond Purchase Contract, the Bond Indenture or the Official Statement; the obtaining of the Letter of Credit; or the consummation of any transaction therein or herein contemplated, except as have been obtained or made and as are in full force and effect (or, with respect to the consummation of any transaction therein or herein contemplated, except as are expected to be obtained in due course). 10. Except as described in the Official Statement, there is no action, suit, proceeding, inquiry or investigation before or by any court or federal, state, municipal or other government authority pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or NHC or the assets, properties or operations of the Borrower or NHC which, if determined adversely to the Borrower or NHC or their interests, would have a material and adverse effect upon the consummation of the transactions contemplated by or the validity of the A-4 Errorl Unknown document properly name. Bond Purchase Contract, the Loan Agreement, the Master Indenture, the Supplemental Master Indentures, the Obligations, this Letter of Representation, the Official Statement, the Reimbursement Agreement, the Remarketing Agreement or the Continuing Disclosure Certificate or upon the financial condition, assets, properties or operations of the Borrower or the Obligated Group taken as a whole. Neither the Borrower nor NHC is in violation of any order or decree of any court or any order, regulation or demand of any federal, state, municipal or other governmental authority, which violation might have consequences that would materially and adversely affect the consummation of the transactions contemplated by the Bond Purchase Contract, the Loan Agreement, the Master Indenture, the Supplemental Master Indentures, the Remarketing Agreement, the Reimbursement Agreement, the Obligations, the Continuing Disclosure Certificate, this Letter of Representation and the Official Statement or the financial conditions, assets, properties or operations of the Borrower or the Obligated Group taken as a whole. 11. The Borrower is a corporation organized and operated exclusively for charitable purposes, not for pecuniary profit, and no part of the net earnings of the Borrower inures to the benefit of any private shareholder or individual. The Borrower is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, which is exempt from federal income taxes under Sections 501(a) of the Internal Revenue Code.of 1986, as amended, except for unrelated trade or business income subject to taxation under Section 511 of said Code. 12. The proceeds of the Bonds will not be used by an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, in an "unrelated trade or business" within the meaning of Section 513(a) of the Internal Revenue Code of 1986, as amended, or by any other person, in such manner or to such extent as would result in the loss of exclusion from gross income for federal income tax purposes of interest on any of the Bonds under Section 103 of said Code. 13. Each of the Borrower and NHC has all necessary power and authority to conduct the business now being conducted by it and the business contemplated by the Master Indenture, the Supplemental Master. Indentures, the Obligations, the Loan Agreement, the Continuing Disclosure Certificate, the Remarketing Agreement and the Reimbursement Agreement and has all necessary power and authority to enter into the respective documents mentioned above and to approve the Bond Purchase.Contract and the Official Statement. 14. Each of the Borrower and NHC has good and marketable title to its Property, free and clear from all encumbrances other than Permitted Liens (as such terms are defined in the Master Indenture). 15. Each of the Borrower and NHC has all permits, licenses, accreditations and certifications, including, without limitation, licensing and certification of the Property (as defined in the Master Indenture), necessary to conduct its business as it is presently being conducted. 16. The Borrower is eligible under applicable statutes, regulations and administrative practices for payment under Medicare and Medicaid. A -5 Errors Unknown document property name. 17. The Borrower is currently participating in the programs of Medicare and Medicaid, and there are in full force and effect agreements providing for payments to the Borrower with respect to patients enrolled in such programs. 18. The Borrower has not incurred any material liability, direct or contingent, nor has there been any material adverse change in the financial position, results of operations or condition, financial or otherwise, of the Borrower since February 28, 2008, which is not described in the Official Statement, whether or not arising from transactions in the ordinary course of business. 19. Between the date hereof and the date of the Closing, the Borrower and NHC will not, without the prior written consent of the Underwriter, except as described in or contemplated by the Official Statement, incur any material liabilities, direct or contingent, other than in the ordinary course of business. 20. As of the date thereof and as of the date hereof and at the Closing Date, the Official Statement, as amended or supplemented pursuant to the Bond Purchase Contract or this Letter of Representation, if applicable; does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Borrower makes no representation or warranty as to the information contained in or omitted from the Official Statement in reliance upon and in conformity with information furnished in writing to the Borrower by or on behalf of the Underwriter, the City or the Bank specifically for inclusion therein. 21. If, between the date hereof and up to and including the 25th day following the end of the underwriting period (as defined in Rule 15c2 -12 of the Securities and Exchange Commission), any event relating to or affecting the. Borrower, NHC or any future Members of the Obligated Group or their respective present or proposed facilities shall occur which might or would cause the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made, the Borrower shall notify the City and the Underwriter and if, in the opinion of the Borrower, the City or the Underwriter such event requires the preparation and publication of a supplement or amendment to the Official Statement, the Borrower will request the City to cause the Official Statement to be amended or supplemented in a form and in a manner approved by the Underwriter. 22. For twenty -five days from the date of the end of the underwriting .period (as defined in Rule 15c2 -12 of the Securities and Exchange Commission), the Borrower will (a) not participate in the issuance of any amendment of or supplement to the Official Statement to which, after being furnished with a copy, any of you shall reasonably object in writing or which shall be disapproved by your respective counsel and (b) if any event relating to or affecting the City, the Borrower or. NHC. or any future Members of the Obligated Group or their respective present or proposed facilities shall occur as a result of which it is necessary, in the opinion of counsel for the Underwriter or the City, to amend or supplement the Official Statement in order to make the Official Statement. not misleading in the light of the circumstances existing at the W Errorl Unknown document property name. time it is delivered to a purchaser, forthwith prepare and furnish to the Underwriter and the City (at the expense of the Borrower for 90 days from the date of Closing, and thereafter at the expense of the Underwriter) a reasonable number of copies of an amendment of or supplement to the Official Statement (in form and substance satisfactory to counsel for the Underwriter and counsel to the City) which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading, in the light of the circumstances existing at the time the Official Statement is delivered to the purchaser. For the purposes of this section, the Borrower will furnish such information with respect to itself, NHC, any future Members of the Obligated Group and their respective present and proposed facilities as any of you may from time to time reasonably request. 23. (a) The Borrower agrees to indemnify and hold harmless the Underwriter, the directors, officers, employees and agents of the Underwriter and each .person who controls the Underwriter within the meaning of either the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Official Statement (or in any supplement or amendment thereto), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Borrower will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in the Official Statement, or in any amendment thereof or supplement thereto, in reliance upon and in conformity with written information furnished to the Borrower by or on behalf of the Underwriter specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Borrower may otherwise have. (b) The Borrower, on its own behalf and on behalf of NHC, agrees to indemnify and hold harmless the City, the directors, officers, employees and agents of the City and each person who controls the City within the meaning of either the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the. Official Statement (or in any supplement or amendment thereto), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and agrees to reimburse each such indemnified party, as incurred, for any A -7 Error! Unknown document property name. legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Borrower will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in the Official Statement, or in any amendment thereof or supplement thereto, in reliance upon and in conformity with written information furnished to the Borrower by or on behalf of the City specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Borrower may otherwise have. (c) The Underwriter agrees to indemnify and hold harmless the Borrower, each of its officials, directors, officers and employees, and each person who controls the Borrower within the meaning of either the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, to the same extent as the foregoing indemnity from the Borrower to the Underwriter, but only with reference to written information relating to the Underwriter furnished to the Borrower by or on behalf of the Underwriter specifically for inclusion in the Official Statement (or in any amendment or supplement thereto). This indemnity agreement will be in addition to any liability which the Underwriter may otherwise have. The Borrower acknowledges that the statements set forth in the section entitled "UNDERWRITING," the statements relating to Citigroup Global Markets Inc. in the first paragraph of the section entitled " " and the paragraph related to stabilization on the inside cover page of the Official Statement, constitute the only information furnished in writing by or on behalf of the Underwriter for inclusion in the Official Statement (or in any amendment or supplement thereto). (d) Promptly after receipt by an indemnified party under this Section 23 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 23 notify the indemnifying party in writing of the commencement thereof, but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a), (b) or (c) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses; and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a), (b) or (c) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and .expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest; (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or . additional to those available to the indemnifying party; (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of A -8 Errorl Unknown document property name. the institution of such action; or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (e) In the event that the indemnity provided in paragraph (a) or (c) of this Section 23 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Borrower and the Underwriter agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses ") to which the Borrower and the Underwriter may be subject in such proportion as is appropriate to reflect the relative benefits received by the Borrower on the one hand and by the Underwriter on the other from the offering of the Bonds. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Borrower and the Underwriter shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Borrower on the one hand and of the Underwriter on the other in connection with the statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. In no case shall the Underwriter be responsible for any amount in excess of the purchase discount or commission applicable to the Bonds purchased by the Underwriter hereunder. Benefits received by the Borrower shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by it, and benefits received by the Underwriter shall be deemed to be equal to the total purchase discounts and commission in each case set forth in the Official Statement under the section entitled "UNDERWRITING." Relative fault shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Borrower on the one hand or the Underwriter on the other, the intent of the parties and their relative knowledge, information and opportunity to correct or prevent such untrue statement or omission. The Borrower and the Underwriter agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (e), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act of 1933, as amended) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 23, each person who controls the Underwriter within the meaning of either the Securities. Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and each director, officer, employee and agent of the Underwriter shall have the same rights to contribution as the Underwriter, and each person who controls the Borrower within the meaning of either the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and each official, director, officer and employee of the Borrower shall have the same rights to contribution as the Borrower, subject in each case to the applicable terms and conditions of this paragraph (e). A -9 Errorl Unknown document property name. 24. The Borrower has filed all annual reports when and where they are required to be filed pursuant to any Continuing Disclosure Certificate executed and delivered by the Borrower pursuant to Rule 15c2 -12 of the Securities and Exchange Commission that has been binding upon the Borrower, and has filed all required notices of "listed events," as described in Rule 15c2 -12, when and where such notices are required to be filed pursuant to such Continuing Disclosure Certificates. 25. The representations, warranties, agreements and indemnities herein shall survive the Closing under the Bond Purchase Contract, and any investigation made by or on behalf of any of you or any person who controls any of you of any matters described in or related to the transactions contemplated hereby and by the Bond Purchase Contract, the Official Statement, the Loan Agreement, the Bond Indenture, the Master Indenture, the Supplemental Master Indentures, the Remarketing Agreement, the Reimbursement Agreement, the Obligations and the Continuing Disclosure Certificate. 26. The Borrower hereby agrees to pay the expenses described in Section 5 of the Bond Purchase Contract (which are the responsibility of the Borrower), and to pay any expenses incurred in amending or supplementing the Official Statement pursuant to the Bond Purchase Contract or this Letter of Representation. 27. This Letter of Representation shall be binding upon the Borrower and inure solely to the benefit of each of you and, to the extent set forth herein, persons controlling any of you, and their respective members, officers, employees, agents, successors and assigns, and no other person or firm shall acquire or have any right under or by virtue of this Letter of Representation. No recourse under or upon any obligation, covenant or agreement contained in this Letter of Representation shall be had against any officer or director of the Borrower as individuals, except as caused by their bad faith. 28. This Letter of Representation may be executed in any number of counterparts and all such counterparts shall together constitute one and the same instrument. A -10 Errorl Unknown document property name. Very truly yours, HOAG MEMORIAL HOSPITAL PRESBYTERIAN M Authorized Representative Signature Page to Letter of Representation for the City of Newport Beach Variable Rate Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008A Errorl Unknown document property name. ' Accepted and Agreed to: CITIGROUP GLOBAL MARKETS INC. Director Signature Page to Letter of Representation for the City of Newport Beach Variable Rate Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008A Errorl Unknown document property name. Accepted and Agreed to: CITY OF NEWPORT BEACH Mayor Signature Page to Letter of Representation for the City of Newport Beach Variable Rate Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008A Errorl Unknown document property name. EXHIBIT B TO BOND PURCHASE CONTRACT SCHEDULE OF MATURITIES AND INTEREST PERIODS Series 2008A Bonds B -1 Errort Unknown document property name. Mandatory Sinking Fund Redemption The Series 2008A Bonds are subject to redemption prior to their stated maturity in part, by lot, from sinking fund installments, on any 1 on or after , 20_ at the principal amount thereof and interest accrued thereon to the date fixed for redemption, without premium, as follows: Redemption Date Sinking Fund ( 1) Installment- * Final maturity. Optional/Extraordinary Optional Redemption The Bonds shall be subject to optional and extraordinary optional redemption under the circumstances as described in the Bond Indenture. B -2 Erred Unknown document property name. EXHIBIT C TO BOND PURCHASE CONTRACT FORM OF AGREED -UPON PROCEDURES LETTER OF ERNST & YOUNG LLP [See attached] C -I Errort Unknown document property name. EXHIBIT D TO BOND PURCHASE CONTRACT FORM OF OPINION OF CITY ATTORNEY , 2008 City of Newport Beach, California Newport Beach, Califomia Citigroup Global Markets Inc. Los Angeles, California Hoag Memorial Hospital Presbyterian Newport Beach, California Re: $ City of Newport Beach Variable Rate Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008A (the "Bonds ") Ladies and Gentlemen: This opinion is delivered to you pursuant to the Bond Purchase Contract dated 2008 (the "Purchase Contract "), between the City of Newport Beach, California (the "City ") and . Citigroup Global Markets Inc. (the "Purchaser "), which Hoag Memorial Hospital Presbyterian (the "Borrower ") has approved, in connection with the issuance by the City of $ aggregate principal amount of its Variable Rate Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008A (the "Bonds ") pursuant to a Bond Indenture dated as of I, 2008 (the "Bond Indenture"), between the City and Wells. Fargo. Bank, National Association, as bond trustee (the "Bond Trustee "). The Bonds are being issued for the purpose of making a loan of the proceeds thereof to the Borrower pursuant to a Loan Agreement dated as of 1, 2008 (the "Loan Agreement) between the City and the Borrower. The opinions or conclusions expressed herein are based on an analysis of existing laws, regulations, rulings ands 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 or events are taken or do occur. 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 City. We have not undertaken to verify independently, and have assumed, 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 paragraph hereof. We have further assumed compliance with all covenants and agreements contained in such documents. In addition, we call attention to the fact that the rights and obligations under the Bonds, the Bond Indenture, the Loan Agreement and the Purchase Contract may be subject to bankruptcy, insolvency, fraudulent conveyance, D -1 Error! Unknown document property name. reorganization, moratorium and other laws affecting creditors' rights, to the application of equitable principles and to the exercise of judicial discretion in appropriate cases. We express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver provisions contained in the foregoing documents. As counsel for the City in connection with the issuance of the Bonds, I have examined certain documents, records and proceedings as I have deemed necessary and appropriate for the purpose of this opinion and, on the basis of the foregoing and upon consideration of applicable law, I am of the opinion that: I . The City is a municipal corporation and charter city duly organized and validly existing under a freeholder's charter under the Constitution and laws of the State of California and has corporate power and authority to consummate and carry out all transactions contemplated by the Purchase Contract. 2. The Official Statement used in connection with the issuance and sale of the Bonds (the "Official Statement ") has been duly authorized, executed and delivered by the City. 3. Without assuming any responsibility for the accuracy, completeness or fairness of the information or the statements contain in the Official Statement, to my knowledge, the information relating to the City in its limited role as the conduit issuer of the Bonds contained in the Official Statement under the headings "THE CITY" and "LITIGATION — The City" does not contain any untrue statement of a material. fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 4. The Resolution of the City Council of the City approving and authorizing the execution and delivery of the Bond Indenture, the Purchase Contract, the Bonds, the Loan Agreement and the Official Statement was duly adopted at a meeting of the City Council which was called and held pursuant to law and all public notices required by law and the procedural rules of the City Council and at which a quorum was present_ and acting throughout. 5. There is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body known to be pending or threatened against or affecting the City to restrain or enjoin the issuance of delivery of the Bonds or the collection of revenues pledged under the Bond Indenture or the assignment of the Loan Agreement under the Bond Indenture, in any way contesting or affecting any authority for the issuance of the Bonds or the validity of the Bonds, the Loan Agreement, the Bond Indenture or the Purchase Contract or in any way contesting the existence or powers of the City with respect to the issuance of the Bonds or the security therefore wherein an unfavorable decision, ruling or finding would materially adversely affect the transactions contemplated by the Official Statement, the Bond Indenture, the Loan Agreement or the Purchase Contract or the validity of the Bonds. 6. The execution and delivery of the Bonds, the Bond Indenture, the Loan Agreement and the Purchase Contract and compliance with the provisions thereof under the circumstances contemplated thereby do not and will not conflict with or constitute on the part of the City a breach or default under any agreement or other instrument to which the City is a party IMA Errorl Unknown document property name. or by which it is bound or any existing law, regulation, court order or consent decree to which the City is subject, the result of which breach or default would be to materially adversely affect the City's ability to perform its obligations under the Loan Agreement, the Bond Indenture, the Bonds or the Purchase Contract. 7. The Loan Agreement, the Bond Indenture, the Bonds and the Purchase Contract have been duly executed and delivered by the City and, assuming due authorization, execution and delivery by the other parties thereto, are valid and binding obligations of the City enforceable in accordance with their terms subject to laws relating to bankruptcy, insolvency, reorganization or creditors' rights generally and to the application of equitable principles if equitable remedies are sought. 8. All right and title to the payments due under the Loan Agreement have been duly and legally assigned and pledged to the Bond Trustee for the payment of the principal of, premium, if any, and interest on the Bonds. Respectfully Submitted, CITY ATTORNEY D -3 Error) Unknown document property name. EXHIBrF E TO BOND PURCHASE CONTRACT FORM OF OPINION OF COUNSEL TO THE BORROWER , 2008 City of Newport Beach Newport Beach, California Citigroup Global Markets Inc. Los Angeles, California Wells Fargo Bank, National Association as bond trustee and as master trustee Los Angeles, California Re: $ CITY OF NEWPORT BEACH VARIABLE RATE REVENUE BONDS (HOAG MEMORIAL HOSPITAL PRESBYTERIAN) SERIES 2008A Ladies and Gentlemen: We have acted as special counsel to Hoag Memorial Hospital Presbyterian, a California nonprofit public benefit corporation (the "Corporation'), in connection with the sale and delivery of $ City of Newport Beach Variable Rate Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008A (the "Bonds "); however, we are not general counsel to the Corporation. Our opinion is based on the following general transaction structure: The Bonds are being executed and delivered pursuant to an indenture dated as of 1, 2008 (the "Indenture") between the City of Newport Beach (the "City ") and Wells Fargo Bank, National Association as trustee (the "Bond Trustee "). The proceeds of the Bonds are being loaned to the Corporation under the terms of a loan agreement dated as of 1, 2008 (the "Loan Agreement') between the City and the Corporation. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Indenture. The Corporation, as Credit Group Representative, is issuing its Obligation No. _ ( "Obligation No. _ ") to evidence the obligation of the Obligated Group Members to make payments sufficient to pay the principal of, premium, if any, interest on and purchase price of the Bonds pursuant to the Supplemental Master Indenture for Obligation No. , dated as of 1, 2008 (the "Supplemental Master Indenture for Obligation No. _ "), by and between E -1 Errorl Unknown document property name. the Corporation, as Credit Group Representative, and Wells Fargo Bank, National Association, as master trustee (the "Master Trustee "), supplementing the Master Indenture dated as of May 1, 2007 (the "Master Indenture ") between the Corporation, Newport Healthcare Center, LLC ( "NHC ") and such other Members as may join the obligated group as defined therein (the "Obligated Group') and the Master Trustee. The Borrower, as Credit Group Representative, will issue its Obligation No. _ ( "Obligation No. _" and together with Obligation No. the "Obligations ") to evidence and secure the obligation of the Obligated Group Members to the Bank under the Reimbursement Agreement pursuant to the Supplemental Master Indenture for Obligation No. . dated as of 1, 2008 (the "Supplemental Master Indenture for Obligation No. _" and together with Supplemental Master Indenture for Obligation No. _, the "Supplemental Master Indentures "), by . and between the Borrower, as Credit Group Representative, and the Master Trustee, supplementing the Master Indenture. The Bonds are being sold pursuant to a bond purchase contract dated 2008 between the Corporation, the City and Citigroup Global Markets Inc. (the "Purchase Contract "). An Official Statement dated , 2008 (the "Official Statement ") has been prepared to furnish information with respect to the sale and delivery of the Bonds. Following their, issuance the Bonds will bear interest at a [Weekly Interest Rate], determined by the Remarketing Agent as provided in the Indenture. This Opinion is provided pursuant to paragraph 3(e)(4), of the Purchase Contract. We have made such investigations of facts and law, examined such documents, obtained such certificates from public officials and officers of the Corporation, and done such other things as we have determined to be necessary or appropriate to render this opinion. We have assumed that there are no other documents or agreements between the Corporation or NBC and the Master Trustee which would expand or otherwise modify the respective rights and obligations of the Corporation or NHC and the Master Trustee as set forth in Supplemental Master Indentures and the Obligations and the documents required or contemplated thereby. As to questions of fact relevant to this opinion, we have been furnished with and relied solely upon certificates of public officials, closing certificates of and questionnaires completed by certain officers of the Corporation, and documents submitted to us in response to our information request to the Corporation dated , 2008 and follow -up with officers of the Corporation where indicated based on the information received from such sources. We have assumed and have not verified the accuracy of the facts stated in any certificate, questionnaire or the documents provided to us in response to our requests as described above. Whenever a statement herein is qualified by "known to us," "to our current actual knowledge," or similar phrase, it is intended to indicate that, during the course of our representation of the Corporation, no information that would give us current actual knowledge of the inaccuracy of such statement has come to the attention of those attorneys in this firm who have rendered legal services in connection with the transaction described in the introductory paragraph hereof. However, except as otherwise expressly indicated, we have not undertaken any independent investigation to determine the accuracy of such statement, and any limited E -2 Erred Unknown document property name. inquiry undertaken by us Auring the preparation of this opinion letter should not be regarded as such an investigation; no inference as to our knowledge of any matters bearing on the accuracy of any such statement should be drawn from the fact of our representation of the Corporation. We have assumed the legal capacity of all natural persons and .that, with respect to all parties to agreements or instruments relevant hereto (other than the Corporation), such parties had the requisite power and authority to execute, deliver and perform such agreement or instruments, that such agreements or instruments have been duly authorized by all requisite action, executed and delivered by such parties, and that such agreement or instruments are the valid binding and enforceable obligations of such parties. We have further assumed the authenticity of all items submitted to us as originals, the conformity to originals of all items submitted to us as certified or photostatic copies, and except for signatures on behalf of the Corporation, the genuineness of such signatures. We have further assumed that the City is a duly organized and validly existing local government entity and that the Bonds have been duly issued by the City. With respect to our opinions in paragraphs 18 and 19 above, we have made the following assumptions. The description of the Gross Receivables contained in Supplemental Master Indenture No. 1 and the UCC -1 Financing Statements "reasonably identifies" the Gross Receivables within the meaning of California Uniform Commercial Code Section 9108. The Corporation and NHC have sufficient "rights" or "power to transfer rights" in the Gross Receivables within the meaning of California Uniform Commercial Code Section 9203. The Corporation and NHC have each received legally sufficient consideration and "value (as such term is defined in California Uniform Commercial Code Section 1201) as required by California Uniform Commercial Code Section 9203 for its obligations under Supplemental Master Indentures and Obligations and for the granting of security interests in its property as security for such obligations. Based on the foregoing, and subject to the additional assumptions, exceptions, the qualifications and limitations set forth below, as of the date of this letter, it is our opinion that: 1. The Corporation is a nonprofit public benefit corporation duly organized and in good standing under the laws of the State of California. 2. NHC is a limited liability company duly organized and in good standing under the laws of the State of Delaware. 3. The Corporation has the corporate power and authority to enter into the Loan Agreement, the Tax Certificate and Agreement, the Purchase Contract (including the Letter of Representation appended thereto), the Reimbursement Agreement, the Remarketing Agreement, the Supplemental Master Indentures, the Obligations and the Continuing Disclosure Certificate (collectively, the `Borrower Documents "), to perform all of its duties contained therein, and to approve the Official Statement. 4: Each of the Corporation and NHC has the corporate power and authority to enter into the Master Indenture and to perform all of its duties contained therein. E -3 Error! Unknown docianent property name. 5. The execution of the Supplemental Master Indentures are authorized or permitted by the Master Indenture. 6. All conditions precedent to the execution of the Master Indenture and the Supplemental Master Indentures have been complied with. The Borrower Documents have been duly authorized by all necessary corporate action on the part of the Corporation and have been duly executed and delivered by the Corporation. The Master Indenture has been duly authorized by all necessary corporate action on the part of the Corporation and NHC and has been duly executed and delivered by the Corporation and NHC. 7. The obligations under the Loan Agreement and the Obligations which have been assigned to the Bond Trustee and the Bank, respectively, constitute the legal, valid and binding agreements of the Corporation (and NHC with respect to the Obligations) with the Bond Trustee and the Bank, respectively, enforceable against the Corporation (and NHC with respect to the Obligations) in accordance with their terms. 8. (i) The Borrower Documents and any obligations of the Corporation under the Loan Agreement not so assigned to the Bond Trustee and (ii) the Master Indenture and any obligations of the Corporation and NHC under the Obligations not so assigned to the Bond Trustee constitute the legal, valid and binding obligations of the Corporation and NHC, as applicable, enforceable against the Corporation and NHC, as applicable, in.accordance with their terms. 9. The Corporation has.the corporate power to approve and has duly approved the Indenture and the Official Statement and duly authorized the distribution of, the Official Statement. 10. The distribution of the Official Statement and the approval thereof by the Corporation, the approval by the Corporation of the Indenture, the execution and delivery by the Corporation of the Borrower Documents and the execution and delivery by the Corporation and NHC of the Master Indenture, the performance by the Corporation and NHC, as applicable, of the duties and covenants of the Corporation and NHC contained therein and the fulfillment of or compliance by the Corporation and NHC with the terms and conditions thereof (a) do not and will not constitute on the part of the Corporation or NHC a breach of or default (with due notice or the passage of time or both), and do not result in the creation or imposition of any prohibited lien, charge or encumbrance upon the property or assets of the Corporation or NHC, under the articles of incorporation or bylaws of the Corporation or NHC, or the resolution of the Board of Directors of the Corporation duly adopted on , 2008 authorizing the transactions contemplated by the documents referred to in this paragraph, (b) do not and will not, to our knowledge, constitute a material breach of the terms, conditions or provisions of, or constitute a default under, any material contract, undertaking, indenture or other agreement or instrument; and (c) neither is prohibited by, nor subjects the Corporation or NHC to, a fine, penalty, or other similar sanction under, any statute or regulation of the State of California, or any federal statute or regulation, of a type which are typically applicable to transactions similar to those transactions contemplated by the documents referred to in this paragraph, and which breach, default, lien, charge or encumbrance would materially and adversely affect the consummation of the E-4 Errorl Unknown document property name. transactions contemplated by the documents referred to in this paragraph, or the financial condition or operations of the Corporation or NHC. 11. With respect to requirements imposed on the Corporation or NHC, no consent, approval, authorization of or designation, declaration, or filing with any California or United States federal authority (except as may be required under any state or federal blue sky or securities laws) is required in connection with the execution and delivery by the Corporation and NHC of the Master Indenture and by the Corporation of the Borrower Documents or the approval by the Corporation of the Indenture and the Official Statement or the distribution of the Official Statement, or, in the case of the Master Indenture and the Borrower Documents, is required in connection with the performance of the obligations and duties of the Corporation and NHC contained therein, except as has been obtained or made on or before the date hereof and as is in full force and effect or which are not required to be made or obtained until after the date hereof. All requirements and conditions to be fulfilled by the Corporation prior to the issuance of the Obligations set forth in the Master Indenture and the Supplemental Master Indentures have been complied with and satisfied. 12. (a) To our current actual knowledge, there is no action, suit, or pending against the Corporation or NHC or their properties in any court or before any governmental authority or agency, or arbitration board or tribunal, which challenges the consummation of the financing transactions contemplated by or the validity of the Bonds, the Master Indenture or the Borrower Documents, which, if determined adversely to the Corporation or NHC, would have a material and adverse effect on such consummation or validity. (b) To our current actual knowledge, there is no action, suit or proceeding, pending against the Corporation or NHC or the assets, properties or operations of the Corporation or NHC which, if determined adversely to the Corporation or NHC, would have a material and adverse effect on the Corporation or NHC or their financial condition, assets or operations (taken as a whole). (c) To our current actual knowledge, each of the Corporation and NHC is not in violation or breach with respect to any specific judicial or administrative adjudicative order or decree directed to or affecting the Corporation or NHC by any federal, state, or municipal court or other governmental authority which violation or breach might have consequences that would materially and adversely affect the consummation of the transactions contemplated by the documents referred to in this paragraph 12 or the financial condition or operations of the Corporation or NHC (taken as a whole). 13. The Corporation is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code "), and is exempt from federal income taxation under Section 501(a) of the Code except for unrelated business income subject to taxation under Section 511 of the Code. 14. The Corporation is an organization described in Section 3(a)(4) of the Securities Act of 1933, as amended, and Section 12(g)(2)(D) of the Securities Act of 1934, as amended. E -5 Errorl Unknown document property name. 15. Each of the Corporation and NHC has the corporate power and authority to own its properties and assets and to carry on its business as now being conducted by it. 16. The Corporation is duly licensed by the State of California Department of Health Services as a general acute care hospital and is qualified to participate in the federal Medicare and state Medi -Cal programs. 17. The Master Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended, and the Obligations are exempt from registration under the Securities Act of 1933, as amended. 18. The provisions of Supplemental Master Indenture No. 1 are sufficient to create a security interest which has attached to the right, title and interest of the Corporation and NHC in those items and types of Gross Receivables in which a security interest may attach under Division 9 of the California Uniform Commercial Code. "Gross Receivables," as used in this opinion has the same meaning ascribed thereto in Supplemental Master Indenture No. 1. 19: The UCC -1 Financing Statements naming the Corporation and NHC as "Debtor" and Master Trustee as "Secured Party" for the benefit of the holders of the Obligations to be filed with the California Secretary of State (the "UCC -1 Financing Statements") in the form presented to us are in adequate and legally sufficient form to perfect a security interest in favor of the Master Trustee in the right, title and interest of the Corporation to the Gross_ Receivables which are described in such UCC-1 Financing Statements and the Supplemental Master Indenture No. 1 to which they relate, and for which perfection may occur by the filing of a UCC -1 Financing Statements with the Secretary of .State for the State of California. Assuming that the UCC -1 Financing Statements are duly filed with the Secretary of State for the State of California in accordance with the provisions of Section 9516(a) of the California Uniform Commercial Code, a security interest will be perfected in such Gross Receivables. In connection with our participation in the preparation of the Official Statement, we have not independently verified the accuracy, completeness or fairness of the statements contained therein, and the limitations inherent in the examination made by us and the knowledge available to us are such that we are unable to assume, and we do not assume, any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement. However, on the basis of our examination and our participation in conferences with certain officers of the Corporation and NHC, its independent auditors and representatives of the Underwriter, its counsel and Bond Counsel in connection with the preparation of the Official Statement, we can advise you supplementally as a matter of fact that we have no current actual knowledge that the Official Statement as of its date or the date hereof contained or contains any untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. However, we are not expressing any belief as to the financial statements and the notes thereto or any financial statistical or economic data or forecast, or the demographic and statistical data, or any information regarding the City, the Book -Entry Only System and The Depository Trust Company, all as, contained in the Official Statement. Our opinion is subject to the following qualifications: E -6 Errorl Unknown document property name. (a) We have not examined the question of what law would govern the interpretation or enforcement of the Master Indenture, the Supplemental Master Indentures, the Indenture, the Obligations, the Loan Agreement, the Purchase Contract, the Letter of Credit, the Remarketing Agreement or the Reimbursement Agreement and, except as set forth in b, c and d below, we express no opinion with respect to the laws of any state or jurisdiction other than California. (b) We express our opinion with respect to federal law only as set out in paragraphs 10, 11, 12, 13, 14, 15, 16 and 17 hereof and as it may apply to exception paragraphs c, d, a and g. (c) Except as specifically provided in paragraphs 14 and 17 and in exception paragraph d, we express no opinion with respect to the registration or qualification provisions of federal or state securities laws or their application to any of the documents referred to herein or any transaction contemplated thereunder. (d) The enforceability of the documents listed in paragraphs 7 and 8 may be limited: (i) by bankruptcy, insolvency, fraudulent conveyance, or other similar laws or proceedings affecting the enforcement of creditors' rights generally as such proceedings or laws affect the Corporation, including, without limitation, self -help remedies, applicable foreclosure procedures and by application of equitable principles regardless of whether such enforceability is considered in a proceeding in equity or at law, (ii) to the extent that enforcement may be held to be against public policy, (iii) to the extent that the indemnification provisions in such documents may be limited by applicable securities law or public policy, . (iv) by the implied covenant of good faith and fair dealing, and (v) to the extent that enforcement may be limited by donor restrictions on certain funds. . (e) Our opinion as expressed in paragraphs 10 (as to decrees and orders) and 12 is based solely upon an interview with the Executive Vice President of the Corporation, a review of the minutes of the Board of Directors of the Corporation, and a review of responses to inquiries by us of litigation counsel identified by the Corporation regarding litigation matters pertaining to the Corporation and a certificate regarding litigation matters dated the date hereof of the [Risk Management Officer] of the Corporation. (f) We express no opinion as to: E -7 Error! Unknown document property name. (i) The enforceability of provisions in any of the documents mentioned herein with respect to the payment of attorneys' fees. (ii) The enforceability under certain circumstances of provisions waiving stated rights or unknown future rights, or providing that rights or remedies are not exclusive, but every right or remedy is cumulative and may be exercised in addition or with any other right or remedy or that the election of some particular remedy or remedies does not preclude or waive recourse to one or more others. Provisions purporting to limit or restrict the right of the Corporation or NHC to sell, encumber or otherwise transfer or dispose of any of their respective property may be unenforceable to the extent, that they impose restrictions upon the. Corporation or NHC and it cannot be demonstrated that such restrictions are reasonably necessary for Master Trustee's protection. Limitations on strict enforcement of certain covenants in debt instruments absent a showing of damage to the lender, impairment of value of collateral or impairment of the debtor's ability to pay or otherwise under circumstances which would violate the lender's covenant of good faith and fair dealing. (iii) The enforceability under certain circumstances of provisions which waive statutory rights to receive notice or to be allowed to cure, or which waive statutes of limitations. (iv) The enforceability under certain circumstances of provisions to the effect that failure to exercise or delay in exercising rights or remedies will not operate as a waiver of that right or remedy or that waivers must be in writing in order to be effective. Limitations on the exercise of certain contractual rights and remedies if the defaults are not material or the penalties bear no reasonable relation to the damages suffered by the aggrieved party as a result of the delinquencies or defaults. (v) The enforceability under certain circumstances of provisions to the effect that the invalidity or unenforceability of certain provisions shall not impair the validity or enforceability of remaining provisions: (vi) The enforceability of provisions in any of the documents relating to the disposition of insurance proceeds or condemnation proceeds. (vii) The enforceability of provisions in any of the documents relating to the execution of claims by third parties to such documents. (viii) The enforceability of provisions increasing the interest rate payable after a default or imposing a prepayment premium (except upon voluntary prepayment) or late charges: (ix) The enforceability of provisions which waive rights of set -off. (x) The enforceability of provisions that time is of the essence. E -8 Errors Unknown document property name. (xi) The enforceability of any provisions that indemnify any party against its own negligence or willful misconduct. (xii) The effect of California Civil Code Section 1670.5 which provides that a court may refuse to enforce, or may limit the application of, a contract or any clause thereof which the court finds as a matter of law to have been unconscionable at the time it was made. The effect of California Civil Code Section 1671 which provides in part that a contractual provision liquidating the damages for breach of contract in a commercial transaction will be invalid if it is established that the provision was "unreasonable" under the circumstances existing at the time the contract was made. The effect of Sections 2787 through 2855 of the California Civil Code which provide protections for and limitations on the obligations of a guarantor such as, but riot limited to, limitations that provide (i) in certain circumstances that a notice be given to the guarantor of any default by the debtor or obligor which may result in liability to the guarantor; (ii) that the obligations of a guarantor cannot be greater in amount or more burdensome than that of the obligor; (iii) that the guarantor will have the same defenses to liability as the obligor, other than defenses arising from the personal disability of the obligor; (iv) that a guarantor will be exonerated from liability, by any act of the creditor taken without the guarantor's consent, which alters the original obligations of the obligor or impairs or suspends any remedies or rights of the creditor against the obligor or security for the guaranteed obligation; (v) that the creditor's acceptance of anything in partial satisfaction of the guaranteed obligation also reduces the obligation of the guarantor to the same extent; and (vi) that a guarantor may require the creditor to proceed against the obligor or security held by the creditor or to pursue other remedies within the power of the creditor which cannot be pursued by the guarantor before proceeding against the guarantor. The effect of Sections 3439.01 through 3439.12 of the California Civil Code relative to fraudulent transfers or conveyances. (xiii) The effect of Section 1698 of the California Civil Code which provides in part that provisions of any instrument or agreement may only be waived in writing will not be enforced to the extent that an oral agreement has been executed modifying provisions of such instrument or agreement. (xiv) The enforceability of provisions governing choice of law, waiving the right to trial by jury, consenting to jurisdiction or venue, altering the statutory method of service of process, or appointing any party as the attorney -in -fact for the other party. (g) Certain provisions of the Borrower Documents and the Master Indenture may be unenforceable under applicable California laws governing such provisions, but neither such laws nor the possible unenforceability of the provisions referred to in section (f) above, subject to the other exceptions, qualifications and limitations in this Opinion, render the Borrower Documents and the Master Indenture invalid as a whole or substantially interfere with realization of the principal benefits provided by the Borrower Documents and the Master Indenture. In addition, we advise you that California court E -9 Errorl Unknown document property name. decisions invoking statutes or principles of equity have held that certain covenants and provisions of agreements are unenforceable where (i) the breach of such covenants or provisions imposes restrictions or burdens upon the debtor, including the acceleration of indebtedness due under debt instruments, and it cannot be demonstrated that the enforcement of such restrictions or burdens is reasonably necessary for the protection of the creditor, or (ii) the creditor's enforcement of such covenants or provisions under the circumstances would be unreasonable, violate the creditor's implied covenant of good faith and fair dealing or would be commercially unreasonable. (h) Our opinions as expressed in paragraphs 13 and 14 are based solely upon: (i) The current articles of incorporation as certified by the Secretary of State of the State of California and bylaws of the Corporation as provided to us by the Corporation; (ii) A copy of a letter dated March 10, 1954 by the Internal Revenue Service addressed to the Corporation confirming that the Corporation is exempt from federal income taxes under Section 501(a) of the Code as an organization described in Section 501(c)(3) and that the Corporation is not a "private foundation" within the meaning of Section 509(a) of the Code; (iii) A certificate from the Executive Vice President of the Corporation stating that the Corporation has not been notified by the Internal Revenue Service of any investigation of, or, proposed or actual revocation of its status as an organization described in section 501(c)(3) of the Code which is not a private foundation; and (iv) Factual information set forth in certificates from officers of the Corporation, the Corporation's responses to our questionnaire dated 2008 and the documents and other information submitted to us in response to our information request to the Corporation dated , 2008, and follow -up with officers of the Corporation where indicated based on the information received from such sources. (i) We understand that you will rely upon the opinion of Bond Counsel as to matters concerning the effect of the execution and delivery of the Indenture on the validity and tax- exempt status of the Bonds, and we express no opinion herein on such matters. 0) The opinions expressed herein are based on facts, laws, regulations and case law in effect as of the date hereof, and we assume no obligation to revise or supplement this letter should such facts, laws, regulations and case law be changed in any respect, including any changes in organization or affairs of the Corporation and NHC. (k) We have not rendered insurance advice to the Corporation or NHC as to, any types or classifications of coverage, including general and medical malpractice liability coverage, and we do not represent by this opinion or otherwise that we have reviewed or made any assessment about, nor do we express any opinion about the types E -10 Errrorl Unknown document property name. or amounts of coverage, of the ability of any insurer or any self insurance program or organization to meet its obligations pursuant to any policy or agreement with the Corporation or NHC, or of the adequacy of the funding or reserves thereof. (1) As special counsel to the Corporation in this matter, we have not rendered financial advice to the Corporation and do not represent by this opinion, or otherwise, that we have reviewed or made any assessment about, nor do we offer any opinion about, the financial condition of the Corporation, past, present or future (except only as financial condition is related to a standard of materiality as used in paragraphs 10, 11(b) and 11(c) hereof), and with respect to the latter we have relied entirely on the assessment of materiality made by the Vice President and Chief Financial Officer of the Corporation. (m) We express no opinion with respect to any numerical or mathematical calculation or computation regarding the Bonds, any of the documents referred to herein or any certificate given or issued with respect to the matters referred to herein. Without limiting the generality of the above, we specifically express no opinion with respect to any such calculation or computation contained in or related to the subject matter of the "Tax Certificate and Agreement" or Internal Revenue Service Form 8038. (n) We express no opinion.as to the ownership or the condition of title of any real or personal property of the Corporation or NHC. (o) Our opinion is limited to the matters expressly set forth herein, and no opinion or other statement may be inferred or implied beyond the matters expressly stated. (p) We expressly do not comment upon or render any opinion with respect to the Corporation's or NHC's rights in or title to any item of Gross Receivables, the priority of any security interest in any item of Gross Receivables over any other interest in the Gross Receivables, and the ability of the Master Trustee to realize upon any item of Gross Receivables in which any other person has an interest. (q) Our opinions rendered above do not include any opinion as to the perfection of any security interest or lien which is not perfected by the filing of a financing statement with the Secretary of State for the State of California. We are members of the Bar of the State of California and, accordingly, do not purport to be experts on or to be qualified to express any opinion herein concerning, nor do we express any opinion herein concerning, any laws other than the laws of the State of California and federal law. This opinion is furnished by us as special counsel to the Corporation and it may be relied upon only by the addressees, their counsel and Orrick, Herrington & Sutcliffe LLP, as Bond Counsel. This letter shall not be used, quoted, disseminated, circulated or relied upon by any other person or entity, for any purpose, without our prior written consent, except as copies may be included in transcripts of the proceedings relating to the issuance of the Bonds. Respectfully submitted, E -11 Enorl Unknown document properly name. E -12 Errorl Unknown document property name. EXHIBIT F TO BOND PURCHASE CONTRACT FORM OF OPINION OF UNDERWRITER'S COUNSEL 2008 Citigroup Global Markets Inc. Los Angeles, California Re: $. CITY OF NEWPORT BEACH VARIABLE RATE REVENUE BONDS (HOAG MEMORIAL HOSPITAL PRESBYTERIAN) SERIES 2008A Ladies and Gentlemen: We have acted as counsel to you as the Underwriter in connection with the purchase by you of the $ aggregate principal amount of the. City of Newport Beach Variable Rate Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008A (the "Bonds "), pursuant to a Bond Purchase Contract (the "Bond Purchase Contract'), by and between the City of Newport Beach (the "City") and you, as the Underwriter, which Hoag Memorial Hospital Presbyterian (the "Borrower "), as Borrower, has approved. The Bonds are being issued pursuant to a Bond Indenture dated as of 1, 2008 (the "Bond Indenture ") between the City and Wells Fargo Bank, National Association, as bond trustee (the "Trustee ") for the purpose of making a loan to the Borrower pursuant to the Loan Agreement dated as of 1, 2008 (the "Loan Agreement ") between the City and the Borrower. In that connection, we have reviewed the Loan Agreement; the Bond Indenture; the Master Indenture dated as of May 1, 2007 between the Borrower, Newport Healthcare Center, LLC ( "NHC ") and Wells Fargo Bank, National Association, as master trustee (the "Master Trustee "), as supplemented by the Supplemental Master Indenture for Obligation No. _ and by the Supplemental Master Indenture for Obligation No. _ (as so supplemented, the "Master Indenture'D, between the Borrower and the Master Trustee; Obligation No. _; Obligation No. the Official Statement dated May 2008 (the "Official Statement'D relating to the Bonds; the Continuing Disclosure Certificate dated the date of issuance and delivery of the Bonds (the "Continuing Disclosure Certificate'D between the Borrower and Wells Fargo Bank, National Association, as Dissemination Agent; the Letter of Representation described in the Bond Purchase Contract; the Remarketing Agreement; the Reimbursement Agreement; the Letter of Credit; the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, counsel to the Borrower, dated the date hereof; certifications of the City, the Borrower, NHC, the Master Trustee, the Bank, the Trustee and others as to certain matters; such opinions and such other records and documents; and we have made such investigations of law, as we have deemed appropriate as a basis for the opinions and statements hereinafter expressed. F -1 Errorl Unknown document property name. In rendering the opinions and making the statements hereinafter expressed, we are not expressing any opinion or view of the validity; accuracy or sufficiency of the documents, certificates or opinions referred to above or on the authorization, issuance, delivery or validity of the Bonds and we have assumed, but not independently verified, that the signatures on all documents, certificates and opinions that we have reviewed are genuine. Based on and subject to the foregoing, and in reliance thereon, we are of the. opinion that: 1. The Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended; and the Bond Indenture and the Master Indenture are exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended. 2. Because the primary purpose of our professional engagement was not to establish factual matters and because of the wholly or partially non -legal character of many determinations involved in the preparation of the Official Statement, we are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of any of the statements contained in the Official Statement and make no representation that we have independently certified the accuracy, completeness or fairness of any such statements. However, in our capacity as counsel for the Underwriter during the course of preparation of the Official Statement, we met in conferences or had discussions with your representatives; representatives of the Borrower and its counsel, bond counsel, and others, during which conferences the contents of the Official Statement and related matters were discussed. Based, on our participation in the above mentioned conferences and in reliance thereon and on the certificates, opinions and other documents herein mentioned, we advise you that no information came to our attention which caused us to believe that the Official Statement as of its date and as of the date of this opinion (except for any financial or statistical data or forecasts and the information relating to DTC and the Bank contained therein as to which we express no opinion or view) contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. The Continuing Disclosure Certificate satisfies the requirements of Section (b)(5)(i) of Rule 15c2 -12 of the Securities and Exchange Commission (17 C.F.R., Part 240, §420.15c2- 12)(the "Rule "), which. provide for an undertaking for the benefit of the holders, including beneficial owners, of the Bonds to provide certain annual financial information and event notices to various information repositories at the times and in the manner required by the Rule. 4. With respect to the Bonds; other than the Borrower, there are no "obligated persons" within the meaning of the Rule which would be required to provide certain annual financial information and event notices to various information repositories as required by the Rule. In rendering the foregoing opinions in paragraphs 3 and 4 hereof, we have assumed the due authorization, execution and delivery of the Continuing Disclosure Certificate by the Borrower, and that such Continuing Disclosure Certificate is a valid and binding obligation of the Borrower enforceable in accordance with its terms. F -2 Errorl Unknown document property name. The opinions expressed herein are based upon existing law as of the date hereof and we express no opinion herein as of any subsequent date or with respect to any pending legislation. We assume no obligation to supplement this opinion if any applicable laws change after the date hereof or if we become aware of any facts that might change the opinions expressed herein after the date hereof. In rendering these opinions, we are expressing no opinion on the validity of the Bonds or on the exclusion of interest evidenced by the Bonds from the gross income of the holders thereof for federal income tax purposes or the exemption of interest on the Bonds from State of California personal income taxes. We understand that you are relying on the opinion of Bond Counsel in that regard. The opinions herein are limited to the laws of the United States. We are furnishing this letter to you pursuant to the Bond Purchase Contract solely for your benefit as Underwriter. This letter is not to be used, circulated, quoted or otherwise referred to for any other purpose except that reference to our opinion in the first numbered paragraph of this letter may be made in the Official Statement or other documents and except that reference may be made to this letter in any list of closing documents pertaining to the sale of the Bonds. Respectfully, . Foley & Lardner LLP F -3 Errorl Unknown document property name. EXHIBIT G TO BOND PURCHASE CONTRACT FORM OF OPINION OF BANK'S COUNSEL [To Come] G -1 Enorl Unknown document property name. EXHIBIT H TO BOND PURCHASE CONTRACT OFFICER'S CERTIFICATE Re: $ City of Newport Beach Variable Rate Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2008A (the "Bonds ") I, Jennifer Mitzner, hereby certify that I am the Vice President and Chief Financial Officer of Hoag Memorial Hospital_ Presbyterian (the "Corporation "), a nonprofit public benefit corporation duly organized and existing under the laws of the State of California and that, as . such, I. am authorized to execute this certificate on behalf of the Corporation under the Master Indenture dated as of 1, 2008, as supplemented and amended, by and among the Corporation, Newport Healthcare Center, LLC and such other members as may join the obligated group as defined therein and Wells Fargo Bank, National Association, as master trustee. I hereby further state and certify, to the best of my knowledge, that: 1. Since February 28, 2008, no material and adverse change has occurred in the financial position or results of operation of the Corporation which is not described in the Official Statement prepared in connection with the issuance of the Bonds or which has not been described in writing delivered by the Corporation to the City and the, Underwriter. 2. The Corporation has not, since February 28, 2008, incurred any material liabilities other than in the ordinary course of business which are not described in or contemplated by the Official Statement or in writing delivered by the Corporation to the City and the Underwriter. 3. No proceedings. are pending or threatened in any way contesting or affecting the Corporation's status as an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986 (the "Code "), as amended, or which would subject any income of any Member of the Obligated Group to federal income taxation. 4. No event affecting the Corporation has occurred since the date of the Official Statement which (i) makes untrue or incorrect in any material respect as of the date hereof, or at such earlier or later time or date as shall be agreed by the City and the Underwriter, any statement or information contained in the Official Statement or (ii) is not reflected in the Official Statement but should be reflected therein in order to make the statements and information therein not misleading in any material respect. 5. The representations and warranties made by the Corporation in the Letter of Representation delivered by the Corporation in connection with the execution of the Bond Purchase Contract related to the Bonds, are true and correct as of the date hereof as if made on the date hereof. H -1 Errorl Unknown document property name. Capitalized terms used and not defined herein have the meanings assigned to them in the Bond Purchase Contract dated , 2008, between Citigroup Global Markets Inc. and the City of Newport Beach and approved by the Corporation. Dated: , 2008 HOAG MEMORIAL HOSPITAL PRESBYTERIAN 0 Vice President and Chief Financial Officer H -2 Errorl Unknown document property name.