HomeMy WebLinkAbout16 - Preliminary Offical Statement Series B-EOHS
Draft
05/05/09
PRELIMINARY OFFICIAL STATEMENT DATED MAY —, 2009
e s`o NEW ISSUE — BOOK -ENTRY ONLY Ratings t
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`3 In the opinion of Orrick Herrington & Sutcliffe LLP, Bond Counsel to the City, based upon an analysis of existing laws,
E a 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
s under section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the
E 3 further opinion of Bond Counsel, interest on the Bonds is not a specifrc preference item for purposes of the federal individual
2.2 and corporate alternative minimum taxes, nor is it included in adjusted current earnings when calculating corporate
alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences relating to
the ownership or disposition of or the accrual or receipt of interest on, the Bonds. See "TAX MATTERS" herein.
8.2 $1150,000,0001'
$ City of Newport Beach
Revenue Bonds
F (Hoag Memorial Hospital Presbyterian)
h Series 2009
a; s
a $[37,500,0001" . $[37,500,0001 $137,500,0001 $[37,500,0001
Series 2009B Series 2009C Series 2009D Series 2009E
a€
_
Dated: Date of Delivery Due: As shown on the inside cover
3 r
F 9 The City of Newport Beach Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2009B (the "2009B
c 6 Bonds "), Series 2009C (the "2009C Bonds "), Series 2009D (the "2009D Bonds') and Series 2009E (the "2009E Bonds' and
collectively with the 2009B Bonds, the 2009C Bonds and the 2009D Bonds, the "Bonds" and each a "Series" of Bonds) will
S be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( "DTC "),
ounder the book -entry only system maintained by DTC. Purchases of beneficial interests in the Bonds, while in a Long -Term
$ Interest Rate Period will be made in book -entry only form in denominations of $5,000 or any integral multiple thereof. So
9-. long as Cede & Co. is the registered owner of the Bonds, (i) principal of, premium, if any, and interest on the Bonds and the
o Tender Price will be payable directly to DTC, which in turn will remit such payments to its participants for subsequent
°
disbursement to beneficial owners of the Bonds, as more fully described herein, and (ii) all notices, including any notice of
redemption or notice of conversion to 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 its Revenue
a e o Bonds (Hoag Memorial Hospital Presbyterian), Series 2009A (the "Additional 2009 Bonds' and together with the Bonds, the
fi "2009 Bonds "). The 2009 Bonds are being issued to 1) refund certain outstanding variable rate securities issued by the City
-5i 2 " a for the benefit of Hoag Memorial Hospital Presbyterian ( "Hoag Hospital ") in 2007 and 2008, 2) finance the acquisition and
r construction of certain additions and improvements to, and equipment for, the acute care hospital and related facilities owned
c a ' by the Members and located on the campus known as One Hoag Drive, Newport Beach, California, or at 500 -540 Superior
3 ° Avenue, Newport Beach, California, and 3) pay certain costs of issuance of the 2009 Bonds. See "PLAN OF FINANCE."
d r_
o The Bonds will accrue interest from the Date of Delivery and initially will bear interest at a Long -Tenn Interest Rate for
tN the respective initial Long -Term Interest Rate Period set forth on the inside cover for the applicable Series of Bonds. During
a Long -Term Interest Rate Period, interest is payable on each June 1 and December 1, commencing December 1, 2009. At
the election of Hoag Hospital, a Series of Bonds may be converted, in whole, to any of the other Interest Rate Periods,
g m provided for and in accordance with the Bond Indenture. This Official Statement describes certain terms of each Series
��
of Bonds applicable while such Series accrues interest at a Long -Term Interest Rate. There are significant changes in
e ° a 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 a Series of Bonds bearing interest at
� o c
y Long -Term Interest Rates.
p `a The Bonds are limited obligations of the City of Newport Beach the "City"), provisions of the Bond
g ty wpo ( ty ")> secured under the
o Indenture and the Loan Agreement, as described herein, and principal of, premium, if any, and interest thereon will be
.g h o payable from Loan Repayments made by Hoag Hospital under the Loan Agreement and from certain funds held under the
a Bond Indenture. Payments of the Tender Price of the Bonds is also payable from payments made by Hoag Hospital under the
y � .N
Loan Agreement to the Tender Agent, to the extent required by the Bond Indenture, as further described herein. The
OHS West:260647583.5
obligation of Hoag Hospital to make payments to the Bond Trustee in an amount sufficient to pay principal of, premium, if
any, and interest on the Bonds and the Tender Price when due is further evidenced and secured by Obligation No. [X] issued
under the Master Indenture, described herein, whereunder the members of the obligated group (the "Obligated Group "),
including Hoag Hospital as the Credit Group Representative, are obligated to make payments on Obligation No. [X] in
amounts sufficient to pay principal of, premium, if any, and interest on the Bonds when due, and the Tender Price upon
mandatory tender thereof.
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 BY THE OBLIGATED
GROUP PURSUANT TO OBLIGATION NO. [X] 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 OR THE TENDER PRICE THEREOF, EXCEPT FROM THE FUNDS
PROVIDED UNDER THE LOAN AGREEMENT, OBLIGATION NO. (XJ 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 OR THE TENDER PRICE THEREOF. 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.
The Bonds are subject to optional, mandatory sinking fund and extraordinary optional redemption prior to their stated
maturity and are subject to mandatory tender for purchase and remarketing, as described herein at the end of each Long -Term
Interest Rate Period. The Bonds are not subject to optional tender for purchase.
The Tender Price of Bonds subject to mandatory tender that are tendered or deemed tendered for purchase and not
remarketed will not initially be supported by any form of Liquidity Facility (as defined in the Bond Indenture). Bonds that
are, not remarketed will be required to be purchased by Hoag Hospital from its own funds. Hoag Hospital at its sole option
may deliver one or more Liquidity Facilities to the Tender Agent at any time with respect to any Series of Bonds. The failure
to pay the Tender Price of the Bonds subject to mandatory tender for purchase and not remarketed constitutes an Event of
Default under the Loan Agreement and the Bond Indenture.
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. Investors should read the entire Official Statement to obtain information essential to the making of an
informed investment decision.
The Bonds are offered when, as and if received by the Underwriter, subject to prior sale and to the approval of the
validity of the Bonds and certain legal matters by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City, the approval
of certain matters for the City by the City Attorney, for Hoag Hospital by Stradling Yocca Carlson & Rauth, a Professional
Corporation, and for the Underwriter by its counsel, Foley & Lardner LLP, Chicago, Illinois. It is expected that the Bonds in
book -entry form will be available for delivery to OTC in New York, New York, on or about June 1, 2009.
Citi
Date: '2009
Preliminary; subject to change.
i For an explanation of the ratings, see "RATINGS" herein.
OHS West:260647583.5
JPMorgan
MATURITY SCHEDULE
$[150,000,000[
City of Newport Beach
Revenue Bonds
(Hoag Memorial Hospital Presbyterian)
Series 2009E Bonds
Last Day of
Initial Long -
Maturity Date Principal Initial Interest Term Interest Initial Price to Initial
(December 1) Amount Rate Rate Period Purchase Date Purchase Date
$[37,500,000] % %
Series 2O09C Bonds
Last Day of
Initial Long-
Maturity Date
Principal
Initial Interest
Term Interest Initial Price to Initial
(December 1)
Amount
Rate
Rate Period Purchase Date Purchase Date
$[37,500,0001-
%
%
Series 2OO9D Bonds
Last Day of
Initial Long -
Maturity Date Principal Initial Interest Term Interest Initial Price to Initial
(December 1) Amount Rate Rate Period Purchase Date Purchase Date
$[37,500,000] % %
Series 2009E Bonds
Last Day of
Initial Long -
Maturity Date Principal Initial Interest Term Interest Initial Price to Initial
(December 1) Amount Rate Rate Period Purchase Date Purchase Date
$[37,500,0001' % %
Preluninary; subject to change.
OHS West:260647583.5
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 relating to DTC and the Book - Entry -Only System has been
famished 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 Citigroup Global Markets Inc. (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 unlawful 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, or DTC 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. (X] 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 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 West:260647583.5
TABLE OF CONTENTS
Page
INTRODUCTORY STATEMENT ............. ...............................
Purpose of the Official Statement ................................................................................... ...............................
I
The Obligated Group and the Master ht denture ............................................................. ...............................
1
Initial Interest Rates; Redemption .................................................................................. ...............................
2
Securityfor the Bonds .................................................................................................... ...............................
2
Appointment of Remarketing Agent .............................................................................. ...............................
3
Appointment of Tender Agent; Corporate Trust Office of Tender Agent and Bond Trustee ........................
3
Planof Finance ............................................................................................................... ...............................
3
Bondholders' Risks ........................................................................................................ ...............................
4
THE CITY ...............
THE BONDS...........
WE]
General...........................................................................................................................
............................... 4
Long -Term Interest Rate Period .....................................................................................
............................... 5
Redemption....................................................................................................................
............................... 5
Converting to other Interest Rate Periods .......................................................................
............................... 9
MandatoryTender ...........................................................................................................
..............................9
No Optional Tender During a Long -Term Interest Rate Period
................................... ............................... 10
Inadequate Funds for Tenders......... ... .................... .....
____ ........ .............. .... °.-........................ 10
No Liquidity for Payment of the Tender Price .............................................................
............................... 10
Book -Entry-Only System .............................................................................................
............................... I1
Transfer. Exchange and Payment .................................................................................
............................... I I
SECURITY FOR THE BONDS ..................................... ...............................
General.............................................................. ...............................
The Master Indenture ........................................ ...............................
Security and Enforceability ............................... ...............................
Other.................................................................. ...............................
PLAN OF FINANCE
General.................................................................. ...............................
The Project ......................... . .............................. .... .................... ..... . ...
:.
Refunding the Prior Bonds .................................... ...............................
Interest Rate Swaps ............................................... ...............................
11
............... ...............................
12
........... :...................................
14
CONTINUING DISCLOSURE ..................................................................................................
16
............... ...............................
.............................20
...... ...............................
17
................ ...............................
17
................ ...............................
17
................ ...............................
17
................ ...............................
18
ESTIMATED SOURCES AND USES OF FUNDS ..................................................................
............................... 18
ESTIMATED ANNUAL DEBT SERVICE REQUIREMENTS ...............................................
............................... 19
CONTINUING DISCLOSURE ..................................................................................................
............................... 20
BONDHOLDERS' RISKS ...........................................................................................................
.............................20
General.. ...................................................................... __ .......... ...... ..... _ .... ........... __ ......................... 20
Economic Conditions; Bad Debt and Indigent Care and Investment Losses ............... ............................... 21
Turmoilin U.S. Bond Markets ..................................................................................... ............................... 21
Interest Rate Swaps and Other Hedge Risk .................................................................. ............................... 21
Significant Risk Areas Summarized.,.,..... ........ ...... __ .... __ ........... ....... ___ ... 21
Nonprofit Health Care Environment ............................................................................ ............................... 24
HealthcareReform Initiatives ....................................................................................... ............................... 25
Patient Service Revenues ............................................................................................. ............................... 25
Negative Rankings Based on Clinical Outcomes, Cost, Quality, Patient Satisfaction and Other
Performance Measures ................................................................................................. ............................... 28
RegulatoryEnvironment .............................................................................................. ............................... 28
Business Relationships and Other Business Matters .................................................... ............................... 32
Tax - Exempt Status and Other Tax Matters .................................................................. ............................... 35
OHS West:260647583.5
TABLE OF CONTENTS
(continued)
Page
OtherRisk Factors ........................................................................................................ ............................... 37
APPENDIX A
APPENDIX B -1
APPENDIX B -2
APPENDIX C
APPENDIX D
APPENDIX E
APPENDIX F
OHS We t260647583.5
INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL
PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC,
AND OTHER AFFILIATES ......................................................... ...............................
A -1
— FINANCIAL STATEMENTS OF HOAG MEMORIAL HOSPITAL
PRESBYTERIAN AND OTHER AFFILIATES. ..... .............................................
B -I
— HOAG MEMORIAL HOSPITAL PRESBYTERIAN AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AND OTHER FINANCIAL INFORMATION .. ...............................
B -2
— SUMMARY OF PRINCIPAL DOCUMENTS ............ .............................. I ..... ............
C -1
— FORM OF OPINION OF BOND COUNSEL ............................... ...............................
D-1
— FORM OF CONTINUING DISCLOSURE CERTIFICATE ............................. ...
........ E -1
— BOOK -ENTRY SYSTEM ................................................................. ............................F
-1
OFFICIAL STATEMENT
$1150,000,0001
City of Newport Beach
Revenue Bonds
(Hoag Memorial Hospital Presbyterian)
S[37,50,0001' $[37,500,0001 $137,500,0001' $[37,500,000]
Series 2009B Series 2009C Series 2009D Series 2009E
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 or as context may require as defined in the Master Indenture
(as defined below). See APPENDIX C — "SUMMARY OF PRINCIPAL DOCUMENTS – Definitions 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 famish information in connection with the sale and delivery of the following Series of Bonds issued by
the City of Newport Beach (the "City"): $[37,500,000] principal amount of Revenue Bonds (Hoag Memorial
Presbyterian), Series 2009B (the "2009B Bonds "), $[37,500,000] principal amount of Revenue Bonds (Hoag
Memorial Hospital Presbyterian), Series 2009C (the "2009C Bonds "), $[37,500,000] principal amount of Revenue
Bonds (Hoag Memorial Hospital Presbyterian), Series 2009D (the "2009D Bonds ") and $[37,500,000] principal
amount of Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2009E (the "2009E Bonds "). The 2009B
Bonds, the 2009C Bonds, the 2009D Bonds and the 2009E 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
June 1, 2009, 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 June 1, 2009 (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 facilities it owns
and operates are referred to as "Hoag Hospital "). Hoag Hospital is licensed to operate a total of [498] general acute
care beds. Newport Healthcare Center, LLC ( "NHC "), a wholly -owned subsidiary of Hoag Hospital, owns and
[expects to operate] operates 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."
Preliminary; subject to change.
OHS West:260647553.5
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 Master Indenture Obligation issued under the Master
Indenture, including Obligation No. [X] (as hereinafter defined), which will evidence and secure the payment of
principal of and premium, if any, and interest on the Bonds and the Tender Price thereof. In addition, Obligation
No. [Yj (defined below) will be issued under the Master Indenture concurrently with Obligation No. [XI to secure
the payment of principal on and premium, if any, and interest on $ aggregate principal amount of the
City's Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2009A, (the "Additional 2009 Bonds" and,
together with the Bonds, the "2009 Bonds "). Hoag Hospital has previously issued Master Indenture Obligations,
which are currently Outstanding and which will remain Outstanding upon issuance of the 2009 Bonds. See
"SECURITY FOR THE BONDS – The Master Indenture – Additional Indebtedness." 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" and APPENDIX B -I — "FINANCIAL STATEMENTS OF HOAG MEMORIAL HOSPITAL
PRESBYTERIAN AND OTHER AFFILIATES."
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. [XI 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."
Initial Interest Rates; Redemption
The Bonds initially will bear interest at a Long -Term Interest Rate. During the Long -Term Interest Rate
Period, interest is payable on each June 1 and December 1, commencing December 1, 2009. 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 are subject to mandatory tender for purchase and remarketing, as described herein at the
end of each Long -Term Interest Rate Period. The Bonds are not subject to optional tender for purchase. See "THE
BONDS — Redemption," "— Mandatory Tender" herein.
Security for the Bonds
Payment of principal of, premium, if any, and interest on the Bonds will be payable from payments made
by Hoag Hospital under the Loan Agreement (the "Loan Repayments ") and from certain funds held under the Bond
Indenture. Payments of the Tender Price of the Bonds are also payable from payments made by Hoag Hospital
under the Loan Agreement to the Tender Agent, to the extent required by the Bond Indenture, as further described
herein.
OHS West:260647583.5
Payment of principal of, premium, if any, and interest on the Bonds and the Tender Price when due is
further secured by the delivery to the Bond Trustee by Hoag Hospital as Credit Group Representative of its Master
Indenture Obligation No. [X] ( "Obligation No. [X] ") issued pursuant to the Master Indenture, as supplemented and
amended by Supplemental Master Indenture for Obligation No. [X], dated as of June 1, 2009, between Hoag
Hospital, as Credit Group Representative, and the Master Trustee ( "Supplement No. [X] "). Pursuant to the Master
Indenture, Hoag Hospital and NHC and any future Members of the Obligated Group agree to make payments on
Obligation No. [X] in amounts sufficient to pay, when due, the principal of and premium, if any, and interest on and
the Tender Price of each Series of the 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. [X]. The Members of the Obligated Group receive a credit on payments due on Obligation No. [X]
to the extent of payments made by Hoag Hospital under the Loan Agreement. Hoag Hospital receives credit on
payments due under the Loan Agreement to the extent of payment made by the Members of the Obligated Group
under Obligation No. [X], if any. Obligation No. [X] 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.
Hoag Hospital is required to provide its own funds for the purchase of tendered Bonds. The
obligation to purchase Bonds upon mandatory tender is not initially supported by a Credit Facility, a
Liquidity Facility or by a covenant of Hoag Hospital to maintain levels of liquid assets. The Loan Agreement
provides that Hoag Hospital at its sole option may deliver one or more Credit Facilities or Liquidity Facilities
to the Tender Agent at any time with respect to any Series of the Bonds.
Appointment of Remarketing Agent
Hoag Hospital has covenanted to appoint one or more Remarketing Agents, on behalf of the City, at least
45 days prior to the last day of the initial Long -Term Interest Rate Period to perform the duties thereof set out in the
Bond Indenture.
Appointment of Tender Agent; Corporate Trust Office of 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 currently located at 707
Wilshire Boulevard, 17th Floor, Los Angeles, California 90017. The corporate trust office of the Tender Agent and
Bond Trustee for purposes of the payment, redemption, exchange, transfer, surrender and cancellation of the Bonds
is currently located at Corporate Trust Services, Northstar East Building, 608 2nd Avenue South, 12th Floor,
Minneapolis, Minnesota 55479, if Bonds are being delivered by hand at MACN9303 -121, Corporate Trust
Operations, Sixth & Marquette Avenue, Minneapolis, Minnesota 55479 -0113, if Bonds being delivered by Air
Carrier, and at MACN9303 -121, Corporate Trust Operations, P.O. Box 1517, Minneapolis, Minnesota 55480 -1517,
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 Finance
Hoag Hospital will use the proceeds of the 2009 Bonds to 1) refund certain outstanding variable rate
securities issued by the City for the benefit of Hoag Memorial Hospital Presbyterian ("Hoag Hospital") in 2007 and
2008 as further identified under the caption "PLAN OF FINANCE," 2) finance the acquisition and construction of
certain additions and improvements to, and equipment for, the acute care hospital and related facilities owned by the
Members and located on the campus known as One Hoag Drive, Newport Beach, California, or at 500 -540 Superior
Avenue, Newport Beach, California, and 3) pay certain costs of issuance of the 2009 Bonds. See "PLAN OF
FINANCE."
OHS West260647583.5 3
Bondholders' Risks
There are risks associated with the purchase of the Bonds. See "BONDHOLDERS' RISKS" for a
discussion of certain of these risks.
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
August 26, 1985, the City Council adopted the "Health Care and Recreation Facilities Revenue Bond Ordinance,"
amending the "Health Care Facility Revenue Bond Ordinance" adopted by the City Council on February 13, 1984,
(as so amended, 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
accrue interest at a Long -Term Interest Rate. 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 a Series of Bonds bearing interest at Long -Term
Interest Rates.
General
The Bonds of each Series will be issued in the principal amount set forth on the cover of this Official
Statement. Purchases of beneficial interests in the Bonds will be made in book -entry only form in denominations of
$5,000 or any integral multiple thereof. 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
and mandatory tender provisions described 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."
The Bonds will accrue interest from the Date of Delivery and initially will bear interest at a Long -Term
Interest Rate. During the Long -Term Interest Rate Period, interest is payable on each June I and December 1,
commencing December 1, 2009. The interest rate on any Series of Bonds may be converted, in accordance with the
Bond Indenture, to bear interest at a Remarketing Window Interest Rate, Bond Interest Term Rates, a newly
determined Long -Term Interest Rate, a Daily Interest Rate or a Weekly Interest Rate, as the case may be. This
Official Statement generally describes the Bonds while they bear interest at a Long -Term Interest Rate. If the
Interest Rate Period for the Bonds of a Series is converted to a different Interest Rate Period or upon the
continuation of a Long -Term Interest Rate Period at a new Long -Term Interest Rate, Hoag Hospital may cause this
Official Statement to be supplemented or deliver a new reoffering circular describing the new Interest Rate Period
and any changes affecting a Series of Bonds in a Long -Term Interest Rate Period, if any, as applicable. There will
be a mandatory tender of a Series of Bonds upon conversion to a new Interest Rate Period and on the first day of
each succeeding Long -Term Interest Rate Period.
While the Bonds are book -entry bonds, as described below, payment of the principal of, premium, if any,
and interest on the Bonds and the Tender Price 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 of and premium, if any, on the Bonds and the Tender Price will be payable at the designated
OHS West260647583.5
corporate trust office of the Bond Trustee or the Tender Agent, as applicable, 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 will be payable by wire transfer of
immediately available funds on the date due. The "Record Date" means the 15th day of the calendar month
immediately preceding the calendar month in which the related 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 Long -Term Interest Rate Period that first
day. See "THE BONDS — Book -Entry Only System."
Long -Term Interest Rate Period
General. During any Long -Term Interest Rate Period for a Series of the Bonds, interest on such Bonds
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. 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 on the basis of a 360 -day year consisting of twelve 30-day months. The term
"Interest Accrual Date" means the first day of any Long -Term Interest Rate Period and, thereafter, each Interest
Payment Date in respect thereof, other than the last such Interest Payment Date. The term "Interest Payment Date"
means each June 1 and December 1, commencing on December 1, 2009, provided that if any such June 1 or
December 1 is not a Business Day, the next succeeding Business Day (although interest does not continue to accrue
past the day preceding the last Interest Payment Date).
Long -Term Interest Rate Period. During each Long -Term Interest Rate Period with respect to a Series of
Bonds, the Bonds of such Series shall bear interest at the Long -Term Interest Rate. With respect to the Bonds,
during the initial Long -Term Interest Rate Period set forth on the inside cover hereof, such Bonds shall bear interest
at the Long -Term Interest Rate determined by the Underwriter on the sale date. Thereafter, the Long -Term Interest
Rate shall be determined by the Remarketing Agent on a Business Day no later than the effective date of such
subsequent Long -Term Interest Rate Period. Subject to the detailed provisions set forth in the Bond Indenture, the
Long -Term Interest Rate for the continuation of a Long -Term Interest Rate Period after the initial Long -Term
Interest Rate Period set forth on the inside cover shall be the rate of interest per annum determined by the
Remarketing Agent to be the interest rate which, if home by such Series of Bonds, 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 such Bonds, after taking into account any premium or discount at which such Bonds are sold;
provided that, among certain other conditions, Bond Counsel delivers a Favorable Opinion of Bond Counsel to the
Bond Trustee. If, for any reason, the Long -Term Interest Rate is not so determined for the Long -Term Interest Rate
Period by the Remarketing Agent on or prior to the first day of such Long -Term Interest Rate Period, then the
related Series of 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 Series of Bonds shall have been adjusted to another Interest
Rate Period, as provided in the Bond Indenture.
Redemption
Optional Redemption. While any Long -Term 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 Hoag Hospital given to the Bond Trustee (unless waived by the Bond
Trustee) at least two Business Days prior to the date notice of such redemption is required to be given pursuant to
the Bond Indenture, in whole or in part, on the first day following such Long -Term Interest Rate Period at a
redemption price equal to the principal amount of Bonds of any Series called for redemption, plus accrued interest
thereon (if any) to the date fixed for redemption, without premium. During the initial Long -Term Interest Rate
Periods set forth on the inside cover hereof, the Bonds are not subject to optional redemption. If Hoag Hospital ever
selects a Long -Term Interest Rate Period for a Series of Bonds of a length equal to or greater than 10 years, such
Series of Bonds would be subject to optional redemption at a Redemption Price equal to the principal amount of
Bonds, plus accrued interest thereon (if any) to the date fixed for redemption, without premium, on any date after the
date 10 years after such Period begins. Different redemption periods and prices can be specified by notice of Hoag
Hospital if a Favorable Opinion of Bond Counsel is delivered with respect to such changed provisions. Additional
OHS West:260647583.5
restrictions apply if a Credit Facility is ever provided with respect to a Series of Bonds; there will be a mandatory
tender upon addition of a Credit Facility or Liquidity Facility with respect to a Series of Bonds. See "Mandatory
Tender— Addition of Credit Facility or Liquidity Facility."
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 given
to the Bond Trustee (unless waived by the Bond Trustee) at least two Business Days prior to the date notice of
redemption is required to be given pursuant to the Bond Indenture), in whole or in part (in such amounts and with
respect to such Sinking Fund Installments as may be specified by Hoag Hospital) on any date, 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.
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 given to the Bond Trustee (unless waived by the Bond Trustee) at least two Business Days prior to the date
notice of redemption is required to be given pursuant to the Bond Indenture), in whole on any date at a redemption
price equal to the principal amount thereof, without premium, plus accrued interest to the redemption date if as a
result of any 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 the Credit Group Representative 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 any 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 2009B 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, as follows (subject
to adjustment as may be directed by Hoag Hospital following an optional redemption):
Redemption Date Sinking Fund
(December 1) Installment
Final Maturity
OHS West:260647583.5
Redemption Date Sinking Fund
(December 1) Installment
Mandatory Redemption. The 2009C 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, as follows (subject
to adjustment as may be directed by Hoag Hospital following an optional redemption):
Redemption Date
(December 1)
Final Maturity
Sinking Fund Redemption Date
Installment (December 1)
Sinking Fund
Installment
Mandatory Redemption. The 2009D 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, as follows (subject
to adjustment as may be directed by Hoag Hospital following an optional redemption):
Redemption Date
(December 1)
Final Maturity
Sinking Fund Redemption Date
Installment (December 1)
Sinking Fund
Installment
Mandatory Redemption. The 2009E 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, as follows (subject
to adjustment as may be directed by Hoag Hospital following an optional redemption):
Redemption Date Sinking Fund
(December 1) Installment
Final Maturity
OHS West:IWA7583.5
Redemption Date Sinking Fund
(December 1) Installment
Available Moneys required !f a Credit Facility is Added for a Series of Bonds. If a Credit Facility
meeting the terms of the Loan Agreement and Bond Indenture is ever provided to the Tender Agent for one or more
Series of the Bonds, any redemption of Bonds of such Series may only be paid to Holders with Available Moneys.
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 Remarketing
Agent, the Master Trustee and to one or more securities depositories and/or securities information services as
specified by Hoag Hospital.
Failure by the Bond Trustee to give notice to the Remarketing Agent, the Master Trustee 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 date of such notice, the date of issue of the Bonds, 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 is required to set forth the fact that redemption is conditional upon receipt by the Bond Trustee of sufficient
funds to pay the redemption price.
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.
Effect 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 authorized 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 of the same Series, maturity and
in the principal amount equal to the unredeemed portion thereof will be issued to the Holder upon surrender thereof.
Purchase in Lieu of Optional Redemption. Each Holder or Beneficial Owner, by purchase and acceptance
of any Bond, irrevocably grants to Hoag Hospital the option to purchase such Bond at any time such Bond is subject
to optional redemption as described under "Optional Redemption" and "Extraordinary Optional Redemption" above.
Such Bond is to be purchased at a purchase price equal to the then applicable redemption price of such Bond, plus
accrued interest. In the event Hoag Hospital determines to exercise such option, Hoag Hospital shall deliver a
Favorable Opinion of Bond Counsel to the Bond Trustee, and shall direct the Bond Trustee to provide notice of
mandatory purchase, such notice to be provided, as and to the extent applicable, in accordance with the provisions of
the Bond Indenture relating to notice of redemption and to select Bonds of the applicable Series subject to
OHS West:260647583.5
mandatory purchase in the same manner as such Bonds are called for redemption pursuant to the Bond Indenture.
On the date fixed for purchase of any Bond in lieu of redemption as described in this paragraph, Hoag Hospital shall
pay the purchase price of such Bond to the Bond Trustee in immediately available funds, and the Bond Trustee shall
pay the same to the Holders of the Bonds being purchased against delivery thereof. No purchase of any Bond in lieu
of redemption as described in this paragraph shall operate to extinguish the indebtedness of the City evidenced by
such Bond. No Holder or Beneficial Owner may elect to retain a Bond subject to mandatory purchase in lieu of
redemption.
Converting to other Interest Rate Periods
Hoag Hospital, by written direction to the Bond Trustee, the Tender Agent and the Remarketing Agent,
may elect that the Bonds of a Series shall bear interest at a Remarketing Window Interest Rate, Bond Interest Term
Rates, newly determined Long -Term Interest Rate, a Daily Interest Rate or a Weekly Interest Rate, as the case may
be. 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 (10th) 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 conversion 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 Tender Agent, 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 Long -Term
Interest 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 Tender 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). Inadequate funds to pay the Tender Price
upon an optional or mandatory tender shall be an Event of Default.
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 shall bear interest at the Weekly Interest Rate (excluding
a Series of Bonds bearing interest at a Remarketing Window Interest Rate, which will continue to bear interest at
the interest rate in effect immediately prior to such proposed Conversion) and the Bonds of such Series (except
Bonds in a Remarketing Window Interest Rate Period) shall continue to be subject to mandatory tender for purchase
on the date which would have been the effective date of the Conversion.
Mandatory Tender
New Term within Long -Term Interest Rate Period. Bonds other than those owned by, for the account of
or on behalf of Hoag Hospital, any other Members of the Obligated Group or the City or Liquidity Facility Bonds (if
any), shall be subject to mandatory tender for purchase on the fast day of each Interest Rate Period and on the first
OHS Wwt:260647583.5
day of a new Long -Tenn Interest Rate Period (or on the first day which would have been such a day had noticed
conversion of an Interest Rate Period not failed to occur) at a Tender Price equal to the principal amount of such
Bonds plus accrued interest to the date of purchase, payable in immediately available funds.
Addition of Liquidity Facility or Credit Facility. As described herein, Hoag Hospital is not required to
provide a Liquidity Facility or Credit Facility for the Bonds. Initially, there will be no Credit Facility or Liquidity
Facility with respect to any of the Bonds. If a Liquidity Facility with respect to any Series of Bonds is delivered to
the Tender Agent in accordance with the provisions of the Loan Agreement, the Bonds of such Series (other than
any Liquidity Facility Bonds (if any) and any Bonds owned by, for the account of or on behalf of Hoag Hospital,
any Member or the City) will be subject to mandatory tender for purchase and shall be purchased or deemed
purchased at a Tender Price equal to the principal amount of such Bonds plus accrued interest to the date of
purchase. Any purchase of a Series of Bonds pursuant to mandatory tender under the circumstances described
immediately above shall occur on the proposed date on which any such Liquidity Facility is effective with respect to
such Series. Thereafter, any such Liquidity Facility applicable to a Series of the Bonds may expire, terminate or be
substituted under the circumstances described in the Loan Agreement and Bond Indenture, at which time there
would be a mandatory tender of the affected Series of Bonds. See APPENDIX C — "SUMMARY OF PRINCIPAL
DOCUMENTS — BOND INDENTURE."
Surrender of Bonds Subject to Mandatory Tender. Subject to the Book - Entry-Only System described
herein, the Tender Price of any Bond purchased pursuant to the provisions of the Bond Indenture described in the
immediately preceding two paragraphs 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 a notice provided to the Holders by the Trustee.
No Optional Tender During a Long -Term Interest Rate Period
While Bonds of any Series bear interest at a Long -Tenn Interest Rate, Holders shall not have the right to
optionally tender Bonds of such Series for purchase. At the end of any Long -Tenn Interest Rate Period, there shall
be a mandatory tender.
Inadequate Funds for Tenders
If sufficient funds are not available for the purchase of all Bonds of any Series tendered or deemed
tendered and required to be purchased on any Purchase Date, the failure to pay the Tender Price of all tendered
Bonds of such Series when due and payable shall constitute an Event of Default and all tendered Bonds of such
Series 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 the Bond 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 Hoag Hospital and the Obligated Group to effect a
subsequent remarketing of any tendered Bonds.
No Liquidity for Payment of the Tender Price
Funds for the purchase of Bonds that have been tendered for purchase, whether at the option of the Holders
or pursuant to the mandatory tender requirements described herein, will be provided, first, from the proceeds of the
remarketing of such Bonds and then, to the extent remarketing proceeds are insufficient to provide all funds required
to purchase such Bonds, from funds provided by Hoag Hospital pursuant to the Loan Agreement. The obligation to
purchase the Bonds upon mandatory tender is not initially supported by a Liquidity Facility or by a covenant
of Hoag Hospital to maintain levels of liquid assets.
OHS West:260647583.5 10
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
principal amount of each Series of Bonds and will be deposited with DTC. See APPENDIX F — `BOOK -ENTRY
SYSTEM."
Transfer, Exchange and Payment
In the event the book -entry system is discontinued, the following provisions will apply. Any Bond may, in
accordance with its terms, be transferred, upon the books required to be kept pursuant to the provisions of the Bond
Indenture, 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 of Minimum Authorized Denominations. 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 transfer to pay any tax or other governmental charge required to be paid with respect to
such transfer or exchange, 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 or
exchange. For a description of the registration of transfer or exchange 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 the principal of, premium, if any, and interest on each Series of Bonds to the date of maturity of such Bonds or
earlier redemption, payments sufficient to pay the Tender Price of any Bonds when due, and certain other fees and
expenses identified as "Additional Payments" under the Loan Agreement, 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. [X], 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
used to redeem the Prior Bonds on the Redemption Date (as defined and discussed under the caption "PLAN OF
FINANCE" below). Such amounts will not be available for payment of the Bonds.
To further secure payment of the principal of and premium, if any, and interest on the Bonds and the
Tender Price of any Bonds, Hoag Hospital, as Credit Group Representative, concurrently with the issuance of the
Bonds will issue Obligation No. [X] 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 and the Tender Price of any 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 Master Indenture
Obligations issued under the Master Indenture, including Obligation No. [X]. See "SECURITY FOR THE BONDS
— The Master Indenture" below.
There is no debt service reserve fiend for the Bonds.
OHS West:260647583.5 11
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. See APPENDIX C — "SUMMARY OF PRINCIPAL DOCUMENTS —
MASTER INDENTURE — Membership in the Obligated Group."
Unsecured Debt Master Indenture Obligations issued under the Master Indenture are not secured by a lien
on real or personal properly of any Member, including Hoag Hospital and NHC. 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 Terms" and " —
MASTER INDENTURE — Particular Covenants of Each Member of the Obligated Group — Against
Encumbrances."
Grant of Security Interest in Gross Receivables. Pursuant to Supplemental Master Indenture No. [X] and
Supplemental Master Indenture No. [Y], 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 Master
Indenture Obligations, but only so long as Obligation No. [X] or Obligation No. [Y] remain Outstanding, 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. [X]), whether now owned or hereafter acquired.
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."
Additional Indebtedness. In addition to the 2009 Bonds and the 2008C Bonds (defined below) all of which
will remain outstanding after the Date of Issue, Indebtedness may be incurred by Hoag Hospital, NHC or any other
Member and secured on a parity with Master Indenture Obligations issued under the Master Indenture 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, NHC 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."
After the issuance of the Bonds, the Interest Rate Swap Agreements (defined below) will continue to be
secured by Master Indenture Obligation No. 3, as amended, issued under the Master Indenture, the 2008C Bonds
and the 2008D -F Bonds (defined below) will continue to be secured by Master Indenture Obligation No. 4 and
Master Indenture Obligation No. 5 ( "Obligation No. 5 "), respectively, each issued under the Master Indenture, and
Hoag Hospital's reimbursement obligations to the provider of the letter of credit securing the 2008D -F Bonds are
secured by Master Indenture Obligation No. 6, issued under the Master Indenture. See also APPENDIX A –
OHS West260647583.5 12
"INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT
HEALTHCARE CENTER, LLC AND OTHER AFFILIATES – SELECTED UTILIZATION AND FINANCIAL
INFORMATION – Capitalization."
Release of Obligation No. [X]. Under the circumstances described in the Bond Indenture, the Bond
Trustee is required to exchange Obligation No. [X] 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 could be exchanged for Obligation No. [X], see
APPENDIX C – "SUMMARY OF PRINCIPAL DOCUMENTS – BOND INDENTURE – Replacement of
Obligation No. [X]."
Designated Affdiates. 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. [XI 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. [X]"
OHS West.260647583.5 13
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. [X].
Proposed Amendments to Master Indenture — Purchasers Deemed to Have Consented Supplement
No. [X] includes proposed amendments to the Master Indenture, including, but not limited to, amendments to the
definition of "Income Available for Debt Service" and the Section of the Master Indenture titled "Debt Coverage"
(the "Proposed Amendments "). See APPENDIX C — "SUMMARY OF MASTER INDENTURE — Proposed
Amendments," The Proposed Amendments are not effective until the consent of not less than a majority in
aggregate principal amount of the Holders of Outstanding Master Indenture Obligations and the consent of the
provider of the letter of credit securing the 2008D -F Bonds are obtained. By purchasing the Bonds offered hereby,
the purchasers and the beneficial owners thereof will be deemed to have consented to the Proposed Amendments,
and that consent will be binding upon all successive owners of such Bonds. The Bond Trustee, upon acceptance of
Obligation No. [X], will be deemed to have consented to the Proposed Amendments.
Supplement No. [Y] also includes the Proposed Amendments and the purchasers and beneficial owners of
the Additional 2009 Bonds will also be deemed to have consented to the Proposed Amendments, and, accordingly,
the Holder of Obligation No. [Y], upon acceptance thereof, will be deemed to have consented to the Proposed
Amendments. Following the issuance of the 2009 Bonds, the Holders of $ in aggregate principal of
Outstanding Master Indenture Obligations will have consented to the Proposed Amendments, representing
approximately _% of the aggregate principal amount of all Outstanding Master Indenture Obligations.
Hoag Hospital, as Credit Group Representative, has requested the consent to the Proposed Amendments by
the provider of the letter of credit securing the 2008D -F Bonds (the "Bank"). Under the bond indenture pursuant to
which the 2008D -F Bonds were issued the Bank may act as sole holder of such bonds for purposes of directing the
bond trustee thereunder (the "2008 Bond Trustee ") with respect to Obligation No. 5, which secures the 2008D -F
Bonds. The consent of the Bank will also act as a direction to the 2008 Bond Trustee from the holders of the
2008D -F Bonds to consent to the Proposed Amendments as Holder of Obligation No. 5. If Hoag Hospital obtains
the consent of the Bank to the Proposed Amendments the resulting consent of the Holder of Obligation No. 5
together with the consents of the Holders of Obligation No. [X] and Obligation No. [Y] will represent a majority in
aggregate principal amount of all Outstanding Master Indenture Obligations C %). Accordingly, the Proposed
Amendments will become effective on the later of the receipt by Hoag Hospital of the consent of the Bank or the
issuance of Obligation No. [X] and Obligation No. [Y] on the Date of Issue.
Security and Enforceability
Enforceability of the Master Indenture, the Loan Agreement and Obligation No. JX/. 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 another 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 [purchase price] on Obligation No. [X] may not be enforceable under any of the following circumstances:
(i) to the extent payments on Obligation No. [X] 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;
OHS West:260647583.5 14
(ii) if the purpose of the debt created and evidenced by Obligation No. [X] 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. [X] 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. [X] 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 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. [X] 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 Master Indenture 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 Obligations issued under
the Master Indenture may, so long as any Liens created in connection therewith constitute Permitted Liens, be
secured by security not otherwise provided for under the Master Indenture (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
OHS West2606475815 15
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 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.
UI171 r,
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 BY THE
OBLIGATED GROUP PURSUANT TO OBLIGATION NO. [XI 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 OR THE TENDER PRICE
THEREOF, EXCEPT FROM THE FUNDS PROVIDED UNDER THE LOAN AGREEMENT, OBLIGATION
NO. [XI 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 OR THE TENDER PRICE THEREOF. 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:260647583.5 16
PLAN OF FINANCE
General
Concurrently with the Bonds offered hereby, the City expects to issue $ of its Revenue Bonds
(Hoag Memorial Hospital Presbyterian), Series 2009A (the "Additional 2009 Bonds" and together with the Bonds,
the "2009 Bonds "). The issuance of the 2009 Bonds and the loan of the proceeds thereof is for the benefit of Hoag
Hospital to (i) finance the costs of certain capital improvements at the facilities owned and operated by the
Members, (ii) refund the Prior Bonds identified below and (iii) pay certain costs of issuance for the 2009 Bonds.
The Project
A portion of the proceeds from the sale of the 2009 Bonds will be used by Hoag Hospital to finance the
Project, consisting of the acquisition and construction of certain additions and improvements to, and equipment for,
the acute care hospital and related facilities owned by the Members and located on the campus known as One Hoag
Drive, Newport Beach, California, or at 500 -540 Superior Avenue, Newport Beach, California, See APPENDIX A
– `INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT
HEALTHCARE CENTER, LLC AND OTHER AFFILIATES – FACILITIES DESIGN AND CONSTRUCTION."
Refunding the Prior Bonds
Hoag Hospital has determined to refund certain outstanding bonds identified in the table below (the "Prior
Bonds ") to [1) eliminate Hoag Hospital's exposure to certain financial markets for bonds issued as auction rate
securities, 2) adjust the timing of mandatory tenders of a portion of Hoag Hospital's portfolio of outstanding
variable rate debt subject to self - liquidity arrangements to a different point in Hoag Hospital's fiscal year, and 3)
amend the existing master indenture security documents]. All of the Prior Bonds are to be refunded in whole with
bond proceeds and such bonds and the amounts thereof outstanding as of the date of issue of the Bonds are
described in the following chart. See "SECURITY FOR THE BONDS –Master Indenture –Proposed Amendment
to Master Indenture – Purchasers Deemed to Have Consented" and `BONDHOLDERS' RISKS — Turmoil in U.S.
Bond Markets."
$AMOUNT
PRIOR BONDS OUTSTANDING
City of Newport Beach Insured Revenue Bonds (Hoag Memorial Hospital
Presbyterian), Series 2007D (the "2007 Refunded Bonds ")
City of Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital
Presbyterian), Series 2008A (the "2008A Refunded Bonds ") and Series 2008B
(the "2008B Refunded Bonds, and together with the 2008A Refunded Bonds,
the "2008 Refunded Bonds ")
Total $
A portion of the net proceeds of the 2009 Bonds (the "Refunding Proceeds ") will be applied on the Date of
Issuance of the Bonds to redeem all of the 2007 Refunded Bonds and the 2008A Refunded Bonds at a redemption
price equal to the principal amount thereof. (collectively, the "Prior Bonds "). The remaining Refunding Proceeds
will be applied on June 16, 2009 to the redemption of the 2008B Refunded Bonds at a redemption price equal to the
principal amount thereof.
The total amount of 2009 Bonds expected to be issued by the City is not expected to exceed
$[220,000,000]. Following issuance of the 2009 Bonds and redemption of the Prior Bonds, the only outstanding
bonds secured under the Master Indenture will be the 2009 Bonds, $ of the City's Refunding Revenue
Bonds (Hoag Memorial Hospital Presbyterian), Series 2008C (the "2008C Bonds") and $ of the City's
Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2008D, Series 2008E and Series 2008F
Bonds (the "2008D -F Bonds ").
OHS Wesk260647583.5 17
Interest Rate Swaps
Hoag Hospital has entered into interest rate swap agreements (the "Interest Rate Swap Agreements ") to
correspond to the 2008D -F 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 countetpatty to the
Interest Rate Swap Agreements. The Interest Rate Swap Agreements have a term equal to the term of the applicable
Series of the 2008D -F Bonds, respectively, and the aggregate notional amount and amortization of the Interest Rate
Swap Agreements is equal to the aggregate principal amount and approximately equal to the amortization of each
such Series of the 2008D -F Bonds. Under the Interest Rate Swap Agreements, Hoag Hospital pays a fixed rate
equal to 3.229% and receives 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 are secured by a Master
Indenture Obligation entitled to the benefits of the Master Indenture. There can be no assurance that the Interest
Rate Swap Agreements will be effective to mitigate related floating rate risk. See `BONDHOLDERS' RISKS —
Turmoil in U.S. Bond Markets." To the extent they do not match, the Obligated Group Members are exposed to
"basis risk" in that the floating amount it receives from the Swap Provider will not equal the variable amount it is
required to pay on the 2008D -F 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.
below:
ESTIMATED SOURCES AND USES OF FUNDS
The proceeds to be received from the sale of the 2009 Bonds will be applied approximately as set forth
Series
2009A Bonds
tit Includes legal, printing, rating agency, accounting, Bond Trustee and Master Trustee fees, underwriting discount,
and other miscellaneous costs of issuance with respect to the Bonds.
OHS West:260647583.5 18
Series
2009 B /C/D/E Bonds
Sources of Funds:
Bond Proceeds
$
[Plus/Less] Net Original Issue
[Premium/Discount]
Total Sources of Funds
Uses of Funds:
Refunding of 2007 Refunded Bonds
$
Refunding of 2008 Refunded Bonds
Projects Costs
Costs of IssuanceM
Total Uses of Funds
$
Series
2009A Bonds
tit Includes legal, printing, rating agency, accounting, Bond Trustee and Master Trustee fees, underwriting discount,
and other miscellaneous costs of issuance with respect to the Bonds.
OHS West:260647583.5 18
ESTIMATED ANNUAL DEBT SERVICE REQUIREMENTS
The following table sets forth, for each Fiscal Year ending September 30, the amounts required for the
payment of the principal of and the interest on the Bonds. In addition, the table sets forth total debt service on the
2008C Bonds, the 2008D -F Bonds and the Additional 2009 Bonds, which represents the only other long -term
indebtedness of the Corporation expected to be outstanding immediately following the issuance of the 2009 Bonds
and the application of the proceeds thereof. See APPENDIX A — "INFORMATION CONCERNING HOAG
MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER
AFFILIATES — [MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL PERFORMANCE —
HISTORICAL AND PRO FORMA DEBT SERVICE COVERAGE RATIO "] for certain calculations of debt
service coverage.
Fiscal Year
Ending 2009BJC1D/E Bonds 2008C 2008 D -F 2009A Total Debt
September 30, Principal* Interestt Bondst Bondst Bonds Service
2009 $ $ $ $ $ $
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
Preliminary; subject to change.
t [Insert assumptions re interest rates on variable rate bonds 1.
OHS West:260647583.5 19
CONTINUING DISCLOSURE
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. [X], 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 September 30) (the "Annual Report"), commencing with the
report for the fiscal year ending September 30, 2009 (due on or before a date no later than six months after close of
the fiscal year) and to provide notices of the occurrence of certain enumerated events, if material. The Annual
Report and notices of material events, if any, will be filed by Hoag Hospital or its dissemination agent as required
by the Rule. 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.
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," payment of principal of, premium, if any, and
interest on the Bonds will be payable from Loan Repayments and from certain funds held under the Bond Indenture;
payments of the Tender Price of the Bonds will also be payable from payments made by Hoag Hospital under the
Loan Agreement to the Tender Agent, to the extent required by the Bond Indenture. Payment of principal of
premium, if any, and interest on the Bonds and the Tender Price when due is further secured by Obligation No. [X].
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. [X] and thus, to pay
principal or Tender Price 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 governmental and 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. [X] and, consequently, payment of principal or Tender Price of
and interest on the Bonds.
OHS West260647583.5 20
Economic Conditions; Bad Debt and Indigent Care and Investment Losses
Hospitals are economically influenced by the environment in which they operate. To the extent that (1)
employers reduce their workforces, (2) employers reduce their budgets for employee health care coverage, or (3)
private and public insurers seek to reduce payments to or utilization of hospital services, hospitals may experience
decreases in insured patient volume and payments for services. In addition, 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. An increase in unemployment may result in a significant number of patients no
longer having health insurance coverage, which may result in decreased payments to hospitals or loss of payment for
services provided. These conditions may give rise to increased bad debt and higher indigent care utilization. In the
current economic environment, nonoperating revenue from investments may be reduced or eliminated. Investment
losses (even if unrealized) may trigger debt covenants to be violated and may jeopardize hospitals' economic
security. Losses in pension and benefit funds may result in increased funding requirements by hospitals. Potential
failure of lenders, insurers or vendors may negatively impact hospital financial conditions and operations and
philanthropic support may decrease. These factors may have a material adverse impact on hospitals and health
systems. For a discussion of Hoag Hospital's investments and recent declines, 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."
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 repeated downgrading of certain bond insurers and
concerns about the ongoing stability of others, obligations insured by these insurers have been negatively impacted.
Generally, bond insurance premiums are paid in full with no provision for refund of the premium in the event the
insurer is unable to satisfy its obligations or in the event that its rating or market perception has a negative impact on
the insured party's debt.
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 downgrade the ratings of the Obligated
Group below specified levels. [See "PLAN OF FINANCE — Interest Rate Swaps" herein.]
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 Group and, in turn, the ability of the Obligated Group to make payments under the Loan
Agreement and Obligation No. [X].
Nonprofit Healthcare Environment Recently, an increasing number of the operations or practices of
nonprofit healthcare providers have been challenged or questioned with respect to whether they are consistent with
the tax- exempt benefits conferred on such providers. Areas which have come under examination have included
pricing practices, billing and collection practices, charitable care, methods of providing and reporting community
benefit, executive compensation, exemption of property from real property taxation, private use of tax- exempt bond
OHS West260647583.5 21
financed assets and others. These challenges and questions have come from a variety of sources, including state
attorneys general, including the California Attorney General, the Internal Revenue Service ( "IRS "), labor unions,
Congress, state legislatures, patients, taxpayer groups and patient advocacy groups; these issues have been raised in
a variety of forums, including hearings, audits and litigation. These challenges and examinations, and any resulting
legislation, regulations, judgments or penalties, could materially change the operating environment for nonprofit
providers and have a material adverse effect on Hoag Hospital and the Obligated Group.
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.
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.
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.
Rate Pressure from Health Insurers and Major Purchasers. Certain hospital markets, including many
communities in California, are strongly impacted by large health insurers and, in some cases, by major purchasers of
health services. In those areas, health insurers may have significant influence over hospital rates, utilization and
competition. Rate pressure imposed by health insurers 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 health insurers 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.
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."
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.
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.
OHS Wesk260647583.5 22
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 fines and prospective restrictions that may have a materially adverse
impact on hospital operations, financial condition, results of operations and reputation. Multi- million dollar fines
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, fines or uninsured settlements.
Professional Staff Shortages. Currently, a nursing shortage exists which may have its primary impact on
hospitals. 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.
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 Benefit 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.
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 and physicians at levels that may be below the actual cost of the care
OHS West:260647583.5 23
provided. As Medicaid is partially funded by states, the financial condition of states may result is lower Medicaid
funding levels and/or payment delays. These could 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 maybe 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, floods, fire, other natural causes, deliberate acts of destruction, or various
facilities system failures may have a material adverse impact on hospital operations and financial conditions.
Nonprofit Health Care 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. At the same time, Hoag Hospital conducts large -scale complex business transactions and is a
major employer in its geographic area. 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 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 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 IRS, labor unions, Congress, state legislatures, taxpayer groups, 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 care providers. Among the
legislation proposed or discussed as a result of these hearings and proceedings are: (1) establishment of minimum
required levels of charity care to be provided by nonprofit health care providers; (2) periodic review of hospitals'
tax - exempt status by the IRS; and (3) greater and more uniform reporting of charitable and community benefit
activities.
Internal Revenue Service Examination of Compensation Practices. In February 2009, the IRS issued its
Hospital Compliance Project Final Report (the "IRS Final Report") that examined tax- exempt organizations'
practices and procedures with regard to compensation and benefits paid to their officers and other defined "insiders."
The IRS Final Report indicates that the IRS (1) will continue to heavily scrutinize executive compensation
arrangements, practices and procedures, and (2) in certain circumstances, may conduct further investigations or
impose fines on tax- exempt organizations.
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. Some 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.
OHS West:260647583.5 24
Action by Purchasers of Hospital Services and Consumers. Major purchasers of hospital services could
take action to restrain hospital charges or charge increases. 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.
Charity Care and Financial Assistance. 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 ( "OSHPD" ). 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 healthcare
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 healthcare
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 Obligation No.
(Xj•
Healthcare Reform Initiatives
Healthcare reform has been identified as a priority by business leaders, public advocates, policy experts,
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. Congress and the new administration have indicated
their intent to institute significant health reform in the coming year. The President's budget for fiscal year 2010
proposes a $634 billion health care reserve fund to implement comprehensive health reforms over a ten -year period;
the reforms themselves are as yet unspecified. Although health reform may be financed by payment cuts in
government healthcare programs, healthcare reform could be implemented in a way that is beneficial to hospitals if
more people who are currently uninsured or underinsured have access to fuller coverage for hospital services.
In order to pay for health reform initiatives, the administration proposes to make significant cuts in
Medicare payments to providers, including those to hospitals. Some of the specifics that could adversely impact
hospital revenues include: (1) significant cuts to Medicare Advantage health plans resulting in reduced payments by
such plans to providers; (2) changes in reimbursement designed to discourage hospital readmission rates; (3)
bundled payments that cover hospital services, post -acute setting services and professional services; (4) restricted
access to or payments for ancillary services (e.g., establishing prior authorization from radiology benefit managers
for medical imaging procedures); (5) further quality incentive programs that pay providers based on specified
performance parameters; and (6) further restrictions on Medicare payments and increased processing and auditing
designed to enhance payment accuracy.
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
OHS West:260647583.5 25
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 35.4 %, 34.8% and 34.5 %, 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. "] Updatepresentation.
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 rats (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 demonstration project using recovery audit contractors ( "RACs ") as part of
CMS' continuing efforts to assure accurate payments to providers. RACs search for potentially improper Medicare
payments made to healthcare providers in prior years that were not detected through existing CMS program integrity
efforts. The RACs use their own software and independent knowledge of Medicare to determine 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 demonstration project operated in California and four other states until it ended in 2008.
Nationwide rollout of a permanent program began in 2009. 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 healthcare program spending.
OHS West260647583.5 26
Federal and state budget proposals contemplate significant cuts in Medicaid spending which will likely negatively
impact provider reimbursement.
California Medl -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, 2005, August 31, 2006 and August 31, 2007, Hoag Hospital
received approximately 4.0 %, 3.9% and 3.9% respectively, of gross patient service revenues from state Medicaid
programs. See APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL
PRESBYTERIAN, NEWPORT 14EALTHCARE CENTER, LLC AND OTHER AFFILIATES — SELECTED
UTILIZATION AND FINANCIAL INFORMATION — Sources of Patient Services Revenue."] M7&te
presentation.
California Budget and Other Legislative Matters. Many states, including California, face significant
financial challenges, including erosion of general fund tax revenues, falling real estate values, slowing economic
growth and higher unemployment, each of which may continue or worsen over the coming years. These factors
have resulted in a sizeable shortfall between anticipated revenues and spending demands.
California faces a significant gap between the expected level of tax revenues and projected expenditures for
the current fiscal year and in the projected 2009 -2010 budget. In early 2009, California's legislature and Governor
took action to close an estimated $42 billion shortfall. Subsequent to those actions, the California Legislative
Analyst's Office reported that due to falling revenues, additional shortfalls are likely. The proposed solutions to a
significant portion of the known budget shortfall will be subject to voter approval on a series of initiatives on May
19, 2009. If the voters do not approve all of the proposed revenue enhancements and expenditure adjustments, the
State of California will be required to take additional steps to reconcile actual revenues and expenses. It is possible
that additional cuts in the levels and timing of healthcare provider reimbursement, including that to hospitals under
Medi -Cal, could materially adversely affect the Obligated Group.
Financial challenges facing the State of California may negatively affect hospitals due to increasing
numbers of indigent, uninsured and underinsured patients who are unable to pay for their care or access primary care
facilities. A greater number of individuals may also qualify for Medicaid and/or reduced rate care.
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 57.2 %, 57.2% and 57.6 %, respectively, of gross patient service revenues of Hoag
Hospital. See APPENDIX A — "INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL
OHS West:260647583.5 27
PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — SELECTED
UTILIZATION AND FINANCIAL INFORMATION — Sources of Patient Services Revenue. "] Update
presemation.
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 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 - financial 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 Hoag
Hospital. 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.
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.
OHS West26W7583.5 28
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 federal 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. Because
the term "knowingly" is defined broadly under the law to include not only actual knowledge but also deliberate
ignorance or reckless disregard of the facts, the FCA can be used to punish a wide range of conduct. FCA
investigations and cases have become common in the healthcare 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 costly
corporate integrity 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 government's primary weapons against healthcare 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- Rlckback Law. The federal "Anti- Kickback Law" 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 of a patient for, or the ordering or recommending of the purchase or lease of any item or service that is paid
by any federal or state healthcare 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 costly corporate integrity agreements. The Anti- Kickback Law can be prosecuted
either criminally or civilly. Violation is a felony, subject to potentially substantial fines, imprisonment and/or
exclusion from the Medicare and Medicaid programs, any of which would have a significant detrimental effect on
the financial stability of most hospitals. In addition, civil monetary penalties may be imposed. Increasingly, the
federal government is prosecuting violations of the Anti- Kickback Law under the FCA, based on the argument that
claims resulting from an illegal kickback arrangement are also false claims for FCA purposes. See the discussion
under the subheading "False Claims Act" above.
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. Recent changes to the regulations issued under
the Stark statute have rendered illegal a number of common arrangements under which physician-owned entities
provide services and/or equipment to hospitals and may increase risk of violation due to lack of clarity of the
technical requirements.
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
OHS West260647583.5 29
amount of any monetary penalty, and/or be excluded from the Medicare and Medicaid programs. Settlements, fines
or exclusion for a Stark violation or alleged violation could have a material adverse impact on a hospital.
Increasingly, the federal government is prosecuting violations of the Stark statute under the FCA, based on the
argument that claims resulting from an illegal referral arrangement are also false claims for FCA purposes. See the
discussion under the subheading "False Claims Act" above.
In September 2007, CMS sent a "Disclosure of Financial Relationships Report" (DFRR ") to approximately
500 specialty and acute -care hospitals requiring the recipient to report its physician investment, ownership and
compensation relationships. The DFRR included questions relating to (1) disclosure of all hospital ownership
interests (both physician and non - physician), (2) disclosure by all investing physicians concerning their ownership
interests (including loans or loan guarantees),'(3) disclosure of all leases or "under arrangement" relationships with
physicians or their family members and (4) disclosure of other compensation arrangements between physicians and
the hospital, including leases, medical director agreements, on -call stipends, nonmonetary compensation
arrangements and charitable donations. The DFRR also required hospitals to provide supporting documentation,
including verification of fair - market -value determinations for certain arrangements. It is possible that further
reporting may be mandated for all Medicare participating hospitals thereby exposing additional business
arrangements to scrutiny and investigation.
HIPAA. The Health Insurance Portability and Accountability Act of 1996 ( "HIPAA") adds additional
criminal sanctions for healthcare fraud and applies to al] healthcare 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 a health care benefit program. A
healthcare 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 healthcare
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/Medicaid 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 based on services provided by those excluded employees.
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.
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 healthcare fraud and abuse laws mentioned above.
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
OHS West260647583.5 30
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 healthcare
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). A violation of these laws could have a material adverse
impact on a hospital for the same reasons as the federal statutes. See discussion under the subheadings "False
Claims Act," "Anti- Kickback Law" and "Stark Referral Law" above.
Privacy Requirements. HIPAA, along with new privacy rules arising from federal and state statutes,
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. Such 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.
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.
OHS West:260647583.5 31
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 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. See APPENDIX A —
"INFORMATION CONCERNING HOAG MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT
HEALTHCARE CENTER, LLC AND OTHER AFFILIATES — ORGANIZATIONAL STRUCTURE — Other
Affiliated Entities Not Members of Obligated Group"
Physician Financial Relationships. In addition to the physician integration relationships referred to above,
hospitals and health 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.
Hospital Pricing. Inflation in hospital costs may evoke action by legislatures, payors or consumers. It is
possible that legislative action at the state or national level may be taken with regard to the pricing of health care
services.
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.
OHS West:260647583.5 32
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.
Physician Supply. Sufficient community-based physician supply is important to hospitals and health
systems. Changes to physician compensation formulas by CMS could lead to physicians locating their practices in
communities with lower Medicare populations. Hospitals and health systems may be required to invest additional
resources for recruiting and retaining physicians, or may be required to increase the percentage of employed
physicians in order to continue serving the growing population base and maintain market share. The physician-to-
population ratio in certain parts of California is below the national average, and the shortage of physicians could
become a significant issue for hospitals in those areas.
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 at
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.
OHS West:260647583.5 33
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 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. President Obama has
encouraged enactment of "check- card" legislation which could make the attempt to organize healthcare employees
easier or faster. 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 Hoag Hospital 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 tax, 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.
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 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 2008, CMS refused to reimburse hospitals for medical costs arising from certain "never
events," which include specific preventable medical errors. Certain private insurers and HMOs followed 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.
OHS West:260647583.5 34
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 each of Hoag Hospital and NHC of their status as organizations 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 modern health care
organization. Although traditional activities of healthcare 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.
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.
OHS Wesk260647583.5 35
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 Exemption. 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 tar 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.
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, with specific reviews of private use. The IRS sent post - issuance compliance
questionnaires to several hundred nonprofit corporations that had borrowed on a tax - exempt basis. After analyzing
responses, IRS representatives indicated that it had commenced a number of examinations of hospital tax- exempt
bond issuances with wide - ranging areas of inquiry. One aspect of these examinations may be to determine if certain
bond issues quality for their tax- exempt status.
OHS West:260647583.5 36
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 may be, from time to time, subject to examination 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.
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, including Hoag Hospital, 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. Risks related to natural or other disasters may
be particularly acute for the Obligated Group which currently derives most of its operating revenues from a single
campus location.
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 1, 2008. California law allows three
types of extensions of the January 1, 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 1, 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
OHS West260647583.5 37
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 HAZUS may result in buildings being re-
categorized so that they will not be required to meet seismic 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. The Bonds will be, and the 2008C and the
2008D -F Bonds are, variable rate obligations (the "Variable Rate Bonds "), 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.
The Obligated Group has covenanted to pay the tender price for any Variable Rate Bonds tendered from
time to time. In addition, the tender price of any 2008D -F Bonds tendered for purchase is currently supported by a
credit facility, however, Hoag Hospital may enter into a self - liquidity arrangement for such bonds under the terms
of the related indenture. Any deterioration in the financial condition of the Obligated Group could result in optional
tenders or higher variable interest rates on the Variable Rate Bonds. Many factors could cause optional and
mandatory tenders of the Variable Rate Bonds and if remarketing proceeds, or in the case of the 2008D -F Bonds the
liquidity draw under the credit facility, are insufficient to pay the tender price of any such tender, Hoag Hospital
would have a substantial liquidity responsibility.
Hoag Hospital has entered into the Interest Rate Swap Agreements which will be subject to periodic "mark -
to-market" 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 "PLAN OF
FINANCE — Interest Rate Swap Agreements" and APPENDIX A — °INFORMATION CONCERNING HOAG
MEMORIAL HOSPITAL PRESBYTERIAN, NEWPORT HEALTHCARE CENTER, LLC AND OTHER
AFFILIATES — SELECTED UTILIZATION AND FINANCIAL INFORMATION."
OHS West:260647583.5 38
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 is expected 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 a broad 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 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 West:260647583.5 39
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. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference
item for purposes of the federal individual and corporate alternative minimum taxes, nor is it included in adjusted
current earnings when 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 designed 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 the 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 their status as organizations 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 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.
OHS West:260647583.5 40
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. 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.
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.
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. 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 and Affiliates as of the
thirteen month period ended September 30, 2008 and the year ended August 31, 2007 and for the years then ended,
included in APPENDIX B -1, have been audited by Ernst & Young LLP, independent auditors, as stated in their
report included in APPENDIX B -1.
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements of Hoag Memorial Hospital Presbyterian and Affiliates for the six -
month periods ended March 31, 2009 and March 31, 2008, included in Appendix B -2, were compiled by
management of Hoag Hospital and are unaudited. However, in the opinion of management of Hoag Hospital, all
adjustments of a normal recurring nature necessary for a fair presentation of the financial statements have been
included. Operating results for the six -month period ended March 31, 2009 are not necessarily indicative of the
results which may be achieved for any future periods.
OHS West260647583.5 41
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.
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 received long -term municipal bond ratings of [ "AA "] and [ "Aa3 "] 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. Hoag Hospital has received a short -term municipal bond rating of
[_] from Moody's for the Bonds designated as Series 2009A and Series 2009B. 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 famishing
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.
OHS West:260647583.5 42
UNDERWRITING
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 $[150,000,000].00, less an
underwriter's discount of $ ). 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. Sale and purchase of the Bonds is contingent on a concurrent
sale of the Additional 2009 Bonds.
J.P. Morgan Securities Inc., one of the underwriters of the Bonds, has entered into an agreement
(the "Distribution Agreement ") with UBS Financial Services Inc. for the retail distribution of certain municipal
securities offerings at the original issue prices. Pursuant to the Distribution Agreement, J.P. Morgan Securities Inc.
will share a portion of its underwriting compensation with respect to the Bonds with UBS Financial Services Inc.
FINANCIAL ADVISOR TO HOAG HOSPITAL
Kaufman, Hall & Associates, has served as financial advisor to Hoag Hospital in connection with the
financing described in this Official Statement. Kaufman, Hall & Associates is a national consulting 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. [X] and Obligation No. [X] 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.
[X] and Obligation No. [X] 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:260647583.5 43
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
By:
Authorized Officer
Approved:
HOAG MEMORIAL HOSPITAL PRESBYTERIAN
By:
Senior Vice President and
Chief Financial Officer
OHS West:260647583.5
APPENDIX B-2
HOAC MEMORIAL HOSPITAL PRESBYTERIAN AND AFFILIATES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER FINANCIAL INFORMATION
Hoag Memorial Hospital Presbyterian and Affiliates
Sias -Month Periods Ended March 31, 2009 and March 31, 2008
OHS West: 260647583.5
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 Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2009B,
Series 2009C, Series 2009D and Series 2009E
(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 $[ 150,000,000] aggregate principal amount of its Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series
2009B, Series 2009C, Series 2009D and Series 2009E (collectively, the "Bonds "), issued pursuant to the provisions
of Ordinance No. 85 -23, adopted by the City Council on August 26, 1985 amending Ordinance No. 84-4 adopted by
the City Council 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
, 2009 and a Bond Indenture dated as of June 1, 2009 (the "Bond Indenture "), between the City and
Wells Fargo Bank, National Association, as bond trustee (the "Bond Trustee "). The Bond Indenture provides 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 June 1, 2009 (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.
The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court
decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by
actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to
inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to
our attention after the date hereof. Accordingly, this opinion speaks only as of its date and is not intended to, and
may not, be relied upon in connection with any such actions, events or matters. Our engagement with respect to the
Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the
genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal
execution and delivery thereof by, and validity against, any parties other than the City. We have assumed, without
OHS West260647583.5 D-1
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 Loan Agreement or the accuracy or sufficiency of the description contained therein of or the
remedies available to enforce liens on, any such property. Finally, we undertake no responsibility for the accuracy,
completeness or fairness of the Official Statement or other offering material relating to the 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:
I. 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 held by the Bond Trustee in any fund or account
established pursuant to the Bond Indenture, except the Rebate Fund and the Bond Purchase Fund, subject to the
provisions of 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. 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.
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 West260647583.5 D -2
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 $[150,000,0001 aggregate
principal amount of City of Newport Beach Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2009B,
Series 2009C, Series 2009D and Series 2009E (collectively, the "Bonds "). The Bonds are being issued pursuant to a
bond indenture, dated as of June 1, 2009 (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 June 1, 2009 (the "Loan Agreement "), between the City and the
Hospital. The Hospital covenants and agrees as follows:
SECTION 1. 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, and to assist the
Participating Underwriter in complying with the Rule. 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. This Disclosure Certificate shall not be deemed to create any monetary liability on the part of the City
or the Hospital to any persons, including Holders and Beneficial Owners of the Bonds based on the Rule. The sole
remedy in the event of any failure of the Hospital or its Dissemination Agent to comply herewith shall be an action
to compel performance of any act required hereunder as detailed in Section 10 hereof.
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 http: / /www /sec.gov /info /municipaVnrmsir.htm.
"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 any Nationally Recognized Municipal Securities Information Repository for
purpose of the Rule. Effective July 1, 2009, the Repository approved by the Securities and Exchange Commission is
the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access ( "EMMA ") website.
"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:260647583.5 E -1
SECTION 3. Provision of Annual Reports. 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
September 30, 2009), commencing with the report for the 2009 fiscal year, provide to the 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 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 2009 (the "Official Statement "), related to the Bonds: [BDV: review Appendix A.]
1. 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;
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.
OHS West:260647583.5 E -2
SECTION 5. Renortina of Significant Events. (a) 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;
S. optional, contingent or unscheduled bond calls;
9. defeasances;
10. release, substitution or sale of property securing repayment of the Bonds; and
11. rating changes.
(b) The Hospital shall file, or cause to be filed, such notice of the occurrence of a Listed
Event, which is material, with the Repository.
SECTION 6. Termination of Reporting 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 Outstanding
Bonds or if less than all of the Bonds are defeased, with respect to those 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 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 7. 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 8. 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(a) or 8, 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
OBS Wes7:260647583.5 E -3
the opinion of nationally recognized bond counsel, materially impair the interests of the Holders 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 9. 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 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 10. 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.
SECTION 11. Notices. Any notices or communications to the Hospital may be given as follows:
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 12. 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.
SECTION 13. Governing Law. The laws of the State of California shall govern the interpretation hereof
and any right or liability arising hereunder.
Dated: , 2009.
HOAG MEMORIAL HOSPITAL PRESBYTERIAN
Authorized Representative
OHS West:260647583.5 E-4
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 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.
OHS West260647583.5 F -1
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.
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.
OHS We t:260647583.5 F -2
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 Tender 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:260647583.5 F -3
BOND PURCHASE CONTRACT
CITY OF NEWPORT BEACH
REVENUE BONDS
(HOAG MEMORIAL HOSPITAL PRESBYTERIAN)
SERIES 2009A
CHI2_1948930.2
Foley & Lardner LLP
Draft No. 2
May 5, 2009
TABLE OF CONTENTS
Section
Page
1. Purchase, Sale and Delivery of the Bonds ............................................ ..............................1
2. Representations, Warranties and Agreements of the City ................... ............................... 4
3. Conditions to Obligations of the Underwriters .................................... ............................... 6
4. Conditions to the Obligations of the City ............................................ .............................12
5. menses/ Fees ...................................................................................... .............................12
6. Notices .................................................................................................. .............................12
7. Governing Law ..................................................................................... .............................13
8. Miscellaneous ....................................................................................... .............................13
9. No Fiduciary ....................................................................................... ............................... 13
10. Counterparts. ... ........................ 13
Exhibit A Letter of Representation
Exhibit B Schedule of Maturity Dates, Principal Amounts, Interest Rates, Yields and Prices
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 Underwriters Counsel
Exhibit G Officer's Certificate
-i-
Errorl Unknown document property name.
CITY OF NEWPORT BEACH
REVENUE BONDS
(HOAG MEMORIAL HOSPITAL PRESBYTERIAN)
SERIES 2009A
BOND PURCHASE CONTRACT
June ,2009
City of Newport Beach
3300 Newport Boulevard
Newport Beach, California 92658
Ladies and Gentlemen:
Citigroup Global Markets Inc., on behalf of itself and on behalf of JPMorgan Securities,
Inc. (together, the "Underwriters ") 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 Underwriters. 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 Underwriters upon written
notice delivered to the City by the Underwriters 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, Sale 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 Underwriters hereby agree to purchase from the City, and the
City hereby agrees to sell to the Underwriters, all (but not less than all) of the aggregate principal
amount of the $ City of Newport Beach Revenue Bonds (Hoag Memorial Hospital
Presbyterian) Series 2009A (the "Series 2009A 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 at the rates 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 $ net of original issue discount of $ / original issue premium of
$ and an underwriting discount of $ The Series 2009A Bonds are being
offered simultaneously with the City of Newport Beach Revenue Bonds (Hoag Memorial
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Hospital Presbyterian) Series 2009B, Series 2009C, Series 2009D and Series 2009E (the
"Additional Series 2009 Bonds ").
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 June 1, 2009 (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 June 1, 2009 (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) 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 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.
The Underwriters intend to make an initial bona fide public offering of all of the
Series 2009A Bonds at not in excess of the initial public offering price or prices, with yield or
yields not lower than the yield or yields, as set forth in Exhibit B hereto, but reserves the right to
change such initial prices or yields as the Underwriters deem necessary in connection with the
marketing of the Series 2009A Bonds. The foregoing notwithstanding, the Underwriters may
offer and sell the Series 2009A Bonds to certain Dealers (including Dealers depositing Series
2009A Bonds into investment trusts) at prices lower, or yields higher, than the public offering
prices, or yields, set forth on Exhibit B hereto.
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 the proceeds of the Additional Series
2009 Bonds and other available funds to (1) refund certain outstanding City of Newport Beach
Insured Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series 2007D and City of
Newport Beach Refunding Revenue Bonds (Hoag Memorial Hospital Presbyterian), Series
2008A and Series 2008B (collectively, the "Prior Obligations "), (2) finance the acquisition and
construction of certain additions and improvements to, and equipment for, the acute care hospital
and other health care facilities owned by the members of the Obligated Group, and (3) pay
certain costs of issuing the Bonds.
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 June 1, 2009 (the "Supplemental Master Indenture "), 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.
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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 Preliminary Official Statement (as defined below) and will also be
set forth in the Official Statement (as defined below).
(b) Until the Official Statement (as defined below) has been prepared and is
available for distribution, the Borrower shall provide to the Underwriters, sufficient quantities of
the Preliminary Official Statement dated June _, 2009 (the "Preliminary Official Statement") as
the Underwriters deem necessary in order to comply with with Rule 15c2 -12 of the Securities
and Exchange Commission ( "Rule 15c2 -12 ") with respect to distribution to each potential
customer, upon requst, of a copy of the Preliminary Official Statement.
(c) The Borrower shall deliver to the Underwriters copies of the Official
Statement dated June . 2009 (the "Official Statement "), signed on behalf of the City by the
Mayor of the City and approved by the Borrower by its Senior Vice President and Chief
Financial Officer (or such other officer as is acceptable to the Underwriters) in substantially the
form of the Preliminary Official Statement, with only such changes therein as shall have been
approved by the City, the Borrower and the Underwriters (the delivery of the Official Statement
by the Borrower and the acceptance thereof by the Underwriters to constitute in all events such
approval). The Official Statement shall be delivered in sufficient quantity as may reasonably be
requested by the Underwriters in order to comply with 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 Underwriters, in sufficient time to accompany any confirmation requesting
payment from any customers of the Underwriters. 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 Underwriters prior to the date hereof of the Official
Statement, and hereby authorizes the Underwriters to use and distribute the Master Indenture and
the Official Statement (on or prior to the date hereof) and drafts of the Bond Indenture and the
Loan Agreement in connection with the offer and sale of the Bonds.
(d) No later than 1:00 p.m., New York time, on June 2009, or at such
earlier or later time or date as shall be agreed by the City and the Underwriters (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
Underwriters (or such other location as may be designated by the Underwriters 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 Underwriters at the offices of
Orrick, Herrington & Sutcliffe LLP in Sacramento, California, the other documents herein
mentioned. The Underwriters 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
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any Bond nor any error with respect thereto shall constitute cause for a failure or refusal by the
Underwriters to accept delivery of and pay for the Bonds on the Closing Date in accordance with
the terms of this Bond Purchase Contract.
(e) On or prior to the date hereof, the Underwriters 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 Preliminary
Official Statement and to the references to its name in the Preliminary Official Statement, and
(iii) from Ernst & Young LLP, its consent to the inclusion of it 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.
(f) The obligations and agreements of the Underwriters under this Bond
Purchase Contract are expressly made subject to the issuance of the Additional Series 2009
Bonds and sale thereof as described in the Preliminary Official Statement with the proceeds of
sale thereof being available to the Borrower at or prior to the Closing Date.
2. Representations, Warranties and Agreements of the City.
The City represents and warrants to and agrees with the Underwriters 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 Underwriters 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 Preliminary Official Statement and 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 Preliminary Official Statement or the Official
Statement and this Bond Purchase Contract.
(d) Other than as described in the Preliminary Official Statement, there is no
action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court,
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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 Preliminary 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 Preliminary Official Statement or this Bond Purchase
Contract.
(e) The statements and information contained in the Preliminary Official
Statement and the Official Statement relating to the City and its functions, duties and
responsibilities under the captions "THE CITY" and "LITIGATION — The City" as of its date
and the date hereof did not and, as of the Closing Date will 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 furnish, at the expense of the Borrower, such information,
execute such instruments and take such other action in cooperation with the Underwriters as the
Underwriters may reasonably request in order for the Underwriters (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 Underwriters 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 Underwriters and the Borrower. If, in the opinion of the Underwriters, 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
Underwriters, provided all expenses thereby incurred will be paid by the Borrower or the
Underwriters 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
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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 Underwriters that the representations and
agreements contained in this Section 2 are true as of the date hereof; and as to all matters of law
the City is relying on the advice of counsel to the City; and provided further 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 Underwriters.
The obligation of the Underwriters to accept delivery of and pay for the Bonds on
the Closing Date shall be subject, at the option of the Underwriters, to the accuracy in all
material respects of the representations, warranties and agreements on the part of the City
contained herein or on the part of the Borrower contained in the Letter of Representation 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 or the Borrower made in any certificates
or other documents furnished pursuant to the provisions hereof, to the performance by the City or
the Borrower 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 Indenture, Obligation No. , the Bond Indenture, the Official
Statement, the Loan Agreement, the Remarketing Agreement 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 Underwriters, with only such
changes as shall have been agreed to in writing by the Underwriters 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 Underwriters, 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 Underwriters.
(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
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judgment of the Underwriters, is material and adverse and that makes it, in the judgment of the
Underwriters, 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 Underwriters (evidenced by a
written notice to the City and the Borrower terminating the obligation of the Underwriters to
accept delivery of and pay for the Bonds), by reason of any of the following:
(1) an event shall occur which makes untrue or incorrect in any
material respect, as of the time of such event, any statement or information
contained in the Official Statement or which is not reflected in the Official
Statement but should be reflected therein in order to make the statements
contained therein not misleading in any material respect and requires an
amendment of or supplement to the Official Statement and the effect of which, in
the reasonable judgment of the Underwriters, would materially adversely affect
the market for the Bonds or the sale, at the contemplated offering prices (or
yields), by the Underwriters; or
(2) legislation shall be introduced in, enacted by, reported out of
committee, or recommended for passage by State of California, either House of
the Congress, or recommended to the Congress or otherwise endorsed for passage
(by press release, other form of notice or otherwise) by the President of the United
States, the Treasury Department of the United States, the Internal Revenue
Service or the Chairman or ranking minority member of the Committee on
Finance of the United States Senate or the Committee on Ways and Means of the
United States House of Representatives, or legislation is proposed for
consideration by either such committee by any member thereof or presented as an
option for consideration by either such committee by the staff or such committee
or by the staff of the Joint Committee on Taxation of the Congress of the United
States, or a bill to amend the Code (which, if enacted, would be effective as of a
date prior to the Closing) shall be filed in either House, or a decision by a court of
competent jurisdiction shall be rendered, or a regulation or filing shall be issued
or proposed by or on behalf of the Department of the Treasury or the Internal
Revenue Service of the United States, or other agency of the federal government,
or a release or official statement shall be issued by the President, the Department
of the Treasury or the Internal Revenue Service of the United States, in any such
case with respect to or affecting (directly or indirectly) the taxation of interest
received on obligations of the general character of the Bonds which, in the
reasonable judgment of the Underwriters, materially adversely affects the market
for the Bonds or the sale, at the contemplated offering prices (or yields), by the
Underwriters; or
(3) a stop order, ruling, regulation, proposed regulation or statement
by or on behalf of the Securities and Exchange Commission or any other
governmental agency having jurisdiction of the subject matter shall be issued or
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made to the effect that the issuance, offering, sale or distribution of obligations of
the general character of the Bonds is in violation or would be in violation of any
provisions of the Securities Act of 1933, as amended (the "Securities Act "), the
Securities Exchange Act of 1934, as amended (the "Exchange Act ") or the Trust
Indenture Act of 1939, as amended; or
(4) legislation introduced in or enacted (or resolution passed) by the
Congress or an order, decree, or injunction issued by any court of competent
jurisdiction, or an order, ruling, regulation (final, temporary, or proposed), press
release or other form of notice 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, including any or all underlying arrangements, are not exempt from
registration under or other requirements of Securities Act, or that the Indenture is
not exempt from qualification under or other requirements of the Trust Indenture
Act of 1939, as amended, or that the issuance, offering, or sale of obligations of
the general character of the Bonds, including any or all underlying arrangements,
as contemplated hereby or by the Preliminary Official Statement or by the Official
Statement or otherwise, is or would be in violation of the federal securities law as
amended and then in effect;
(5) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national or international emergency or war or
other calamity or crisis the effect of which on financial markets is such as to make
it, in the reasonable judgment of the Underwriters, impractical or inadvisable to
proceed with the offering of the Bonds as contemplated in the Official Statement;
or
(6) there shall have occurred a general suspension of trading,
minimum or maximum prices for trading shall have been fixed and be in force or
maximum ranges or prices for securities shall have been required on the New
York Stock Exchange or other national stock exchange whether by virtue of a
determination by that Exchange or by order of the Securities and Exchange
Commission or any other governmental agency having jurisdiction or any national
securities exchange shall have: (i) imposed additional material restrictions not in
force as of the date hereof with respect to trading in securities generally, or to the
Bonds or similar obligations; or (ii) materially increased restrictions now in force
with respect to the extension of credit by or the charge to the net capital
requirements of Underwriters or broker - dealers such as to make it, in the
reasonable judgment of the Underwriters, impractical or inadvisable to proceed
with the offering of the Bonds as contemplated in the Preliminary Official
Statement or the Official Statement; or
(7) a general banking moratorium shall have been declared by federal
or New York or Massachusetts state authorities or a major financial crisis or a
material disruption in commercial banking or securities settlement or clearances
services shall have occurred such as to make it, in the judgment of the
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Underwriters, impractical or inadvisable to proceed with the offering of the Bonds
as contemplated in the Preliminary Official Statement or the Official Statement;
or
(8) a downgrading or suspension of any rating (without regard to
credit enhancement) by Moody's Investors Service, Inc. ( "Moody's "), Standard &
Poor's ( "S &P "), or Fitch Ratings ( "Fitch ") of any debt securities issued by or on
behalf of the Borrower, or (ii) there shall have been any official statement as to a
possible downgrading (such as being placed on "credit watch" or "negative
outlook" or any similar qualification) of any rating by Moody's, S &P or Fitch of
any debt securities issued by or on behalf of the Borrower, including the Bonds.
(e) At or prior to the Closing Date, the Underwriters 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 Underwriters and the City (which may be satisfied
pursuant to documents which concurrently address matters related to the Additional Series 2009
Bonds):
(1) The Master Indenture, Obligation No. _ (specimen copy), the
Supplemental Master Indenture, the Bond Indenture, the Loan Agreement, the
Remarketing 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
Underwriters;
(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 Underwriters and a supplemental opinion of Bond Counsel in a form
acceptable to the Underwriters, dated the Closing Date and addressed to the
Underwriters, 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 Underwriters and approval by the Borrower, is a valid and
binding agreement of the City, 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; and
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(iii) the statements contained in the Official Statement under the
captions "THE BONDS," "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, Obligation No. _, the Bond Indenture, the
Loan Agreement, the Supplemental Master Indenture 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 and
the Underwriters, 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 Underwriters,
dated the Closing Date and addressed to the Underwriters, in substantially the
form attached hereto as Exhibit F;
(6) 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 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;
(7) A certificate of the Senior Vice President and Chief Financial
Officer of the Borrower, or such other officer as is acceptable to the Underwriters
and the City, dated the Closing Date, substantially in the form attached hereto as
Exhibit G;
(8) 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;
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(9) 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;
(10) Certified copies of the resolutions of the Board of Directors of the
Borrower authorizing the execution and delivery of the Loan Agreement, the
Supplemental Master Indenture, Obligation No. _, the Continuing Disclosure
Certificate, the Remarketing Agreement and the Letter of Representation, and
approving this Bond Purchase Contract, the Bond Indenture, the Preliminary
Official Statement (and the distribution thereof) and the Official Statement (and
distribution thereof);
(11) Evidence that the Borrower has been determined to be an
organization described in Section 501(c)(3) of the Code;
(12) A Tax Agreement in form satisfactory to Bond Counsel;
(13) Satisfactory evidence that the Bonds have been assigned the long-
term municipal bond ratings of "AA" by Standard & Poor's Ratings Services, a
division of The McGraw -Hill Companies, Inc. and "Aa3" by Moody's Investors
Service and the short-term municipal bond ratings of "VMIG1" by Moody's
Investors Service;
(14) Two copies of the Official Statement executed as required by
Section 1(b) hereof,
(15) A letter of Ernst & Young LLP dating down the Procedures Letter.
(16) A properly completed and executed Form 8038 of the Internal
Revenue Service relating to the Bonds; and
(17) Such additional corporate resolutions, legal opinions, certificates,
proceedings, instruments and other documents as the Underwriters, 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 Underwriters'
obligations contained in this Bond Purchase Contract or if the Underwriters' obligations shall be
terminated for any reason permitted herein, this Bond Purchase Contract shall terminate and
neither the Underwriters nor the City shall have any further obligation hereunder.
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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 Underwriters of their
obligations to be performed hereunder at or prior to the Closing Date and to the following
additional conditions:
(a) The Supplemental Master Indenture, Obligation No. _, the Bond
Indenture, the Loan Agreement, the Continuing Disclosure Certificate and this Bond Purchase
Contract shall have been executed by the parties thereto;
(b) 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 Preliminary Official Statement or by the Official
Statement; and
(c) 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.
(d) The Additional Series 2009 Bonds shall have been concurrently issued and
delivered.
5. Exuenses/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
Underwriters, including printing costs, fees and expenses of consultants, fees and expenses of
rating agencies, fees and expenses of Bond Counsel, City Attorney, Underwriters 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
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 Underwriters 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 Underwriters may be
given by delivering the same in writing to Citigroup Global Markets Inc., 444 South Flower
Street, 27a' Floor, Los Angeles, California 90071 and to JPMorgan Securities, Inc., 560 Mission
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Street, Yd Floor, San Francisco, California 94105. The approval of the Underwriters when
required hereunder or the determination of its satisfaction as to any document referred to herein
shall be in writing signed by the Underwriters 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.
8. Miscellaneous.
This Bond Purchase Contract is made solely for the benefit of the City, the
Borrower and the Underwriters (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. No Fiduciary.
The City acknowledges that in connection with the offering of the Bonds (a) the
Underwriters has acted at arms length, is not an agent of, and owes no fiduciary duties to the City
or any other person and (b) the Underwriters engagements are as independent contractors and not
in any other capacity.
10. 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.
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CITIGROUP GLOBAL MARKETS INC.
C
Director
Signature Page to Bond Purchase Contract for the
CITY OF NEWPORT BEACH
REVENUE BONDS
(HOAG MEMORIAL HOSPITAL PRESBYTERIAN)
SERIES 2009A
Error] Unknown document property name.
Accepted and Agreed to:
CITY OF NEWPORT BEACH
Un
Mayor
Signature Page to Bond Purchase Contract for the
CITY OF NEWPORT BEACH
REVENUE BONDS
(HOAG MEMORIAL HOSPITAL PRESBYTERIAN)
SERIES 2009A
Error] Unknown document property name.
Approved:
HOAG MEMORIAL HOSPITAL PRESBYTERIAN
Authorized Representative
Signature Page to Bond Purchase Contract for the
CITY OF NEWPORT BEACH
REVENUE BONDS
(HOAG MEMORIAL HOSPITAL PRESBYTERIAN)
SERIES 2009A
Errorl Unknown document property name.
EXHIBIT A TO
BOND PURCHASE CONTRACT
LETTER OF REPRESENTATION
June , 2009
City of Newport Beach
3300 Newport Boulevard
Newport Beach, California 92658
Citigroup Global Markets Inc.
444 South Flower Street
27`h 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 June 1, 2009 (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., acting on behalf of itself and on
behalf of JPMorgan Securities, Inc. (together the "Underwriters "), which the Borrower has
approved, the City proposes to sell the aggregate principal amount of the $ City of
Newport Beach Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2009A (the
"Series 2009A Bonds" or the "Bonds ") identified on Exhibit B hereto. The offering of the
Bonds is described in an Official Statement dated June , 2009 (the "Official Statement').
The Bonds shall be issued and secured under the provisions of that certain Bond
Indenture dated as of June 1, 2009 (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 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. 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 and the Bonds will be loaned to the
Borrower pursuant to the Loan Agreement and will be used, together with other available funds
to (1) refund certain outstanding City of Newport Beach Insured Revenue Bonds (Hoag
Memorial Hospital Presbyterian), Series 2007D and City of Newport Beach Refunding Revenue
Bonds (Hoag Memorial Hospital Presbyterian), Series 2008A and Series 2008B (collectively, the
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"Prior Obligations "), (2) finance the acquisition and construction of certain additions and
improvements to, and equipment for, the acute care hospital and related facilities owned by the
members of the Obligated Group, and (3) pay certain costs of issuing the Bonds.
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 June 1, 2009 (the "Supplemental Master Indenture "), 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. Obligation No. will also evidence the obligation
of the Obligated Group to make payments sufficient to pay the—principal of, premium, if any, and
interest on the Bonds (as defined in the Bond Purchase Contract).
Pursuant to the terms of the Master Indenture and the Supplemental Master Indenture, the
Borrower, NHC and any future Members of the Obligated Group will be jointly and severally
obligated to make payments on Obligation No. _ according to the terns 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 Underwriters 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 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 Indenture, Obligation No. _, the
Remarketing Agreement and the Continuing Disclosure Certificate, to approve the Bond
Purchase Contract, the Bond Indenture, and the Official 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 Indenture, Obligation No.
_, this Letter of Representation, the Continuing Disclosure Certificate, the Remarketing
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
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Indenture, the Supplemental Master Indenture, Obligation No. _, 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).
4. NHC has, and at the Closing Date will have, full legal right, power and authority
to perform its obligations under the Master Indenture, the Supplemental Master Indentures and
the Obligations.
5. 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 Indenture, Obligation No. _, the Remarketing Agreement and the
Continuing Disclosure Certificate, approving the Bond Purchase Contract, the Bond Indenture,
and the Official Statement (including the distribution thereof) are, or were at the time of
execution of such document, fully authorized to execute and approve the same.
6. 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 Loan Agreement, the Supplemental Master
Indenture, Obligation No. _, 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.
7. This Letter of Representation constitutes and the Loan Agreement, the
Remarketing Agreement and the Continuing Disclosure Certificate will constitute the legal, valid
and binding agreements of the Borrower, and the Master Indenture constitutes, and the
Supplemental Master Indenture and the Obligation 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.
8. 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,
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.
9. The execution and delivery of this Letter of Representation, the approval of the
Bond Purchase Contract, the Bond Indenture, the Preliminary Official Statement and the Official
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Statement; at the Closing, the execution and delivery of the Loan Agreement, the Master
Indenture, the Supplemental Master Indenture, Obligation No. _, 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 Indenture, Obligation No. _, 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.
10. 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 Indenture, Obligation No. _ or the Continuing Disclosure Certificate; the
approval of the Bond Purchase Contract, the Bond Indenture or the Official Statement 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).
11. 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
Bond Purchase Contract, the Loan Agreement, the Master Indenture, the Supplemental Master
Indenture, Obligation No. _, this Letter of Representation, the Official Statement 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
Indenture, Obligation No. _, the Continuing Disclosure Certificate, this Letter of
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Representation, and the Official Statement or the financial conditions, assets, properties or
operations of the Borrower or the Obligated Group taken as a whole.
12. 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 Intemal Revenue Code of 1986, as amended,
except for unrelated trade or business income subject to taxation under Section 511 of said Code.
13. The proceeds of the Bonds will not be used by an organization described in
Section 501(c)(3) of the Intemal 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.
14. 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 Indenture, Obligation No. the Loan Agreement, and the Continuing
Disclosure Certificate 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.
15. 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).
16. 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.
17. The Borrower is eligible under applicable statutes, regulations and administrative
practices for payment under Medicare and Medicaid.
18. The Borrower is currently participating in the programs of Medicare and
Medicaid, and there are in full force and effect arrangements providing for payments to the
Borrower with respect to patients enrolled in such programs.
19. 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 March 31, 2009, which is not described
in the Official Statement, whether or not arising from transactions in the ordinary course of
business.
20. As of the date thereof, and except as corrected in the Official Statement, the
Preliminary Official Statement did not contain any untrue statement of a material statement or
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omit to state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
21. Between the date hereof and the date of the Closing, the Borrower and NHC will
not, without the prior written consent of the Underwriters, 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.
22. 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 (or will 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 Underwriters or the City specifically for inclusion therein.
23. The Borrower will deliver or cause to be delivered to the Underwriters copies of
the Official Statement dated June 2009 (the "Official Statement "), signed on behalf of the
City by the Mayor of the City and approved by the Borrower by its Senior Vice President and
Chief Financial Officer (or such other officer as is acceptable to the Underwriters) in
substantially the form of the Preliminary Official Statement, with only such changes therein as
shall have been approved by the City, the Borrower and the Underwriters (the delivery of the
Official Statement by the Borrower and the acceptance thereof by the Underwriters to constitute
in all events such approval). The Official Statement shall be delivered in sufficient quantity as
may reasonably be requested by the Underwriters in order to comply with Rule 15c2 -12 of the
Securities and Exchange Commission 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 Underwriters, in
sufficient time to accompany any confirmation requesting payment from any customers of the
Underwriters. Except for Permitted Omissions, the Borrower has deemed the Preliminary
Official Statement final as of its date. As used herein "Permitted Omissions" means the offering
price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per
series, delivery dates, ratings, other terms of the Bonds depending on such matters and the
identity of the Underwriters. The Borrower hereby ratifies, confirms and approves the use and
distribution by the Underwriters prior to the date hereof of the Preliminary Official Statement,
and hereby authorizes the Underwriters to use and distribute the Official Statement, the Master
Indenture, the Bond Indenture and the Loan Agreement in connection with the offer and sale of
the Bonds. 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 Underwriters and if, in the
opinion of the Borrower, the City or the Underwriters such event requires the preparation and
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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 Underwriters.
24. 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 Underwriters 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
time it is delivered to a purchaser, forthwith prepare and furnish to the Underwriters and the City
(at the expense of the Borrower for 90 days from the date of Closing, and thereafter at the
expense of the Underwriters) a reasonable number of copies of an amendment of or supplement
to the Official Statement (in form and substance satisfactory to counsel for the Underwriters 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.
25. (a) The Borrower agrees to indemnify and hold harmless the Underwriters, the
directors, officers, employees and agents of the Underwriters and each person who controls the
Underwriters 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 Preliminary Official
Statement or 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 Preliminary Official Statement or 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
Underwriters specifically for inclusion therein. This indemnity agreement will be in addition to
any liability which the Borrower may otherwise have.
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(b) The Borrower 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 Preliminary Official Statement or 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 Preliminary Official Statement or the Official Statement, or in
any amendment thereof or supplement thereto, in reliance upon and in conformity with written
information finnished 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 Underwriters agree to indemnify and hold harmless the Borrower, each of
its officials, directors, trustees, 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 Underwriters, but only with reference to written information relating to the
Underwriters furnished to the Borrower by or on behalf of the Underwriters specifically for
inclusion in the Preliminary Official Statement or the Official Statement (or in any amendment
or supplement thereto). This indemnity agreement will be in addition to any liability which the
Underwriters may otherwise have. The Borrower acknowledges that the statements set forth in
the section entitled, "UNDERWRITING" and the paragraph related to stabilization on the inside
cover page of the Preliminary Official Statement and the Official Statement, constitute the only
information finnished in writing by or on behalf of the Underwriters for inclusion in the
Preliminary Official Statement and the Official Statement (or in any amendment or supplement
thereto).
(d) Promptly after receipt by an indemnified party under this Section 24 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 24 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
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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 parry 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
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 24 is unavailable to or insufficient to hold harmless an indemnified party for any reason,
the Borrower and the Underwriters 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
Underwriters 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 Underwriters 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 Underwriters 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 Underwriters 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 Underwriters be responsible for any amount in excess of the purchase discount or
commission applicable to the Bonds purchased by the Underwriters 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 Underwriters shall be deemed to
be equal to the total purchase discounts and commissions 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 Underwriters 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 Underwriters agree that it would not be just
A -9
Errors Unknown document property name.
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 24, each person who controls the Underwriters
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 Underwriters
shall have the same rights to contribution as the Underwriters, 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).
26. 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.
27. 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 Indenture,
the Remarketing Agreement, Obligation No. _ and the Continuing Disclosure Certificate.
28. The Borrower shall be under no obligation to deliver the Loan Agreement or enter
into any of the agreements referenced herein on the Closing Date except upon the concurrent
issuance and delivery of the Additional Series 2009 Bonds (as defined in the Bond Purchase
Contract).
29. 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.
30. 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.
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31. The Borrower acknowledges that in connection with the offering of the Bonds (a)
the Underwriters has acted at arms length, is not an agent of, and owes no fiduciary duties to the
Borrower or any other person and (b) the Underwriters engagements are as independent
contractors and not in any other capacity. The Borrower further acknowledges that it is solely
responsible for making its own judgments in connection with the offering of the Bonds
regardless of any past or present relationships with the Underwriters on related or other matters.
32. This Letter of Representation may be executed in any number of counterparts and
all such counterparts shall together constitute one and the same instrument.
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Very truly yours,
HOAG MEMORIAL HOSPITAL PRESBYTERIAN
Authorized Representative
Signature Page to Letter of Representation for the
City of Newport Beach
Revenue Bonds (Hoag Memorial Hospital Presbyterian)
Series 2009A
Errorl Unknown document property name.
Accepted and Agreed to:
CITIGROUP GLOBAL MARKETS INC.
M
Director
Signature Page to Letter of Representation for the
City of Newport Beach
Revenue Bonds (Hoag Memorial Hospital Presbyterian)
Series 2009A
Error! Unknown document property name.
Accepted and Agreed to:
CITY OF NEWPORT BEACH
M
Mayor
Signature Page to Letter of Representation for the
City of Newport Beach
Revenue Bonds (Hoag Memorial Hospital Presbyterian)
Series 2009A
Error! Unknown document property name.
EXHIBIT B TO
BOND PURCHASE CONTRACT
[To Come]
Mandatory Redemption:
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 -1
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EXHIBIT C TO
BOND PURCHASE CONTRACT
FORM OF AGREED -UPON PROCEDURES LETTER OF ERNST & YOUNG LLP
[See attached]
C -1
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EXHIBIT D TO
BOND PURCHASE CONTRACT
FORM OF OPINION OF CITY ATTORNEY
June ,2009
City of Newport Beach, California
Newport Beach, California
Citigroup Global Markets Inc.
Los Angeles, California
Hoag Memorial Hospital Presbyterian
Newport Beach, California
Re: $ City of Newport Beach Revenue Bonds (Hoag Memorial Hospital
Presbyterian) Series 2009A (the "Bonds ")
Ladies and Gentlemen:
This opinion is delivered to you pursuant to the Bond Purchase Contract dated June _,
2009 (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 the $
City of Newport Beach Revenue Bonds (Hoag Memorial Hospital Presbyterian) Series 2009A,
(the "Series 2009A Bonds" or the "Bonds ") pursuant to a Bond Indenture dated as of June 1,
2009 (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 June 1, 2009
(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
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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:
1. 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 dated June 2009 (the "Official Statement ") has been
duly authorized, executed and delivered, in each case 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
113►J,
Error[ 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
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EXHIBIT E TO
BOND PURCHASE CONTRACT
FORM OF OPINION OF COUNSEL TO
THE BORROWER
,2009
City of Newport Beach
Newport Beach, California
Citigroup Global Markets Inc.
Los Angeles, California
JPMorgan Securities, Inc.
San Francisco, California
Wells Fargo Bank, National Association
as bond trustee and as master trustee
Los Angeles, California
Re: $ City of Newport Beach Revenue Bonds (Hoag Memorial Hospital
Presbyterian) Series 2009A
Ladies and Gentlemen:
We have acted as special counsel to Hoag Memorial Hospital Presbyterian, a California
nonprofit public benefit corporation (the "Corporation ") and Newport Healthcare Center, LLC, a
Delaware limited liability company ("NHC"), in connection with the sale and delivery of
$ City of Newport Beach Revenue Bonds (Hoag Memorial Hospital Presbyterian)
Series 2009A (the "Bonds "); however, we are not general counsel to the Corporation or NHC.
Our opinion is based on the following general transaction structure:
The Bonds are being executed and delivered pursuant to an indenture, dated as of
2009 (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 ,
2009 (the "Loan Agreement') between the City and the Corporation. Capitalized terms used but
not defined in this opinion have the respective meanings ascribed thereto in the Indenture.
The Corporation is issuing its obligation number ("Obligation No. ") to
evidence its obligation to make payments sufficient to pay the principal of, premium, if any,
interest on and purchase price of the Bonds, pursuant to a master trust indenture dated as of May
1, 2007 (as amended, supplemented and otherwise modified, the "Master Indenture "), by and
among the Corporation, NHC and Wells Fargo Bank, National Association, as master trustee (the
"Master Trustee ").
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In connection with the Bonds, the Corporation and the Master Trustee are also entering
into a Supplemental Master Indenture For Obligation No. , dated as of , 2009.
The Bonds are being sold pursuant to a bond purchase contract dated , 2009
between the Corporation, the City, Citigroup Global Markets Inc., and JPMorgan Securities, Inc.
and approved by the Corporation (the "Purchase Contract'). An official statement dated
2009 has been prepared to furnish information with respect to the sale and delivery of
the Bonds (the "Official Statement'). A preliminary official statement dated , 2009 has
been prepared to furnish information with respect to the sale and delivery of the Bonds, (the
"Preliminary Official Statement")
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 NHC 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 Indenture
No. _, and Obligation No. _, 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, 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 and NHC 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 and NHC, 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 inquiry undertaken by us during 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 or NHC.
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 and NHC), 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
E -2
Errorl Unknown document property name.
submitted to us as certified or photostatic copies, and except for signatures on behalf of the
Corporation and NHC, 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 below, we have made the following
assumptions: (i) the description of the Gross Receivables contained in Supplemental Master
Indenture For Obligation No. 1, dated as of May 1, 2008, between the Corporation and the
Master Trustee ( "Supplemental Master Indenture No. 1 ") and the UCC -1 Financing Statements
described in paragraphs 18 and 19 below "reasonably identifies" the Gross Receivables within
the meaning of California Uniform Commercial Code Section 9108; (ii) 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 and (iii) 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 Indenture No. 1,
Supplemental Master Indenture No. , Obligation No. 1, and Obligation No. , 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 power and authority to enter into the Loan Agreement,
the Tax Certificate and Agreement, the Purchase Contract (including the Letter of Representation
appended thereto), Supplemental Master Indenture No. , Obligation No. and the
Continuing Disclosure Certificate (collectively, the `Borrower Documents "), to perform all of its
duties contained therein, and to approve the Preliminary Official Statement and the Official
Statement.
4. The execution of Supplemental Master Indenture No. is authorized or
permitted by the Master Indenture.
5. All conditions precedent to the execution of Supplemental Master Indenture No.
have been satisfied or waived. 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.
6. The obligations under the Loan Agreement and Obligation No. constitute the
legal, valid and binding agreements of the Corporation enforceable against the Corporation in
accordance with their respective terms.
E -3
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7. (i) The Borrower Documents constitute the legal, valid and binding obligations of
the Corporation and NHC enforceable against the Corporation and NHC in accordance with their
respective terms.
8. The Corporation has the corporate power to approve and has duly approved the
Indentures, the Preliminary Official Statement and the Official Statement and duly authorized the
distribution of the Official Statement.
9. The distribution of the Preliminary Official Statement and the Official Statement
and the approval thereof by the Corporation, the approval by the Corporation of the Indentures,
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 the Limited Liability Company Agreement of NHC, or the resolution of the
Board of Directors of the Corporation duly adopted on 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 transactions contemplated by the documents referred to in this paragraph,
or the financial condition or operations of the Corporation or NHC.
10. 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 Borrower Documents and the Official Statement or the distribution of the
Preliminary Official Statement and the Official Statement, or, in the case of 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 and
NHC prior to the issuance of Obligation No. , set forth in the Master Indenture and
Supplemental Master Indenture No. _ have been complied with and satisfied.
11. (a) To our current actual knowledge, there is no action, suit or proceeding
pending against the Corporation or NHC or their respective properties in any court or before any
governmental authority or agency, or arbitration board or tribunal, which challenges the
E -4
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consummation of the financing transactions contemplated by or the validity of the Bonds 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 their respective assets, properties or operations in
any court or before any governmental authority or agency, or arbitration board or tribunal,
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, neither the Corporation nor NHC is 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 11 or the financial condition or operations of the
Corporation or NHC (taken as a whole).
12. 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.
13. 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 Exchange Act of 1934, as
amended.
14. Each of the Corporation and NHC has the power and authority to own its
properties and assets and to carry on its business as now being conducted by it.
15. 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.
16. Obligation No. _ is exempt from registration under the Securities Act of 1933,
as amended.
17. 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.
18. The UCC -1 Financing Statement filed with the California Secretary of State on
May 30, 2007 as Filing No. 07- 7115717127 (the "Corporation Financing Statement') is 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
E -5
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the Corporation Financing Statement and Supplemental Master Indenture No. 1, and for which
perfection may occur by the filing of a UCC -1 Financing Statement with the Secretary of State
for the State of California (the "Corporation Gross Receivables "). Assuming that the
Corporation Financing Statement was 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, the Master Trustee has a perfected security interest in the Corporation Gross
Receivables.
19. The UCC -1 Financing Statement filed with the Delaware Secretary of State on
May 30, 2007 as Filing No. 72027026 (the "NHC Financing Statement') is in adequate and
legally sufficient form to perfect a security interest in favor of the Master Trustee in the right,
title and interest of NEC to the Gross Receivables which are described in the NHC Financing
Statement and Supplemental Master Indenture No. 1, and for which perfection may occur by the
filing of a UCC -1 Financing Statement with the Secretary of State for the State of Delaware (the
"NHC Gross Receivables "). Assuming that the NHC Financing Statement was duly filed with
the Secretary of State for the State of Delaware in accordance with the provisions of Section
9516(a) of the California Uniform Commercial Code, the Master Trustee has a perfected security
interest in the NHC Gross Receivables.
20. As holders of Master Indenture Obligations (as defined in the Master Indenture),
the holders of Obligation No. _ are entitled to the benefit of the security interest in favor of the
Master Trustee in the Corporation Gross Receivables and the NHC Gross Receivables, on the
terms and subject to the conditions set forth in Supplemental Master Indenture No. 1.
In connection with our participation in the preparation of the Official Statements, 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 Statements.
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
Statements, we can advise you supplementally as a matter of fact that we have no current actual
knowledge that the Official Statements as of their 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 Statements.
Our opinion is subject to the following qualifications:
(a) We have not examined the question of what law would govern the
interpretation or enforcement of the Master Indenture, the Indentures, Obligation No. _, the
Loan Agreement or the Purchase Contract and, except as set forth in (b), (c) and (d) below,
E -6
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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 9, 10, 11, 12, 13, 14, 15 and 16 hereof and as it may apply to exception
paragraphs (c), (d), (e) and (g).
(c) Except as specifically provided in paragraphs 13 and 16 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 paragraph 12 is based solely upon an interview
with the Senior Vice President and Chief Financial Officer 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 Senior Vice President and Chief Financial Officer of the Corporation.
(f) We express no opinion as to:
(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
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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.
(xi) The enforceability of any provisions that indemnify any party against
its own negligence or willful misconduct. The effect of provisions releasing or
indemnifying a party against liability for its own wrongful or negligent acts, or where
indemnification is contrary to public policy.
(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
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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 not 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 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
invalid as a whole or substantially interfere with realization of the principal benefits provided
by the Borrower Documents. In addition, we advise you that California court 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 12 and 13 are based solely upon:
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(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 President and Senior Vice President and Chief
Financial Officer 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
and the documents and other information submitted to us in response to our
information request to the Corporation dated , 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 Indentures 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 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 and NHC in this matter, we have not
rendered financial advice to the Corporation or NHC 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 or NHC, past, present or future (except only
as financial condition is related to a standard of materiality as used in paragraphs 9, 11(b) and
I I(c) hereof), and with respect to the latter we have relied entirely on the assessment of
materiality made by the Senior Vice President and Chief Financial Officer of the
Corporation.
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(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 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 or the Secretary of State for the State of
Delaware.
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.
Our engagement by the Corporation and NHC with respect to the matters stated herein
terminates as of the date hereof. No attorney - client relationship exists between us and you.
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,
/s/
STRADLING YOCCA CARLSON & RAUTH
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EXHIBIT F TO
BOND PURCHASE CONTRACT
FORM OF OPINION OF UNDERWRITERS COUNSEL
[To Come]
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EXHIBIT G TO
BOND PURCHASE CONTRACT
FORM OF OFFICER'S CERTIFICATE
Re: City of Newport Beach Revenue Bonds (Hoag Memorial Hospital Presbyterian)
Series 2009 (the "Bonds ")
I, Jennifer Mitzner, hereby certify that I am the Senior 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 May 1, 2007, 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 March 31, 2009, 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 Underwriters.
2. The Corporation has not, since March 31, 2009, 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 Underwriters.
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 Underwriters, 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.
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Capitalized terms used and not defined herein have the meanings assigned to them in the
Bond Purchase Contracts dated June _, 2009 and June , 2009, respectively, each between
Citigroup Global Markets Inc. and the City of Newport Beach and approved by the Corporation.
Dated: June—, 2009
HOAG MEMORIAL HOSPITAL PRESBYTERIAN
L-fi
Senior Vice President and Chief Financial Officer
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