COMMUNITY HOSPITALS OF CENTRAL CALIFORNIA ...

NEW ISSUE-BOOK-ENTRY ONLY RATINGS: See "RATINGS" herein.

In the opinion of Orrick., Herrington & SutclffTe I.LP, Special Counsel to the Authority, based upon an analysis of existing laws, regulation.I, ruling.1 and ,~ou,t decisions. and a.uwning, among other matter.I, the accuracy of certain representations and ,~on1pl"U.1n,x with ce,tain ,~ovenant.1, the intere.1t portion of the !nstalbnent Payment.I paid by the Authority under the Installment Purchase Agreement and received by the llolder.1 of the Certificates is excludedfron1 gross income for federal income tax purpo.1es under Se,~tion f ()3 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes, In the further opinion of Special Counsel. the interest portion of the Instalbnent Payments paid by the Authority under the Installment Purchase Agreement and received by the Holders of the Certificates is not a specific pre.f'erence item for purposes of the .federal individual or corporate alternative 1ninitnum taxes. although Special Counsel obsen•es that .1uch interest is in,~luded in adjusted current earnings when calculating corporate alternative minimum taxable incorne. Special Coun.1el e:>:.:pre.1se.1 no opinion regarding any other tax con.1equences related to the ownership or di.1position of, or the accrual or receipt of interest with respect to, the Cert{ficates. See "T.A.X MATTERS'' herein.

$320,615,000 CERTIFICATES OF PARTICIPATION

E-.,,idencing Undivided o,,,nership Interests of the Holders Thereof in Installment Payments to be Paid by the California Municipal Finance Authority

From Purchase Payments to be Received from

COMMUNITY HOSPITALS OF CENTRAL CALIFORNIA OBLIGATED GROUP Dated: Date of Delivery February 1, as set forth on the inside cover hereof

The above-referenced certificates (the ''Certificates") represent undivided ownership interests in the right to receive instalhnent payments (the "Installment Payments") to be paid by the California Municipal Finance Authority (the '·Authority'') under an Installlnent Purchase Agn•ernent dated as of May 1, 2007 (the ''Purchase Agreemenl"), mnong the Authorily. Comrnunity Hospitals of Central California. Fresno Cornmunit"y Hospital and Medical Center. Fresno Hean Hospital, LLC and Sierra Hospital Foundation \as further described herein, lhe ''Obligated C:i--roup"), which operale colleclively as Communily Medical Centers. The Inst.allrnentPay1nents are payable by the Authority solely from purchase payments (the ''Purchase Payments") to be paid by the Obligated Group pursuant to an Instalhnent Sale Agreement, dated as of May 1. 2007 (the ''Sale Agreement"), ainong the Authority and the Obligated Group. The Certificates v.·ill be executed and delivered pursuanl to a Tn1st Agreernent, dall~d as of May l, 2007 \lhe ''Trust Agreement"), an1ong the Authority, lhe Obligated C':rroup and The Bank of New York Trust Company, N. A., as lnJstee (the "Trustee"). The Obligaled Clroup will pay the Purchase Paymenls due under the Sale Agreement direclly to lhe Trustee in satisfaction of the Authority's obligation to pay Insu=tllrnent Payment<: under the Purchase Agreement The obligations of the Obligated Group to make payments pursuant to the Installment Sale Agreement will be further secured by Obligation No. 1 issued pursuant to the provisions of a Master Indenture of Tn1st, dated as of May 1, 2007, as supplernented and amended. an1ong lhe Obligated C:i--roup and The Bank of New York Trusl Company, N. A., as rnasler trustee.

The Certificates initially will be registered in the name of Cede & Co., as nominee of The Depository Tnist Company, New York, New York ("DTC" ), DTC will act as securities depository for the Certificates, and individual purchases of the Certificates v.·ill be made in book-entry fom1 only. Principal and interest due with respect to the Certificates will be payable by the Tnistee to Cede & Co., as registered Holder of the Cenificates. So long as Cede & Co. is the registered Holder of lhe Certificates, references herein to the Holder or regislered Holders of lhe Cert.ificales shall mean Cede & Co. and shall nol mean the beneficial owners of the Certificates. The Certificates will be delivered in denonlinations of $5,000 and integral multiples thereof. Interest due with respect to the Certificates will be payable senliannually on each Febniary 1 and August 1, commencing August 1, 2007, at the rates per annum set forth on the inside cover page.

The Cenificales are subject lo prepayment prior to their respective Certificate Payment Dates as described herein.

SEE MA TIJRITY SCHEDULE ON INSIDE FRONT COVER

TIIE OBLIGATION OF THE AUTHORITY TO MAKE INSTALLMENT PAYMENTS UNDER Tim INSTALLMENT PURCHASE AGREEIVmNT IS A LIMITED OBLIGATION OF Tim AUTHORITY, PAYABLE SOLELY FROM REVENUES (AS DEFINED HEREIN) CONSISTING PRIMARILY OF PURCHASE PAYMENTS IVL\DE BY THE OBLIGATED GROUP TO THE AUTHORITY UNDER THE INSTALLMENT SALE AGREEIVmNT. NEITHER THE OBLIGATION OF THE AUTHORITY TO MAKE Tim INSTALLMENT PAYIVmNTS NOR Tim CERTIFICATES CONSTITUTE A DEBT OF THE AUTHORITY, OF THE STATE OF CALIFORNIA, OR OF ANY POLITICAL SUBDIVISION TimREOF, INCLUDING, WITHOUT LIMITATION, nm JVmMllERS OF nm AUTHORITY, WITHIN nm MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. THE AUTHORITY HAS NO TAXING POWER.

This cover page contains infom1ation for general reference only. It is not intended as a sunnnary of this transaction. Investors are advised to read the entire Official Statement to obtain infom1ation essential to making an informed investJ.nent decision. A.n investtnent in the Certificates involves certain risks. See ''CERTIFICATEHOLDERS' RISKS" herein.

The Ce,tificate.1 are offered when. a.1 and ff received by the l]ndentiriter .. 1ubject to prior .1ale and to the approval of validity by Orrick, Iierrington & Sutcliffe LLP. Special Counsel to the Authority. Ce,tain other legal ,natters will be pas.1ed upon for the Obligated Group by it.1 special counsel, lifusick, Peeler & Garrett LLP, Lo.1 Angeles. California. for the l]rniern·riter by it.1 counsel, Squire, Sanders & Dempsey L.L.P., San Francisco. California and for the Authority by its special counsel, Fulbright & Jaworski, L.L.P., Los Angeles. California. It is expected that the Certificates in de,.finitivefonn will be available for delivery through the facilities of DTC on or about May 16, 2007.

CITI

May 2, 2007

Certificate Payment

Dates February 1

2008 2009 2010 2011 2012 2013 2014 2015

MATURITY SCHEDULE

Dated: Date of Delivery Due February 1, as sho.vn belo.v

$320,615,000

$57,670,000 Serial Certificates

Certificate Payment

Principal Interest Dates Principal Interest Amount Rate Yield cus1pi 11 February 1 Amount Rate Yield $2,645,000 5.000!6 4.120!6 13049?AA7 2016 $3,950,000 5.000!6 4.490!6 2,780,000 5.000 4.170 13049?AB5 2017 4,150,000 5.000 4.520 2,925,000 5.000 4.230 13049?AC3 2018 4,365,000 5.000 4.560* 3,075,000 5.000 4.290 130493'\Dl 2019 4,590,000 5.000 4.600* 3,235,000 5.000 4.360 13049?AE9 2020 4,825,000 5.000 4.640* 3,400,000 5.000 4.380 13049?AF6 2021 5,070,000 5.000 4.670* 3,575,000 5.000 4.410 13049?AG4 2022 5,330,000 5.000 4.700* 3,755,000 5.000 4.450 13049?AH2

$31,255,000 5.250!6 Term Certificates due February 1, 2027- Yield 4.740!6 * CUSI pill 130493'\RO $93,460,000 5.250!6 Term Certificates due February 1, 2037 - Yield 4.810!6 * CUSI pill 130493'\58

$138,230,000 5.250!6 Term Certificates due February 1, 2046- Yield 4.860!6 * CUSI pill 13049?AT6

*Yield calculated to first optional prepayment date, February 1, 2017.

(1) Copyright 20C6, Am::rican Bankers Asscx:iation. CUSI P® is a registered trademark of t~ Arrerican Bankers Association. CUSI P data herein are provided IJ,,i Stan:lard & Poor's, CUSI P Service Bureau, a division of T~ McGraw Hill Companies, Irr:. CUSIP num~rs have l:B::n assigrffl IJ,,i an in::le~n::lent company mt affiliated with t~Auth:Jrity or t~ Obligated Group an::l are irr::lu::led solely fort~ cot111enierr::e of t~ ITTlders oft~ Cettificates. Neit~r t~ Auth:Jrity mr the Obligated Group is resrx,nsible fort~ selection or uses of t~se CUSIP num~rs, and m representation is ma:le as to their correct~ss on the Cettificates or as in:licated ai:xJve. T~ CUSIP num~r for a sr:e::ific maturity is subject to ~itl'J char)'Jed after t~ execution an::l delivery oft~ Cettificates as a result of various subseq~nt a:::tions irr::lu::litl'J, but mt limited to, a refun:ling in wh:Jle or in part of su:::h maturity or as a result oft~ procurerrent of secon:laiy market rx,rtfolio insuran::::e or ot~r similar enhancerrent IJ,,i it111estors that is applicable to al I or a rx,rtion of certain maturities of the Certificates.

cus1pi 11

13049?AJ8 13049?AK5 13049?AL3 130493'\Ml 13049?AN9 13049?AP4 13049?AQ2

This Official Statement does not constitute an offer to sell the Certificates or the solicitation of an offer to buy the Certificates, nor shall there be any sale of the Certificates 0y any person in any state or other jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale in such state or jurisdiction. No dealer, salesman or any other person has been authorized to give any information or to make any representation other than those contained herein in connection with the offering of the Certificates and, if given or made, such information or representation must not be relied upon. The Underwriter has prCNided the follo.ving sentence for inclusion in this Official Statement The Underwriter has ra,ie.ved the information in this Official Statement in accordance with and as part of its responsibility 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.

The information set forth herein under the captions "THE AUTHORITY" and "ABSENCE OF MATERIAL LITIGATION," as it applies to the Authority, has been furnished 0y the Authority. All other information set forth herein has been obtained from the Members of the Obligated Group, DTC and other sources (other than the Authority) that are believed to be reliable, but the accuracy or completeness of such information is not guaranteed o,, and is not to be construed as a representation o,, the Authority or the Underwriter. The information and expressions of opinion herein are sul:Jject to change without notice, and neither the delivery of this Official Statement, nor any sale of Certificates made hereunder, shall under any circumstances create any implication that there has been no change in the affairs of the Authority, the Members of the Obligated Group or DTC si nee the date hereof.

IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

THE CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE TRUST AGREEMENT HAS NOT 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 CERTIFICATES IN ACCORDANCE WITH APPLICABLE PROVISIONS OF LAWS OF THE STATES IN WHICH CERTIFICATES 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 CERTIFICATES OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN

THIS OFFICIAL STATEMENT

Certain statements included or incorporated 0y reference in this Official Statement constitute "forwardlooking statements." Such statements generally are identifiable 0y the terrrinology 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 underthe captions "INTRODUCTION-Plan of Financing" and "PLAN OF FINANCING" in the forepart of this Official Statement and the statements contained under the caption "DESCRIPTION OF THE OBLIGATED GROUP-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL PERFORMANCE" in APPENDIX A.

The achievement of certain results or other expectations contained in such forward-looking statements involves kno.vn and unkno.vn risks, uncertainties and other factors that may cause actual results, performance or achia,ements described to be materially different from any future results, performance or achia,ements expressed or implied 0y such forward-looking statements. The Obligated Group does not plan to issue any updates or ra,isions to those forward-looking statements if or when its expectations or a,ents, conditions or circumstances on which such statements are based occur.

TABLE OF CONTENTS Page

INTRODUCTION ....................................................................................................................................................... 1 Purpose of this Official Statement ................................................................................................................. 1 CMCandtheObligatedGroup ..................................................................................................................... 1 Master I ndenture ........................................................................................................................................... 2 Installment Payments .................................................................................................................................... 2 Plan of Financing .......................................................................................................................................... 2 Certifcateholders' Risks ................................................................................................................................ 3 Continuing Disclosure ................................................................................................................................... 3 Availability of Documents ............................................................................................................................ 3

PLAN OF Fl NANCI NG .............................................................................................................................................. 3 SOURCES AND USES OF FUNDS ........................................................................................................................... 4 DEBT SERVICE REQUIREMENTS ......................................................................................................................... 5 THE AUTHORITY ..................................................................................................................................................... 6 THE OBLIGATED GROUP ....................................................................................................................................... 6 THE CERTIFICATES ................................................................................................................................................. 7

General ........................................................................................................................................................ 7 Prepayment .................................................................................................................................................... 7

SECURITY FOR THE CERTIFICATES .................................................................................................................... 9 General ........................................................................................................................................................ 9 Ra,enue Pledge Under the Trust Agreement .............................................................................................. 10 Certificate Reserve Fund ............................................................................................................................. 10 The Master Indenture .................................................................................................................................. 10 Limited Obligation of the Authority ............................................................................................................ 12 Limitations on Enforceability ...................................................................................................................... 12

CERTIFICATEHOLDERS' RISKS .......................................................................................................................... 14 General ...................................................................................................................................................... 14 Significant Risk Areas Highlighted ............................................................................................................. 15 Patient Service Revenues ............................................................................................................................ 17 Nonprofit Health Care Environment ........................................................................................................... 22 Regulatory Environment ............................................................................................................................. 23 Business Relationships and Other Business Matters ................................................................................... 28 Tax-Exempt Status of Interest on the Certificates ....................................................................................... 31 Construction Risks ...................................................................................................................................... 32 Other Risk Factors ....................................................................................................................................... 32

VERIFICATION OF MATHEMATICAL COMPUTATIONS ................................................................................ 33 RELATIONSHIPS AMONG PARTIES ................................................................................................................... 33 UNDERWRITING .................................................................................................................................................... 34 FINANCIAL ADVISOR ........................................................................................................................................... 34 TAX MA TIERS ....................................................................................................................................................... 34 CONTINUING DISCLOSURE ................................................................................................................................. 36 LEGAL MA TIERS .................................................................................................................................................. 37 ABSENCE OF MATERIAL LITIGATION .............................................................................................................. 37 RATINGS .................................................................................................................................................................. 37 CONSOLIDATED FINANCIAL STATEMENTS ................................................................................................... 37 MISCELLANEOUS .................................................................................................................................................. 37

APPENDIX A DESCRIPTION OF THE OBLIGATED GROUP ........................................................................ A-1 APPENDIX B AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS

ENDED AUGUST 31, 2006AND 2005 ...................................................................................... B-1 APPENDIX C SUMMARY OF PRINCIPAL DOCUMENTS ............................................................................. C-1 APPENDIX D PROPOSED FORM OF OPINION OF SPECIAL COUNSEL .................................................... 0-1 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT ........................................................ E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM ................................................................................................ F-1

-i -

OFFICIAL STATEMENT

$320,615,000 CERTIFICATES OF PARTICIPATION

Evidencing Undivided Ownership Interests of the Holders Thereof in Installment Payments to be Paid by the

California Municipal FinanceAuthority From Purchase Payments to be Received from

COMMUNITY HOSPITALS OF CENTRAL CALIFORNIA OBLIGATED GROUP

INTRODUCTION

The follo.ving introductory statement is subject in all respects to the more complete information set forth in this Official Statement The descriptions and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive and are qualified in their entirety 0y reference to each document. All capitalized terms used in this Official Statement and not otherwise defined herein in APPENDIX C have the same meaning as in the Master Indenture or the Sale Agreement (each as defined belo.v). See APPENDIX C - "SUMMARY OF PRINCIPAL DOCUMENTS-DEFINITIONS OF CERTAIN TERMS"

Purpose of this Official Statement

This Official Statement is prCNided to furnish information in connection with the offering of $320,615,000 aggregate principal amount of the awe-referenced (the "Certificates"). The Certificates will be executed and delivered pursuant to and secured 0y the Trust Agreement (the "Trust Agreement"), dated as of May 1, 2007, among the California Municipal Finance Authority (the "Authority"), Community Hospitals of Central California ("CHCC"), Fresno Community Hospital and Medical Center ("FCH"), Fresno Heart Hospital, LLC ("Heart Hospital"), Sierra Hospital Foundation ("S HF") and The Bank of Ne.v York Trust Company, N.A., as trustee (the "Trustee''). CHCC, FCH, Heart Hospital and SHF are referred to herein collectively as the "Obligated Group'' or "Members" of the Obligated Group, and each individually is sometimes referred to herein as a "Member." The Certificates evidence undivided o.vnership interests of the registered holders thereof (the "Holders'') in certain installment payments (the "Installment Payments'') to be made 0y the Authority pursuant to the Installment Purchase Agreement (the "Purchase Agreement"), dated as of May 1, 2007, among the Authority and the Members of the Obligated Group. Installment Payments are payable 0y the Authority solely from and to the extent of purchase payments ("Purchase Payments") paid 0y the Obligated Group pursuant to the Installment Sale Agreement (the "Sale Agreement"), dated as of May 1, 2007, among FCH, as purchaser, the other Members of the Obligated Group, as co-obligors, and the Authority.

Pursuant to the Purchase Agreement, FCH will sell to the Authority an interest in certain specified property o.vned 0y FCH (collectively, the "Facilities"), in consideration for which the Authority has agreed to make Installment Payments. Simultaneously there.vith, the Authority will sell the Facilities back to FCH pursuant to the Sale Agreement in consideration for which the Obligated Group will make Purchase Payments to the Authority. Pursuant to the Sale Agreement, the Purchase Payments must be made in amounts sufficient to pay, when due, the Installment Payments evidenced 0y the Certificates.

CMC and the Obligated Group

Community Medical Centers is the business name used 0y the group of entities comprising the comprehensive health care organization described herein. Community Medical Centers' operations include three acute care hospitals and two skilled nursing facilities, a fundraising foundation and other ancillary medical service pr01iders.

The Obligated Group consists of CHCC, FCH, Heart Hospital and SHF. The Obligated Group does not include any other entity within the Community Medical Centers group of entities. The Members of the

Obligated Group are the sole obligors with respect to the Certificates and Obligation No. 1. No other entity within Community Medical Centers is obligated with respect to the Certificates or Obligation No. 1.

See "THE OBLIGATED GROUP" herein and APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP" for additional inform1tion about the Obligated Group and the operations of Community Medical Centers. The audited consolidated financial statements of Community Medical Centers for the fiscal years ended August 31, 2006and 2005 are includedasAPPENDIX B hereto.

Master Indenture

In order to further secure the Obligated Group's obligation under the Sale Agreement to m1ke Purchase Payments in amounts sufficient to pay, when due, the Installment Payments a,idenced 0y the Certificates, CHCC, acting on its o.vn behalf and on behalf of the other Members of the Obligated Group (the "Obligated Group Representative") will execute and deliver to the Trustee Obligation No. 1 ("Obligation No. 1"), dated the date of execution and delivery of the Certificates, which will be issued under and pursuant to an Master Indenture of Trust (the "Master Indenture of Trust''), dated as of May 1, 2007, among the Members of the Obligated Group and The Bank of New York Trust Company, NA, as master trustee (in such capacity, the "Master Trustee''), as supplemented 0y the Supplemental Master Indenture of Trust for Obligation No. 1 (the "Supplemental Indenture No. 1"), dated as of May 1, 2007, between the Obligated Group Representative and the Master Trustee. The Master Indenture of Trust as so supplemented and as further supplemented from time to time is hereinafter referred to as the "Master Indenture." Obligation No. 1 will be a joint and sa,eral obligation of the Obligated Group and will entitle the Trustee, as the holder of Obligation No. 1, to the protection of the cCNenants, restrictions and other obligations imposed upon the Obligated Group under the Master Indenture. Pursuant to the Master Indenture, additional Members m1y join the Obligated Group and Members m1y withdraw from the Obligated Group upon compliance with the terms of the Master Indenture.

For a description of the Master Indenture of Trust and the Supplemental Indenture No. 1, see "SECURITY FOR THE CERTIFICATES-The Master Indenture" herein and APPENDIX C-"SUMMARY OF PRINCIPAL DOCUMENTS-MASTER INDENTURE OF TRUST" and "-SUPPLEMENTAL MASTER INDENTURE OF TRUST FOR OBLIGATION NO. 1."

Except forthe security interest granted to the Master Trustee 0y the Obi igated Group in Col lateral, which includes Gross Revenues and the proceeds thereof, described belo.v under "SECURITY FOR THE CERTI Fl CATES-The Master Indenture-Pledge of Collateral," the Certificates are not secured 0y any mortgage of or security interest in any real or personal property of any Members of the Obligated Group.

Installment Payments

THE AUTHORITY'S OBLIGATION TO MAKE INSTALLMENT PAYMENTS IS A LIMITED OBLIGATION, PAYABLE SOLELY FROM REVENUES (AS DEFINED IN APPENDIX C-"SUMMARY OF PRINCIPAL DOCUMENTS-DEFINITIONS OF CERTAIN TERMS"), CONSISTING PRIMARILY OF THE PURCHASE PAYMENTS REQUIRED TO BE MADE BY THE OBLIGATED GROUP. NEITHER THE OBLIGATION OF THE AUTHORITY TO MAKE THE INSTALLMENT PAYMENTS NOR THE CERTIFICATES CONSTITUTE A DEBT OF THE AUTHORITY, OF THE STATE OF CALIFORNIA, OR OF ANY POLITICAL SUBDIVISION THEREOF, INCLUDING, WITHOUT LIMITATION, THE MEMBERS OF THE AUTHORITY, WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. THE AUTHORITY HAS NO TAXING POWER.

Plan of Financing

The proceeds to be received from the sale of the Certificates will be used to: (i) refinance certain existing indebtedness of the Obligated Group incurred in connection with financing the acquisition, construction, imprCNement, expansion and equipping of the hospital and medical facilities o.vned and/or operated 0y the Obligated Group; (ii) finance the acquisition, construction, imprCNement, expansion and equipping of certain

2

portions of the hospital and medical facilities o.vned and/or operated 0y the Obligated Group; and (iii) fund a certificate reserve fund; and (iv) pay the costs of delivery associated with the Certificates. See "THE PLAN OF FINANCING" and "ESTIMATED SOURCES AND USES OF FUNDS" herein.

C ertifcateholders' Risks

There are a nurrlier of risks associated with the purchase of the Certificates. See "CERTIFICATE HOLDERS' RISKS" herein for a discussion of certain of these risks.

Continuing Disclosure

The Authority has deterrrined that no financial or operating data concerning the Authority is material to an evaluation of the offering of the Certificates or to any decision to purchase, hold or sell Certificates and the Authority will not prCNide any such information. Pursuant to Rule 15c2-12 promulgated 0y the Securities and Exchange Cornrrission (the "Rule'') and the hereinafter-defined Continuing Disclosure Agreement, the Obligated Group has undertaken all responsibilities for any continuing disclosure to holders of Certificates, and the Authority shall have no liability to the holders of the Certificates or any other person with respect to the Rule. The Merrliers of the Obligated Group, on behalf of themselves and any future Merrliers of the Obligated Group, will enter into a Continuing Disclosure Agreement, dated the date of delivery of the Certificates (the "Continuing Disclosure Agreement") for the benefit of the holders of the Certificates to prCNide certain information annually and quarterly and to prCNide notice of certain a,ents to certain information repositories pursuant to the requirements of Rule. See "CONTINUING DISCLOSURE" herein. A forrn of the Continuing Disclosure Agreement is set forth in APP EN DIX E hereto.

Availability of Documents

The descriptions and summaries of various documents set forth in this Official Statement do not purport to be conclusive or definitive and reference is made to each such document for the complete details of all terms and conditions hereof. Further descriptions of the Master I ndenture, the Trust Agreement, the Purchase Agreement and the Sale Agreement are set forth in APPENDIX C hereto. All references herein to the Certificates, Obligation No. 1, Supplemental Indenture No. 1, the Master Indenture, the Continuing Disclosure Agreement, the Trust Agreement, the Purchase Agreement, the Sale Agreement and the Escro.v Agreement are qualified in their entirety 0y such documents, copies of which are available frorn the Underwriter prior to the execution and delivery of the Certificates and thereafter may be exam ned or obtained at the expense of the person requesting the same at the corporate trust office of the Trustee in San Francisco, California. Information relating to The Depository Trust Company (" DTC") and the book-€ntry only system has been furnished 0y DTC.

PLAN OF Fl NANCI NG

The proceeds to be received frorn the sale of the Certificates wi II be used to (a) prepay (i) the Central CaliforniaJoint Po.vers Health Financing Authority Certificates of Participation (Community Hospitals of Central California Project), Series 1993 (the "Refunded 1993 Certificates") $69,215,000 of which is currently outstanding; (ii) the Central California Joint Po.vers Health Financing Authority Certificates of Participation (Cornrnunity Hospitals of Central California Prqject), Series 2000 (the "Refunded 2000 Certificates"), $121,230,000 of which is currently outstanding; (iii) the Central California Joint Po.vers Health Financing Authority Certificates of Participation (Community Hospitals of Central California Prqject), Series 2001 (the "Refunded 2001 Certificates"), $62,990,000 of which is currently outstanding; (iv) the California Statewide Cornrnunities Da,elopmentAuthority Ra,enue Notes (Cornrnunity Hospitals of Central California) Series 2004 A (the "Refunded 2004 A Notes''), $3,247,214 of which is currently outstanding; and (v) certain outstanding capital lease obligations in the amount of $10, 167,390 (the "Refunded Leases'' and together with the Refunded 1993 Certificates, the Refunded 2000 Certificates, the Refunded 2001 Certificates and the Refunded 2004 A Notes, the "Refunded Debt"); (b) finance a portion of the capital expansion program described in APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP-CAPITAL EXPANSION PROGRAM AND THE PROJECT," (the "Prqject''); (c) fund a certificate reserve fund; and (d) pay certain costs of execution and delivery of the Certificates. See "SOURCES AND USES OF FUNDS" and "SECURl1Y FOR THE CERTIFICATES-Certificate Reserve Fund" herein.

3

In order to prepay the Refunded 1993 Certificates, the Refunded 2000 Certificates and the Refunded 2001 Certificates (collectively, the "Refunded Certificates"), a portion of the proceeds of the Certificates will be deposited with The Bank of Ne.v York Trust Company, N .A., as escro.v trustee (the "Escro.v Agent"), under the Escro.v Agreement, dated as of May 1, 2007 (the "Escro.v Agreement"), among the Central CaliforniaJ oint Po.vers Health Financing Authority, CHCC, FCH SHF and the Escro.v Agent Such proceeds will be invested in noncallable direct obligations of, or obligations that the principal of and interest on are unconditionally guaranteed t,,,, the United States of America (collectively, the" Escro.v Securities''), the principal of and interest on which will be sufficient to pay the principal of, prerriurn, if any, and interest on the Refunded Certificates to and including their earliest prepayment date and to prepay the Refunded Certificates on their earliest prepayment date. See "VERI FICA Tl ON OF MATHEMATICAL COMPUTATIONS" herein. Upon deposit of such funds pursuant to the Escro.v Agreement, the Refunded Certificates wi II be considered no longer outstanding underthe trust agreement applicable to the Refunded Certificates.

SOURCES AND USES OF FUNDS

The follo.ving table sets forth the estimated sources and uses of funds with respect to the execution and delivery of the Certificates:

Sources of Funds

Principal Amount of the Certificates .......................................... . A mounts transferred frorn funds and accounts established with

respect to portions of the Refunded Debt ............................... . Original Issue Prerniurn .............................................................. .

Total Sources

Uses of Funds

Prepay the Refunded Debt .......................................................... . Deposit to Project Fund111 ........................................................... . Deposit to the Certificate Reserve Fund ..................................... . Costs of Delivery121 ..................................................................... .

Total Uses

$320,615,000.00

21,760,611.60 10, 107,470.35

$352,483,001.95

$279,465,888.30 49,400,857.56 19,270,gs7.50 4,345,348.59

$352,483,001.95

1,1 Includes only Project costs financed frorn the proceeds of the Certificates. Amounts needed to pay additional costs of the Capital Expansion Prograrn(as defined herein), otherthan costs being paidfrornthe proceeds of the Certificates, are expected to be prCNided through operating cash and other sources. See APPENDIX A"DESCRIPTION OF THE OBLIGATED GROUP-CAPITAL EXPANSION PROGRAM AND THE PROJECT."

1,1 Includes legal and accounting fees, Underwriter's discount, printing costs, rating agency fees and miscellaneous other expenses of delivery.

4

DEBT SERVICE REQUIREMENTS

The follo.ving table sets forth, for each fiscal year of the Obligated Group (currently ending each August 31), the amounts required for payment of the Certificates, when due (rounded to the nearest dollar).

Year Ending Principal Interest August 31 Component Component Total

2007 $ $ 3,476,690 $ 3,476,690 2008 2,645,000 16,621,988 19,266,988 2009 2,780,000 16,486,363 19,266,363 2010 2,925,000 16,343,738 19,268,738 2011 3,075,000 16, 193,738 19,268,738 2012 3,235,000 16,035,988 19,270,988 2013 3,400,000 15,870,113 19,270, 113 2014 3,575,000 15,695,738 19,270,738 2015 3,755,000 15,512,488 19,267,488 2016 3,950,000 15,319,863 19,269,863 2017 4,150,000 15, 117,363 19,267,363 2018 4,365,000 14,904,488 19,269,488 2019 4,590,000 14,680,613 19,270,613 2020 4,825,000 14,445,238 19,270,238 2021 5,070,000 14, 197,863 19,267,863 2022 5,330,000 13,937,863 19,267,863 2023 5,610,000 13,657,350 19,267,350 2024 5,915,000 13,354,818 19,269,818 2025 6,235,000 13,035,881 19,270,881 2026 6,570,000 12,699,750 19,269,750 2027 6,925,000 12,345,506 19,270,506 2028 7,295,000 11,972,231 19,267,231 2029 7,690,000 11,578,875 19,268,875 2030 8, 105,000 11, 164,256 19,269,256 2031 8,540,000 10,727,325 19,267,325 2032 9,000,000 10,266,900 19,266,900 2033 9,485,000 9,781,668 19,266,668 2034 10,000,000 9,270,188 19,270, 188 2035 10,535,000 8,731,143 19,266, 143 2036 11, 105,000 8,163,093 19,268,093 2037 11,705,000 7,564,331 19,269,331 2038 12,335,000 6,933,281 19,268,281 2039 13,000,000 6,268,237 19,268,237 2040 13,700,000 5,567,362 19,267,362 2041 14,440,000 4,828,687 19,268,687 2042 15,220,000 4,050, 112 19,270, 112 2043 16,040,000 3,229,537 19,269,537 2044 16,905,000 2,364,731 19,269,731 2045 17,815,000 1,453,331 19,268,331 2046 18,775,000 492,843 19,267,843

Total $320,615,000 $434,341,571 $754,956,571

5

THE AUTHORITY

U nderTitle 1, Division 7, Chapter 5 of the California Go;ernment Code (the "J PA Act"), certain California cities, counties and special districts have entered into a joint exercise of po.vers agreement (the "J PA Agreement") forrring the Authority for the purpose of exercising po.vers cornrnon to the members and to exercise the additional po.vers granted to the Authority 0y theJ PA Act and any other applicable pro;isions of California law. Under the J PA Agreement, the Authority m1y issue bonds, notes or any other a,idence of indebtedness, for any purpose or activity permitted undertheJ PA Act or any other applicable law.

The Authority m1y sell and deliver obligations other than the Certificates. These obligations will be secured 0y instruments separate and apart frorn the Trust Agreement, the Purchase Agreement and the Sale Agreement and the holders of such other obligations of the Authority will have no claim on the security for the Certificates. Like.vise, the Holders of the Certificates will have no claim on the security for such other obligations that m1y be issued 0y the Authority.

Neither the Authority nor its independent contractors has furnished, revie.ved, irNestigated or verified the inform1tion contained in this Official Statement other than the inform1tion contained in this section and the section entitled "ABSENCE OF MATERIAL LITIGATION," as it applies to the Authority. The Authority does not and will not in the future monitor the financial condition of the Obligated Group or otherwise monitor payment of the Certificates or compliance with the documents relating thereto. Any cornrritrnent or obligation for continuing disclosure with respect to the Certificates or the Obligated Group has been undertaken solely 0y the Obligated Group.See"CONTINUING DISCLOSURE" herein.

THE OBLIGATEDGROUP

The follo.ving is a brief description of the activities and structure of the Obligated Group. For a more detailed description of the Obligated Group, see APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP." The audited consolidated financial statements of CHCC and the affiliates of CHCC listed in the notes to such financial statements (which include the Members of the Obligated Group and certain entities that are not members of the Obligated Group) were audited 0y KPMG LLP for the respective periods described therein. See APPENDIX B-"AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED AUGUST 31, 2006AND 2005." After the execution and delivery of the Certificates and the prepayment of the Refunded Debt, the Obi i gated G roup wi 11 have $327,676, 507 in aggregate principal amount of I ong-terrn debt outstanding. Such long-terrn debt of the Obligated Group includes the Certificates, various notes and capital leases and a line of credit with an available amount of $12,480,000. At the time of execution and delivery of the Certificates, the balance on the line of credit will be $0.

The Obligated Group is comprised of CHCC, FCH and SHF, each of which is a California nonprofit public benefit corporation, and Heart Hospital, a California limited liability company, whose sole member is FCH. The Members of the Obligated Group collectively currently operate three acute care hospitals (collectively, "The CMC Hospitals'') and two skilled nursing facilities ("The Skilled Nursing Facilities"), as listed belo.v.

The CMC Hospitals:

Cornrnunity Regional Medical Center ("CRMC") (o.vned facility) Clo;is Community Medical Center (o.vned facility) Fresno Heart and Surgical Hospital (o.vned facility)

The Skilled Nursing Facilities:

Cornrnunity Living Center- Fresno (o.vned facility) Davitt Subacute and Skilled Nursing Center (leased facility)

The Members of the Obligated Group comprise some, but not all, of the corporations and operating entities of Cornrnunity Hospitals of Central California, dba Community Medical Centers (collectively, "CMC"). CMC is the business name used 0y the group of entities comprising the comprehensive health care organization whose

6

operations include The CMC Hospitals, The Skilled Nursing Facilities, a fundraising foundation and other ancillary medical service prCNiders. For a more detailed description of CMC and the Obligated Group, see APPENDIX A"DESCRI PTION OF THE OBLIGATED GROUP."

THE CERTIFICATES

General

The Certificates will be executed and delivered in fully registered form only, in denorrinations of $5,000 or any integral multiple thereof, will be transferable and exchangeable as set forth in the Trust Agreement and, when executed and delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"). DTC will act as securities depository forthe Certificates. Ownership interests in the Certificates may be purchased in book-entry form only. See APPENDIX F-"BOOK-ENTRY ONLY SYSTEM."

The Certificates will be dated the date of delivery, and are payable as to principal on the dates and in the amounts set forth on the inside cCNer of this Official Statement. Interest with respect to the Certificates will be payable at the rates set forth on the inside cCNer of this Official Statement on February 1 and August 1 in each year (each a "Payment Date''), commencing August 1, 2007, so long as any Certificate is Outstanding.

Interest with respect to the Certificates will be paid to the person whose name appears on the certificate registration books of the Trustee as the Holderthereof as of the close of business on the Record Date (which will be the 15th day of the month immediately preceding the Payment Date) for each Payment Date, such interest to be paid 0y check mailed on each Payment Date to such Holder at its address as it appears on such registration books, or at the written request of any Holder of at least $1,000,000 in aggregate principal amount of Certificates, subrritted to the Trustee at least one business day prior to the Record Date, 0y wire transfer to an account designated 0y the Holder within the United States. As long as Cede & Co. is the Holder of all of the Certificates, interest payments shall be made 0y the Trustee 0y wire transfer to DTC in immediately available funds. The principal with respect to the Certificates wi 11 be payable at the Corporate Trust Office of the Trustee.

Prepayment

Optional Prepayment. The Certificates maturing on or after February 1, 2018 are subject to prepayment prior to their respective stated maturities (each a "Certificate Payment Date") on and after February 1, 2017, as a whole or in part on any date, in such amounts and of such Certificate Payment Dates and Mandatory Sinking Account Payment Dates, respectively, as may be specified 0y the Authorized Representative (as defined in the Sale Agreement) (or if the Authorized Representative fails to designate such Certificate Payment Dates and Mandatory Sinking Account Payment Dates, in inverse order of Certificate Payment Dates), and 0y lot among Certificates with the same Certificate Payment Date, at the option of the Authority (which shall be exercised as directed in writing 0y the Authorized Representative, which direction must be received 0y the Trustee at least 45 days (or such shorter period as agreed to in writing 0y the Trustee) prior to the prepayment date), from moneys derived from optional prepayments of Installment Payments 0y the Authority and deposited in the Optional Prepayment Account or from any other source of available funds, at the par amount thereof, without prepayment premium, pl us accrued interest to the date fixed for prepayment.

Extraordinary Prepayment. The Certificates are subject to prepayment prior to their respective stated Certificate Payment Dates as a whole or in part on any date, in such amounts and of such Certificate Payment Dates, respectively, as may be specified 0y the Authorized Representative (or if the Authorized Representative fails to designate such Certificate Payment Dates, in inverse order of Certificate Payment Dates), at the option of the Authority (which shall be exercised as directed in writing 0y the Authorized Representative which direction must be received 0y the Trustee at least 45 days (or such shorter period as agreed to in writing 0y the Trustee) prior to the prepayment date), from certain insurance proceeds and condemnation awards at the principal amount and interest accrued with respect thereto to the date fixed for prepayment without premium

7

Mandatory Prepayment. The Certificates having a Certificate Payment Date of February 1, 2027 are also subject to prepayment prior to their stated Certificate Payment Date, in part, 0y lot, from Mandatory Sinking Account Payments deposited in the Sinking Account established therefor on February 1, 2023 and on each February 1 thereafter through and including February 1, 2027, at the principal amount and interest accrued with respect thereto to the date fixed bel o.v for prepayment without prerri um.

February 1, 2023 2024 2025

tMaturity.

Mandatory Sinking Account Payment

$5,610,000 5,915,000 6,235,000

February 1, 2026 2027t


$6,570,000 6,925,000

The Certificates having a Certificate Payment Date of February 1, 2037 are also subject to prepayment priorto their stated Certificate Payment Date, in part, 0y lot, from Mandatory Sinking Account Payments deposited in the Sinking Account established therefor on February 1, 2028 and on each February 1 thereafter through and including February 1, 2037, at the principal amount and interest accrued with respect thereto to the date fixed belo.v for prepayment without premium.

February 1, 2028 2029 2030 2031 2032

tMaturity.


$7,295,000 7,690,000 8,105,000 8,540,000 9,000,000

February 1, 2033 2034 2035 2036 2037t


$ 9,485,000 10,000,000 10,535,000 11,105,000 11,705,000

The Certificates having a Certificate Payment Date of February 1, 2046 are also subject to prepayment priorto their stated Certificate Payment Date, in part, 0y lot, from Mandatory Sinking Account Payments deposited in the Sinking Account established therefor on February 1, 2038 and on each February 1 thereafter through and including February 1, 2046, at the principal amount and interest accrued with respect thereto to the date fixed belo.v for prepayment without premium.

February 1, 2038 2039 2040 2041 2042

tFinal m1turity.


$12,335,000 13,000,000 13,700,000 14,440,000 15,220,000

February 1, 2043 2044 2045 2046t


$16,040,000 16,905,000 17,815,000 18,775,000

Notice of Prepayment; Effect of Prepayment. Notice of prepayment shall be m1iled 0y first-class m1il 0y the Trustee, not less than 30 days and not more than 60 days prior to the prepayment date, to the respective Holders of any Certificates designated for prepayment at their addresses appearing on the registration books of the Trustee and the I nform1tion Services. The Certificates (or portions thereof) so called for prepayment shall become due and payable at the Prepayment Price specified in such notice, together with the interest accrued on such Certificates. Interest with respect to Certificates so called for prepayment shall cease to accrue from and after the prepayment date, such Certificates (or portions thereof) shall cease to be entitled to any benefit or security under the Trust Agreement, and the Holders of such Certificates shall have no rights in respect thereof except to receive payment of

8

the Prepayment Price and accrued interest to the prepayment date specified in such notice. The failure 0y the Trustee to m1il notice of prepayment to any one or more of the Holders of any Certificates designated for prepayment shall not affect the sufficiency of the proceedings for the prepayment of the Certificates with respect to the Holder or Holders to whom such notice was m1i led.

With respect to any notice of optional prepayment of Certificates delivered pursuant to the Trust Agreement, unless, upon the giving of such notice the Certificates shall be deemed to have been paid within the meaning of the Trust Agreement, such notice shall state that such prepayment shall be conditional upon the receipt 0y the Trustee on or prior to the date fixed for such prepayment of amounts sufficient to pay the principal components of, the premium, if any, and interest component with respect to, such Certificates to be prepaid, and that if such amounts shall not have been so received said notice shall be of no force and effect and the Authority shall not be required to prepay such Certificates. In the a,ent that such notice of prepayment contains such a condition and such amounts are not so received, the prepayment shall not be m1de, and the Trustee shall within a reasonable time thereafter give notice to the Holders to the effect that such amounts were not so received and such prepayment was not m1de, such notice to be given 0y the Trustee in the m1nner in which the notice of prepayment was given.

SECURITY FOR THE CERTIFICATES

General

Each Certificate represents an undivided proportionate o.vnership interest in the Installment Payments to be m1de 0y the Authority under the Purchase Agreement. The Authority' s obi i gations underthe Purchase Agreement, including its obligation to m1ke Installment Payments, are lirrited obligations of the Authority and are payable solely from Revenues, consisting prim1rily of Purchase Payments received 0y the Trustee, as assignee of the Authority, from the Obligated Group pursuant to the Sale Agreement. See "-Lirrited Obligation of the Authority" belo.v. To the extent the Authority receives payments under the Sale Agreement or other such funds are available therefor, the obligation of the Authority to m1ke Installment Payments is absolute and unconditional.

Under the Sale Agreement, the Obligated Group is obligated to m1ke Purchase Payments in amounts equal to the Installment Payments (and, thus, the principal, prerrium, if any, and interest components with respect to the Certificates). Substantially all of the Authority's rights underthe Sale Agreement and the Obligated Group's rights under the Purchase Agreement have been assigned to the Trustee for the benefit of the Holders of the Certificates.

Under the Trust Agreement, the Authority and the Obligated Group appoint the Trustee to hold and disburse moneys paid to the Trustee under the Purchase Agreement and the Sale Agreement, to execute, deliver and adrrinister the Certificates, to apply and disburse debt service payments to the Holders of the Certificates and to perform certain other duties. The Trustee in turn accepts such appointment under the terms of the Trust Agreement.

Concurrently with the delivery of the Certificates, the Obligated Group Representative will execute and deliver, pursuant to the Master Indenture, Obligation No. 1 to the Trustee, pursuant to which the Obligated Group agrees to m1ke payments to the Trustee in amounts sufficient to pay, when due, the principal, premium, if any, and interest represented 0y the Certificates. See "-The Master Indenture'' belo.v. Notwithstanding uncertainties (described belo.v under "-Limitations on Enforceability") with respect to the enforceability of the cCNenants in the Master Indenture of each Member of the Obligated Group to be jointly and sa,erally liable for each Obligation, the accounts of the Members of the Obi i gated G roup wi II be combined for financial reporting purposes and wi 11 be used in deterrrining whether the cCNenants and financial tests contained in the Master Indenture are met

Payments on the Certificates are not secured by a mortgage or pledge of any property of the Obligated Group or any other person (other than the security interest in Collateral to the extent described in "-The Master I ndenture--Security Interest in Collateral" herein belo.v and in APPENDIX C-"SUM MARY OF PRINCIPAL DOCUMENTS-MASTER INDENTURE OF TRUST -Particular CCNenants of the Members-Gross Revenue Fund"), and are payable solely from Purchase Payments and payments made by the Obligated Group pursuanttoObligation No. 1.

9

For a description of the prCNisions of the Trust Agreement, the Sale Agreement, the Purchase Agreement and the Master Indenture, including cCNenants that secure payments with respect to the Certificates, see APPENDIX C-"SUMMARY OF PRINCIPAL DOCUMENTS."

Ra,enue Pledge Under theTrustAgreement

In order to secure the payment of the principal and interest components with respect to the Certificates under the Trust Agreement, there are pledged to the Trustee all of the interest of the Authority and the Obligated Group in the Ra,enues and any other amounts (including proceeds of the sale of the Certificates) held in any fund or account established pursuant to the Trust Agreement, excepting only moneys in the Rebate Fund. The term "Revenues" is defined to mean all amounts received by the Authority or the Trustee for the account of the Authority underthe Trust Agreement pursuant or with respect to the Sale Agreement or Obligation No. 1, including, without limitation, Installment Payments (including both timely and delinquent payments, any late charges, and regardless of source), prepayments, insurance proceeds, condemnation proceeds, and all interest, profits or other income derived from the investment of amounts in any fund or account established pursuant to the Trust Agreement but not including any Adrrinistrative Fees and Expenses or amounts received or on deposit in the Rebate Fund or any amounts paid with respect to rights of indemnification.

Certificate Reserve Fund

A Certificate Reserve Fund shall be established concurrently with the delivery of the Certificates, which Certificate Reserve Fund is required to be maintained at the Certificate Reserve Requirement. The "Certificate Reserve Requirement" means, as of any date of calculation, an amount equal to the least of: (i) Maximum Annual Certificate Service for the Certificates; (ii) 125% of average annual debt service with respect to the Certificates; and (iii) 10)6 of the initial offering price of the Certificates to the public.

The Trust Agreement prCNides that the Certificate Reserve Requirement may be satisfied in whole or in part by deposits of letters of credit, surety bonds and pr insurance policies made in accordance with the terms of the Trust Agreement. The initial deposit to the Certificate Reserve Fund will be made from the proceeds of the Certificates. The Obligated Group may substitute an authorized reserve fund facility for such moneys at any time and in the sole discretion of the Obligated Group. See APPENDIX C-"SUMMARY OF PRINCIPAL DOCUMENTS-TRUST AGREEMENT-Funds and Accounts-Application of Certificate Reserve Fund" herein.

The Master Indenture

J ointand Sa,eral Obligations. U nderthe Master Indenture, the Obligated Group Representative, acting on behalf of the Obligated Group, may execute and deliver obligations (each, an "Obligation" and collectively, the "Obligations") to a,idence or secure the incurrence of indebtedness or for other lawful and proper corporate purposes. All Members of the Obligated Group are jointly and sa,erally liable with respect to the payment of Obligations issued under the Master Indenture. See "APPENDIX C-SUMMARY OF PRINCIPAL DOCUMENTS-MASTER INDENTURE OF TRUST-General."

Obligation No. 1. Concurrently with the execution and delivery of the Certificates, the Obligated Group Representative, acting on behalf of the Obligated Group, will execute and deliver Obligation No. 1 to the Trustee in order to evidence of the obligation of the Obligated Group to pay the Purchase Payments. All Members of the Obligated Group are required to make Purchase Payments in amounts sufficient to pay the Installment Payments, when due.

Security Interest in Collateral. Pursuant to the Master Indenture, to secure payment of all Obligations, each Member of the Obligated Group, to the extent perrritted by law, grants to the Master Trustee a security interest (subject to Permitted Liens) in the Collateral, which includes Gross Ra,enues and the proceeds thereof, and the Gross Ra,enue Fund. "Gross Ra,enues'' is defined in the Master Indenture as "all revenues, income, receipts and money received by each Member, including: (a) gross ra,enues collected from its operations and possession of and pertaining to its properties; (b) gifts, grants, bequests, donations and contributions, exclusive of any gifts, grants, bequests, donations and contributions to the extent specifically restricted by the donor to a particular purpose

10

inconsistent with their use for the payment of Required Payments or the payment of operating expenses; (c) proceeds derived from (i) condemnation proceeds, ( ii) accounts receivable, (iii) securities and other investments, ( iv) inventory and other tangible and intangible property, (v) medical reimbursement programs and agreements, (vi) insurance proceeds, and (vii) contract rights and other rights and assets no.v or hereafter o.vned, held or possessed 0y or on behalf of any Member; and (d) rentals received from the lease of office space." "Gross Revenues" do not include securities or other investments o.vned 0y the Members of the Obligated Group. In addition, the enforceability, priority and perfection of the security interest in the Collateral may be limited 0y a number of factors, or may be subordinated to the interests and claims of others in certain circumstances, as discussed under "Limitations on Enforceability" belo.v.

Pursuant to the Master Indenture and subject to the pr01isions of the Master Indenture permitting the application of Collateral for the purposes and upon the terms and conditions set forth therein, each Member of the Obligated Group shall, so long as any Obligation remains Outstanding, deposit all of its Gross Ra,enues as soon as practicable upon receipt with a depository bank or banks, in a fund designated as the "Gross Revenue Fund." Amounts in the Gross Ra,enue Fund may be used and withdrawn 0y the Members of the Obligated Group at any time and for any lawful purpose unless any Member is delinquent for more than one Business Day in the payment of any Required Payment and such delinquency is not cured within the time period specified in the Master Indenture. See APPENDIX C-"SUMMARY OF PRINCIPAL DOCUMENTS-MASTER INDENTURE OF TRUSTParticular CCNenants of the Members-Gross Ra,enue Fund."

For information with respect to the Obligated Group and the Gross Revenues generated 0y the Obligated Group, see APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP" and APPENDIX B-"AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED AUGUST 31, 2006AND 2005."

No real property of the Obligated Group and no personal property (other than Collateral as described herein) of the Obligated Group will be pledged to secure the Obligated Group's obligations with respect to the Certificates or Obligation No. 1.

Additional Indebtedness and Liens. Subject to certain requirements set forth in the Master Indenture, Members of the Obligated Group may incur additional Indebtedness and other obligations under certain circumstances, which may, but need not, be a,idenced or secured 0y additional Obligations under the Master Indenture. See the information in APPENDIX C "SUMMARY OF PRINCIPAL DOCUMENTS-MASTER INDENTURE OF TRUST -Particular CCNenants of the Members-Limitation on Indebtedness."

Members of the Obligated Group may not create, assume or suffer to exist any Lien upon their Property, except Perrritted Liens. Permitted Liens include Liens (a) on accounts receivable securing Indebtedness in an amount not exceeding 20!6 of the Obligated Group's net accounts receivables and (b) on Property, including, without !irritation, Liens on cash and securities deposited 0y an Obligated Group Member pursuant to a security annex or sirrilar document to collateralize obligations of such Member under a Financial Products Agreement, prCNided that at the time of creation of such Lien the Value (calculated as prCNided in the Master Indenture) of all Property of the Obligated Group that is encumbered 0y such Liens does not exceed 20!6 of net Property, Plant and Equipment of the Obligated Group Members, as sho.vn on the audited financial statements of the Obligated Group for the most recent fiscal year available at the time of creation of such Lien. A complete list of Permitted Liens under the Master Indenture is set forth in APPENDIX C- "SUMMARY OF PRINCIPAL DOCUMENTSMASTER INDENTURE OF TRUST-Particular CCNenants of the Members-Against Encumbrances."

Merger, Consolidation, Sale or Conveyance. Under the Master Indenture, a Member of the Obligated Group may merge into, or consolidate with, or sell, transfer, assign or otherwise convey all or substantially al I of its Property to any Person who is not a Member of the Obligated Group upon compliance with the prCNisions of the Master Indenture summarized underthe caption APPENDIX C-"SUMMARY OF PRINCIPAL DOCUMENTSMASTER INDENTURE OF TRUST-Particular CCNenants of the Members-Merger, Consolidation, Sale or Conveyance." This could, in certain circumstances, lead to substantial changes to the current cCNenant restrictions on the Obligated Group in connection with the Certificates or the substitution of different security for the Certificates. The ne.v obligor could have substantial debt outstanding that is entitled to security in addition to that prCNided for the benefit of the Certificates.

11

Financial Information. The financial information contained in APPENDIX A and APPENDIX B hereto includes certain financial information of each Merrlier of the Obligated Group, as well as the financial information concerning Comnunity Hospitals of Central California Foundation, Community Health Enterprises, Inc. and Advanced Medical Imaging, which are not Members of the Obi igated Group and which are not obi igated to pay debt service on the Certificates or Obligation No. 1. Financial information of Merrliers of the Obligated Group could in the future include revenues and assets of additional Persons who are not Merrliers of the Obligated Group, who would not be obligated to pay debt service on the Certificates or any Obligations, including Obligation No. 1, and whose ra,enues and assets would not be available to be applied to payment of the Certificates or any Obligations, including Obligation No. 1. See APPENDIX A-"INFORMATION CONCERNING THE OBLIGATED GROUP-HISTORICAL FINANCIAL INFORMATION" and the consolidated audited financial statements in APP EN DIX B hereto.

The foregoing notwithstanding, the Master Indenture pr01ides that the financial information upon which the various calculations under the Master Indenture will be based may include financial results of Immaterial Affiliates, in addition to Members of the Obligated Group. See APPENDIX C-"SUMMARY OF PRINCIPAL DOCUMENTS-MASTER INDENTURE OF TRUST-Particular CCNenants of the Merrliers-Preparation and Filing of Financial Statements, Reports and Information."

Other PrCNisions of the Master Indenture. If an Event of Default occurs, it is uncertain that the Trustee could obtain a remedy on behalf of the Holders of the Certificates adequate to prCNide full and timely payment of the Certificates. See"-Limitationson Enforceability" belo.v.

Limited Obligation of the Authority

The obligation of the Authority to make Installment Payments does not constitute a debt of the Authority, the Members of the Authority, the State of California, or any political subdivision of the State of California within the meaning of any constitutional or statutory !irritation. The Authority's obligations under the Purchase Agreement, including its obi i gati ons to make I nstall ment Payments, are Ii mited obi i gations of the Authority and are payable solely from Ra,enues (consisting primarily of Purchase Payments payable 0y the Obligated Group under the Sale Agreement).

THE OBLIGATION OF THE AUTHORITY TO MAKE INSTALLMENT PAYMENTS UNDER THE PURCHASE AGREEMENT IS A LIMITED OBLIGATION OF THE AUTHORITY, PAYABLE SOLELY FROM REVENUES, AS DEFINED HEREIN (CONSISTING PRIMARILY OF PURCHASE PAYMENTS MADE BY THE OBLIGATED GROUP UNDER THE SALE AGREEMENT). NEITHER THE OBLIGATION OF THE AUTHORITY TO MAKE THE INSTALLMENT PAYMENTS NOR THE CERTIFICATES CONSTITUTE A DEBT OF THE AUTHORITY, THE MEMBERS OF THE AUTHORITY OR THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING, WITHOUT LIMITATION, THE CITY OF CLOVIS OR THE CITY OF FRESNO, WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. THE AUTHORITY HAS NO TAXING POWER.

Limitations on Enforceability

Bankruptcy. In the a,ent of bankruptcy of any Merrlier of the Obligated Group, the rights and remedies of the Holders are subject to various prCNisions of the federal Bankruptcy Code. If a Member were to file a petition in bankruptcy, payments made 0y such 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 allo.v the recipients thereof to receive more than they would have received in the a,ent of such entity's liquidation. Security interests and other liens granted to 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 such Member and its property and as an automatic stay of any act or proceeding to enforce a lien upon or to otherwise exercise control CNer such property, as well as various other actions to enforce, maintain or enhance the rights of the Master Trustee. If the bankruptcy court so ordered, the property of such Member, including accounts receivable and proceeds thereof, could be used for the financial

12

rehabilitation of such Member despite any security interest of the Master Trustee therein. The rights of the Master Trustee to enforce its security interests and other liens could be delayed during the pendency of the rehabilitation proceeding.

A Member of the Obligated Group could file a plan forthe adjustment of its debts in any such proceeding, which could include pro;isions 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 kno.vledge of the plan and, with certain exceptions, discharges all claims against the debtorto the extent pro;ided for in the plan. No plan m1y be confirmed unless certain conditions are met, among which conditions are 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 m1y 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 discrirrinate unfairly.

In addition, the obligations of the Members of the Obligated Group to pay debt service on the Certificates is not secured by a lien on or security interest in any assets or ra,enues of the Obligated Group, other than Collateral and the lien on certain funds and accounts held by the Trustee under the Trust Agreement. Except with respect to such security interest in Collateral and the pledge of such funds and accounts under the Trust Agreement, in the a,ent of a bankruptcy of the Obligated Group, Holders would be unsecured creditors and would be in an inferior position to any secured creditors and on a parity basis with al I other unsecured creditors.

In the event of bankruptcy of Obligated Group, there is no assurance that certain co;enants, including tax co;enants, contained in the Sale Agreement or other documents would survive. Accordingly, a bankruptcy trustee could take action that would adversely affect the exclusion of interest on the Installment Payments a,idenced by the Certificates from gross income for federal income tax purposes.

Security Interest in Collateral. The enforceability, priority and perfection of the security interest granted by the Members of the Obligated Group in its Collateral m1y be lirrited by a number of factors, or be subordinated to the interest and claims of others. Some examples of such factors and cases of subordination or prior claims are (i) statutory liens, (ii) rights arising in favor of the United States of America or any agency thereof, (iii) present or future prohibitions against assignment in any federal statutes or regulations, (iv) constructive trusts, equitable liens or other rights impressed or conferred by any state or federal court in the exercise of its equitable jurisdiction, (v) federal or State bankruptcy or insolvency laws that m1y affect the enforceability of the Master Indenture or of the security interest of Collateral and (vi) rights of third parties, and in some instances, the Members of the Obligated Group, in Collateral constituting cash or instruments and not in the possession of the Master Trustee or the its agent. In addition, it m1y not be possible to perfect a pledge in any m1nner whatsoa,er in certain types of Collateral (e.g., gifts, donations, certain insurance proceeds and Medicare or Medi-Cal payments) prior to actual receipt by a Member for deposit in the Gross Revenue Fund. See APPENDIX C-"SUMMARY OF PRINCIPAL DOCUMENTS-MASTER INDENTURE OF TRUST-Particular Co;enants of the Members-Gross Ra,enue Fund."

Risks Related to Master Indenture Financings; Fraudulent Transfer or Conveyance Statutes. It is possible that the joint and sa,eral obligations of a Member to m1ke payments under Obligations in respect of moneys used by another Member m1y be avoided in an action brought by creditors of the first Member pursuant to California's fraudulent conveyance statutes or m1y be avoided for the benefit of other creditors by a debtor or trustee in bankruptcy in the event of the bankruptcy of such Member. Depending upon whether the federal Bankruptcy Code or California's fraudulent conveyance statutes are applicable, an obligation m1y be avoided if (a) the obligation was incurred without receipt by the Member of "fair consideration" or "reasonably equivalent value," and (b) the obligation renders the Member "insolvent," as such terms are defined under the applicable statute. Interpretation by the courts of the tests of "insolvency," "reasonably equivalent value'' and "fair consideration" has resulted in a conflicting body of case law. For example, joint and several obligation under the Master Indenture to pay all Obligations issued thereunder, including payments in respect of funds used for the benefit of other Members, m1y be held to be a "transfer" which m1kes such Members" insolvent," in the sense that the total amount due under all Obligations could be considered as causing liabilities to exceed its assets. Also, a Member m1y be deemed to have received less than "fair consideration" for its joint and sa,eral obligation because only a portion of the proceeds of the Certificates are to be used to finance facilities occupied or used by a Member.

13

While a Member rray benefit generally from facilities financed with proceeds of the Certificates for the other Members, the actual cash value of this benefit rray be less than the value of the Member's joint and several obi i gati on.

In addition, Members that are nonprofit corporations rray be held 0y a court to be subject to a charitable trust which prohibits payments in respect of obligations incurred 0y or for the benefit of others. Such a determination rray be rrade if the Member rraking the payments has insufficient assets rerraining to carry out its o.vn charitable functions or, under certain circumstances, if the obligation paid was incurred for purposes inconsistent with or beyond the scope of the charitable purposes of the Member which rrade the payment.

Enforceability of the Sale Agreement, the Purchase Agreement, the Trust Agreement and the Master Indenture. The legal right and practical ability oftheTrusteetoenforce rights and remedies under Sale Agreement, the Purchase Agreement and the Trust Agreement, and of the Master Trustee to enforce remedies under the Master Indenture, rray be lirrited 0y laws relating to bankruptcy, insolvency, reorganization, fraudulent conveyance or moratorium and 0y other sirrilar laws affecting creditors' rights and 0y application of equitable principles. In addition, enforcement of such rights and remedies will depend upon the exercise of various remedies specified 0y such documents, which, in rrany instances, rray require judicial actions that are subject to discretion and delay, that otherwise rray not be readily available orthat rray be limited 0y certain legal principles.

The various legal opinions delivered concurrently with the delivery of the Certificates will be qualified as to the enforceability of the various legal instruments 0y !irritations imposed 0y State and federal laws, rulings, policy and decisions affecting remedies and 0y bankruptcy, reorganization or other laws of general application affecting the enforcement of creditors' rights or the enforceability of certain remedies or document prCNisions.

CERTIFICATEHOLDERS' RISKS

The purchase of the Certificates involves investment risks that are discussed throughout this Official Statement. Prospective purchasers of the Certificates should a,al uate al I of the inf orrration presented in this Official Statement. This section on Certificateholders' Risks focuses prirrarily on the general risks associated with the operations and activities of hospitals and health care systems; whereas APPENDIX A describes CMC and the Obligated Group specifically and APPENDIX B contains financial statements of CMC. These should be read together. This discussion is not intended to be comprehensive or definitive, but rather is to sumrrarize certain rratters which could affect payment of the Certificates.

General

The principal component and interest component of the Installment Payments represented 0y the Certificates are payable solely from Ra,enues, consisting prirrarily of Purchase Payments required to be rrade 0y the Obligated Group. No representation or assurance can be rrade that income will be realized 0y the Obligated Group in amounts sufficient to rrake the Purchase Payments, when due and, thus, to pay the principal and interest components of the Certificates. Any of the risk factors described in the Official Statement rray affect the Obligated Group's income and impair its ability to rrake Purchase Payments and thus to satisfy the obligation of the Authority to rrake the Installment Payments a,idenced 0y the Certificates. There can be no assurance that the financial condition or operations of the Obligated G roupwill not be adversely affected 0y any of these or other factors.

The Obligated Group is subject to a wide variety of federal and State regulatory actions and legislative and policy changes 0y those gCNernmental agencies and private entities that adrrinister the Medicare and Medi-Cal (Medicaid) programs and 0y private entities that adrrinister other payment arrangements. The Obligated Group is subject to actions o,, among others, the Centers for Medicare and Medicaid Services ("CMS"), the U.S. Department of Health and Hurran Services ("DHHS"), the National Labor Relations Board, TheJ oint Comrrission (formerly kno.vn as the Joint Comrrission on Accreditation of Healthcare Organizations), and other federal, state and local gCNernmental agencies.

The future financial condition of the Obligated Group and its affiliates could be adversely affected o,, among other things: changes in the method and amount of payments to the Obi igated Group and its affi I iates 0y

14

g01ernmental payors, nongo;ernmental payors, the financial viability of these payors, increased corrpetition frorn other health care entities, the costs associated with responding to go;ernmental i nqui ri es and investigations, demmd for health and medical care, changes in the methods by which errpl0yers purchase health care for ernpl0yees, capability of m1nagement, volatility on income frorn investments and contributions, future changes in the economy, demographic changes, availability of physicians and nurses and m1lpractice claims and other litigation. These factors and others m1y adversely affect payment by the Obligated Group under the Sale Agreement and Obligation No. 1 and, consequently, on the Certificates.

Set forth belo.v is a lirrited discussion of certain of the risks affecting the Obligated Group and its ability to pay the Certificates. Investors should recognize that the discussion belo.v does not co;er all such risks, that payment pr01isions and regulations and restrictions on hospitals change frequently and that additional m1terial payment I irritations and regulations or restrictions m1y be created, irrplemented or expanded while the Certificates are Outstanding.

Significant Risk Areas Highlighted

Certain of the prim1ry risks associated with the operations of the Obligated Group are briefly highlighted in general terms belo.v and are explained in greater detail in subsequent sections. The occurrence of one or rnore of these and other risks could have a m1terial adverse effect on the financial conditions and results of operations of the Obligated Group, and in turn, the ability of the Obligated Group to m1ke the Purchase Payments and thus to satisfy the obligation of the Authority to m1ke the Installment Payments a,idenced by the Certificates.

Reliance on Go;ernment Payors. Hospitals and health care systems rely to a high degree on ra,enues frorn Medicare and Medicaid. Medicare and Medicaid are the commonly used names for reimbursement or payment programs go;erned by certain pro;isions of the federal Social Security Act Future changes in the underlying law and regulations, as well as in payment policy and tirring, create uncertainty and could have a m1terial adverse impact on hospitals' payments frorn Medicare and Medicaid. With health care and hospital spending reported to be increasing faster than the rate of general inflation, Congress or CMS m1y take action in the future to decrease or restrain Medicare and Medicaid outlays for hospitals.

Managed Care Exposure. Certain hospital m1rkets, including the communities served by the Obligated Group, are strongly impacted by m1naged care. In these areas, m1naged care companies have significant bargaining po.ver o;er hospital rates, utilization and competition. Rate pressure imposed by m1naged care payors m1y have a m1terial adverse impact on hospitals, particularly if errpl0yer groups and other m1jor purchasers put increasing pressure on pay ors to restrain rate increases.

Nonprofit Health Care Environment. Recently, an increasing number of the operations or practices of health care pro;iders have been challenged or questioned to determine if they are consistent with the regulatory requirements that apply to nonprofit tax-€Xerrpt organizations. Areas that have come under exarrination have included pricing practices, billing and collection practices, charitable care, executive compensation, "excess benefit transactions'' with insiders and exerrption of property frorn real property taxation. These challenges and questions have come frorn a variety of sources, including state attorneys general, the Internal Ra,enue Service (the "I RS"), labor unions, Congress, state legislatures and patients, and in a variety of forums, including hearings, audits and litigation. The challenges and exam nations and any resulting legislation, regulations, judgments or penalties could have a m1terial adverse effect on nonprofit hospitals and other nonprofit health care pro;iders.

Capital Needs vs. Capital Capacity. Hospitals and other health care operations are capital intensive. Regulation, technology and physician/patient expectations require constant and often significant capital investment. In California, seismic requirements m1ndated by the State of California require that m1ny hospital facilities be substantially modified, replaced or closed. Nearly all hospitals in California are affected. Estim1ted construction costs are substantial and actual costs of construction m1y exceed estim1tes. Total capital needs m1y exceed capital capacity.

Construction Risks. Construction projects are subject to a variety of risks, including but not lirrited to delays in issuance of required building permits or other necessary appro;als or perrrits, including environmental appro;als, strikes, shortages of m1terials and awerseweather conditions. Such a,ents could delay occupancy. Cost

15

CNerruns m1y occur due to change orders, delays in the construction schedule, scarcity of ski I led trade labor, scarcity of building m1terials and other factors. Cost CNerruns could cause the costs to exceed available funds. See APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP-CAPITAL EXPANSION PROGRAM AND THE PROJECT."

State Medi-Cal (Medicaid) Program. The Medi-Cal program often pays hospitals at la,els that are belo.v the actual cost of the care prCNided. As Medi-Cal is partially funded t,,, the State, the financial condition of the State m1y result in lo.ver funding la,els and/or payment delays. This could have a m1terial adverse impact on hospitals.

General Economic Conditions; Bad Debt and Indigent Care. Econorric do.vnturns and lo.ver funding of the Medicare and Medi-Cal programs m1y increase the number of patients treated t,,, hospitals who are uninsured or otherwise unable to pay for some or all of their care. These conditions m1y give rise to increased bad debt and higher indigent care uti Ii zati on. These factors m1y have a m1terial adverse impact on hospitals.

G CNernment "F raud" Enforcement. "Fraud" in gCNernment funded health care programs is a significant concern of DHHS, CMS and m1ny states and is one of the federal gCNernment's prime law enforcement priorities. The federal gCNernment and, to a lesser degree, state gCNernments impose a wide variety of extraordinarily complex and technical requirements intended to pra,ent CNer-utilization based on economic inducements, rrisallocation of expenses, CNercharging 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 0/ersight, physician contracting and recruiting, cost allocation, clinical trials, discounts and other functions and transactions.

Violations and alleged violations m1y be deliberate, but also frequently occur in circumstances where m1nagement is unaware of the conduct in question, as a result of rristake, or where the individual participants do not kno.v that their conduct is in violation of law. Violations m1y occur and be prosecuted in circumstances that do not have the traditional elements off raud, and enforcement actions m1y extend to conduct that occurred in the past. The gCNernment periodically conducts widespread investigations cCNering categories of services or certain accounting or billing practices.

Violations and Sanctions. The gCNernment and/or private "whistleblo.vers" often pursue aggressive investigative and enforcement actions. The gCNernment m1y impose a wide array of civil, crirrinal 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 m1y have a m1terially adverse impact on hospital operations, financial condition and reputation. Multi-million dollar fines and settlements are common. These risks are generally uninsured. GCNernment enforcement and private whistleblo.ver suits m1y increase in the hospital sector.

Per son nel S hortage. Currently, a shortage of physicians, nurses and other technical personnel exists which m1y have its prim1ry impact on hospitals. Various studies have predicted that this shortage will become more acute CNer time and gro.v to significant proportions. In California, State regulation of nurse staff ratios will likely intensify the shortage of nursing personnel. Hospital operations, patient and physician satisfaction, financial condition and future gro.vth could be negatively affected t,,, physician, nursing and other technical personnel shortages, resulting in m1terial adverse impact to hospitals.

Labor Costs and Disruption. Hospitals are labor intensive. Labor costs, including salary, benefits and other liabilities associated with the workforce, have significant impact on hospital operations and financial condition. Hospital empl0yees are increasingly organized in collective bargaining units and m1y be involved in work actions of various kinds, including work stoppages and strikes. Overall costs of the hospital workforce are high, and turnCNer is high. Pressure to recruit, train and retain qualified empl0yees is expected to accelerate. These factors m1y m1terially increase hospital costs of operation. Workforce disruption m1y negatively impact hospital ra,enues and reputation.

Technical and Clinical Da,elopments. Ne.v clinical techniques and technology, as well as ne.v pharm1ceutical and genetic da,elopments and products, m1y alter the course of medical diagnosis and treatment in

16

ways that are currently unanticipated, and that rray drarratically change medical and hospital care. These could result in higher hospital costs, reductions in patient populations andpr ne.v sources of corrpetition for hospitals.

Costs and Restrictions from Go;ernmental Regulation. Nearly a,ery aspect of hospital operations is regulated, in some cases 0y multiple agencies of go;ernment The level and complexity of regulation are increasing, bringing with it operational limitations, enforcement and liability risks, and significant and sometimes unanticipated cost impacts.

Proliferation of Corrpetition. Hospitals increasingly face competition from specialty pro;iders of care and free-5tanding outpatient facilities, such as diagnostic irraging centers and ambulatory surgery centers. This rray cause hospitals to lose essential inpatient or outpatient rrarket share. Competition rray be focused on services or payor classifications where hospitals realize their highest rrargins, thus negatively affecting programs that are econorrically important to hospitals. These ne.v sources of competition rray have rraterial adverse impact on hospitals, particularly where a group of a hospital's principal physician adrritters rray curtail their use of a hospital service in favor of corrpetitor facilities. The gro.ving consumer mo;ement for pricing transparency rray also adversely impact hospitals' charging structure.

Pension and Benefit Funds. As large empl0yers, hospitals rray incur significant expenses to fund pension and benefit plans for empl0yees and former empl0yees, and to fund required workers' compensation benefits. Funding obligations in some cases rray be erratic or unanticipated and rray require significant comrritments of available cash needed for other purposes.

Ne.v Accounting Standards. On September 29, 2006, the Financial Accounting Standards Board ("FASB ") issued Statement No. 158, Empl0yers' Accounting for Defined Benefit Pension and Other Postretirement Plans (an amendment of FAS B Statements No. 87, 88 1 CX5 and 132R). The issuance of Statement No. 158 rrarks the completion of the first phase of FAS B's comprehensive project to impro;e the accounting and disclosure for defined benefit pension and other postretirement plans. The ne.v standard requires an empl0yer to (i) recognize in its balance sheet an asset or a liability for a plan's o;erfunded or underfunded status, as applicable, (ii) measure a plan's funded status as of the end of the empl0yer's fiscal year, and (iii) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. The requirements to recognize the funded status of a benefit plan and to pro;ide the required disclosures are effective for fiscal years ending after December 15, 2006 (for entities with publicly traded equity securities and after June 15, 2007 for all other entities), and the measurement date requirement is effective for fiscal years ending after December 15, 2008.

Medical Liability Litigation and Insurance. Medical liability litigation is subject to public policy deterrrinations and legal procedural rules that rray be altered from time to time, with the result that the frequency and cost of such litigation, and resultant liabilities, rray increase in the future. Hospitals rray be affected 0y negative financial and liability impacts on physicians. Costs of insurance, including self-insurance, rray increase drarrati cal ly.

Facility Darrage. Hospitals are highly dependent on the condition and functionality of their physical facilities. Darrage from earthquake, other natural causes, fire, deliberate acts of destruction, or various facilities system fai I ures rray have a rraterial adverse impact on hospital operations and financial status.

Patient Service Ra,enues

The Medicare Program. Medicare is the federal health insurance system under which hospitals and other health care pro;iders are paid for services pro;ided to eligible elderly and disabled persons. Medicare is adrrinistered 0y CMS, which delegates to the states the process for certifying hospitals to which CMS will rrake payment. In order to achia,e and rraintain Medicare certification, hospitals must meet CMS's "Conditions of Participation" on an ongoing basis. Compliance is deterrrined 0y the state, but hospitals accredited 0y TheJoint Comrrission are deemed compliant. The requirements for Medicare certification are subject to change, and, therefore, it rray be necessary for hospitals to effect changes from time to time in their facilities, equipment, personnel, billing, policies and services to address such changing requirements.

17

The Obligated Group's hospitals are Medicare-certified and forthe fiscal years ended August 31, 2005 and August 31, 2006, Medicare, inclusive of regular Medicare, Medicare Managed Care and Senior Capitation, represented approximately 27*, and 24% , respectively, of the Obi igated G roup' s net patient service ra,enue for such year. See APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP-SUMMARY OF FINANCIAL INFORMATION-Summary of Operating Results-5ources of Net Ra,enue."

In December of 2003, the Medicare Prescription Drug, lmprCNement and Modernization Act of 2003 ("MMA") was enacted. MMA's significant changes included, without !irritation, the expansion of outpatient prescription drug cCNerage through the creation of a voluntary prescription drug benefit, the replacement of the Medicare Plus Choice managed care program with a ne.v program, Medicare Advantage, that offers additional health plan options, modifications to cCNerage and payment for various prCNiders under traditional fee.for-5ervice Medicare, changes to combat waste, fraud and abuse, and reforms to regulatory procedures.

Hospital Inpatient Payments. Hospitals are generally paid a pre-deterrrined payment amount for inpatient services pr01ided to Medicare beneficiaries based on diagnosis-related groups ("DRGs"). The principal diagnosis and principal procedure determine DRG assignment. The DRG rate cCNers all care prCNided to a beneficiary during an inpatient stay. The actual cost of prCNiding care, including capital costs, may be more or less than the DRG reimbursement rate. DRG rates are subject to adjustments 0y CMS and are subject to federal budget considerations. There is no guarantee that DRG rates, as they change from time to time, will cCNer actual costs of prCNiding services to Medicare patients.

The Deficit Reduction Act of 2005 ("DRA"), Pub. L. 109-171, Pub. L. 109-171, enacted February 8, 2006, made a number of changes to the DRG system In regulations implementing the DRA, CMS instituted revisions to the prospective payment system to weight DR Gs based on hospital costs rather than charges, thereo, reducing the impact of hospital pricing practices on the DRG weights. The methodology will be phased-in CNer 3 years. During federal fiscal year ("FY") starting October 1, 2007, one-third of the DRG weight will be based on the ne.v methodology, while two-thirds of the weight will be based on the old methodology. During FY 2008 two-thirds of the DRG weight will be based on the ne.v methodology and one-third on the old methodology, and in FY 2009, CMS will use only cost-based weights.

CMS also announced its plan to better account for sa,erity of illness within the DRG system For FY 2007, CMS will create 20 ne.v DRGs in an effort to pay more accurately for different la,els of severity. The reforms are intended to more accurately reflect the costs of services prCNided 0y hospitals. By no later than 2000, CMS is proposing to replace the current 526 DRGs with a system of "sa,erity-adjusted' DRGs developed in response to public comments CMS is soliciting ncm. In other areas, the DRA regulations set the outlier threshold at $24,475 in FY 2007, which is $875 more than FY 2006.

The individual or collective impact of these changes cannot be deterrrined at this time. Additional actions 0y the federal gCNernment in future years affecting Medicare cCNerage and payment may occur.

Hospital Outpatient and Other Services. Hospitals are also paid a pre-deterrrined payment amount for most outpatient services based upon ambulatory payment classification ("APC") groups. An APC group includes various services and procedures deterrrined to be similar. On NCNember 1, 2006, CMS issued a final rule for Medicare payment for hospital outpatient services in calendar year ("CY") 2007 that expanded quality reporting requirements for hospital inpatient services and the list of services for which Medicare will make payment to ambulatory surgical centers in 2007. As prCNided 0y statute, the rule includes a 3.4% market basket update to Medicare payment rates for services paid under the hospital Outpatient Prospective Payment System ("OPPS") for CY 2007. CMS estimates that hospitals will receive an CNerall average increase of 3.0!6 in Medicare payments for outpatient department services in 2007 due to the changes in this final rule. While the market basket update accounts for increases in the costs of prCNiding a service, much of the grONth in outpatient spending results from increases in utilization and complexity (volume and intensity).

The APC payment, which bases payment on APC groups rather than on individual services, may not be sufficient to cCNer the actual costs of the outpatient services. Medicare payment for skilled nursing services, psychiatric services, inpatient rehabilitation services, and home health services are based on regulatory formulas or pre-deterrri ned rates.

18

Part D Drug Benefit. Beginning January 1, 2006, the MMA implemented a m1jor expansion of the Medicare program through the introduction of a prescription drug benefit under ne.v Medicare Part D. Medicare beneficiaries, who elect Part D cCNerage and are dual eligible, will be enrolled autom1tically in Part D and will have their outpatient prescription drug costs cCNered by this ne.v Medicare benefit, subject to certain limitations. Accordingly, Medicaid will no longer be a significant payor for the prescription pharm1cy services prCNided to these residents. Medicaid wi II continue as a significant pay or for CNer-the-counter medications.

Inpatient Rehabilitation Facilities (" I RF s"). I RFs are free-standing rehabilitation hospitals and rehabilitation units in acute care hospitals. They prCNide an intensive rehabilitation program and patients who are adrritted must be able to tolerate three hours of intense rehabilitation services per day. These facilities are exempt from the Medicare Hospital PPS and are paid underthe I RF Prospective Payment System ("IRF PPS"). In orderto be paid under the IRF PPS, the facility must submit the IRF-PAI (patient assessment instrument). There is no guarantee that these rates, as they m1y change from time to time, will be adequate to cCNer the actual cost of prCNiding these services to Medicare patients.

Skilled Nursing Facilities ("SNFs"). Medicare reimburses SNFs for long-term care services at a predeterrri ned rate, based on the anticipated costs of treating patients. U nder this system, reimbursement rates are deterrrined by classifying each patient into a resource utilization group ("RUG"), a category that is based upon each patient's acuity la,el. Medicare currently prCNides for an annual adjustment of the various RUG payment rates, based upon the increase or decrease of the medical care expenditure category of the Consumer Price Index, which m1y be less than actual inflation. This adjustment will be 3.1% for 2007, but it could be elirrinated or reduced in any given year. EffectiveJ anuary 1, 2006, there are caps on the amount that Medicare Part B will pay for outpatient physical and speech language therar,, and occupation therar,,. Despite certain exceptions, these caps m1y result in decreased dem1nd for rehabilitation therar,, services for beneficiaries whose therar,, is reimbursed under Part B. On February 8, 2006, President Bush signed into law the DRA. The DRA prCNided exceptions to the rehabilitation therar,, caps. The exceptions were set to expire December 31, 2006 but were extended for an additional year by the Tax Relief and Health Care Act of 2006. It is uncertain whether the exceptions will be extended past calendar year 2007.

Medi-Cal, the state-adrrinistered medical assistance program for the indigent reimburses SNFs for longterm care services for individuals who are Medicaid eligible and qualify for institutional care. Medi-Cal reimbursement rates are generally lo.ver than reimbursement prCNided by Medicare. There is no guarantee that these rates, as they m1y change from time to time, will be adequate to cCNer the actual cost of prCNiding these services to Medicare patients. Given that Medi-Cal outlays are a significant component of State budgets, the Obligated Group expects continuing cost containment pressures on Medicaid outlays for SNF services. DHHS has established a Medicaid awisory comrrission charged with recommending ways Congress can reduce Medicaid spending gro.vth and restructure the program The commission issued a final report on December 29, 2006, which m1de a number of recommendations including changes in public policy, Medicaid benefit packages, Medicaid eligibility, ne.v health inform1tion technology goals and quality and care coordination.

Medicare Advantage. The MMA renamed the Medicare Plus choice program "Medicare Advantage'' ("MA") and created ne.v regional PPOs, "special needs plans" for dual eligibles, the institutionalized, or those with severe and disabling conditions, and ne.v private drug plans that went into effect in January 2006. MA plans are generally required to prCNide all Medicare-cCNered benefits. Plans with costs belo.v their Medicare payments must distribute savings to beneficiaries as lo.ver plan premiums and co--payments, additional benefits, or a reduction in Part B premiums; or plans can contribute to a reserve fund.

Medi-Cal Program. Medicaid is the joint state-federal assistance program for certain qualifying individuals and their dependants operated by individual states with the financial participation of the federal gCNernment. Medi-Cal is the California program of medical assistance, fundedjointiy by the federal gCNernment and the State of California. The federal gCNernment prCNides substantial funding to the Medi-Cal program, so long as it meets federal standards. Attempts to balance or reduce the federal budget and/or California's budget will likely negatively impact Medi-Cal spending.

For each of the fiscal years ended August 31, 2005 and August 31, 2006, the Obligated Group received approxim1tely 22% of net patient service ra,enues from Medi-Cal programs for such year. See APPENDIX A-

19

"DESCRIPTION OF THE OBLIGATED GROUP-SUMMARY OF FINANCIAL INFORMATION-Sumnary of Operating Results-Sources of Net Revenue."

Under a five-year federal Medicaid waiver apprCNed 0y CMS in 2005, the State selectively contracts with hospitals to prCNide acute inpatient services to Medi-Cal patients. The financial irrpact of selective contracting on a particular hospital depends upon a variety of factors, such as the base contract rates, whether a hospital qualifies as a disproportionate share hospital, the availability of supplemental payments for disproportionate share hospitals and an individual hospital's ability to control costs.

Generally, such selective inpatient contracting is made on a negotiated per diem payment basis, and such payment rates historically have not increased in direct relation to inflation or pr01ider costs. Medi-Cal payments for inpatient hospital services are also subject to an aggregate state.vide upper payment lirrit, under which aggregate payments to non-public hospitals may not exceed the aggregate amount which would have been paid if Medicare payment principles were utilized. Additionally, the total Medi-Cal payments to an individual hospital for inpatient hospital services for any fiscal period may not exceed that hospital's customary charges for the services. Medi-Cal payments for outpatient hospital services are based on fee schedules set 0y the State.

Generally, the State or the contracting hospitals may terrrinate Medi-Cal contracts upon 120 days' prior written notice. The State also may terrrinate these contracts without notice under certain circumstances and is obligated to make contractual payments only to the extent the State legislature appropriates adequate funding therefor.

Disproportionate Share Hospital Replacement Payments Under S .B. 1100. In 2005, the State legislature enacted the "Medi-Cal Hospitalil)ninsured Care Demonstration Project Act," also kno.vn as S.B. 1100, to ra,ise hospital inpatient reimbursement methodologies under the 2005 federal Medicaid waiver. Private hospitals such as The CMC Hospitals operated 0y the Obligated Group are eligible to receive payments funded from the State's General Fund and matching federal funds. Funding hence is subject to State and federal appropriation. These payments, called disproportionate share replacement payments under S.B. 1100, are made to hospitals that have disproportionately higher costs, volume or services related to the prCNision of services to Medi-Cal or other lo.vincorne patients than the statewide average. The non-federal portion of disproportionate share hospital replacement payments (approximately 50!6) is funded through annual appropriations from the State General Fund. Disproportionate share payments are often the target of Medi-Cal payment reductions. Qualification for disproportionate share hospital replacement funds under S.B. 1100 is deterrrined annually. Disproportionate share payments are extremely volati I e and uncertain.

Supplemental Payments for Private Hospitals Under S.B. 1100. S.B. 1100 prCNides additional funding to disproportionate share hospitals pr01iding emergency and outpatient services to Medi-Cal beneficiaries. Such payments are supplemental contract payments under the Medi-Cal selective contracting program payable from the Private Hospital Supplemental Fund, which is funded through discretionary annual appropriations from the State's General Funds, federal financial participation, and other gCNernmental sources including voluntary intergCNernmental transfers. Supplemental payments are often the target of Medi-Cal payment reductions. Qualification for supplemental payments is determined annually. Such payments are extremely volatile and uncertain.

Historically, The CMC Hospitals have qualified as disproportionate share hospitals and, as such, have been el igi bl e from yearto year to receive funding underthe State' s predecessor disproportionate share hospital programs. There can be no assurance that such qualification will continue. See APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP-SUMMARY OF FINANCIAL INFORMATION-Sumnary of Operating ResultsSources of Net Ra,enue."

State Children's Health Insurance Program. The State Children's Health Insurance Program ("SCHI P") isjointiy financed 0y the federal and state gCNernments and adrrinistered 0y the states. It is an insurance program for children whose farrilies exceed the income threshold for Medicaid eligibility, but yet cannot afford commercial health insurance. Within broad federal guidelines, each state deterrrines the design of its program, eligibility groups, benefit packages, payment la,els for cCNerage and adrrinistrative and operating procedures. A SCHIP program can either be part of a state's Medicaid program, or a completely separate state program. California has

20

implemented a SCHI P program SCHI P prCNides a capped arrount of funds to states on a m1tching basis for federal fiscal years 1998 through 2007.

While generally considered to be beneficial for both patients and prCNiders 0y reducing the number of uninsured children, it is difficult to assess the fiscal impact of SCHIP on the payments to the Obligated Group because each state must periodically subrrit its SCHIP plan to the CMS for review to deterrrine if it meets the federal requirements. If it does not meet the federal requirements, a state can lose its federal funding for its program. Finally, the SCH IP program currently is only funded 0y the federal gCNernment through 2007. Therefore, a state's decision to ela,ate the eligibility requirements, thereo, decreasing the number of children eligible for SCHIP, the loss of federal apprCNal for a state's program, or the failure of the federal gCNernment to appropriate additional funds for SCHI P after 2007, all could have an adverse impact on the financial condition of the Obligated Group.

State Budget. The State of California faces sa,ere financial challenges that have resulted in a shortfall between ra,enue and spending dem1nds. California continues to face a significant gap between the expected level of tax ra,enues and prqjected expenditures for the fiscal years 2006-07 and beyond. No cuts in hospital reimbursement rates under Medi-Cal have been proposed in the G CNernor' s proposed budget for fiscal year 2007-08. It is not possible to determine whether the G CNernor' s proposed budget and proposed m1ndatory health insurance program will be adopted as proposed, the impact on the Obligated Group of any reform of the State's requirements for health insurance or whether any cuts in prCNider reimbursement rates under Medi-Cal will take effect in the future.

The financial challenges facing the State of California m1y negatively affect hospitals in a number of ways, including, but not I imited to, a greater number of indigent patients who are unable to pay for their care and a greater number of individuals who qualify for Medi-Cal and/or reductions in Medi-Cal payment rates.

Private Health Care Plans and Managed Care. Most private health insurance cCNerage is prCNided 0y various types of "m1naged care'' plans, including health m1intenance organizations, or HMOs, and preferred pr01ider organizations, or PPOs. To control costs, m1naged care plans typically contract with hospitals and other pr01iders for discounted prices, ra,iew medical services for medical necessity, require members to pay co--payments and deductibles, and channel patients to contracted pr01iders of health care services. Medicare and Medi-Cal also purchase hospital care using m1naged care options. Payments to hospitals from m1naged care plans typically are lo.ver than those received from traditional indemnity or commercial insurers.

For the fiscal years ended August 31, 2005 and August 31, 2006, contracted m1naged care constituted approxim1tely 31% and 35%, respectively, of net patient service ra,enues of the Obligated Group. For each of the fiscal years ended August 31, 2005 and August 31 , 2006, non-gCNernmental pay ors, excluding contracted m1naged care, accounted for approxim1tely nine percent of the net patient service ra,enue of the Obligated Group. See APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP-SUMMARY OF FINANCIAL INFORMATION-Summ1ry of Operating Results-5ources of Net Ra,enue."

In California, m1naged care plans have replaced indemnity insurance as the prime source of nong01ernmental payment for hospital services, and hospitals must be capable of attracting and m1intaining m1naged care business. Many H MOs and PPOs currently pay pr01iders on a negotiated fee-for-5ervice basis or, for institutional care, on a fixed rate per day of care, which, in each case, usually is discounted from the typical charges forthe care prCNided. As a result, the discounts offered to HM Os and PPOs m1y result in payment to a prCNiderthat is less than its actual cost. Additionally, the volume of patients directed to a prCNider m1y vary significantly from projections, andpr changes in the utilization m1y be dram1tic and unexpected, thus jeopardizing the prCNider's ability to m1nage this component of ra,enue and cost.

Some HMOs empl0y a "capitation" payment method under which hospitals are paid a predeterrrined periodic rate for each enrollee in the HMO who is "assigned" or otherwise directed to receive care at a particular hospital. A hospital m1y assume financial risk for the cost and scope of institutional care given. If payment is insufficient to meet a hospital's actual costs of care, or if utilization 0y such enrollees m1terially exceeds prqjections, the financial condition of a hospital could erode rapidly and significantly.

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For each of the fiscal years ended August 31, 2005 and August 31, 2006, capitated payments constituted less than one percent of net patient service revenues of the Obligated Group. See APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP-SUMMARY OF FINANCIAL INFORMATION-Summuy of Operating Results-Sources of Net Ra,enue."

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 a hospital. Hospitals from ti me to ti me have disputes with managed care pay ors concerning payment and contract interpretation issues.

Failure to maintain contracts could have the effect of reducing the Obligated Group's market share and net patient services ra,enues. Conversely, participation may result in lo.ver net income if participating hospitals are unable to adequately contain their costs.

Actions 0y Purchasers of Hospital Services and Consumers. Major purchasers of hospital services also could take action to restrain hospital charges or charge increases. In California, the California Public Empl0yees' Retirement System, the nation's third largest purchaser of empl0yee health benefits, has pledged to take action to restrain the rate of gro.vth of hospital charges and has excluded certain California hospitals from serving its cCNered members. As a result of increased public scrutiny, it is also possible that the pricing strategies of hospitals may be perceived negatively 0y consumers, and hospitals may be forced to reduce fees for their services. Decreased utilization could result, and hospitals' ra,enues may be negatively impacted.

Nonprofit Health Care Environment

The Members of the Obligated Group are nonprofit tax-exempt organizations, subject to federal, State and local laws, regulations, rulings and court decisions relating to their organization and operation, including their operation for charitable purposes. At the same time, hospitals conduct complex business transactions and typically are one of the major empl0yers in their 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 health care organization.

Recently, an increasing number of the operations or practices of health care prCNiders have been challenged or questioned to determine if they are consistent with 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, such as Medicare and Medi-Cal compliance, and instead in many cases are examinations of core business practices of the health care organizations. Areas which have come under exarrination have included pricing practices, billing and collection practices, charitable care, executive compensation, excess benefit transactions with insiders, 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 I RS, labor unions, Congress, state legislatures, and patients, and in a variety of forums, including hearings, audits and litigation. These challenges or examinations include the follo.ving, among others:

Congressional Hearings. Senate and House committees have launched sa,eral nationwide investigations of hospital billing and collection practices and prices charged to uninsured patients and have considered reforms to the nonprofit sector, including a proposed reform in the area of tax-exempt organizations.

I RS Examination of Compensation Practices. In August 2004, the IRS announced a ne.v enforcement effort to address abuses 0y tax-exempt organizations that pay excessive compensation and benefits to their officers and other insiders. The I RS announced that it would contact nearly 2,000 charities and foundations to seek more information about their compensation practices and procedures. This exarrination project is ongoing.

California Attorney General. California nonprofit corporations, including the Members of the Obligated Group, are sul:Jject at all times to exarrination 0y the California Attorney General (the "AG") to ensure that the purposes of the nonprofit corporations are being carried out The AG has, in recent years, made inquiries regarding the billing practices of nonprofit hospitals. It is unclear whether these inquiries represent an increased interest or scrutiny 0y the AG of hospital billing practices generally, or whether the AG will extend its inquiry to other

22

nonprofit hospital issues. The California Attorney General has also increased its scrutiny of California nonprofit corporations with the passage of the California Nonprofit Integrity Act, effective January 1, 2005.

California Legislative Hearings. On Decerrlier 7, 2005, the Chair of the California Asserrbly Cornrnittee on Ra,enue and Taxation held an CNersight hearing to look at tax benefits received 0y nonprofit hospitals operating in California in parallel and in conjunction with the efforts of legislative cornrnittees at the federal, and local la,els. The Chair of the Cornrrittee stated that the Committee desires to conduct a detailed exarrination of a variety of topics, including charity care, executive compensation, billing and pricing practices, treatment of the uninsured, taxexernpt status, for-profit affiliations, financial performmce and related matters. It is uncertain whether the Cornrritteewill recommend legislative changes as a result of its inquiries.

Litigation Relating to B ii ling and Collection Practices. Lawsuits have been filed in both federal and state courts alleging, among other things, that hospitals have failed to fulfill their obligations to prCNide charity care to uninsured patients, have CNercharged uninsured patients and have engaged in predatory collection practices. The cases are proceeding in various courts around the country with inconsistent results. While it is not possible to make general predictions, some hospitals have entered into substantial settlements.

Challenges to Real Property Tax Exemptions. Recently, the real property tax exemptions afforded to certain nonprofit health care prCNiders 0y state and local taxing authorities have been challenged on the grounds that the health care prCNiders 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.

Actions 0y Purchasers of Hospital Services and Consumers. Major purchasers of hospital services could take action to restrain hospital charges or charge increases. The California Public Ernpl0yees' Retirement System, the nation's third largest purchaser of ernpl0yee health benefits, has pledged to take action to restrain the rate of grONth of hospital charges and has excluded certain California hospitals frorn serving its cCNered merrliers. As a result of increased public scrutiny, it is also possible that the pricing strategies of hospitals may be perceived negatively 0y consumers, and hospitals may be forced to reduce fees for their services. Decreased utilization could result, and hospitals' revenues may be negatively impacted.

The foregoing are some examples of the challenges and exarrinations facing nonprofit health care organizations. The challenges and examinations and any resulting legislation, regulations, judgments, or penalties could have a material adverse effect on the ability of the Obligated Group to generate income sufficient to pay debt service with respect to the Certificates.

Negative Rankings Based on Clinical Outcomes, Cost, Quality, Patient Satisfaction and Other Performance Measures. Health plans, Medicare, Medi-Cal, ernpl0yers, 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 prCNided 0y hospitals and physicians. Published rankings such as "score cards" tiered hospital networks with higher co-payments and deductibles for non-€mergent use of lo.ver-ranked prCNiders, "pay for performance'' and other financial and non-financial incentive programs are being introduced to affect the reputation and revenue of hospitals and the merrliers of their medical staffs and to influence the behavior of consumers and prCNiders such as the Obligated Group. Pra,alent currently 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 0y others that characterize a hospital negatively may adversely affect its reputation and financial condition.

Regulatory E nvironrnent

"Fraud" and "False Claims." Health care "fraud and abuse" laws have been enacted at the federal and state la,els to broadly regulate the prCNision of services to gCNernment program beneficiaries and the methods and requirements for subrritti ng claims for services rendered to the beneficiaries. U nder these laws, hospitals and other health care prCNiders can be penalized for a wide variety of conduct, including subrritting claims for services that are not prCNided, billing in a manner that does not comply with gCNernment requirements or including inaccurate

23

billing information, billing for services deemed to be medically unnecessary, or billings accompanied 0y an illegal inducement to utilize or refrain from utilizing a service or product.

Federal and state go;ernments have a broad range of criminal, civil and adrrinistrative sanctions available to penalize and remediate health care fraud, including the exclusion of a hospital or other health care pro;ider from participation in the Medicare/Tvledi-Cal programs, civil monetary penalties, and suspension of Medicare/Tvledi-Cal payments. Fraud and abuse cases may be prosecuted 0y one or more go;ernment entities and/or private individuals, and more than one of the available sanctions may be, and often are, imposed for each violation.

Laws go;erning fraud and abuse may apply to hospitals and other health care pro;iders, and to nearly all individuals and entities with which a hospital or other health care pro;ider does business. Fraud investigations, settlements, prosecutions and related publicity can have a catastrophic effect on hospitals and other health care pro;iders. See "Enforcement Activity" belo.v. Major elements of these often highly technical laws and regulations are generally summarized belo.v.

Criminal Fraud and Abuse Liability. Both individuals and organizations are subject to prosecution under the crirrinal fraud and abuse statutes. Criminal conviction for an offense may result in substantial fines and/or the pro;i der' s exclusion and debarment from all go;ernment programs.

Criminal False Claims Act The crirrinal False Claims Act or Crirrinal FCA prohibits anyone from kno.vingly subrritting a false, fictitious or fraudulent claim to the federal go;ernment. There are numerous specific rules that a health care pro;ider must follo.v with respect to the subrrission of claims. Violation of the Crirrinal FCA can result in imprisonment of five years and a fine of up to $250,000 for an individual or $500,000 for an organization.

Anti-Kickback Law. The federal "Anti-Kickback Law" is a criminal statute that prohibits anyone from soliciting, receiving, offering or paying any remuneration, directly or indirectly, o;ertly or co;ertly, in cash or in kind, in return for a referral (or to induce a referral) for any item or service that may be paid 0y any federal or state health care program. The Anti-Kickback Law applies to many common health care transactions between persons and entities with which a hospital or health care system does business, including hospital-physician joint ventures, hospital-physician integration vehicles (such as a medical foundation), medical director agreements, physician recruitment agreements, physician office leases, purchases from vendors, and other transactions.

Violation or alleged violation of the Anti-Kickback Law can result in settlements that require multi-million dollar payments and compliance agreements. TheAnti-KickbackLaw can be prosecuted either criminally or civilly. Each violation is a felony, subject to a fine of up to $25,000 for each act (which may be each item or each bill sent to a federal progrant imprisonment andpr exclusion from the Medicare and Medi-Cal programs. This fine may be increased to $250,000 for individuals and $500,000 for organizations. In addition, civil monetary penalties of $10,000 per item or service in noncompliance (which may be each item or each bi 11 sent to a federal program) or an "assessment" of three times the amount claimed may be imposed.

Civil Fraud and Abuse Liability. Unlike criminal statutes, which require the go;ernment to pro;e that the health care pro;ider intended to violate the law, civil statutes may be violated simply 0y the pro;ider's participation in a prohibited financial arrangement or the pro;ider having kno.vledge that its claims procedures are not in full compliance with the law.

Civil False Claims Act The civil False Claims Act, or Civil FCA makes it illegal to subrrit or present a false, fictitious or fraudulent claim to the federal g01ernment, and may include claims that are simply erroneous. Civil FCA investigations and cases have become common in the health care field and may co;er a range of activity from intentionally inflated billings, to highly technical billing infractions, to allegations of inadequate care. Violation or alleged violation of the Civil FCA can result in settlements that require multi-million dollar payments and compliance agreements. The Civil FCA also permits individuals to initiate civil actions on behalf of the go;ernment in lawsuits called "qui tam' actions. Qui tam plaintiffs, or "whistleblo.vers," can share in the damages rec01ered 0y the go;ernment or reco;er independently if the go;ernment does not participate. The Civil FCA has become one of the go;ernment's primary weapons against health care fraud. Civil FCA violations or alleged

24

violations could lead to settlements, fines, exclusion or reputation dam1ge that could have a m1terial adverse irrpact on a hospital or other health care prCNider.

Physician Self-Referral Law. The federal Physician Self-Referral Law ("Stark:') prohibits the referral 0y a physician of Medicare and Medi-Cal JE.tients for certain designated health services (including inJRtient and outJE.tient hospital services, clinical laboratory services, and various diagnostic im1ging services) to entities with which the referring physician has a financial relationship. It also prohibits a hospital or other health care prCNider furnishing the designated services frorn billing Medicare, or any other JE.yor or individual, for services performed pursuant to a prohibited referral. The gCNernment does not need to prCNe that the entity knew that the referral was prohibited to establish a Stark violation. Many ordinary business practices and econorrically desirable arrangements between physicians and hospitals or other health care prCNiders arguably constitute "financial relationships" within the meaning of the Stark statute. The prohibition on referrals and billing would be triggered 0y the financial relationship unless the relationship fully complied with one of several exceptions. Most prCNiders of the designated health services with physician relationships have some exposure to liability underthe Stark statute.

Medicare m1y deny JE.yment for all services related to a prohibited referral and a hospital or other health care prCNider that has billed for prohibited services m1y be obligated to refund the amounts collected frorn the Medicare program For example, if an office lease between a hospital and a large group of heart surgeons is found to violate Stark, a hospital could be obligated to reJRy CMS for the JE.yments received frorn Medicare for all of the heart surgeries performed 0y all of the physicians in the group for the duration of the lease; a potentially significant amount. The gCNernment m1y also seek substantial civil monetary penalties, and in some cases, a hospital or other health care pr01ider m1y be liable for fines up to three times the amount of any monetary penalty, andpr be excluded frorn the Medicare and Medi-Cal programs. Potential reJE.yments to CMS, settlements, fines or exclusion for a Stark violation or alleged violation could have a m1terial adverse irrpact on a hospital or other health care pr01ider.

Civil Monetary Penalties Law. The federal Civil Monetary Penalties Law ("CMPL") prCNides for adrrinistrative sanctions against health care prCNiders for a broad range of billing and other abuses. A health care prCNider is liable under the CMPL if it kno.vingly presents, or causes to be presented, improper claims for reimbursement to a federal or state agency, such as those that administer the Medicare and Medicaid programs. A hospital that JRrticiJRtes in arrangements kno.vn as "gainsharing," through which the hospital JRYS physicians to limit or reduce services to Medicare fee-for-5ervice beneficiaries also m1y be subject to substantial civil monetary penalties.

A health care prCNider m1y be found liable underthe CMPL a,en if it did not have actual kno.vledge of the impropriety of the claim It is sufficient that the prCNider "should have kno.vn" that the clairnwas false. Ignorance of the Medicare regulations is no defense. The Secretary of DHHS, acting through the OIG, also has both m1ndatory and permissive authority to exclude individuals and entities frorn JRrtiCiJRtion in federal health care programs pursuant to this statute.

HIPAA. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, adds additional crirrinal sanctions for health care fraud and applies to all health care benefit programs, whether public or private. HIPAA also prCNides for punishment of a health care prCNider for kno.vingly and willfully embezzling, stealing, converting or intentionally misapplying any money, funds or other assets of a health care benefit program A health care prCNider corNicted of health care fraud could be excluded frorn Medicare. In addition, HIPAA includes adrrinistrative simplification prCNisions that require standardization of electronic transactions, specific security protections for medical inform1tion and processes, privacy protections for JE.tient medical records, and establishment of national ernpl0yer and prCNider identifiers. DH HS and CMS have promulgated rules related to electronic transactions, national empl0yer identifiers, national prCNider identifiers, security, and medical records privacy. Rules regarding national health plan identifiers, claims attachments standards and first report of injury standards have been published in proposed forrn or are under da,elopment

These new rules required the implementation of new policies and procedures 0y health care prCNiders for coding, m1intaining, storing and transrritting medical inform1tion, as well as policies and procedures designed to protect the security, data integrity and confidentiality of JE.tient medical inform1tion and to perrrit JE.tients to exercise their specific rights under HIPAA. The Obligated Group was required to comply with HI PAA's privacy standards

25

0y April 14, 2003. Compliance with the security standards was required 0y April 20, 2005, and required health care prCNiders to implement adrrinistrative, physical and technical safeguards to protect the confidentiality, integrity and availability of electronic protected health inform1tion. The Obligated Group has m1de significant expenditures to date but does not anticipate the need for substantial additional expenditures to ensure compliance with all of these requirements. The Obligated Group will be required to comply with the National PrCNider Identifier standards 0y May 23, 2007.

The penalty for violating HIPAA's administrative simplification requirements includes imposition of civil monetary penalties of not more than $100 per person, per violation up to a rraximum of $25,000 for violation of the same standard within any calendar year. Crirrinal penalties m1y also be imposed on any person who kno.vingly obtains or discloses protected health inform1tion in violation of HI PAA. These penalties range from up to $50,000 and one year in prison for obtaining or disclosing protected health inform1tion; up to $100,000 and up to five year in prison for obtaining or disclosing protected health inform1tion under "false pretenses;" and up to $250,000 and up to 1 Oyears in prison for obtaining protected health inform1tion with the intent to sell, transfer or use it for commercial advantage, personal gain or m1licious harm. The Secretary of DHHS and the Secretary's designees have the authority to conduct compliance ra,iews to deterrrine whether any cCNered entity is complying with HIPAA requirements, and to investigate complaints filed 0y any person who belia,es a cCNered entity is not complying with those requirements. HI PAA requires the Secretary of DHHS, ho.vever, to the extent practicable, to seek cooperation in obtaining compliance prior to form1I action for civil monetary or crirrinal penalties. Except for the privacy rule, which is enforced 0y the Office for Civil Rights of DHHS, the standards promulgated pursuant to HIPAA's administrative simplification pr01isions are enforced 0y CMS.

Exclusions from Medicare or Medi-Cal Participation. The gCNernment m1y exclude from Medicare/Tvledi-Cal program participation a hospital or other health care prCNider that is corNicted of a criminal offense relating to the delivery of any item or service reimbursed under Medicare or a state health care program, any crirrinal offense relating to patient neglect or abuse in connection with the delivery of health care, felony fraud against any federal, state or locally financed health care program or a felony offense relating to the illegal m1nufacture, distribution, prescription or dispensing of a controlled substance. The gCNernment also m1y 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 gCNernment program. Exclusion from the Medicare/Tvledi-Cal program means that a hospital or other health care pr01ider would be terrrinated from participation and no program payments can be m1de. Any hospital exclusion could be a m1terially adverse a,ent, a,en within a large hospital system

Compliance with Conditions of Participation. CMS, in its role of monitoring participating prCNiders' compliance with conditions of participation in the Medicare program, m1y determine that a prCNider is not in compliance with its conditions of participation. In that a,ent, a notice of terrrination of participation m1y be issued or other sanctions potentially could be imposed.

Enforcement Activity. Enforcement activity against hospitals and health care prCNiders has increased and enforcement authorities have adopted aggressive apprraches. Hospitals and other health care pr01iders are frequently subject to audits, investigations or other enforcement actions regarding the health care fraud laws mentioned abCNe. In addition, enforcement agencies increasingly pursue sanctions for violations of health care fraud and abuse laws through civil adrrinistrative actions. Adrrinistrative regulations m1y require less proof of a violation than do crirrinal laws and, thus, health care prCNiders m1y have a higher risk of imposition of monetary penalties as a result of adrri nistrative enforcement actions.

Enforcement authorities are often in a position to compel settlements 0y prCNiders charged with or being investigated for false claims violations 0y withholding orthreatening to withhold Medicare, Medi-Cal andpr similar payments and/or 0y instituting criminal action. In addition, the cost of defending such an action, the time and m1nagement attention consumed, and the facts of a case m1y dictate settlement. Therefore, regardless of the merits of a particular case, a hospital or other health care pr01ider could experience m1terially adverse settlement costs, as well as m1terially adverse costs associated with implementation of any settlement agreement. Prolonged and publicized investigations could be dam1ging to the reputation and business of a hospital or other health care pr01ider, regardless of outcome.

26

Certain acts or transactions may result in violation or alleged violation of a nurrlier of the federal health care fraud laws described alxNe and, therefore, penalties or settlement amounts can be compounded. Generally these risks are not cCNered 0y insurance. Enforcement actions may involve multiple hospitals or health care prCNiders in a health system, as the gCNernment often extends enforcement actions regarding health care fraud to other hospitals or health care prCNiders in the same organization. Therefore, Medicare fraud related risks identified as being materially adverse as to a hospital or other health care prCNider could have materially adverse consequences toa health system taken as a whole.

Liability Under State "Fraud" and "False Claims" Laws. Hospitals and other health care prCNiders in California also are subject to state laws related to false claims, anti-kickback, and physician referrals, which pose the possibility of material adverse impact for the same reasons as the federal statutes. In addition, in contrast to federal laws which typically apply only to services rendered to beneficiaries cCNered under federal or state health care financing programs, these state laws typically apply to services rendered to any patients, regardless of the source of payment for such services.

E MTALA. The Emergency Medical Treatment and Active Labor Act, or EMTALA, is a federal civil statute that requires hospitals to conduct a medical screening for emergency conditions and to stabilize a patient's emergency medical condition before releasing, discharging or transferring the patient. Over the last fe.v years, the federal gCNernment has increased its enforcement of EMTALA. A hospital that violates EMTALA is subject to civil penalties of up to $50,000 per offense and exclusion from Medicare and Medi-Cal programs. In addition, a hospital may be liable for any claim 0y an individual who has suffered harm as a result of a violation of EMTALA.

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 lirrited to, requirements of state licensing agencies and The Joint Comrrission. Rene.val and continuation of certain of these licenses, certifications and accreditations are based on inspections or other ra,ie.vs generally conducted in the normal course of business of health facilities. Loss of, or limitations imposed on, hospital licenses, certifications or accreditations could reduce hospital utilization or revenues, or a hospital's ability to operate all or a portion of its facilities.

Rene.val and continuance of certain of these licenses, certifications and accreditations are based on inspections, surveys, audits, investigations or other ra,ie.vs, some of which may require or include affirmative action or response 0y the Obligated Group. These activities generally are conducted in the normal course of business of health facilities. Na,ertheless, an adverse result could result in a loss or reduction in the Obligated Group's scope of Ii censure, certification or accreditation, or could reduce the payment received or require repayment of amounts pra,iously rerritted.

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 Ii rrited to: air and water quality control requirements; waste management requirements; specific regulatory requirements applicable to asbestos and radioactive substances; requirements for prCNiding notice to empl0yees and merrliers of the public about hazardous materials handled 0y or located at a hospital; and requirements for training empl0yees in the proper hand Ii ng 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 rrigrated off the property. Typical hospital operations include the handling, use, storage, transportation, disposal andpr 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; may result in investigations, administrative proceedings, civil litigation, crirrinal prosecution, penalties or other gCNernmental agency actions; and may not be cCNered 0y insurance.

27

Business Relationships and Other Business Matters

Integrated Physician Groups. Hospitals and health care systems often o.vn, control or have affiliations with relatively large physician groups. Generally, the sponsoring hospital or health care system will be the primary capital and funding source for such alliances and may have an ongoing financial comrritment to prCNide gro.vth 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 andpr to enhance the managed care capability of the affiliated hospitals and physicians. These goals may not be achieved, ho.vever, and an unsuccessful alliance may be costly and counterproductive to al I of the awe-stated goals.

Integrated delivery systems carry with them the potential for legal or regulatory risks in varying degrees. The ability of hospitals or health care systems to conduct integrated physician operations may be altered or eliminated in the future 0y legal or regulatory interpretation or changes, or 0y health care fraud enforcement In addition, participating physicians may seek their independence for a variety of reasons, thus putting a hospital or health care system's investment at risk, and potentially reducing its managed care leverage and/or CNerall utilization.

Indigent Care, Underinsured and Uninsured Patients. The Obligated Group may be susceptible to econorric and political changes that could increase the number of indigents or their responsibility for caring for this population. General econorri c conditions that affect the number of empl0yed individuals who have health cCNerage affects the ability of patients to pay for their care. Similarly, changes in gCNernmental policy, which may result in cCNerage exclusions under local, state and federal health care programs (including Medicare and Medi-Cal) may increase the frequency and severity of indigent treatment 0y such hospitals and other prCNiders. It also is possible that future legislation could require that health care prCNiders maintain minimum levels of indigent care.

Physician Medical Staff. The primary relationship between a hospital and physicians who practice in it is through a hospital's organized medical staff. Medical staff o,laws, rules and policies establish the criteria and procedures 0y which a physician may obtain medical staff membership and clinical privileges, and criteria and procedures 0y 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. In addition, failure of a hospital's gCNerning body to adequately CNersee the conduct of its medical staff may result in hospital liability to third parties.

An emerging area of potential risk for all hospitals surrounds the appropriate management of physician conflicts of interest with hospitals that grant practice privileges. Described as "economic credentialing" 0y physicians who oppose efforts of hospitals to manage the presence of direct corrpetitors within the leadership or boardroom, the issue requires all hospitals to thoughtfully manage these potential conflicts to maintain a healthy, collegial and professional relationship required with the independent medical staff, while ensuring the organization is not suffering irreversible harm from a corrpetitor gaining specific or specialized information not available to the public regarding the Obligated Group's plans. In the worst circumstances, such efforts have led to litigation and potentially material impacts on the practice patterns of physicians at a specific facility. It is not possible to predict the course of such decisions or make any assurances that the Obligated Group will be successful in managing such conflicts without causing some changes in physician practice patterns, which could have a material adverse effect on the Obligated Group.

Competition Among Health Care PrCNiders. Increased competition from a wide variety of sources, including specialty hospitals, other hospitals and health care systems, inpatient and outpatient health care facilities, long-term care and skilled nursing services facilities, clinics, physicians and others, may adversely affect the utilization and 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 ne.v sources not currently anticipated or prevalent.

28

Specialty hospital da,elopments that attract away an irrportant segment of an existing hospital's admitting specialists may be particularly damaging. For example, some large hospitals may have significant dependence on cardio;ascular andpr orthopedic surgery programs, as ra,enue streams from those programs may co;er significant fixed o;erhead costs. If a significant corrponent of such a hospital's cardio;ascular or orthopedic surgeons da,elop their o.vn specialty hospital (alone or in conjunction with a gro.ving number of specialty hospital operators and promoters) taking with them their patient base, a hospital could experience a rapid and dramatic decline in net ra,enues 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 go;ernment programs, leaving lo.v-pay patient populations in the full-5ervice hospital. In certain cases, such an event could be materially adverse to a hospital.

Likewise, freestanding ambulatory surgery centers may attract away significant commercial outpatient services traditionally performed at hospitals. Commercial outpatient services, currently among the most profitable for hospitals, may be lost to competitors who can pr01ide these services in an alternative, less costly setting. Fullservice hospitals rely upon the revenues generated from commercial outpatient services to fund other less profitable services, and the decline of such business may result in the significant reduction of profitable income. Competing ambulatory surgery centers, more likely a for-profit business, may not accept indigent patients or lo.v paying programs and would leave these populations to receive services in the hospital setting. Consequently, hospitals are vulnerable to competition from ambulatory surgery centers.

Additionally, scientific and technological advances, ne.v procedures, drugs and devices, pra,entive medicine and outpatient health care delivery may reduce utilization and revenues of a hospital 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 0y new technology or ne.v pharmacology.

Pressure of Payors. Health care, including hospital services, increasingly is being pr01ided through "managed care'' plans that use discounts and other economic incentives to reduce or limit the cost and utilization of health care services. Such plans include health maintenance organizations ("HMOs") and preferred pro;ider organizations ("PPOs"). Payments from managed care plans typically are lo.ver than those received from traditional indemnity /commercial insurers. Failure to maintain contracts with managed care organizations could have the effect of reducing the market share and gross patient services ra,enues of the Obligated Group. Conversely, participation in managed care plans may maintain or increase the patient base, but could result in lo.ver net income if the Obligated Group is unable to adequately contain its costs.

In mu1y markets, m1naged care plans and preferred pro;ider plans have begun to replace indemnity insurance as the prime source of nongo;ernmental payment for hospital services. In regions where m1naged care is pra,alent, health care pro;iders must be capable of attracting and maintaining managed care business, often on a regional basis. To do so, regional co;erage and aggressive pricing may be required.

Many H MOs and PPOs currently pay pro;iders on a negotiated fee-for-5ervice basis or on a fixed rate per day of care, which, in each case, usually is discounted from the pro;iders' usual charges for the care pro;ided. As a result, the discounts offered to HM Os and PPOs may result in payment to a pro;ider that is less than its actual cost Additionally, the volume of patients directed to a hospital may vary significantly from projections, and/or changes in the utilization of certain services offered 0y the pro;ider may be dramatic and unexpected, thus further jeopardizing the pro;ider's ability to contain costs.

Some HMOs empl0y a "capitation'' payment method under which hospitals are paid a predeterrrined periodic rate for each enrollee in the HMO who is "assigned" or otherwise directed to receive care from a particular hospital. In a capitation payment system, the hospital assumes a financial risk for the cost and scope of care given to the HMO's enrollees. In some cases, the capitated payment co;ers total hospital patient care pro;ided. Ho.va,er, if payment under an HMO or PPO contract is insufficient to meet the hospital's costs of care or if uti Ii zati on 0y such enrollees materially exceeds projections, the financial condition of the hospital could erode rapidly and significantly.

29

G ro.vth of E-Comnerce. The gro.vth of e-mmmerce also rray result in a shift in the way that health care is delivered. Persons residing in the Obligated Group's service areas rray be able to receive certain health services from remote prCNiders. For example, physicians will be able to prCNide certain services CNer the internet (e.g., teleradiology and second opinions). Pharrraceuticals and other health services rray also ncm be ordered on-line. Additionally, other service prCNiders in competition with the Obligated Group rray ncm compete through this new medium 0y advertising their services and prCNiding easy registration for competing services CNer the internet. Also, alternative forms of health care payment including rranaged care organizations and consumer-driven care, as well as expanded pra,entive medicine and outpatient treatment, could affect the Obligated Group's ability to rraintain its rrarket share at current la,els.

Technology. Scientific and technological advances, new procedures, drugs and da,ices, pra,entive medicine, occupational health and safety, and outpatient health care delivery rray reduce utilization and ra,enues of the Obligated Group in the future. Technological advances in recent years have accelerated the trend to.vard the use 0y hospitals of sophisticated and costly equipment and services, and hospitals rray have to incur significant costs to acquire the equipment needed to rraintain or enhance their competitive position. Recently, President Bush called for the establishment of a nationwide electronic medical records system 0y 2014 and created a national health inforrration technology office within DHHS to lead the effort. The costs to acquire and implement an electronic medical records system are significant but it is widely believed that such systems will lead to greater efficiencies in the prCNision of patient care and imprCNed quality of care. The acquisition and operation of certain equipment and services rray continue to be a significant factor in hospital utilization, but the ability of the Obligated Group to offer such equipment or services rray be subject to the availability of equipment and specialists, gCNernmental apprCNal and the ability to finance such acquisitions and operations. DHHS published a safe harbor to the AntiKickback Law and an exception to Stark allo.ving hospitals to prCNide to physicians certain electronic medical record and electronic prescribing technology belo.v the hospital's cost. This resulting increase in derrand for hospitals to prCNide cCNered technology could have a rraterial adverse consequence on the financial condition of the Obligated Group.

Antitrust Antitrust liability rray 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, and anticompetitive business conduct or practices. 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 for hospitals and other health care prCNiders are joint action among pr01iders with respect to payor contracting, medical staff credentialing disputes and anticompetitive business conduct or practices 0y hospitals and other health care prCNiders with sufficiently large rrarket share.

Violation of the antitrust laws could result in crirrinal and/or civil enforcement proceedings 0y federal and state agencies, as well as actions 0y private litigants. In certain actions, private litigants rray be entitled to treble darrages, and in others, gCNernmental entities rray be able to assess substantial monetary fines. MoreCNer, successful private or gCNernmental litigants rray obtain injunctive relief that can affect the defendant's ability to conduct or continue certain business practices or activities.

Labor Relations and Collective Bargaining. Hospitals are large empl0yers with a wide diversity of empl0yees. Increasingly, empl0yees of hospitals are becorring unionized, and rrany hospitals have collective bargaining agreements with one or more labor organizations. Empl0yees subject to collective bargaining agreements rray include essential nursing and technical personnel, as well as food service, rraintenance and other trade personnel. Renegotiation of such agreements upon expiration rray result in significant cost increases to hospitals. Empl0yee strikes or other adverse labor actions rray have an adverse impact on operations, revenue and hospital reputation. Less than one percent of the empl0yees of the Obligated Group currently are cCNered 0y collective bargaining agreements. See APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUPMEDICAL STAFF AND EMPLOY ES-Unions."

Health Care Worker Classification. Health care prCNiders, like all businesses, are required to withhold income taxes from amounts paid to empl0yees. If the empl0yer fails to withhold the tax, the empl0yer becomes liable for payment of the tax imposed on the empl0yee. On the other hand, businesses are not required to withhold federal taxes from amounts paid to a worker classified as an independent contractor. The I RS has established criteria for deterrrining whether a worker is an empl0yee or an independent contractor for tax purposes. If the I RS

30

were to reclassify a significant number of hospital independent contractors (e.g., physicians) as empl0yees, 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-5pecific shortages. Competition for empl0yees, coupled with increased recruiting and retention costs will increase hospital operating costs, possibly significantly, and gro.vth may be constrained. This trend could have a material adverse impact on hospitals.

EffectiveJ anuary 1, 2004, California implemented mandatory nurse staffing ratios for all patient care areas. The impact on California hospitals varies 0y facility. The required staffing, in aggregate, has prCNen more costly than prior staffing patterns. The mandatory nurse staffing ratios have been, and continue to be, the subject of legislative actions andjudicial challenges seeking to alter the proscribed ratios.

Professional Liability Claims and General Liability Insurance. In recent years, the number of professional and general liability suits and the dollar amounts of damage recCNeries have increased in health care nationwide, resulting in substantial increases in malpractice insurance prerriums, higher deductibles and generally less cCNerage. Professional liability and other actions alleging wrongful conduct and seeking punitive damages are often fi I ed against hospitals and other health care prCNi ders. I nsurance does not prCNi de cCNerage for judgments for punitive damages.

Litigation also arises from the corporate and business activities of hospitals, from a hospital's status as an empl0yer or as a result of medical staff or pr01ider network peer ra,ie.v or the denial of medical staff or prCNider network privileges. As with professional liability, many of these risks are cCNered 0y insurance, but some are not For example, some antitrust claims or business disputes are not cCNered 0y insurance or other sources and may, in whole or in part be a liability of the hospital or other health care prCNider if deterrrined or settled adversely.

There is no assurance that the Obligated Group will be able to maintain cCNerage amounts currently in place in the future, that the cCNerage will be sufficient to cCNer malpractice judgments rendered against the Obligated Group or that such cCNerage will be available at a reasonable cost in the future. For a description of insurance cCNerage maintained Or the Obligated Group, see APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP-RISK MANAGEMENT."

Tax-Exempt Status of Interest on the Certificates

The Code imposes a number of requirements that must be satisfied for interest on state and local obligations, such as the Certificates, to be excludable from gross income for federal income tax purposes. These requirements include I irritations on the use of proceeds of such obligations, !irritations on the investment earnings of such proceeds prior to expenditure, a requirement that certain investment earnings on such proceeds be paid periodically to the United States Treasury, and a requirement that the issuer of the obligations file an information report with the IRS. The Obligated Group has cCNenanted in the Sale Agreement that it will comply with such requirements. Future failure 0y the Obligated Group to comply with the requirements stated in the Code and related regulations, rulings and policies may result in the treatment of interest on the Certificates as taxable, retroactively to the date of execution and delivery. The Authority and the Obligated Group have cCNenanted in theTrustAgreement that they will not take any action or refrain from taking any action that would awersely affect the exclusion from gross income for federal income tax purposes of interest payable with respect to the Certificates. In addition, Special Counsel will render an opinion with respect to the tax-exempt status of the Certificates, as described under the caption "TAX MA TIERS." The Obligated Group has not sought to obtain a private letter ruling from the IRS with respect to the Certificates, and the opinion of Special Counsel is not binding on the I RS.

I RS officials have recently indicated that more resources will be invested in audits of tax-exempt obligations. The Certificates may be, from time to time, subject to audits 0y the I RS. There is no assurance that an IRS exarrination of the Certificates will not adversely affect the market value of the Certificates. See "TAX MATIERS" herein.

31

Construction Risks

The da,elopment, construction and rencNation of hospital facilities are susceptible to various risks and uncertainties, such as: inflation of construction costs; general construction risks, including cost CNerruns, change orders and plan or specification modification, shortages of equipment, materials or skilled labor, labor disputes, unforeseen erNironmental, engineering or geological problems, work stoppages, fire and other natural disasters, construction scheduling problems and weather interferences; changes and concessions required 0y gCNernmental or regulatory authorities; delays in obtaining, or inability to obtain, all licenses, perrrits and authorizations required to complete and/or operate the project; and disruption of existing operations and faci I ities.

Hospitals and health systems in California are experiencing significant escalation in the estimated costs of hospital facility construction and costs. The anticipated costs and construction period for projects comprising the CMC Capital Plan (described in APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP-CAPITAL EXPANSION PROGRAM AND THE PROJ ECT-Overvie.v of Capital Expansion Program') are based upon budgets, some conceptual design documents and construction schedule estimates prepared 0y the Obligated Group in consultation with the Obligated Group's architects and contractors. The cost of any project may vary significantly frorn initial expectations, and there may be a lirrited amount of capital resources to fund cost 0/erruns. If cost 0/erruns cannot be financed on a timely basis, the completion of one or more projects may be delayed until adequate funding is available. The completion dates of any of the projects could also differ significantly frorn expectations for construction-related or other reasons. Assurances cannot be given that any project will be completed, if at all, on time or within established budgets, or that any prqject will result in increased earnings. Significant delays, cost CNerruns, or fai I ures of the construction or renCNati on projects to a chi a,e market acceptance could have a material adverse effect on the Obligated Group's business, financial condition and results of operations. Furthermore, the projects, including the Project funded 0y the Certificates, may not help the Obligated Group cornpetewith ne.v or increased competition and may not result in increased net income.

Certain perrrits, licenses and apprCNals necessary for some of the Obligated Group's current or anticipated prqjects have not yet been obtained. The scope of the apprCNals required for expansion, development or renCNation prqjects can be extensive and may include state and local land-use permits and building and 20ning permits. Unexpected changes or concessions required 0y local, state or federal regulatory authorities could involve significant additional costs and delay the scheduled openings of the facilities. The Obligated Group may not receive the necessary permits, licenses and apprCNals or obtain the necessary permits, licenses and apprCNals within the anticipated time frame.

The failure to complete any construction or ren01ation project as planned, on schedule, within budget or in a manner that generates anticipated profits, could have an adverse effect on the Obligated Group's business, financial condition and results of operations. Further, the magnitude and scope of construction and renCNation projects, and the management of multiple construction and renCNation projects at the same time, may divert management resources frorn ongoing operations and/or construction and/or opening of any one project Management's inability to da,ote sufficient time and attention to ongoing operations and/or any one project may have an adverse affect on the ongoing operations of the hospitals or delay the construction or opening of any or all of the prqjects. Any delay caused 0y such circumstances could have a negative effect on business and operations.

In addition, although hospital construction and renCNation is generally planned to have minimal impact on ongoing operations, no assurances can be given that the construction and renCNation at the Obligated Group's hospital facilities will not disrupt the ongoing operations of its hospitals or that it will be implemented as planned. Therefore, the construction and renCNation of hospital facilities may adversely impact the business, operations and ra,enues of the Obligated Group.

Other Risk Factors

Earthquakes. Many hospitals in California are in close proxirrity to active earthquake faults. A significant earthquake in central California could destr0y or disable the hospitals and other facilities of the Obligated Group or otherwise sa,erely disrupt their operations and the regional econolll{.

32

California requires each acute care hospital in the state to either comply with new hospital seisrric safety standards or cease acute care operations 0y January 1, 2008. Management of the Obligated Group has completed seismic a,aluations and has substantially completed the retrofit of all The CMC Hospitals. See APPENDIX A"DESCRI PTION OF THE OBLIGATED GROUP-CONFORMANCE WITH SB 1953SEISMIC STANDARDS."

I nvestrnents. The Obligated Group has holdings in a broad range of investments. 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 the Obligated Group's investments, see APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP-SUMMARY OF FINANCIAL INFORMATION."

Other Future Risks. In the future, the follo.ving factors, among others, may adversely affect the operations of hospitals and other health care prCNiders, including the Obligated Group, or the market value of the Certificates, to an extent that cannot be deterrri ned at this ti me.

(a) Adoption of legislation that would establish a national or statewide single-payor health program or that would establish national, statewide or otherwise regulated rates applicable to hospitals and other health care pr01iders.

(b) Bankruptcy of an indemnity /commercial insurer, managed care plan or other payor.

(c) Efforts 0y insurers and gCNernmental agencies to lirrit the cost of hospital services, to reduce the number of beds and to reduce the utilization of hospital facilities 0y such means as pra,entive medicine, irnprCNed occupational health and safety and outpatient care, or comparable regulations or attempts 0y third-party payors to control or restrict the operations of certain health care facilities.

(d) The occurrence of a pandemic or a natural or man-rrade disaster that could damage the Obligated Group's facilities, interrupt utility service to its facilities, result in an abnormally high demand for health care services or workforce loss or otherwise impair the Obligated Group's operations and the generation of revenues frorn its facilities.

(e) Limitations on the availability of, and increased compensation necessary to secure and retain, nursing, technical and other professional personnel.

(f) Reduced demand for the services of the Obligated Group that rright result frorn decreases in population.

VERIFICATION OF MATHEMATICAL COMPUTATIONS

As a condition to the delivery of the Certificates, Causey Derrgen & Moore Inc., a firrn of independent accountants, will deliver its report indicating that it has verified, in accordance with standards established 0y the American Institute of Certified Public Accountants, certain information and assertions prCNided 0y the Underwriter. The scope of its verification will include the mathematical accuracy of: (a) the mathematical computations of the adequacy of the maturing principal of and interest on the E scro.v Securities to pay, when due, the principal, prerriurn and interest on the Refunded Certificates; and (b) the mathematical computations supporting the conclusion of Special Counsel that the Certificates are not "Arbitrage Bonds" under the Code and the regulations prornul gated thereunder.

RELATIONSHIPS AMONG PARTIES

The Bank of New York Trust Company, N.A. ("BONY") is acting in the dual role of Trustee and Master Trustee. The Master Trustee is required under the Master Indenture to act for the benefit of the holders of all obligations issued thereunder and the Trustee is the holder of Obligation No. 1 issued in connection with the Certificates. A conflict of interest rrightarisewith BONY serving in such dual capacities.

33

Merrliers of the Obligated Group from time to time and in the ordinary course of their business contract for services with persons who are also merrliers of the Boards of Trustees or Managers of the Merrliers of the Obligated Group as described in APPENDIX A-"DESCRIPTION OF THE OBLIGATED GROUP-GOVERNANCEG 0/erning Boards." The Obligated Group belia,es that all such contracts are on terms which are no less favorable than could be obtained from unaffiliated persons.

UNDERWRITING

The Certificates are being purchased 0y Citigroup Global Markets Inc. (the "Underwriter"). The Underwriter has agreed to purchase the Certificates at an aggregate price of $327,872,203.00 (being the principal amount of the Certificates of $320,615,000.00, plus original issue premium of $10, 107,470.35 and less an underwriter's discount of $2,850,267.35, which includes certain expenses of the Underwriter). The Purchase Contract relating to the Certificates prCNides that the Underwriter will purchase all of the Certificates if any are purchased, subject to certain terms and conditions set forth therein, including the delivery of specified opinions of counsel and of a certificate of the Obligated Group Representative to the effect that there has been no material adverse change in its condition, financial or otherwise, from that set forth in this Official Statement. The Obligated Group has agreed to indemnify the Underwriter, the Authority and the Trustee against certain liabilities to the extent perrritted 0y law.

The initial public offering prices or yields set forth on the inside front cCNer hereof may be changed without notice from time to time 0y the Underwriter, and the Underwriter may offer and sell Certificates to certain purchasers at prices lo.ver than the public offering prices stated on the inside cCNer page hereof. The Obligated Group has been advised 0y the U nderwriterthat (i) it presently intends to make a market in the Certificates offered hereo,, (ii) it is not, ho.va,er, obligated to do so, (iii) any market-making may be discontinued at any time, and (iv) there can be no assurance that an active public market forthe Certificates will da,elop.

Fl NANCI AL ADVISOR

Kaufman, Hall & Associates, Inc. ("KHA"), El Segundo, California, was engaged 0y the Obligated Group to prCNide financial advisory services in connection with the execution and delivery of the Certificates. KHA is a national consulting firm which acts as a capital advisor to health care organizations.

TAX MATTERS

In the opinion of Orrick, Herrington & Sutcliffe LLP, special counsel to the Authority ("Special Counsel"), based upon an analysis of existing laws, regulations, rulings and court decisions, and assurring, among other matters, the accuracy of certain representations and compliance with certain cCNenants, the interest portion of the Installment Payments paid 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates is excluded from gross income for federal income tax purposes under Section 103 of the Internal Ra,enueCode of 1986 (the "Code") and is exempt from State of California personal income taxes. Special Counsel is of the further opinion that the interest portion of the Installment Payments paid 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates is not a specific preference item for purposes of the federal individual or corporate alternative rri ni mum taxes, although S pecial Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative rrinimum taxable income. A complete cor,, of the proposed form of opinion of Special Counsel is set forth in APPENDIX D hereto.

To the extent the issue price of any maturity of the Certificates is less than the amount to be paid at maturity of such Certificates (excluding amounts stated to be interest and payable at least annually CNer the term of such Certificates), the difference constitutes "original issue discount," the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Certificates is the first price at which a substantial amount of such maturity of the Certificates is sold to the public (excluding bond houses, brokers, or sirrilar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Certificates accrues daily CNer the term to maturity of such Certificates on the basis of a constant interest rate compounded serriannually (with straight-line interpolations between compounding dates). The accruing original

34

issue discount is added to the adjusted basis of such Certificates to deterrrine taxable gain or loss upon disposition (including sale, rederrption, or payment on m1turity) of such Certificates. Beneficial Owners of the Certificates should consult their o.vn tax advisors with respect to the tax consequences of o.vnership of Certificates with original issue discount, including the treatment of Beneficial Owners who do not purchase such Certificates in the original offering to the public at the first price at which a substantial annunt of such Certificates is sold to the public.

Certificates purchased, whether at original execution and delivery or otherwise, for an annunt higher than their principal annunt payable at m1turity (or, in some cases, at their earlier call date) ("Prerrium Certificates") will be treated as having annrtizable premium. No deduction is allo.vable for the annrtizable prerrium in the case of obligations, like the Premium Certificates, the interest with respect to which is excluded from gross income for federal income tax purposes. Ho.va,er, the annunt of tax-€Xerrpt interest received, and a Beneficial Owner's basis in a Prerrium Certificate, will be reduced 0y the annunt of annrtizable prerrium properly allocable to such Beneficial Owner. Beneficial Owners of Prerrium Certificates should consult their o.vn tax advisors with respect to the proper treatment of annrtizable prerrium in their particular circumstances.

The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Certificates. The Authority and the Members of the Obligated Group have m1de certain representations and cCNenanted to comply with certain restrictions, conditions and requirements designed to ensure that the interest portion of the Installment Payments paid 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these cCNenants m1y result in the interest portion of the Installment Payments paid 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates being included in gross income for federal income tax purposes, possibly from the date of original execution and delivery of the Certificates. The opinion of Special Counsel assumes the accuracy of these representations and compliance with these cCNenants. Special Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or a,ents occurring (or not occurring), or any other m1tters corring to Special Counsel's attention after the date of execution and delivery of the Certificates m1y adversely affect the value of, or the tax status of interest with respect to, the Certificates.

In addition, Special Counsel has relied, among other things, on the opinion of Musick, Peeler & Garrett LLP, special counsel to the Obligated Group ("Obligated Group Counsel"), regarding the current qualification of each Member of the Obligated Group as an organization described in Section 501 (c)(3) of the Code. Such opinion is subject to a number of qualifications and I irritations. Special Counsel has also relied upon representations of each Member of the Obligated Group concerning such Member's "unrelated trade or business'' activities as defined in Section 513(a) of the Code. Neither Special Counsel nor Obligated Group Counsel has given any opinion or assurance concerning Section 513(a) of the Code and neither Special Counsel nor Obligated Group Counsel can give or has given any opinion or assurance about the future activities of the Members of the Obligated Group, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof orthe resulting changes in enforcement thereof 0y the I RS. Failure of the Members of the Obligated Group to be organized and operated in accordance with the IRS's requirements for the m1intenance of their status as organizations described in Section 501(c)(3) of the Code, or to operate the facilities financed or refinanced 0y the Certificates in a m1nner that is substantially related to the charitable purpose of the Members of the Obligated Group under Section 513(a) of the Code, m1y result in the interest portion of the Installment Payments paid 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates being included in federal gross income, possibly from the date of the original execution and delivery of the Certificates.

Although Special Counsel is of the opinion that the interest portion of the Installment Payments paid 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates is excluded from gross income for federal income tax purposes and is exerrpt from State of California personal income taxes, the o.vnershi p or disposition of, or the accrual or receipt of interest on, the portion of the Installment Payments paid 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates m1y 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. Special Counsel expresses no opinion regarding any such other tax consequences.

35

Future legislative proposals, if enacted into law, or clarification of the Code, or court decisions, m1y cause interest on the interest portion of the Installment Payments paid 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates to be subject directly or indirectly, to federal income taxation, or otherwise pra,ent 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 or clarification of the Code or court decision m1y also affect the m1rket price for, or m1rketability of, the Certificates. Prospective purchasers of the Certificates should consult their o.vn tax advisers regarding any pending or proposed federal tax legislation, regulation or litigation, as to which Special Counsel expresses no opinion.

The opinion of Special Counsel is based on current legal authority, co,ers certain m1tters not directly addressed 0y such authorities, and represents S pecial Counsel's judgment as to the proper treatment of the interest portion of the Installment Payments paid 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates for federal income tax purposes. It is not binding on the I RS or the courts. Furthermore, Special Counsel cannot give and has not given any opinion or assurance about the future activities of the Authority or the Members of the Obligated Group, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof 0y the I RS. The Authority and the Members of the Obligated Group have cCNenanted, ho.va,er, to comply with the requirements of the Code.

Special Counsel's engagement with respect to the Certificates ends with the execution and delivery of the Certificates, and, unless separately engaged, Special Counsel is not obligated to defend the Authority, the Members of the Obligated Group or the Beneficial Owners regarding the tax-€Xerrpt status of the interest portion of the Installment Payments paid 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates in the event of an audit examination 0y the IRS. Under current procedures, parties other than the Authority, the Members of the Obligated Group and their appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. MoreCNer, because achieving judicial ra,ie.v in connection with an audit exarrination of tax-€Xerrpt bonds is difficult, obtaining an independent ra,ie.v of I RS positions with which the Authority or the Members of the Obligated Group legitim1tely disagree, m1y not be practicable. Any action of the I RS, including but not lirrited to selection of the Certificates for audit, or the course or result of such audit, or an audit of certificates or bonds presenting similar tax issues m1y affect the m1rket price for, or the m1rketability of, the Certificates, and m1y cause the Authority, the Members of the Obligated Group or the Beneficial Owners to incur significant expense.

CONTINUING DISCLOSURE

The Authority has deterrrined that no financial or operating data concerning the Authority is m1terial to an evaluation of the offering of the Certificates or to any decision to purchase, hold or sell Certificates and the Authority will not pr01ide any such inform1tion. Pursuant to the Rule and the Continuing Disclosure Agreement, the Obligated Group has undertaken all responsibilities for any continuing disclosure to holders of Certificates, and the Authority shall have no liability to the holders of the Certificates or any other person with respect to the Rule. Pursuant to the Continuing Disclosure Agreement the Obi igated Group has agreed to prCNide certain quarterly and annual financial inform1tion and notification of m1terial events to Beneficial Owners of the Certificates. The form of the Continuing Disclosure Agreement containing the cCNenants m1de 0y the Members of the Obligated Group thereunder for the benefit of the Beneficial Owners of the Certificates is attached in APPENDIX E-"FORM OF CONTINUING DISCLOSURE AG REEM ENT." These cCNenants have been m1de Or the Obligated Group in order to assist the Underwriter in complying with the Rule. The Obligated Group has na,er failed to comply in any m1terial respect with any pra,ious undertaking with respect to the Rule to prCNide annual reports or notices of m1terial a,ents.

Failure 0y the Obligated Group to comply with the Continuing Disclosure Agreement will not constitute an event of default under the Master Indenture, the Sale Agreement or the Trust Agreement. The holders of the Certificates are lirrited to the remedies described in the Continuing Disclosure Agreement. Failure 0y the Obligated Group to comply with the Continuing Disclosure Agreement must be reported in accordance with the Rule and must be considered 0y any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Certificates in the secondary m1rket. Consequently, any such failure m1y adversely affect the transferability and liquidity of the Certificates and their m1rket price.

36

LEGAL MATTERS

Certain legal m1tters incident to the execution and delivery of the Certificates are sul:Jject to the apprCNing opinion of Orrick, Herrington & Sutcliffe LLP, Special Counsel to the Authority. A complete cor,, of the proposed form of opinion of Special Counsel is set forth in APPENDIX D hereto. Special Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain other legal m1tters will be passed upon for the Obligated Group 0y its special counsel, Musick, Peeler & Garrett LLP, Los Angeles, California, forthe Underwriter 0y its counsel, Squire, Sanders & Dempsey L.L.P., San Francisco, California and for the Authority 0y its special counsel, Fulbright& Jaworski, L.L.P., Los Angeles, California.

ABSENCE OF MATERIAL LITIGATION

There is no contrCNersy or litigation of any nature ncm pending or, to the kncmledge of their respective officers, threatened against the Authority or the Members of the Obligated Group restraining or enjoining the execution, sale or delivery of the Certificates or in any way contesting or affecting the validity of the Certificates, any proceedings of the Authority or the Members of the Obligated Group taken concerning the execution, sale or delivery thereof, the pledge or application of any moneys or security pr01ided forthe payment of the Certificates, or existence or pcmers of the Authority orthe Members of the Obligated Group relating to the execution or delivery of the Certificates.

For a discussion of litigation pending or threatened against the Obligated Group, see APPENDIX A"DESCRIPTION OF THE OBLIGATED GROUP-PENDING LITIGATION."

RATINGS

The Certificates have been rated "Baa2" 0y Moody's Investors Service and "B B B-l' 0y Standard & Poor's, a division of the McGraw-Hi 11 Companies, Inc. There is no assurance that such ratings wi II continue for any given period of time or that they will not be revised dcmnward or withdrawn entirely 0y any such rating agencies if, in their judgment, circumstances so warrant Any such dcmnward revision or withdrawal of such ratings m1y have an adverse effect on the future m1rket price of the Certificates.

In addition, on February 13, 2007, Fitch, Inc. released a rating on the Certificates. CMC has decided notto utilize such rating, and Fitch has advised that it will withdraw its rating.

CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements as of August 31, 2006 and 2005, and for the years then ended, included in Appendix B to this Official Statement, have been audited 0y KPMG LLP, independent certified public accountants, as stated in their report also included in Appendix B to this Official Statement. The audit report cCNering the August 31, 2006 consolidated financial statements refers to a change in the method of accounting for asbestos abatement costs. See APPENDIX B-"AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED AUGUST 31, 2006AND 2005."

MISCELLANEOUS

The references to and the descriptions of the Certificates, the Master Indenture, Supplemental Indenture No. 1, the Sale Agreement, the Purchase Agreement, the Trust Agreement, Obligation No. 1, the Escrcm Agreement and the Continuing Disclosure Agreement contained herein and inAppendicesC and E hereto are brief descriptions of certain prCNisions thereof. Such descriptions do not purport to be complete. For full and complete statements of such pr01isions, reference is m1de to such documents. Copies of such documents are on file in the office of the Underwriter and follcming delivery of the Certificates will be on file at the principal corporate trust office of the Trustee in San Francisco, California.

The attached Appendices are integral parts of this Official Statement and should be read together with the balance of this Official Statement All estim1tes and other statements in this Official Statement involving m1tters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact

37

The use and distribution of this Official Statement has been apprCNed 0y the Authority. The execution and delivery of this Official Statement has been duly apprCNed 0y the Obligated Group. This Official Statement is not to be construed as a contract or agreement between the Authority or the Members of the Obligated Group and the purchasers or Holders of any Certificates.

COMMUNITY HOSPITALS OF CENTRAL CALIFORNIA For and on behalf of the Members of the Obi igated Group

By ls/Stephen R. Walter Chief Financial Officer

APPENDIX A

DESCRIPTION OF THE OBLIGATED GROUP

TABLE OF CONTENTS

INTRODUCTORY STATEMENT ............................................................................................................................. 1

Comnunity Medical CentersOverviw ........................................................................................................ 1

The Obligated Group ..................................................................................................................................... 2

Financial lnform1tion .................................................................................................................................... 3

Corporate Organizational Chart .................................................................................................................... 3

Overviw of Existing ObligatedG roup Facilities and Services .................................................................... 5

County Agreements ....................................................................................................................................... 7

CAPITAL EXPANSION PROGRAM AND THE PROJECT .................................................................................... 7

Overall Capital Expansion Program .............................................................................................................. 7

The Project .................................................................................................................................................... 8

MARKET, UTILIZATION AND COMPETITION ................................................................................................... 8

Fresno County and the Local E conolll{ ........................................................................................................ 8

Historical Utilization ..................................................................................................................................... 9

Competing Facilities in the Prim1ry Service Area ........................................................................................ 9

SUMMARY OF FINANCIAL INFORMATION ..................................................................................................... 12

S umm1ry of Operations .............................................................................................................................. 12

S umm1ry of Operating Results-Sources of Net Revenue ........................................................................... 14

Capitalization .............................................................................................................................................. 15

MaximumAnnual DebtServiceCCNerage .................................................................................................. 16

Investment PoliO( ........................................................................................................................................ 16

MANAGEMENT'S DISCUSSION AND ANALYSIS OF Fl NANCIAL PERFORMANCE ................................. 17

Critical Accounting Policies ........................................................................................................................ 17

Other Significant Accounting Policies ........................................................................................................ 17

Historical Perform1nce ................................................................................................................................ 18

Liquidity and Capital Resources ................................................................................................................. 21

GOVERNANCE ........................................................................................................................................................ 22

G CNerni ng B rards ....................................................................................................................................... 22

Management ................................................................................................................................................ 23

MEDICAL STAFF AND EMPLOYEES .................................................................................................................. 25

Medical Staff ............................................................................................................................................... 25

Medical Education and ResidenO( Program. ............................................................................................... 26

Accreditations, Memberships and Licenses ................................................................................................ 26

N urse Staffing ............................................................................................................................................. 26

E mpl0yment ................................................................................................................................................ 27

Unions ...................................................................................................................................................... 27

Pension Plan ................................................................................................................................................ 27

Comnunity Benefits .................................................................................................................................... 27

Corporate Compliance Program .................................................................................................................. 27

RISK MANAGEMENT ............................................................................................................................................ 28

PENDING LITIGATION .......................................................................................................................................... 28

CONFORMANCE WITH SB 1953SEISMIC STANDARDS ................................................................................. 29

INTRODUCTORY STATEMENT

The inforrration contained herein was acquired and prepared 0y the Merrbers of the Obligated Group. Neither the Authority nor the Underwriter has undertaken to independently verify such inforrration, and neither the Authority nor the Underwriter rrakes any representation as to its accuracy or corrpleteness. Capitali2ed term; used in this Appendix and not otherwise defined have the rreanings set forth in the body of this Official Statement.

Community Medical Centers Overview

Community Medical Centers is the business name used 0y the group of entities comprising the corrprehensive health care organization described herein (collectively, "CMC"). CMC serves California's Central Valley, meeting the needs of a diverse community with medical services throughout the region. With a corrprehensive hospital network, the largest regional physician panel in the Central Valley, and a variety of outpatient programs and services, CMC serves patients throughout Fresno County and the contiguous counties of Kern, Kings, Mariposa, Madera and Tulare. Through a nurrber of facilities, it offers medical, surgical and emergency services, family birth, pediatrics, skilled nursing, home care and outpatient care. In addition to the size and diversity of its facilities, CMC offers a variety of speciali2ed services, including the region's only La,el I traurra and burn center (one of only five such facilities in all of California). CMC also prCNides a graduate medical education program affiliated with the University of California at San Francisco Medical Education Program

CMC's operations include three acute care hospitals, two skilled nursing facilities, a fundraising foundation and other ancillary medical service prCNiders. The principal legal entities comprising CMC are:

(1) *Community Hospitals of Central California, a California nonprofit public benefit corporation which is the central rranagement, adrrinistrative and planning entity for CMC. ("CHCC")

(2) *Fresno Community Hospital and Medical Center, a California nonprofit public benefit corporation, which o.vns and operates Community Regional Medical Center and CICNis Community Medical Center, both acute care hospitals, and operates the DeWitt Subacute and Skilled Nursing Center, a skilled nursing facility. ("FCH")

(3) *Fresno Heart Hospital, LLC, a lirrited liability company, the sole merrber of which is FCH, which o.vns and operates the Fresno Heart and Surgical Hospital, an acute care hospital. (" Heart Hospital" or "FHSH")

(4) *Sierra Hospital Foundation, a California nonprofit public benefit corporation which o.vns and operates Community Living Center- Fresno, a skilled nursing facility. ("S HF")

(5) Community Hospitals of Central California Foundation, a California nonprofit public benefit corporation the sole purpose of which is to solicit, receive and administer gifts on behalf of CMC.

(6) Community Health Enterprises, Inc., a wholly-o.vned for-profit subsidiary of FCH which o.vns and operates retail pharmacies, a home infusion company and Sante Health System, Inc., a management service organization that prCNides independent physician association and physician practice management services.

* Denotes the M errbers of the Obligated G roup created pursuant to the Master I ndenture of Trust, dated as of May 1, 2007.

For more information on the relationship of significant entities within CM C, see "Corporate Organizational Chart" bel ON.

A-1

The Obligated Group

The Obligated Group consists of CHCC, FCH, the Heart Hospital and SHF (each a "Merrlier," and collectively, the "Members of the Obligated Group'' or the "Obligated Group''). The Obligated Group does not include any other entity within CMC. The Members of the Obligated Group are the sole obligors with respect to the Certificates and the Obligation No. 1. No other entity within C MC is responsible to pay the Certificates or any Obligation.

The Merrliers of the Obligated Group operate three acute care hospitals (each, a "Hospital," and collectively, "The CMC Hospitals") and two skilled nursing facilities (the "Skilled Nursing Facilities"), as set forth belo.v. All of The CMC Hospitals and one of the Skilled Nursing Facilities are operated in facilities o.vned 0y Merrliers of the Obligated Group. One of the Skilled Nursing Facilities, the DeWitt Subacute and Skilled Nursing Center, is operated in a facility leased from the County of Fresno ("Fresno County" or the "County") under a lease that expires December 31 , 2008.

The CMC Hospitals:

Community Regional Medical Center ("CRMC") (o.vned facility) Clo;is Community Medical Center (o.vned facility) Fresno Heart and Surgical Hospital (o.vned facility)

The Skilled Nursing Facilities:

Community Living Center- Fresno (o.vned facility) DeWitt Subacute and Skilled Nursing Center (leased facility)

As of April 18, 2007, The CMC Hospitals collectively contained a total of 742 licensed beds, of which 685 were being operated, and The Skilled Nursing Facilities contained 167 licensed beds, all of which were being operated. Upon construction of 104 additional beds on the CRMC main campus, which is anticipated to be completed in December 2008, it is anticipated that The CMC Hospitals will collectively contain a total of 846 licensed beds. See further discussion under the heading "Overvie.v of Existing Obligated Group Facilities and Services."

Prior to April 18, 2007, FCH pro;ided acute care and other services at an additional hospital kno.vn as University Medical Center ("UMC"). Effective April 18, 2007, the acute care services formerly pro;ided at the UMC site (the "UMC campus") were transferred to the CRMC main campus. Concurrently with the transfer of services, the nurrlier of licensed acute care beds of The CMC Hospitals decreased from 960 to 837 and operated acute care beds of The CMC Hospitals decreased from 742 to 685. Also effective April 18, 2007, 33 beds formerly classified and licensed as subacute care beds were transferred from the CRMC main campus to the U MC campus, and, together with 25 existing licensed skilled nursing facility beds on the U MC campus, are being operated as the DeWitt Subacute and Skilled Nursing Center. Concurrently with the transfer of services, the nurrlier of licensed and operated skilled nursing facility beds increased from 109 to 167. The financial and operating data set forth in Appendix A includes the activities of CMC prior to these transfers.

During the Fiscal Year ended August 31, 2006, approximately 44,700 patients were discharged from The CMC Hospitals and approximately 33,200 patient days of health care services were pro;ided 0y Community Living Center -Fresno.

The Obligated Group's primary service area is Fresno County, California (the "Primary Service Area''), and its secondary service area is comprised of portions of the follo.ving California counties: Kern, Kings, Mariposa, Madera and Tulare (collectively, the "Secondary Service Area''), which are contiguous to Fresno County.

A-Z

Financial Information

Pursuant to generally accepted accounting principles, the consolidated financial statements for CMC, included in Appendix B to this Official Statement, include CHCC and each of its controlled affiliates, including controlled affiliates which were not Members of the Obligated Group during the Fiscal Years ended August 31, 2004, August 31, 2005 and August 31, 2006 and which are not Members of the Obligated Group created pursuant to the Master Indenture of Trust dated as of May 1, 2007 (see "Other CMC Facilities and Services'' for additional inform1tion concerning these affiliates) and which are not obligated to pay debt service with respect to the Certificates or with respect to Obligation No. 1. All financial results herein (except where otherwise disclosed) are reported for CMC as a whole, including controlled affiliates which were not Members of the Obligated Group during the Fi seal Years ended August 31 , 2004, August 31 , 2005 and August 31 , 2006 and which are not Members of the Obligated Group created pursuant to the Master Indenture of Trust dated as of May 1, 2007.

In the Fiscal Year ended August 31, 2006, CMC had combined net patient service ra,enue, supplemental funding (which includes funds prCNided under California State Senate Bill 855 ("SB 855"), funds prCNided from the California Private Hospital Supplemental Fund under California State Senate Bill 1100 (the "California Private Hospital Supplemental Fund"), funding from the County of Fresno, and funding from the California Health Protection Act of 1988, referred to as Proposition 99 ("Proposition 99'') and prerrium ra,enue (also kno.vn as capitation revenue) of approximately $665 million and total ra,enues of approxim1tely $721 million. The deficit of ra,enues CNer expenses for CMC was approxim1tely $9.4 million for the Fiscal Year ended August 31, 2006. See "SUMMARY OF FINANCIAL INFORMATION" herein for a description of the financial perform1nce of CMC.

Corporate Organizational Chart

The organizational chart on the follo.ving page identifies the Members of the Obligated Group and the other entities within CMC that have significant operations.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

A-3

cc CH Found ation

m'i!nt Acti\'iti.!:;:;}

Community Medical Centers

Community Hospitals of Central California• (Corporate Aetiviti .. )

I i

I

'

Fresno Community I Hospital and Medic-al Center Sierra Hospit;1I Foundation"'

..... ~ ............. ~···~·······,.··~··· ... ;;om .. ~ .. ········~···· .. ·······~·,.~·· .. ·········~··~.,··· Ha

Oper:;d:es Two al The Hospifal:S ar"J'.I Or1e ol Th,;, Sl-:illed Nt..rsi!"(I Fadliti,;,s Oper:ates One of The Skilled Nu-sing Facilities: "'' /I 50%

Oe\/·litt 3.ubacule an:l I / (Corporat

C,:imrnunity Clovis Community Community Livirg R,;igicrn·I t.1edical Medical Cer,t6" Sl<lllad Nu~ing Can!ec i C,;,nter - R-o;sno

Center (Acui<i! C:.ira (Skill1!d Nl..lrsirrg (Skill~d N.!rsing l /l,cute Care Servi c,;,s) Seryi,;:es) S"<rlii,::,.s) Servi o-es)

1-\

munity\ <11th \ m, LLC \ Q·'IITl<i!r \ e A::l:tvtties) \

Legend

* Member of Obligated Group

~Jot-for-Profit Corporation

Partnership or Limited Liability Company

Taxable Corporatiori

Operatirig Entity

A-4

Overvie.v of Existing Obligated Group Facilities and Services

Cornnunity Regional Medical Center. CRMC is a tertiary acute care facility that prCNides the Prim1ry Service Area and the Secondary Service Area with the follo.ving services: (i) the Central Valley's only Level I Traum1 Center; (ii) the Cornnunity Regional Burn Center; (iii) comprehensive inpatient and outpatient services, including technologically advanced medical/surgical specialties; (iv) the Community Family Birth Center; (v) an intensive care unit; (vi) the Leon S. Peters Rehabilitation Center; (vii) inpatient and outpatient cancer treatment; (viii) pathology and clinical laboratory services; (ix) dialysis treatment facilities; (x) diagnostic radiology services; (xi) short stay surgery services; (xii) a cardiCNascular care unit; and (xiii) 24-hour emergency service. CRMC is also a teaching hospital that is affiliated with the University of California at San Francisco. The m1in campus of CRMC consists of a hospital building with 5 and 10-51:ory wings, connected to a 5-5tory traum1 and critical care building, located in do.vnto.vn Fresno. CRMC also prCNides behavioral health services at a freestanding facility in north Fresno kno.vn as the Cornrnunity Behavioral Health Center ("CB HC"), outpatient cancer services at its twostory outpatient cancer center at WOQCM/ard Park in northeast Fresno, approxim1tely eight miles frorn the m1in campus and a variety of general and specialized outpatient health clinics services at the Deran Koligian Ambulatory Care Center located at the U MC campus approxim1tely two mies frornthe CRMC m1in campus.

CICNis Cornnunity Medical Center. CICNis Community Medical Center ("CCMC") is located in the City of CICNis (which is contiguous to the City of Fresno), where it serves the Prim1ry Service Area and, to a lesser degree, the Secondary Service Area. The m1in facility consists of a three-5tory acute care hospital connected to an outpatient surgery center. The facility prCNides: (i) medical and surgical facilities; (ii) 24-hour emergency care; (iii) a critical care unit and treatment services; (iv) the Cornrnunity Family Birth Center; (v) the Marjorie E. Radin Breast Care Center; and (vi) outpatient diagnostic and surgical services. Through an additional facility in Oakhurst, approxim1tely 45 mies north of Fresno, CCMC also prCNides urgent care services.

Fresno Heart and Surgical Hospital. Fresno Heart and Surgical Hospital is an acute care facility located in the City of Fresno CNerlooking WOQCM/ard Park in northeast Fresno. The facility opened in October 2003 and prCNides the Prim1ry and Secondary Service Areas with (i) cardiology and cardiac surgery services; (ii) vascular surgery services; and (iii) bariatric and other mnim1lly invasive surgery services.

Licensed and Operated Beds at The CMC Hospitals. Prior to April 18, 2007, the total number of licensed acute care beds of The CMC Hospitals was 960, of which 837 were operated. Acute care beds were located at the CRMC m1in campus, CBHC, CCMC, FHSH and UMC. Effective April 18, 2007, 33 subacute care beds were transferred frorn the CRMC m1in campus to the DeWitt Subacute and Skilled Nursing Center located on the U MC campus, and the total number of licensed acute care beds of The CMC Hospitals decreased to 742, of which 685 are operated. Acute care beds are no.v located at the CRMC m1in campus, CBHC, CCMC, and FHSH. Licensed and operated acute care beds as of April 18, 2007 are set forth in the table belo.v.

As of April 18, 2007 TheCMC Hospitals Licensed Operated

CRMC 111 576 519 CCMC 109 109 FHSH 57 57

Total 742 685

( 1) Includes 61 beds located at the Community Behavioral Health Center.

CM C m1nagement does not expect that the decrease in Ii censed and operated acute care beds wi 11 result in any m1terial decrease in net operating income.

The Skilled Nursing Facilities. Cornrnunity Living Center - Fresno prCNides long-terrn care, including skilled nursing care, at its facility located in central Fresno. The DeWitt Subacute and Skilled Nursing Center

A-5

prCNides long-term care, including subacute ventilator services and skilled nursing care, at its facility located at the UMC campus.

Prior to April 18, 2007, the total nurrlier of licensed and operated skilled nursing facility beds was 109. All skilled nursing facility beds were located at Community Living Center, Fresno. Effective April 18, 2007, the total nurrlier of licensed and operated skilled nursing facility beds increased to 167, of which 33 were formerly operated and licensed as subacute care beds located at the CRMC m1in campus and 25 were operated at the UMC site as part of the acute care services formerly located there. Skilled nursing facility beds are located at Community Living Center, Fresno, and the DeWittSubacute and Skilled Nursing Center located on the UMC campus. Licensed and operated skilled nursing facility beds as of April 18, 2007 are set forth in the table belo.v.

The Skilled Nursing Facilities

Community Living Center, Fresno Dewitt S ubacute and S ki 11 ed Nursing Center

Total

As of April 18, 2007

Licensed Operated

109 109

58 58

167 167

CM C m1nagement does not expect that the decrease in Ii censed and operated beds wi 11 result in any m1terial decrease in net operating income.

Anticipated Changes in Obligated Group Facilities. New acute care beds are under construction in the 10-story wing of the CRMC, with 52 beds expected to be completed in early 2008 and an additional 52 beds expected to be completed in late 2008. It is expected that these new beds will bring the licensed capacity of the CRMC to 680 beds.

Other CMC Facilities and Services.

Community Hospitals of Central California Foundation (not an Obligated Group mermer). Operating as Community Medical Foundation, this entity is controlled 0y CHCC and solicits, receives and administers charitable gifts for CMC. The financial statements of this controlled affiliate are consolidated in the audited financial statements of CM C.

Community Health Enterprises, Inc (not an Obligated Group mermer). Community Health Enterprises is wholly o.vned 0y FCH and o.vns and operates retail and home infusion pharm1cy services. It also prCNides physician practice m1nagement services via its o.vnership of Sante Health System, Inc. The financial statements of this controlled affiliate are consolidated in the audited financial statements of CM C.

Advanced Medical lm1ging (not an Obligated Group mermer). Advanced Medical lm1ging ("AMI") is a partnership, which o.vns and operates a freestanding full service im1ging center located in the City of Fresno, serving the Prim1ry Service Area. FCH o.vns 81% of AMI and radiologists o.vn the balance. The financial statements of this controlled affiliate are consolidated in the audited financial statements of CMC.

California lm1ging Institute (not an Obligated Group mermer). California lm1ging Institute ("CII") is a partnership, which o.vns and operates a freestanding full service im1ging center located in North Fresno, serving the Prim1ry Service Area. FCH o.vns 19!6 of CII and radiologists o.vn the balance. In accordance with generally accepted accounting principles, the financial statements of CII are not consolidated in the financial statements of CMC as Cl I is not a controlled affiliate.

A-6

County Agreements

FCH entered into a series of agreements with the County effective October 7, 1996, pursuant to which FCH leased the UMC campus from the County. The current lease term, with annual rent of $2 rrillion, expires December 31, 2008 (with an option to extend the term with lease payments continuing until FCH vacates the UMC campus. Under the County Agreements, FCH is required to prCNide access to comprehensive medical care to certain classes of indigent persons and inm1tes within the County until October 7, 2026 in return for certain payments, which totaled $17.9 rrillion in the fiscal year ending August 31, 2006. For more inform1tion concerning the County Agreements, see Note 2 to the consolidated financial statements included as Appendix B hereto. As security for FCH's perform1nce under the County Agreements, FCH granted the County a first priority lien on CICNis Community Medical Center and an adjoining office building. In addition, during the 30-year period commencing October 7, 1996, the County is entitled to norrinate 27*, of the members of FCH's and certain of its affi I iates' gCNerni ng boards, and related subcomrrittees thereof, and FC H and its affi I iates are precluded (with certain specified exceptions) from m1king any net asset transfers outside the group of CMC entities without first obtaining County apprCNal. CMC currently plans to m1intain the Deran Koligian Ambulatory Care Center and the DeWitt Sum.cute and Skilled Nursing Center on the UMC campus beyond the current lease term FCH is discussing with the County the continued use of the bui I ding and an extension of the I ease term.

CAPITAL EXPANSION PROGRAM AND THE PROJECT

Overall Capital Expansion Program

The present capital plan, as updated in August 2006 (the "CMC Capital Plan"), identified the follo.ving capital imprCNement projects:

(1) Completion of the infrastructure needed for consolidation of acute care services on the CRMC campus, including: (a) construction of an expanded pharm1cy, completed in early 2007; (b) construction of a new laboratory facility, expected to be completed in late 2007; and (c) construction of 104 inpatient beds on the eighth and ninth floor of the existing 10--story to.ver, expected to be completed in late 2008 and early 2008, respectively;

(2) Expansion of CICNis Community Medical Center, including construction of new to.vers containing inpatient beds and expanded support services, expansion of the emergency department, remodeling of the existing hospital facilities and purchase of certain equipmentforCICNis Community Medical Center;

(3) Enhancement of CMC inform1tion systems;

(4) Expansion of the operating room capacity at the Heart Hospital; and

(5) Purchase of other equipment for the Members of the Obligated Group.

Commencement of a specific capital imprCNement project requires funding apprCNal of the gCNerning boards of the Members of the Obligated Group. As of the date of this Official Statement, in addition to funding for the completed pharm1cy, the gCNerning boards have apprCNed funding for the laboratory and ninth floor construction projects described abCNe and have also apprCNed initial funding forthe eighth floor construction project described abCNe. In addition, a master facility plan was completed for the CICNis Community Medical Center campus (the "CICNis Master Plan") in March 2007 and will be presented to the gCNerning boards of the Members of the Obligated Group in May 2007 for review. Sources of funding for the projects listed abCNe (excluding the expansion of CICNis Community Medical Center) include approxim1tely $50,000,000 of proceeds of the Certificates, with the ralance (estim1ted at approxim1tely $28,000,000) to be paid from operating cash CNer sa,eral years. The total cost of all imprCNements identified in the CICNis Master Plan, which, upon apprCNal 0y the gCNerning boards, is expected to be implemented in phases, is approxim1tely $342,000,000. Possible sources of funding identified in the CICNis Master Plan include operating cash and the issuance of additional debt at some time in the future. Management is recommending implementation of the first phase CNer the next five years. This phase, expected to consist of the expansion of the outpatient care center, including the addition of four operating rooms, as well as the plans and permits for construction of the four-story to.ver contemplated in the second phase, is estim1ted to cost

A-7

approxirrately $30,000,000 and is expected to be funded from operating cash. Future expenditures will be considered as financial results allo.v.

The Project

A portion of the proceeds of the Certificates will be applied to finance or reimburse the Members of the Obligated Group for their prior payment of the costs incurred in connection with completion of the infrastructure needed for the consolidation of services on the CRMC campus described alxNe and rray also be applied to finance other portions of the CMC Capital Plan described alxNe. In addition, proceeds will be used to: (i) refund the Refunded Debt; (ii) fund a debt service reserve fund; and (iii) pay certain costs of delivery of the Certificates. See "SOURCES AND USES OF FUNDS" in the body of this Official Statement.

MARKET, UTILIZATION AND COM PETITION

Fresno County and the Local Economy

Fresno County is located in central California approxirrately 185 mies southeast of San Francisco and approxirrately 219 mies north of Los Angeles. The County co,ers approxirrately 6,000 square mies and includes 15 incorporated cities (including the City of Fresno and the City of Clo;is). As of January 1, 2006, the County's estirrated population was 899,500, which reflects a population gro.vth rate of 1.8!6 since January 1, 2005 (ahead of the 1.2% state.vi de gro.vth rate for the same year), according to the State of California, Department of Finance, May 2006 report. According to the Department of Finance data, the County is the tenth largest county in California rased on its January 1, 2006 population numbers, and the City of Fresno is California's sixth largest city with an estirrated population of 471,500 as of January 1, 2006. Collectively, CMC is the largest private empl0yer in the County.

FRESNO COUNTY POPULATION

199011) 2020121

Fresno County Population 667,490 799,407 877,584 992,351 1, 185, 150

11 I Source: U nited States Census B ureau.

121 Source: Council of Fresno County Go;ernments estirrate.


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Historical Utilization

The follo.ving tables set forth the historical utilization statistics of The CMC Hospitals forthe Fiscal Years ended August 31, 2004, 2005 and 2006 and the five-rronth periods endedJ anuary 31, 2006 and 2007.

SUMMARY OF HISTORICAL UTILIZATION-THE CMC HOSPITALS

Fiscal Year Ended Five Months Ended August 31, January 31,

2004 2005 2006 2006 2007 Average Licensed Beds111 888 895 962 963 960 Average Operated B eds111 787 795 830 840 837

Occupancy Based on Operated Beds 71% 7~ 69% 67% 69%

Total Discharges 43,012 45,201 44,693 18,789 18,340

Total Patient Daysi'! 205,243 210,489 209,712 85,961 87,872

Average Length of Stay Based on Discharges 4.77 4.66 4.69 4.58 4.79

Total Outpatient Vi sits ( excluding Home 493,370 486,911 473, 114 198,792 195,285 Health)

Total Home Health Visits 49,562 51,426 53,725 22,256 23,257

--------------111 Average Licensed and Operated beds changed significantly when U Me's acute care services were

transitioned toCRMC. See "INRODUCTORY STATEMENT - Overvie.v of Existing Obligated Group Facilities and Services" alxNe for additional information.

1,1 Exel udes ne.vborn nursery (wel I-bat,,,) days.

Source: CMC.

Competing Facilities in the Primary Service Area

The CMC Hospitals have accounted for approximately 48% of the market share in the Primary Service Area (as measured t,,, patient discharges) during the five-year period ended December 31, 2005. See "Total Discharges of Primary Service Area Hospitals'' and "Market Share Percentages Based on Total Discharges" for further information.

CMC has identified four principal acute care competitors of The CMC Hospitals in the Primary Service Area: Saint Agnes Medical Center, Children's Hospital Central California, Kaiser Foundation Hospital - Fresno, and the Fresno Surgical Hospital, an acute care hospital.

The map on the follo.ving page sho.vs the relative proximity of CM C's facilities and those of its acute care competitors identified alxNe.

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carnornia

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8 cummim1111 Melllt:a!C!Wert laclJl!let ,P MllitlO Hoar! li0$plW llj C-ON1JHl1111Jl f$¢l1111U

Set forth belo.v is discharge market share data for The CMC Hospitals and the principal acute care corrpetitors identified alxNe, calculated 0y CMC using publicly available information for the calendar years set forth belo.v. The latest data available is for 2005.

TOTAL DISCHARGES OF PRIMARY SERVICE AREA HOSPITALS111

Calendar Year Ended December 31,

2001 2002 2003 2004 2005

The CMC Hospitalsi'i 38,871 39,994 41,188 41,946 44,886

Saint Agnes Medical Center 21,663 22,660 23,831 22,653 23,231

Children's Hospital Central Californial3I 10,538 11,400 12,208 12,266 12, 131

Kaiser Foundation Hospital - Fresno 8,374 9,829 9,043 8,811 8,995

Fresno Surgical Hospitail41 1,989 2,086 2,045 1,764 1,591

Total 81,435 85,969 88,315 87,440 90,834

---------------1,1 Excludes San J raquin Valley Rehabilitation Hospital (a rehabilitation facility), which had annual discharge

levels CNer the five years indicated ranging from 849 to 1, 194, and Fresno Veterans Administration Medical Center, for which such data is not reported. Also excludes data for Cedar Vista Hospital (a psychiatric hospital that was purchased 0y CMC in December 2002 and renamed Community Behavioral Health Center) for 2001 and 2002 which had annual discharges in those two years of 2,397 and 2,048, respectively. Discharges for Community Behavioral Health Center are included in the discharges of The CMC Hospitals in 2003 through 2005.

1,1 The Heart Hospital opened in October, 2003, but no data was reported prior to 2005.

131 Formerly Valley Children's Hospital.

141 Formerly the Fresno Surgery Center.

Source: Office of Statewide Health Planning and Da,elopment quarterly individual hospital data for California, as compi I ed 0y CM C.

MARKET SHARE PERCENTAGES BASED ON TOTAL DISCHARGES111

Calendar Year Ended December 31,

2001 2002 2003 2004 2005

The CMC Hospitals 47.7% 46.5% 46.7% 48.0% 49.4%

Saint Agnes Medical Center 26.6 26.4 27.0 25.9 25.6

Children's Hospital Central California121 12.9 13.3 13.8 14.0 13.4

Kaiser Foundation Hospital - Fresno 10.3 11.4 10.2 10.1 9.9

Fresno S urgi cal Hospital 131 2.5 2.4 2.3 2.0 1.7

Total 100.0% 100.0% 100.0% 100.0% 100.0%

111 Excludes Cedar Vista Hospital (prior to its purchase 0y CMC in December, 2002) and San J raquin Valley Rehabilitation Hospital.

w Formerly Valley Children's Hospital.

<3> Formerly the Fresno Surgery Center.

Source: Office of Statewide Health Planning and Da,elopment quarterly individual hospital data for California, as compi I ed 0y CM C.

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SUMMARY OF FINANCIAL INFORMATION

Summary of Operations

The summuy statement of operations inforrration for the fiscal years ended August 31, 2004, 2005 and 2006, as sho.vn in the table belo.v, has been derived from the audited consolidated financial statements of CMC. Under generally accepted accounting principles, the consolidated financial statements of CMC include CHCC and each of its controlled affiliates. Therefore all financial results herein (except where otherwise disclosed) are reported for CMC as a whole. These financial statements contain the financial results of CMC entities which are not Members of the Obligated Group (see "Other CMC Facilities and Services" for more inforrration on these entities) and which are not responsible to pay debt service with respect to the Certificates or Obligation No. 1. This sumrrary should be read in conjunction with the audited consolidated financial statements, notes and auditor's report set forth in such Appendix B. See "APPENDIX B-CONSOLIDATED FINANCIAL STATEMENTS (AND SUPPLEMENTARY CONSOLIDATING SCHEDULES)."

The sumrrary statement of operations information for the five month periods endedJ anuary 31, 2006 and 2007, as sho.vn in the table belo.v, has been prepared 0y CMC rranagementand is derived from unaudited financial statements and reflects, in the opinion of CMC management, all adjustments necessary to present such inforrration in conformity with generally accepted accounting principles. Ho.vever, the data for such five months is not necessarily indicative of the results for any other interim period or for a full fiscal year.


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SUMMARY STATEMENT OF OPERATIONS INFORMATION OF CMClll

(Dollars in Thousands)

Five Months Ended January 31,

Fiscal Year Ended August 31, (Unaudited) 2004 2005 2006 2006

Net patient service ra,enues $513,276 $555, 180 602,418 $230, 135 Supplemental funding121 63,662 64,294 61,821 25,807 Prem um revenues131 5,930 995 957 403 Investment income 5,265 2,655 4,436 1,510 Other revenues 62,387 55,676 51,637 22,294 Total ra,enues 650,520 678,800 721,269 280,149

Salaries, supplies, outside services and other 581,525 609,290 638,518 259,702 Interest 10,082 13,865 16,265 6,898 Depreciation and amortization 29,828 35,674 37,982 15,662 Pr01ision for bad debts 31,263 29,888 37,794 13,357 Total expenses 652,698 688,717 730,559 295,619

I ncome ( I oss) from Operations (2, 178) (9,917) (9,290) (15,470)

Minority I nterest 29 0 ( 117) ( 16)

Excess (deficit) of revenues CNer expenses (2, 149) (9,917) (9,407) (15,486)

Income (loss) from discontinued operationsl4I (913) (1,193) 1,057 ( 12) Cumulative effect of a change in accounting pri nci plel5I 0 0 (2,931) (2,931) Change in unrealized gains (losses) on investments (720) 708 492 (123) Net assets released from restriction for equipment acquisition 25,010 1, 123 959 13 Change in rrinimum pension obligatiod61 (10,597) 809 65 27 G rant funding for equipment and other 1,512 20 0 0

Increase (decrease) in unrestricted net assets $12,143 $ (8,450) (9, 765) $ (18,512)

---------------1,1 The abCNe table includes ra,enues from entities which are not Members of the Obligated Group and which are

not obligated to pay debt service with respect to the Certificates or Obligation No. 1. Forthe fiscal years ended August 31, 2004, August 31, 2005 and August 31, 2006, the five months ended January 31, 2006 and the five months endedJ anuary 31, 2007, excess (deficit) of revenues CNer expenses includes approximately $3,521,000, $2,331,000, $2,547,000, $756,000 and $1,505,000, respectively, of excess of revenues CNer expenses from these non-obligated entities.

121 Supplemental funding consists of state and local gCNernment programs for which reimbursement is not directly based on patient volume, such as funds prCNided under SB855, funds prCNided from the California Private Hospital Supplemental Fund, funding from the County of Fresno, and funding from Proposition 99. These amounts are included in net patient service revenue in the audited financial statements. See the discussion under "Summary of Operating Results - Sources of Net Revenue'' for additional information.

[ F ootmtes conti nLE on rBJ: page]

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2007 $277,708

25,896 531

2,662 22,379

329, 176

279, 115 6,833

15,718 19,661

321,327

7,849

(84)

7,765

319

0

3,147

285 27 0

$ 11,543

131 Prerrium revenue is also kno.vn as capitation ra,enue. FCH has agreements with various health m1intenance organizations(" HMOs'') to prCNide medical services to subscribing participants. U nderthese agreements, FCH received monthly capitation payments based on the number of each HMO's participants to whom FCH was obligated to prCNide services regardless of services actually performed 0y FCH. Only one rrinor capitation agreement still currently exists.

141 Income from discontinued operations reflects the net income (loss), including gain on disposals, for two skilled nursing facilities that were sold or held for sale as of August 31, 2006. The Community Alzheimer's Living Center was sold on April 1, 2006and Community Living Center- Oakhurstwas sold on December 5, 2006.

151 CMC adopted Financial Accounting Standards Board Interpretation No. 47 (Fl N 47) as of September 1, 2005. Fl N 47 required CMC to recognize a liability forthe estim1ted costs of asbestos remCNal and disposal costs for its facilities.

161 As of August 31, 2004, the pension plan assets were less than the Accumulated Benefit Obligation ("ABO"). When the ABO exceeds the plan assets at the end of any fiscal year (as was the case for CMC for the first time in 2004), an adjustment (negative in 2004 and slightly positive in subsequent years) to other changes in unrestricted net assets must be recognized. As of August 31, 2004, this rrinimum pension obligation was $10,597,000.

Source: CMC.

S umrnary of Operating Results-Sources of Net Ra,enue

The principal sources of the Obligated Group's ra,enue consist of charges for patient services. The follo.ving table sets forth the sources of net patient service ra,enue 0y type of payor as an approxim1te percentage of net patient service revenue for The CMC Hospitals for each of the three Fiscal Years ended August 31, 2004, 2005 and 2006, and the five-rronth periods endedJ anuary 31, 2006 and 2007.

SOURCES OF NET PATIENT SERVICE REVENUE BY PERCENTAGE 111

Fiscal Year Ended August 31,

2004 2005 2006 TheCMC Hospitals: Medicare 25% 27% 24% Medi-CalJMedicaid121 24 22 22 Contracted Managed Carel3I 31 31 35 Commercial, Self-Pay, Other 9 9 9 Supplemental Fundingl4I 11 11 10

Total 100% 100% 100%

---------------

Five Months Ended January 31, (Unaudited)

2006 2007

24% 23 31 12 10

100%

22% 24 35 10 9

100%

111 Includes net patient service revenues, supplemental funding and premium (capitation) ra,enues. Percentages have been rounded.

1,1 Includes m1naged Medi-Cal.

131 Includes m1naged senior care. 141 For an explanation of supplemental funding, see the discussion under "Summary of Operating Results -

Sources of Net Ra,enue" belo.v.

Source: CMC.

Supplemental Funding - Medi-Cal. Inpatient and outpatient services rendered to Medi-Cal program beneficiaries are reimbursed prim1rily under contracted rates. Additionally, CMC is allocated certain funds available from a pool of State of California funds for disproportionate share hospital services under both SB 855 and the California Private Hospital Supplemental Fund based on an annual deterrrination of eligibility. SB855 funds

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and funds from California Private Hospital Supplemental Fund are intended to prCNide additional funding to hospitals that prCNide services to a disproportionate share of Medi-Cal and lo.v--income patients. Amounts to be received in future years, if any, are subject to annual deterrrination of eligibility. CMC is currently capped at $42,150,920 annually for SB855 funds while funds frorn the California Private Hospital Supplemental Fund are subject to semi-annual negotiation.

For Fiscal Years 2004, 2005 and 2006, respectively, CMC received SB855 funding of approxim1tely $43, 151,000, $41,928,000 and $42,233,000, respectively, and funding frorn the California Private Hospital Supplemental Fund of $2,250,000, $4,917,000 and $1,583,000, respectively. For the five months endedJ anuary 31, 2006 and 2007, respectively, CMC received SB855 funding of approxim1tely $17,645,000 and $17,563,000, respectively, and funding frorn the California Private Hospital Supplemental Fund of $660,000 and $833,000, respectively. For more inform1tion on the California Private Hospital Supplemental Fund, see "Management's Discussion and Analysis'' belo.v.

Supplemental Funding - Other. CMC receives funding pursuant to the County Agreements (see "County Agreements" abCNe for additional inform1tion) and CMC also receives State of California funds pursuant to Proposition 99.

For Fiscal Years 2004, 2005 and 2006, respectively, CMC received payments frorn the County pursuant to the County Agreements of approxim1tely $16,917,000, $17,272,000 and $17,859,000, respectively, and funding frorn Proposition 99 of approxim1tely $1,344,000, $177,000 and $146,000, respectively. For the five months endedJ anuary 31, 2006 and 2007, respectively, CMC received payments frorn the County pursuant to the County Agreements of approxim1tely $7,430,000 and $7,500,000, respectively, and funding frorn Proposition 99 of approxim1tely $73,000 and $0, respectively. During Fiscal Year 2007, CMC has been unable to verify that funding frorn Proposition 99will continue; therefore such funding is only being recorded as income as it is received.

Capitalization

The follo.ving table sets forth the actual capitalization of CMC at August 31, 2004, 2005 and 2006 and January 31, 2007, as well as atJ anuary 31, 2007, with long-terrn debt adjusted as of January 31, 2007 for execution and delivery of the Certificates in the aggregate principal amount of $320,615,000 and the refunding of the Refunded Debt (see "PLAN OF FINANCING" in the front portion of this Official Statement) as if the execution and delivery of the Certificates had occurred onJ anuary 31, 2007.

Long-Terrn Debt, including current portion

The Certificates

Total L ong-T errn Debt

Unrestricted NetAssets

Total Capitalization

Long-Terrn Debt to Capitalization Ratio

CAPITALIZATION

(Dollars in Thousands)

As of August 31,

2004 2005

$298,813 $294, 102

0 0

298,813 294,102

304,047 295,597

$602,860 $589,699

49.6!6 49.9!6

As of January 31, 2007

2006 Actual As adjusted

$288,278 $287,140 $ 20,401

0 0 320,615

288,278 287,140 341,016

285,833 297,198 297,198111

$574, 111 $584,338 $638,214

50.2% 49.1% 53.4% (l)

Ill Unrestricted Net Assets have not been adjusted as of January 1, 2007 to reflect loss to be incurred in connection with the refunding of the Refunded Debt, estim1ted, as of April 18, 2007, 0y CMC m1nagement at $17,000,000. If this adjustment had been m1de to Unrestricted Net Assets, the Long-Terrn Debt to Capitalization Ratio would be 54.9!6.

Source: CMC.

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MaximumAnnual DebtServiceCo;erage

The table belo.v sets forth (i) the rraximum annual debt service requirement and co;erage for CMC for Fiscal Years ended August 31, 2004, 2005 and 2006, and (ii) the rraximum annual debt service requirement and co;erage for fiscal years ended August 31, 2004, 2005 and 2006, as adjusted to reflect the execution and delivery of the Certificates in the aggregate princiJRI amount of $320,615,000 and the refunding of the Refunded Debt (see "PLAN OF FINANCING" in the front portion of this Official Statement) as if the execution and delivery of the Certificates had occurred on September 1, 2003.

lncomeAvailablefor DebtServicel1I

MaximumAnnual Debt Service Requirement

MaximumAnnual DebtServiceCo;erage Ratio

Maximum Annual Debt Service, as adjustedi'i

Maximum Annual Debt Service Co;erage Ratio, as adjusted

Fiscal Year Ended August 31, (Dollars in Thousands)

2004

$37,761

$26,033

1.45

$21,311

1.77

2005

$39,622

$26,505

1.49

$22,023

1.80

2006

$44,840

$27,801

1.61

$23,331

1.92

111 Includes income of lnrraterial Affiliates as such term is defined in the Master Indenture which include Community Hospitals of Central California Foundation, Advanced Medical lm1ging and Community Health Enterprises. See Appendix C - "S unrrary of PrinciJRI Documents - Master Indenture - Particular Co;enants of the Members - PreJRration and Filing of Financial Statements, Reports and Other I nform1tion."

(2) Calculation of the rraximum annual debt service, as adjusted, assumes refunding of the Refunded Debt (see "PLAN OF FINANCING" in the front portion of this Official Statement) and execution and delivery of $320,615,000 of Certificates and includes all other outstanding long-term debt of CMC as of August 31, 2004, 2005 and 2006, as applicable.

Source: CMC.

Investment Policy

For the three Fiscal Years ended August 31, 2004, 2005 and 2006, CMC generated investment income of approxim1tely $5.3 rrillion, $2.7 million and $4.4 million, respectively. The fluctuations in investment income reflected changes in m1rket conditions and investment balances rather than a significant change in investment policy.

CMC has adopted a single, unified investment policy go;erning CHCC, FCH and SHF and is in the process of extending this investment policy to the Heart Hospital. The stated objective of the investment policy emphasizes long-term capital gro.vth of princiJRI while avoiding excessive risk. Perrritted investments include, but are not lirrited to, obligations of the United States Go;ernmentand its agencies, obligations of foreign go;ernments, domestic and foreign corporate obligations, and domestic equity securities. The Corporate Affairs Comrrittee 0/ersees the investment of funds in accordance with the investment policy. Investments are the responsibility of the Chief Financial Officer of the Members of the Obligated Group. See "GOVERNANCE" herein. This responsibility includes the authority to select investment advisers, open accounts with brokers, and establish safekeeping accounts or other arrangements for the custody of securities and to execute such documents as m1y be necessary.

The ability of the Members of the Obligated Group to continue to generate current levels of investment income depends on, among other things: (i) their ability to generate cash from operations in excess of capital expenditures, (ii) m1rket conditions and (iii) the composition of their investment portfolios. The value of the investment portfolios has fluctuated significantly from time to time and will fluctuate in the future depending on the

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value of the underlying securities. Changes in the la,el of investment earnings m1y have a significant effect on the CNerall financial condition of the Obligated Group. There can be no guarantee that the Obligated Group will continue to enj0y investment earnings in the future at sirrilar la,els or at all.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL PERFORMANCE

Critical Accounting Policies

Net Patient Service Revenues. Net patient service revenues are reported at the estim1ted net realizable amounts frorn patients, third-party payors, and others for services rendered, including estim1ted retroactive adjustments under reimbursement agreements with third-party payors. Estim1ted settlements under third-party reimbursement agreements are accrued in the period in which the related services are rendered and are adjusted in future periods, based on updated inform1tion and as a result of final settlements.

C MC has agreements with third-party pay ors that pr01ide for payments to C MC at amounts different frorn its established rates. A summary of the payment arrangements with m1jorthird-party payors is as folio.vs:

Medicare. Inpatient acute care services, skilled nursing services, rehabilitation services, and certain outpatient services rendered to Medi care program beneficiaries are paid at prospectively deterrni ned rates per diagnosis. These rates vary according to a patient classification system that is based on clinical, diagnostic, and other factors. Certain inpatient nonacute services and medical education costs related to Medicare beneficiaries are paid based on a cost reimbursement methodology. Professional services are reimbursed based on a fee schedule. In its initial years of operation through 2006, the Heart Hospital was reimbursed for capital costs using a cost-based reimbursement methodology.

Medi-Cal. Inpatient and outpatient services rendered to Medi-Cal program beneficiaries are reimbursed prim1rily under contracted rates. Additionally, CMC is allocated certain funds available frorna pool of State of California funds for disproportionate share hospital services under SB855 and frorn the California Private Hospital Supplemental Fund based upon an annual determination for eligibility.

Other. CMC has entered into payment agreements with certain commercial insurance carriers, health m1intenance organizations (HMOs), and preferred prCNider organizations. The basis for payment to CMC under these agreements includes prospectively determined rates per diagnosis, discounts frorn established charges, and prospectively deterrrined daily rates. CMC also receives State of California funds pursuant to Proposition 99.

Charity Care. Healthcare services are prCNided to patients who meet certain criteria under CM C's charity care policies without charge or at amounts less than established rates.

I nsurance and Other Benefit PI ans. CMC is self-insured for workers' compensation claims and m1i ntai ns a self-insured medical, dental, and vision care plan as an option for its ernpl0yees. Claims are accrued under these plans as the incidents that give rise to thern occur. Unpaid claim accruals are based on the actuarially estim1ted ultim1te cost of settlement, including claim settlement expenses. CMC has reinsurance arrangements with insurance companies to lirrit its losses on claims for medical and workers' compensation expenses. The portion not expected to be paid within one year is included within other long-terrn obligations.

Other Significant Accounting Policies

Assets Limited as to Use. Assets limited as to use consist principally of corporate debt securities, equity securities and U.S. GCNernment and agency securities, all of which are available for sale and carried at fair m1rket value. The fair values for these investments are based on quoted m1rket prices. Investments also include repurchase agreements. Certain m1rketable securities are designated as assets held in trust. These include assets held 0y trustees in accordance with the trust agreements relating to long-terrn debt. In addition, certain investments are designated 0y the board of trustees for future capital i rnprCNements.

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Investment income (including realized gains and losses, other than terrporary unrealized losses, interest and dividends) is included in the excess (deficit) of revenues CNer expenses unless the income is restricted 0y donor or law. Unrealized gains and losses on investments are excluded from the excess (deficit) of ra,enues CNer expenses unless the investments are trading securities, or if an unrealized loss is determined to be other than terrporary for any security that is available for sale or held to maturity. Management routinely a,aluates its investments in marketable securities for otherthan terrporary impairment

Property, Plant and Equipment Property, plant and equipment is stated on the basis of cost, or in the case of donated items, on the basis of fair market value at the date of donation. Routine maintenance and repairs are charged to expense as incurred. Expenditures that increase values, change capacities, or extend useful lives are capitalized, as is interest for significant construction projects.

Depreciation is computed 0y the straight-line method CNer the estimated useful lives of the assets, which range from 5 to40years for buildings and imprCNements and an average of 8years for equipment.

CMC management regularly ra,ie.vs property, plant and equipment for indications of impairment.

Donor Gifts. Unconditional prorrises to give cash and other assets to CMC are reported at fair market value at the date the promise is received. Conditional prorrises to give and indications of intentions to give are reported at fair market value at the date the gift is received and any conditions are substantially met. The gifts are reported as either temporarily or permanently restricted if they are received with donor stipulations that Ii mit the use of the donated assets. CMC receives contributions from donors through the Community Hospitals of Central California Foundation, which is not a member of the Obligated Group. When donor-imposed restrictions are met, either of time or specific purpose, the funds are released from restriction and transferred to the entity for which they were intended, usually a Member of the Obligated Group. Upon transfer to a Member of the Obligated Group, the associated revenue or net assets increase is reported 0y that Obligated Group Member.

Historical Performance

Management Changes. During fiscal year 2005, the gCNerning boards of the Members of the Obligated Group embarked upon a search for a ne.v Chief Executive Officer to lead CMC. TimJoslin was hired as Chief Executive Officer in July 2005 and assembled his senior management team CNer the next year. Please see "Management" belo.v for more information on the ne.vly completed seniorteam

Five Months EndedJ anuary 31, 2007 Compared to Five Months EndedJ anuary 31, 2006. Excess of ra,enues CNer expenses increased 0y approximately $23.3 rrillion forthe five months endedJ anuary 31, 2007 CNer the five months endedJ anuary 31, 2006.

Net patient service revenues increased 0y approximately $47.6 rrillion or 20.7% for the five months ended January 31, 2007 CNerthe five months endedJ anuary 31, 2006. This increase was due primarily to the negotiation of a ne.v contract with the California Medical Assistance Comrrission ("CMAC") for inpatient Medi-Cal services and the restructuring of rates for trauma services, which were both implemented in the second half of fiscal year 2006. The additional funding fromCMAC is prCNided under a three year contract which remains in effect through June 5, 2009 and is expected to be stable toJ une 2009when the contract will be renegotiated when the term expires. In the event that additional funding that was expected from the California Private Hospital Supplemental Fund does not materialize (discussed in Footnote 16(b) to CM C's audited financial statements in Appendix B), under the terms of the CMAC contract CMC can reopen Medi-Cal rate negotiations prior to the expiration of the contract. Increased ra,enue from the trauma program is due to a fundamental change in trauma processes and rates. Net patient service ra,enue also increased due to higher volumes and the inclusion of the ra,enue of AMI due to FCH acquiring a majority of the o.vnership interest.

Investment income increased 0y approximately $1.2 million or 76.3% for the five months ended January 31, 2007 CNerthe five months endedJ anuary 31, 2006, due primarily to higher cash balances and better investment returns, including realized gains.

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Salaries, supplies, outside services and other operating expenses increased approxim1tely $19.4 rrillion or 7.5% for the five months endedJ anuary 31, 2007 CNer the five months endedJ anuary 31, 2006. Increased expenses were driven prim1rily 0y the consolidation of AM I, nursing m1rket adjustment increases and inflation on wages and other expenses.

Fiscal Year 2006 Compared to Fiscal Year 2005. Deficit of revenues CNer expenses decreased 0y approxim1tely $0.5 rrillion or 5.1% in fiscal year 2006 as compared to fiscal year 2005.

Net patient service ra,enues increased 0y approxim1tely $47.2 rrillion or 8.5%. This increase was due prim1rily to the negotiation of a new contract with CMAC for inpatient Medi-Cal services inJ une, 2006 and the restructuring of rates for traum1 services in March 2006. Supplemental funding decreased 0y approxim1tely 3.8.l6 due prim1rily to higher la,els of funding from the California Private Hospital Supplemental Fund in fiscal year 2005 that reverted to custom1ry (lo.ver) funding la,els in 2006.

Investment income increased 0y approxim1tely $1.8 million or 67.1% in fiscal year 2006 as compared to fiscal year 2005, due prim1rily to higher cash balances and better investment returns, including realized gains.

Other revenue decreased 0y approxim1tely $4.0 rrillion or 7.~ in fiscal year 2006 as compared to fiscal year 2005. This decrease is due prim1rily to the closure of a retail pharm1cy and, as described abCNe, the fact that CM C's share of AMI 's earnings are not included in other revenue forthe m1jority of fiscal year 2006.

Salaries, supplies, outside services and other operating expenses increased approxim1tely $29.2 rrillion or 4.8.l6 as compared to fiscal year 2005 to fiscal year 2006. Increased expenses were driven prim1rily 0y increased nurse-to-patient ratios, wage increases and inflation on supplies and services

Interest expense increased approxim1tely $2.4 million or 17.~ due to the cessation of interest capitalization upon completion of construction of the traum1 and critical care building on the CRMC campus ("TCCB Construction Project'') in February 2005. This resulted in seven months of interest expense being recorded in fiscal year 2005 and 12 months of interest expense being recorded in fiscal year 2006 for those bond issues that occurred in prior years to fund the construction of this building.

Depreciation and amortization expense increased approxim1tely $2.3 rrillion or 6.5% as 2006 contains a full year of depreciation on the traum1 and critical care building while 2005 has only 7 months of depreciation.

Fiscal Year 2005 Compared to Fiscal Year 2004. Deficit of revenues CNer expenses increased 0y $6.9 rrillion or 223.9!6 in fiscal year 2005 as compared to fiscal year 2004.

Net patient service ra,enues increased 0y approxim1tely $35.1 rrillion or 6.7%. This increase was due prim1rily to patient day volumes which increased 47.5% at the Heart Hospital and a combined 1.5% at the rem1ining three Hospitals. Another reason for the increase in net patient service ra,enues was due to a shift from capitation (prerrium ra,enue) to contracted m1naged care, which also accounts for the 83.2% decline in premium ra,enue. Supplemental funding rem1ined relatively flat in fiscal year 2005 as compared to fiscal year 2004.

Investment income decreased 0y approxim1tely $2.6 rrillion or 49.6!6 in fiscal year 2005 as compared to fiscal year 2004, due prim1rily to realized losses on the sale of securities and lo.ver investment yields in fiscal year 2005.

Other revenue decreased 0y approxim1tely $6.7 rrillion or 10.8.l6 in fiscal year 2005 as compared to fiscal year 2004, due prim1rily to the closure of a retail pharm1cy.

Salaries, supplies, outside services and other operating expenses increased approxim1tely $20.3 rrillion or 3.4% as compared to fiscal year 2004 to fiscal year 2005. Increased expenses were driven prim1rily 0y increased nurse-to-patient ratios, wage increases, volume and inflation on supplies and services.

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Interest expense increased approxim1tely $3.7 million or 36.2% due to the reduced capitalized interest expense associated with the TCCB Construction Project in fiscal year 2005 versus 2004 because the project was placed in service in February 2005. Depreciation and amortization expense increased approxim1tely $5.7 rrillion or 18.9!6 due to the TCCB Construction Project being placed in service in February 2005.

Net assets released from restriction for equipment purchases decreased approxim1tely $23.9 million or 95.5% in fiscal year 2005 as compared to fiscal year 2004 due to the release in Fiscal Year 2004 of supplemental funding obtained from the State of California for capital expenditures associated with constructing a regional burn and traum1 center that comprised a portion of the TCCB Construction Project Change in rrinimum pension obligation increased approxim1tely $11.4 million in fiscal year 2005 as compared to fiscal year 2004 as fiscal year 2004 reflects the initial recording of the obligation and fiscal year 2005 reflects only an annual adjustment to the obi i gati on.


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Liquidity and Capital Resources

The liquidity position of CMC, defined 0y mmagement to include cash and cash equivalents, short term fixed investments and long term investments, as of August 31, 2006was approximately $168.4 rrillion, including approximately $31.2 million in operating cash and approximately $137.2 rrillion in unrestricted investments stated at fair market value. The liquidity position as of August 31, 2006 represents an 8.9!6 increase CNer the $154.6 million available as of August 31, 2005.

(1)

(2)

(3)

(4)

(5)

Cash and Cash equivalentsi'i

ShortTerm Fixed investments Long-term i nvestmentsl'i

Total unrestricted cash and i nvestments131

Days cash on hand 141

LIQUIDITY POSITION

(DOLLARS IN THOUSANDS)

Fiscal Years Ended August 31,

2004 2005 2006

$ 43,958 $45,447 $ 31,197

1,207 25,013 62,452

81,751 84,095 74,723

$126,916 $ 154,555 $ 168,372

73.5 86.4 88.7

Five months endedJ anuary 31,

2007

$ 27,457

48,096

76,569

$152,122

76.i51

Amounts outstanding under a line of credit agreement totaled $13,440,000, $12,480,000, $12,480,000 and $12,480,000, as of August 31, 2004, 2005, 2006 andJ anuary 31, 2007, respectively.

Long-term investments includes board designated assets, as set forth on the consolidated balance sheet in the audited financial statements.

These figures include $19,745,000, $22,860,000, $13,711,000 and $13,089,000 o.vned 0y CMC affiliates which are not Members of the Obligated Group, as of August 31, 2004, 2005, 2006 and January 31, 2007 respectively.

Total unrestricted cash and investments, divided 0y the calculation of total operating expenses, rrinus depreciation and amortization divided 0y the number of days in the operating period.

The decrease in days cash on hand is due in part to an increase in expenses due primarily to inclusion of AMI 's operating expenses forthe five months endedJ anuary 31, 2007 (versus only a portion of fiscal year 2006) and wage and other inflationary increases. The decrease is also due to a routine transfer of $10.9 million to the trustee for debt service payments made in February 2007 on outstanding long-term debt and expenditures on property, plant and equipment of $19.8 rrillion, approximately $6.0 to $8.0 rrillion of which is expected to be restored to operating cash from proceeds of the Certificates.

Source: CMC.

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GOVERNANCE

G o;erni ng Boards

Three of the Members of the Obligated Group (CHCC, FCH and SHF) are each go;erned 0y separate, but identical, Boards of Trustees (each, a "Board," and collectively, the "Boards"), the members of which are drawn from the medical, business, civic and professional communities. The 15 trustees currently serving on each Board and their occupations are listed belo.v. Of the 15 members of each Board, five are selected from the medical community and include: (i) the Medical Staff President (ex officio); (ii) two persons chosen 0y the Board from a slate of physicians proposed 0y the medical staff; and (iii) two "at-large" medical staff members norrinated 0y the Board and selected 0y the Board. Of the rem1ining ten members of each Board, four members (representing approxim1tely 27*, of each Board) are required to be persons nominated 0y the County Board of Supervisors pursuant to the County Agreements. The nominees from the County must be appro;ed 0y the Boards and m1y not be members of the County Board of Supervisors. In addition, no more than 20!6 of each Board's members m1y be persons ( or relatives of persons) who receive compensation from the various Members of the Obi i gated G roup. The m1jor committees of the Board include the Corporate Affairs Comrrittee, the Professional Affairs Comrrittee, the AuditiCorporate Compliance/legal Affairs Comrrittee, the Board Building Committee and the Executive Committee.

Name,Office

Ka,in Follansbee, Chairm1n

Susan Abundis, Vice Chai rm1n

Joe Williams, Secretary

Ralph Garcia, Treasurer

Jose Luis Bautista, M.D.111

Florence Dunn

Katherine Flores, M.D.111

Michael Grorris, M.D.111

David H.Jackson

Gene Kallsen, M.D.111

Brian Pacheco

Laurie Prim1vera, R.N.

Arm1ndo Rodriguez

Michael Synn, M.D.111

Lawrence E. Wayte

'" Member of the CMC Medical Staff.

Term Expires I anuary 1.

2008

2010

2008

2010

2009

2009

2009

2009

2008

2008

2009

2008

2009

2010

2008

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Principal Occupation

CFO, Fresno Valves & Castings

Senior Vice President, Bank of the West

President, Richard Heath & Associates

Director of Community Da,elopment, Fresno Economic Da,elopment Corporation

Physician/Internal Medicine, President of the Medical Staff of FCH

Senior Vice President, California Bank& Trust

Physician/Farrily Practice

Physician/Internal Medicine

Farmer

Physician/Emergency Medicine, Chief UCSF Medical Education Program

Vice President, Pacheco Dairy Inc.

Associate Director, Central Valley Health Policy Institute

Judge-retired

PhysicianPB f:,Y N

Attorney /l'artner, M cC orrri ck B arsto.v LL P

Certain merrliers of the Board of Trustees are physicians who receive corrpensation from CMC for adrrinistrative services. Board merrlier Jose Luis Bautista, M .D. prCNides services as president of the FCH Medical Staff pursuant to an individual contract with FCH. Board merrlier Michael Grorris, M.D., and Board merrlier Michael Synn, M.D pr01ide medical director services pursuant to individual contracts with FCH. No other board members have financial relationships with the Obi igated Group.

Fresno Heart Hospital, LLC is a California Lirrited Liability Company and has a Board of Managers to m1nage its affairs. The Board of Managers is composed of six merrliers, four of whom are merrliers of the Boards of the other M errliers of the Obligated G roup and two of whom are merrliers of the medical staff of Fresno Heart and Surgical Hospital. The two merrliers of the medical staff are nominated by vote of the medical staff of Fresno Heart and Surgical Hospital. All merrliers of the Board of Managers are appointed by FCH as the sole merrlier of FHH.

Management

The officers of CMC are as folio.vs (each person serves in the same capacity for each of the three M errliers) .

Tim A I oslin, Chief Executive Officer (46), has been associated with CMC sinceJ uly 2005 and serves as the Chief Executive Officer of CMC. He received his Bachelor's Degree from the University of Nevada at Reno in 1983, and his Master of Science in Hospital and Health Administration from the University of Alabam1 at Birrringham in 1986. He was the Assistant Executive Director, Hum1na Hospital, San Leandro, California from 1986 to 1987; Associate Managing Director and then Administrator, Universal Health Services, Inc., Panoram1, California from 1987to 1991; Adrrinistrator, Century City Hospital, Century City, California from 1991 to 1994; Adrrinistrator, Doctors Medical Center, Modesto, California from 1994 to 1996; Chief Executive Officer, Bro.vnsville Medical Center, B ro.vnsville, Texas from 1996to 1999; and Chief Executive Officer, Doctors Medical Center, Modesto, California from 1999 to 2005. He is a member of the American College of Healthcare Executives.

Ginny R. Burdick Vice President, Hum1n Resources (59), has been associated with CMC since Decerrlier 2003 and is responsible for all hum1n resources activities of CMC. She received her Bachelor's Degree from Utah State University, Logan, Utah in 1971. She was personnel m1nager, Broadway Department Stores, San Diego, California from 1975 to 1981; Regional Personnel Manager, Blue Shield of California, San Diego, California from 1982 to 1984; Associate Adrrinistrator, Hum1n Resources, Sharp Cabrillo Hospital, San Diego, California from 1984 to 1988; Director of Hum1n Resources Consulting, Corroon and Black Consulting Group, San Diego, California from 1988 to 1990; Vice President, Hum1n Resources, Children's Hospital Central California, Madera, California from 1990 to 2001; and Principal, Burdick Consulting Group, Madera, California from 2002 to 2003. She is a merrlier of the American Society for Hum1n Resources, the H um1n Resources Management Association of California and the American Management Association.

Craig S. Castro, Senior Vice President and Chief I nform1tion Officer and Chief Executive Officer, CICNis Community Medical Center (46), has been associated with CMC since January 2002. In addition to his responsibilities as Chief lnform1tion Officer, he also has served CMC as the Chief Executive Officer of CICNis Community Medical Center since January 2006. He received his Bachelor's Degree from California State University, Fresno in 1982. He was a staff consultant for Arthur Andersen & Co., Los Angeles, California from 1983 to 1984 and held sa,eral inform1tion technology positions with increasing responsibility including Senior Vice President and Chief I nform1tion Officer, Saint Agnes Medical Center, Fresno, California from 1984 to 2001. He is the co-founder and Chairperson of the Central California Society of lnform1tion Management, a merrlier of the Healthcare I nform1tion Management Systems Society and a member of the College of Healthcare I nform1tion Management Executives.

I ackChubb, Chief Executive Officer, Community Regional Medical Center (52), has been associated with CMC since NCNember 2005 and serves as the Chief Executive Officer of CRMC and its licensed facilities. He received his Bachelor's Degree from Texas A&M University, College Station, Texas in 1977 and his Master's Degree in Health CareAdrrinistration from Trinity University, San Antonio, Texas in 1980. He was Assistant Vice President/Adrrinistrative Resident, Roanoke Memorial Hospital, Roanoke, Virginia from 1979 to 1982; Vice

A-23

President of Support Services, Texorra Medical Center, Denison, Texas from 1982 to 1988; Chief Executive Officer, Arkansas Valley Regional Medical Center, LaJ unta, Colorado from 1988 to 1994; Chief Operating Officer, Eastern NEW Mexico Medical Center, Roswell, NEW Mexico from 1995 to 1998; Chief Operating Officer, B ro.vnsville Medical Center, B ro.vnsville, Texas from 1998 to 1999; Chief Executive Officer, Bro.vnsville Medical Center, Bro.vnsville, Texas from 1999 to 2001; Chief Operating Officer, Western Medical Center, Santa Ana, California in 2002; and Chief Executive Officer, Coastal Communities Hospital and Santa Ana Hospital, Santa Ana, California from2002 to 2005. He is a diplorrat of the American College of Health Care Executives.

Mary L. Contreras, R.N., Senior Vice President and Chief Nursing Officer (56), has been associated with CMC since 1979 and serves as the Chief Nurse Executive for CMC. She received her Bachelor's Degree from California State University, Fresno in 1974 and her Master's Degree from the University of San Francisco in May 1986. She began her service with CMC as a staff nurse, became a nursing Manager in 1991 and a Director in 1994. In February 2005, she became the Chief Nursing Officer for CMC. She is a member of the California Association of Nurse Leaders, the Nursing Leadership Council and S igrra Theta Tau International Honor Society for Nursing.

Wanda Holderrran.R.N .• Chief Executive Officer. Fresno Heart and Surgical Hospital (47), has been associated with CMC since January 2007 and serves as the Chief Executive Officer of the Fresno Heart and Surgical Hospital. She received her Associate's Degree in Nursing and her RN from Modesto Junior College, Modesto, California in 1982, her Bachelor's Degree in Healthcare Management from Century University, Albuquerque, NEW Mexico in 1992 and her Master's in Healthcare Management from Century University, Albuquerque, NEW Mexico in 1994. She held several positions at Doctors Medical Center, Modesto, California including Director, Patient Care Services from 1990 to 2000; Associate Adrrinistrator, Business Development from 2000 to 2003; Associate Adrrinistrator from 2003 to 2004 and Chief Operating Officer from 2004 to 2005. She was also Chief Operating Officer, Saint Agnes Medical Center, Fresno, California from 2005 to 2006. She is a member of the American Col I ege of Healthcare Executives.

Abdul R. Kassir. Senior Vice President, Managed Care (47), has been associated with CMC since May 2006 and is responsible forthe negotiation of rranaged care contracts for CMC. He received his Bachelor's Degree from University of California, Santa Barbara in 1982 and his Master's in Public Health from University of California at Los Angeles School of Public Health in 1987. He was a consultant for Laventhol and Horwath from 1987 to 1989; Senior Contract rranager, Blue Cross of California, Woodland Hills, California from 1989 to 1992; Director of Managed Care, National Medical Enterprises, Santa Monica, California from 1992 to 1993, Associate Adrrinistrator for Managed Care, Tenet Healthcare, Modesto, California from 1993 to 1998; Executive Director for Managed Care, Tenet Healthcare, Santa Ana, California from 1998 to 2004; Vice President for Contracting and Business Development, Care Level Management, Calabasas, California from 2004 to 2005; Vice President for PrCNider Contracting, Universal Care, Signal Hill, California from 2005 to 2006 and Vice President for Managed Care, AHMC Healthcare Inc., Alhambra, California in 2006.

Patrick Rafferty. Executive Vice President and Chief Operating Officer (54), has been associated with CMC since September 2005 and serves as the Chief Operating Officer for all CMC facilities. He received his Bachelor's Degree from Kent State University, Kent, Ohio in 1976 and his Masters of Business Administration from Saint Mary's College, Moraga, California in 1990. He held sa,eral finance positions for Hurrana Hospital Westrrinster, Westminster, California from 1977 to 1981; Audit Senior, Laventhol and Horwath, Costa Mesa, California from 1981 to 1983; Director of Finance, San Clemente Hospital, San Clemente, California from 1984to 1986; Assistant Administrator - Finance, Doctors Hospital of Lodi, Lodi, California from 1986 to 1988; Chief Financial Officer, Doctors Hospital of Pinole, Pinole, California from 1988 to 1992; Chief Financial Officer, Doctors Medical Center, Modesto, California from 1992 to 1997; Adrrinistrator, Doctors Hospital of Manteca, Manteca, California from 1997 to 2000; Chief Operating Officer, Doctors Medical Center, Modesto, California from 2000 to 2001; and Chief Executive Officer, Western Medical Center Anaheim, Anaheim, California from 2001 to 2005. He is a Certified Public Accountant, a member of the American College of Healthcare Executives and the California Hospital Association, GCNernance Forum

Thorras A Utecht. M.D .• F.A.C.E.P. Senior Vice President and Chief Quality Officer (45). has been associated with CMC since 1987 and is responsible for quality, risk rranagement and case rranagement for CMC. He received his Bachelor's Degree from L0yola Marymount University, Los Angeles, California in 1983, and his

A-24

M.D. from the University of California, Los Angeles, School of Medicine in 1987. He corrpleted an internship and emergency medicine residency at University Medical Center (formerly Valley Medical Center) from 1987 to 1991. He has served as the Assistant Chief of Emergency Medicine for University Medical Center since 1991 and was the Emergency Department Medical Director for University Medical Center from 1993 to 2006 while also serving as a practicing emergency medicine physician. He corrpleted a two year fello.vship in Healthcare Leadership through the Center for the Health Professions, UCSF in 2004. Dr. Utecht joined CMC as the Chief Quality Officer in February 2006. He is a member of the American Board of Emergency Medicine, the Society for Academe Emergency Medicine, the American College of Emergency Physicians, the American Medical Association and the American College of Healthcare Executives.

Stephen R. Walter, Senior Vice President and Chief Financial Officer (49), has been associated with CMC since January 2006 and serves as the Chief Financial Officer of CMC. He received his Bachelor's Degree in Accounting from California State University, Sacramento in 1983 and his Master's in Business Adrrinistration from Golden Gate University, San Francisco, California in 1996. He was a senior accountant, Sutter Solano Medical Center, Vallejo, California from 1983 to 1986; Controller, Republic Health, Dallas, Texas from 1986 to 1988; Controller and then Senior Auditor, Catholic Healthcare West, San Francisco, California from 1988 to 1995; Chief Financial Officer, Kern Medical Center, Bakersfield, California from 1995 to 2000; Senior ManageriConsultant, Cambio Health SolutionsiQuorum, Brentwood, Tennessee from 2000 to 2001; and Chief Financial OfficeriCorrpliance Officer, Sutter Health - Marin General & NCNato Community Hospitals, Marin, California from 2001 to 2006. He is a Certified Public Accountant and a Fello.v of the Healthcare Financial Management Association.

Robert E. Ward, Senior Vice President and Chief Legal Officer (58), has been associated with CMC since May 2000 and serves as the in-house legal counsel for CMC. He received his Bachelor's Degree from the University of Idaho in 1970 and hisJ .D. from the University of San Diego in 1977. He engaged in the private practice of law from 1977 to May 2000. He is a member of the State Bar of California, the Fresno County Bar Association, the American Health Lawyers Association, and the California Society for Health Care Attorneys.

Scott B. Wells, Senior Vice President of Physician Services and NEW Ventures (46), has been associated with CMC since October 1992 and is responsible for the operations of CMC's m1naged services organization kno.vn as SantEi He received his Bachelor's Degree from California State University, Fresno in 1983. He was a senior m1nager for Ernst and Young from 1983 to 1992. He was CM C's Director of Auditing and Consulting until 1995 when he assumed responsibility for CMC's MSO, Sante Health System, Inc. He was named Senior Vice President of Physician Services and NEW Ventures in February 2001. He is a Certified Public Accountant, a member of the American Institute of Certified Public Accountants, the California Society of Certified Public Accountants, the Healthcare Financial Management Association and the Medical Group Management Association.

I ohn D. Zele21JY, Senior Vice President, Communications (51), has been associated with CMC since March 2000 and is responsible for all m1rketing and communications activities of CMC. He received his Bachelor's Degree in journalism from Humboldt State University, Arcata, California in 1978 and hisJ .D. from the University of Pacific's McGeorge School of Law in 1985. He was a Professor in the Mass Communications and Journalism department at California State University, Fresno from 1987 to 1999. During his tenure at California State University, Fresno he also served as the Chair of the Mass Communications andJ ournalism department from 1996 to 1997, and was Assistant Vice President, University Relations from 1997 to 1999. He is a member of the State Bar of California.

MEDICAL STAFF AND EMPLOYEES

Medical Staff

TheCMC Hospitals have two separate Medical staffs (collectively, the "Medical Staff"): the FCH Medical Staff whose members have privileges at Community Regional Medical Center and CICNis Community Medical Center and the FHSH Medical Staff whose members have privileges at the Fresno Heart and Surgical Hospital. Although the two staffs have a significant number of members in common, they are not identical. The Medical Staff members serve on medical executive comrrittees and B oard subcomrrittees at their respective hospitals.

A-25

As of January 31, 2007, the Medical Staff had 581 active merrliers with active signifying a rri ni num of six JRtient care activities per year and a rrinimum of twelve JRtient care activities per two year period. Of the 581 active staff, 485 (83%) were B rard Certified in one or more specialties. The average age of the active medical staff was 52 years, and approxim1tely 9)6 of the active staff were CNer 64 years old. For the 12-rronth period ended January 31, 2007, adrrissions 0y the top 10 adrritting physicians accounted for approxim1tely 2"2% of total adrrissions to TheCMC Hospitals.

UnderTheCMC Hospital's Medical Staff Bylaws, each medical staff is divided into clinical deJRrtments, some of which are divided further into sub-deJRrtments. Each deJRrtment is organized as a seJE.rate component of the medical staff and is adrrinistered 0y a chairm1n. The FCH Medical Staff deJRrtments include surgery, OBNYN/l'ediatrics, Farrily Practice, Medicine, and Clinical Specialties (including emergency, radiology, JRthology, psychiatry, radiation oncology, clinical psychology, and physical and rehabilitation medicine). FHSH Medi cal Staff deJRrtments include surgery and medicine deJRrtments only.

Medical Education and Residency Program

CRMC is the princiJRI teaching hospital in the Central Valley through a graduate medical education programaffiliatedwith the University of California at San Francisco Medical Education program During the 2006-2007 academe year, a total of 197 residents from UCSF will train in the follo.ving areas: Emergency Medicine; Family Practice; Internal Medicine; ObstetricsNynecology; Pediatrics; Psychiatry; and Surgery. In addition, a total of 15 residents from the University of the Pacific and the University of California at Los Angeles will train in the areas of Dentistry and Oral Surgery. The nurrlier of residents and the areas in which they train rem1ins relatively constant from year to year.

CMC supports a fully accredited educational program with California State University, Fresno 0y prCNiding clinical experience to its nursing, physical therar,,', occuJRtional therar,,', speech therar,,' and dietetic students at The CMC Hospitals. Additionally, CMC prCNides clinical experience to Fresno City College's nursing, surgery and radiology technology students. CMC also prCNides clinical experience to students in the SanJ raquin Valley College LVN to RN program, Fresno Adult School and CICNis Adult School Licensed Vocational Nurse programs as well as students in m1ny other programs at area comnunity colleges.

Each of The CMC Hospitals conducts educational programs for the benefit of physicians, nurses, technicians, m1nagement personnel, empl0yees and the public. In addition, CMC sponsors numerous health promotion and education programs for its empl0yees and members of the community in m1ny areas, including nutrition and weight control, stress m1nagement, health and wel I ness, and smoking cessation.

CMC is an active JRrtner in several community service projects supporting education in health careers for high schools and other community groups.

Accreditations, Member ships and Licenses

Each of The CMC Hospitals and The Skilled Nursing Facilities are appropriately licensed 0y the State of California forthe la,el of care that they pr01ide and are certified to JRrticiJRte in the Medicare program The CMC Hospitals, with the exception of the Heart Hospital, have each been fully accredited 0y TheJ oint Comrrission. The Heart Hospital has been fully certified 0y the Centers for Medicare and Medicaid Services ("CMS") and developed its policies and procedures using TheJ oint Commission standards anticiJRting that the Heart Hospital m1y apply for accreditation in the future. In addition, CRMC, CICNis Community Medical Center, and The Skilled Nursing Facilities have met all requirements for JRrticiJRtion in the Medi-Cal programs. The Heart Hospital has elected not to JRrticiJRte in the Medi-Cal program

Nurse Staffing

The County of Fresno and surrounding counties are experiencing nursing shortages which is consistent with the experience in the State of California and the nation as a whole. CMC's 2006 registered nurse ("RN") vacancy rate was 5.7% comJRred to the California average of 8.0!6 and RN turnCNer rate was 11.6!6 COmJRred to

A-26

the California average of 13.9!6, according to data corrpiled 0y the Hospital Council of Northern California. To address the nursing shortage, CMC has irrplemented sa,eral systemwide initiatives to increase recruitment and retention including the irrplernentation of a nurse residency program designed to expand the education of ne.v nurses and allo.v CMC to retain a higher percentage of these nurses. In addition, CMC has successfully recruited nurses outside of California, both in other states and in other countries, and has raised nursing salaries to be rnore competitive with the market

E rnpl0yrnent

As of January 31, 2007, the Obligated Group errpl0yed 5,753 persons with a full-time equivalency of 5, 122, including part-ti me and temporary personnel. Management bel i a,es that the salaries and benefits offered to errpl0yees are competitive and that relations with ernpl0yees are satisfactory.

Unions

FCH currently has one union contract, which co,ers only fourteen individuals. In addition, the registered nurses at UMC are in a collective bargaining unit represented 0y the California Nurses Association ("CNA"). The collective bargaining unit was recognized 0y the National Labor Relations Board as being an appropriate bargaining unit that remained in place follo.ving the closure of County of Fresno's Valley Medical Center in October 1996 and the subsequent lease of the facility to FCH. No contract with CNA has a,er been entered into 0y FCH. Active good faith negotiations since October 6, 2003 have not resulted in a contract. There have been two one-day work stoppages, one on No;ember 23, 2004, and one on December 23, 2004. Because CNA represents only those nurses ernpl0yed on the UMC carrpus, after the transfer of acute care services to the CRMC main campus CNA will continue to represent only the approximately 20 registered nurses who remain on the UMC campus and staff the Deran Koligian Ambulatory Care Center and the DeWitt Subacute and Skilled Nursing Center. CNA is not certified to represent registered nurses at the CRMC main carrpus.

Pension Plan

CMC has a contributory defined benefit cash balance pension plan that co;ers substantially all ernpl0yees. Errpl0yees of CMC become eligible to participate in the plan on January 1 or July 1 follo.ving the corrpletion of 1,000 hours and one year of service. This plan is discussed in Note 11 to the audited financial statements appearing in Appendix B.

Cornrnunity Benefits

CMC operates healthcare facilities that pro;ide healthcare to patients regardless of their ability to pay. CMC also pro;ides services under the Medicare program, Medi-Cal program and for the County indigent patients, programs whose reimbursement does not co;er the cost of the care pr01ided. In addition, CMC maintains a medical education program and other programs for the benefit of the community. The total community benefits pro;i ded in fiscal year 2006, net of supplemental funding frorn go;ernment sources and as disclosed in Note 5 to the audited financial statements appearing in Appendix B, is $124.4 rrillion.

Corporate Compliance Program

A voluntary corporate corrpliance prograrnwas irrplemented inJ anuary 1998, modeled after the Office of Inspector General's ("OIG") Corrpliance Program Guidance for Hospitals. The program consists of the follo.ving elements: policies and procedures; o;ersight, hiring and training; reporting and auditing; and disciplinary action.

Members of each Board, physicians and errpl0yees all receive handbooks and training on the corrpliance program and the Organizational Code of Conduct. The Chief Financial Officer, Chief Operating Officer, Chief Legal Officer and Chief Compliance Officer ra,ie.v the corrpliance log and internal audit reports, monitor high-risk areas and o;ersee disciplinary actions.

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Errpl0yees, physicians and vendors are screened against the OIG 's exclusion list. Ne.v errpl0yees are trained as part of their orientation program and current errpl0yees are required to complete a corrpliance training module on an annual basis. Senior management is receiving annual training and a quarterly corrpliance ne.vsletter is sent to rriddle and upper management to prCNide guidance.

A corrpliance hotline is available 24 hours a day for reporting corrpliance issues, and all hotline calls are logged and investigated. Internal audits are performed for high-risk corrpliance areas. The hotline calls and internal audit reports are presented to the compliance CNersight comrrittee.

Management belia,es that CMC is substantially in compliance with all aspects of the HIPAA laws that are currently in effect, including privacy and security regulations.

RISK MANAGEMENT

Effective October 1, 2006, the Obligated Group facilities are self-insured for hospital professional and general liability risks for the first $2.0 million of loss per occurrence. Losses in excess of this amount are insured through claims-made professional liability policies, purchased 0y CMC's Segregated Portfolio Captive insurance company located in the Cayman Islands, that prCNide cCNerage to a maximum of $40 rrillion per occurrence. Prior to October 1, 2006, CMC was self-insured for only the first $50,000 of loss per occurrence. For more information, see Note 3(h) to the consolidated financial statements included as Appendix B hereto.

CMC is self-insured for workers' compensation risks for the first $1.5 million of loss per occurrence. Losses in excess of this amount are insured through policies of insurance which prCNide cCNerage up to statutory amounts.

CMC also maintains a self-insured medical, dental and vision care plan as an option for its empl0yees, and approximately 58!6 of the errpl0yees enrolled in CMC health plans chose this option (errpl0yees are also offered the option of HMO cCNerage that is not self-insured 0y CMC). Claims in excess of $250,000 are insured through policies of insurance which prCNide lifetime cCNerage per individual of up to $1 million.

In addition to the abCNe, the Members of the Obligated Group maintain policies of insurance for general automobile liability, loss to buildings and contents 0y fire and other casualties, crime, fiduciary liability and Directors and Officers liability.

Due to the prohibitive industry-wide cost of earthquake insurance and the size of required deductibles, the Obligated Group Members do not carry full earthquake cCNerage. Ho.va,er, the Members of the Obligated Group carry broad form property cCNerages against all perils. In addition, some damages that might result from an earthquake (such as water damage from broken pipes or a fire) are cCNered under CMC's All-risk cCNerage. All of CMC's acute care facilities meet the requirements of California State Senate Bill 1953. See "CONFORMANCE WITH SB 1953SEISMIC STANDARDS" belo.v.

PENDING LITIGATION

The Members of the Obligated Group are named from time to time and have been named as defendant(s) or co-defendant(s) in certain legal actions for medical negligence and general liability. In the opinion of management, there will not be recCNeries in any of these existing actions for medical negligence or general liability in excess of insurance cCNerages or where the outcome would have a material adverse effect on the financial condition of the Members of the Obligated Group.

Management has advised that there is no action, suit, proceeding, or investigation at law or in equity before or 0y any court, public board or body pending or, to its kno.vledge, threatened against or affecting any Member of the Obligated Group or such Member's Board wherein an unfavorable decision, ruling or finding would have a materially adverse effect on the business, properties, financial condition or operations of any Member of the Obligated Group or the transactions conterrplated 0y this Official Statement, the Master Indenture, the Sale Agreement, the Purchase Agreement, the Trust Agreement or Obligation No. 1.

A-28

CONFORMANCE WITH SB 1953SEISMIC STANDARDS

California State Senate Bill 1953 ("SB 1953") requires that acute care hospitals be in cornpliancewith new hospital seisrric safety standards or cease acute care operations in all non-compliant facilities 0y January 1, 2008, unless the California Office of Statewide Health Planning and Development (the "Office'') grants a delay to this deadline. All seismic retrofits rnust be completed in accordance with a schedule established 0y the Office but in any case no later thanJ anuary 1, 2008. SB 1953 requires the California State Department of Health Services to suspend or refuse to renew the license of a hospital that has received a notice of violation.

Management of the Obi igated G roup has completed its sei srri c a,al uati ons and has substantially completed the retrofit of all acute care facilities.


A-29

THIS PAGE INTENTIONALLY LEFT BLANK

COM MUNI TY HOSPITALS OF CENTRAL CALI FORNI A AND AFFILIATED CORPORATIONS

dba COM MUNI TY MEDI CAL CENTERS

Consolidated Financial Staterrents

August 31, 2006 and 2005

(With Independent Auditors' Report Thereon)

The Board of Trustees

KPMG llP 55

Independent Auditors' Report

Community Hospitals of Central California:

We have audited the accornpanyi ng consolidated balance sheets of Community Hospitals of Central California and Affiliated Corporations dba Community Medical Centers as of August 31, 2oa=; and 2005, and the related consolidated statements of operations, changes in net assets, and cash flo.vs for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fi nanci al statements are free of material misstatement. An audit includes consideration of internal control cwer financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control ewer financial reporting. Accordingly, we express no such opinion. An audit also includes exanining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessi ng the accounti ng pri nci pl es used and significant estimates made b,I management, as wel I as evaluating the cwerall financial statement presentation. We believe that our audits pro.tide a reasonabie basis for our opinion.

In our opinion, the consolidated financial statements referred to abcwe present fairly, in all material respects, the financial position of Community Hospitals of Central California and Affiliated Corporations dba Community Medical Centers as of August 31, 2oa=; and 2005, and the results of their operations, changes in their net assets, and their cash flo.vs for the years then ended, in confornity with accounting principles generally accepted in the United States of America.

As discussed in note 3 to the financial statements, effective September 1, 2005, the Company changed its accounting method for asbestos abatement costs b,I adopting the prc:wisions of FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations.

February 23, 2007

COMM UNITY HOSPITALS OF CENTRAL CALI FORNI A AND AFFILIATED CORPORATIONS

dbaCOM MUNI TY MEDI CAL CENTERS

Consolidated Balance S l"eets

August 31, 2006 and 2005

( I n tmusands)

Current assets: Cash and equivalents Short-term i 111estrrents

Assets

Patient accounts receivable (less allowarce for doubtful accounts of $41,801 in 2006 and $33, 154 in 2005)

Due from State of California for supplerrental funding Other receivables I 111entories Prepaid expenses and other

Total current assets

Assets lirrited as to use: Board-designated assets Assets held b{ trustee for:

Donor-restricted assets Pledged securities Debt service Capital assets

Total assets Ii rrited as to use

Property, plant, and equiprrent, net Construction in progress Other assets

Total assets

Current liabilities: Line of credit Accounts payable

Liabilities and Net Assets

Accrued compensation and employee benefits E sti rrated third-party settlerrents Other accrued liabilities and deferred ,-...,enue Current rraturities of long-term debt

Total current liabilities

Long-term debt, less current rraturities Pension benefit obi igation Other long-term obligations

Total liabilities

Minority interest

Net assets: Unrestricted T enµ,rari ly and perrranently restricted

Total net assets

Total liabilities and net assets

See accompa11ying notes to consolidated finarcial staterrents.

2

2006

$ 31,197 62,452

93,282 18,231 6,658 9,578 6,875

228,273

74,723

10,236 1,632

21,990

l 08,581

361,548 4,198

37,095

$ 739,695 ======

$ 24,673 41,168

7,019 37,989 10,205

121,054

278,073 9,339

34,392

442,858

768

285,833 10,236

296,069

$ 739,695

2005

45,447 25,013

77,870 10,906

5, 176 6,798 7,342

178,552

84,095

10,643

22,560 1,574

118,872

364,026 24,546 36,609

722,605

10,000 24, 153 38,537 11,774 5,395 9,527

99,386

284,577 6,m

25,629

416,364

295,598 10,643

306,241

722,605

COMM UNITY HOSPITALS OF CENTRAL CALI FORNI A AND AFFILIATED CORPORATIONS

dbaCOMMUNITY MEDICAL CENTERS

Consolidated Statements of Operations

Y ears ended August 31, 2006 and 2005

( I n thousands)

2006

Unrestricted revenues, gains, and other support: Net i:atient service revenues (including SB 855 state

disproportionate share funding of $42,233 in 2006 and $41,928 in 2005) $ 664,239

Premium revenue 957 Investment income 4,436 Other revenue 51,637

Total unrestricted revenues, gai ns, and other support 721,269

Expenses: Salaries, wages, and benefits 388,253 Supplies 118,761 Outside services 91,040 Insurance 9,636 Depreciation and amortization 37,982 Rental and I ease 10,691 Interest 16,265 Other 20,137 Provision for bad debts 37,794

Total expenses 730,559

Loss from operations (9,290)

Minority interest (117)

Deficit of revenues wer expenses (9,407)

Cumulative effect of a change in accounting principle for asset retirement obi i gati on (2,931)

I ncome ( I oss) from di sconti nued operations 1,057 Net change in unrealized gains and losses on investments 492 Net assets released from restrictions for equipment acquisition 959 Change in unfunded accumulated pension benefit obligation 65 Other

Decrease i n unrestricted net assets $ (9,765)

See accompc1nying notes to consolidated financial statements.

3

2005

619,474 995

2,655 55,676

678,800

364,329 123,178 84,574 6,354

35,674 9,407

13,865 21,448 29,888

688,717

(9,917)

(9,917)

(1,193) 708

1,123 809 20

(8,450)

COMMUNITY HOSPITALS OF CENTRAL CALIFORNIA AND AFFILIATED CORPORATIONS


Consolidated Statements of Changes in Net Assets

Y ears ended August 31, 2006 and 2005

Balance at August 31, 2004

Deficit of revenues wer expenses Loss from discontinued operati ans Net change in unrealized gains and losses on

i nvestments Donor ,estri cted contri buti ans Net assets rel eased from restrictions and used

for operati ans Net assets rel eased from restrictions for

equipment acquisition Change in unfunded accumulated pension

benefit obi i gati on Other

Decrease i n net assets


Deficit of revenues wer expenses Cumulative effect of a change in accounting

principle for asset retirement obi i gati on Income from discontinued operati ans Net change in unrealized gains and losses on

i nvestments Donor ,estri cted contri buti ans Net assets rel eased from restrictions and used

for operati ans Net assets rel eased from restrictions for

equipment acquisition Change in unfunded accumulated pension

benefit obi i gati on

Decrease i n net assets


( I n thousands)

$

Unrestricted

304,048

(9,917) (1,193)

708

1,123

800 20

(8,450)

295,598

(9,407)

(2,931) 1,057

492

959

65

(9,765)

$ 285,833 =====

See accompanying notes to consolidated financial statements.

4

T empor ar i ly and

permanently restricted

10,906

3,892

(3,032)

(1, 123)

(263)

10,643

2,843

(2,291)

(959)

(407)

10,236

Total

314,954

(9,917) (1,193)

708 3,892

(3,032)

800 20

(8,713)

306,241

(9,407)

(2,931) 1,057

492 2,843

(2,291)

65

(10, 172)

296,069



Consolidated S taterrents of Cash Flows

Years ended August 31, 2006 and 2005

( I n thousands)

Cash flo.vs fromop,rating activities: Change in net assets $ Adjustrrents to recorcile change in net assets to net cash

prCNided b{ op,rating activities: Net change in unreali2!'d gains and losses on i111estrrents Donor-restricted contrib.Jtions Prwision for bad debts Depreciation and amortization Depreciation on discontinued op,rations Amortization of lx>nd discount Cumulative effect ofa change in accounting pri rciple for

asset reti rerrent obi igation I mpairrrent of prop,rty, plant, and equiprrent Gain on sale of discontinued op,rations Net changes in op,rati ng assets and I iabi I ities:

Patient accounts receivable and other receivables Due from State of California for supplerrental funding I 111entories, prepaid exp,nses, and other Accounts payable and other accrued I iabi Ii ties Accrued comp,nsation and enµoyee benefits E sti rrated third-party settlerrents

Net cash prCNided b{ op,rati ng activities

Cash flo.vs from i 111esting activities: Purchases of prop,rty, plant, and equi prnent Proceeds from sale of discontinued op,rations

2006

(10,172)

(492) (27)

37,794 37,982

219 513

2,931

(l,473)

(53,419) (7,325) (3, 186) 32,670 8,588

(4,755)

39,848

(l 0,988) 2,330

Purchases of rrarketable securities (106,723) Sales of rrarketable securities 80,067 Other (974)

Net cash used in i111esting activities (36,288)

Cash flo.vs fromfinarcing activities: Prirci pal repayrrent of long-term debt (11,721) Proceeds from long-term debt 3,884 Repayrrent of line of credit, net (l 0,000) Proceeds from restricted contri b.Jtions 27

Net cash used in finarcing activities (17,810)

I rcrease (decrease) in cash and equivalents (14,250)

Cash and equivalents, beginning of year 45,447

Cash and equivalents, end of year $ 31, 197

Supplerrental disclosure of cash flow inforrration: Interest paid, net of capitali2!'d interest $ 16,092 New capital lease obligation for equiprrent l, l 01 Addition to prop,rty and equi prrent from establishing

asset retirerrent obligation 1,769 Purchase of AM I ownership interest with a note 2,641

See accompa11ying notes to consolidated finarcial staterrents.

5

2005

(8,713)

(708) (36)

29,924 35,941

462

1,720

(30,057) 9,661

363 5,182 9,940 7,399

61,078

(20,478)

(91,111) 66,576

(45,013)

(8,662)

(5,950) 36

(14,576)

1,489

43,958

45,447

13,682 3,492

(1) Organization

COMMUNITY HOSPITALS OF CENTRAL CALI FORNI A AND AFFILIATED CORPORA Tl ONS


N ates to Consoli dated Fi nanci al Statements

August 31 , 2006 and 2005

Community Hospitals of Central California, dba Community Medical Centers (CMC) is a not-for-profit rnultifacility integrated healthcare organization located in Fresno, California. CMC has established an Obligated Group to access capital markets. Obligated Group members are jointly and severally liable for the long-term debt outstanding under the Obligated Group's master trust indenture. The Obligated Group members are denoted with an asterisk(*). CMC includes the follo.ving consolidated entities, which are organized into six service Ii nes:

Acute Care Services

Acute Care Services consist of a single corporate entity, Fresno Community Hospital and Medical Center,* which operates as three general acute care hospitals that pr0.tide a full range of medical, surgical, intensive care, emergency room, burn and trauma, and obstetric services. These facilities also offer home health, psychiatric, rehabilitation, and a variety of other services. The acute care hospitals are:

• Community Regional Medical Center (formerly kno.vn as Community Medical Center-Fresno)

• Community Medical Center-Cl0.tis

• University Medical Center (UMC)

Skilled Nursing Services

Skilled Nursing Services consist of a single corporate entity, Sierra Hospital Foundation,* which operates as three skilled nursing facilities:

• Community Living Center-Fresno

• Community Living Center-Oakhurst (facility was sold on December 5, 2CXX5)

• Community Alzheimer's Living Center (facility was sold and operations were discontinued on Apri I 1, 2CXX5)

Corporate Activities

Corporate Activities consist of centralized shared services, real estate activities, and retail pharmacy operations.

• Community Hospitals of Central California* (CHCC)

• Community Heal th E nterpri ses

Fresno Heart Hospital

Until August 31, 2006, Fresno Community Hospital and Medical Center was the 51% o.vner of the Fresno Heart Hospital (the Heart Hospital), which was formed in June 1999 and began operations in October 2003. As of August 31, 2006, Fresno Community Hospital and Medical Center o.vns 10036, having acquired the interests of the physician investors. The Heart Hospital pr0.tides cardiac,elated services, orthopedic surgery, and bari atri c and other mini mal ly i nvasive surgery.

6 ( Conti nued)




August 31 , 2006 and 2005

Ad.tanced Medical Imaging

Ad.tanced Medical Imaging (AMI) is a freestanding outpatient imaging center that pr0.tides comprehensive imaging services. It is o.vned in partnership with certain radiology physicians. CMC's interest in AMI is approximately 86% in 2006.

Physician Management Services

Physician Management Services consist of a management service organization (MSO), which pr0.tides independent physician association and physician practice management services.

• Sante Health System

Development Activities

Development Activities consist of a single corporate entity, Community Hospitals of Central California Foundation, which conducts fund-raising activities for the not-for-profit organizations.

• Community Medical Foundation

Obi i gated Group Members

Obi i gated Group members are the parent corporations of certain consol i dated entities that are not Obligated Group members. Generally accepted accounting principles require consolidation of all controlled subordinate corporations. Accordingly, the consolidated financial statements of CMC are the same as the Obi i gated Group fi nanci al statements under general ly accepted accounting pri nci pl es.

(2) Agreement with the County of Fresno

Effective Octolber 7, 1996, CMC, through one of its affiliates (Fresno Community Hospital and Medical Center), entered into a series of agreements ( the Transaction Agreements) with the County of Fresno (the County). The Transaction Agreements were amended in 1998 and again in 2003 related to the UMC I ease. The pri nci pal pr0.ti si ons of the Transaction Agreements are as fol Io.vs:

• CMC is required to pr0.tide comprehensive medical care to certain classes of indigent persons and inmates within the County for a period of 30years in return for certain payments. Payments received under this agreement totaled $17,859,000 and $17,272,000 for the years ended August 31, 2006 and 2005, respectively.

• CMC leases a medical center (UMC) and certain related equipment from the County. The lease expires on December 31, 2008. Rental expense under the lease was $2,381,000 in both 2006 and 2005.

As security for CM C's performance under the terms of the Transaction Agreements, the County was granted a first-priority lien on Community Medical Center-Cl0.tis and an adjoining medical office building. In addition, during the 3G-year period commencing October 7, 1996, (a) the County is entitled to nominate 27% of the members of CMC's (and certain of its affiliates') board of trustees and related

7 ( Conti nued)




August 31 , 2006 and 2005

subcomrrittees and (b) CMC and its affiliates are precluded, with certain specified exceptions, from making any net asset transfers outside of CMC.

(3) Summary of Significant Accounting Policies

(a) BasisofConsolidation

The consolidated financial statements include the accounts of CMC and affiliates as listed under "Organization" in note 1. All significant intercorrpany accounts and transactions have been eliminated in consolidation.

( b) Use of E sti mates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporti ng period. Actual results could differ from those estimates.

(c) Cash and Equivalents

Cash and equivalents include all highly liquid investments with an original maturity of three months or I ess when purchased.

(cl) Accounts Receivable

CMC's primary concentration of credit risk is patient accounts receivable and 58855 disproportionate share funds receivable, which consist of amounts o.ved b,I various gcwernment agencies, insurance corrpanies, and private patients. CMC manages the receivables b,I regularly reviewing its accounts and contracts and b,I pr0.tiding appropriate allo.vances for uncollectible amounts.

( e) Inventories

Inventories are stated on the basis of lo.ver of cost, determined b,I the first-in, first-out method, or market. In 2006, CMC determined that surgery inventory was not recorded at all acute care facilities. As of August 31, 2006, CMC recorded all surgery inventory, which had the effect of increasing recorded inventories and reducing 2006 supplies expense b,I approximately $2,300,CXXl. The effects of not recording all surgery inventory in the consolidated financial statements for 2005 and as of August 31, 2004 are not material .

(f) Assets Limited as to Use

Assets limited as to use consist principally of corporate debt securities, equity securities, and U.S. g0.ternment and agency securities, all of which are available for sale and carried at fair market value. The fair values for these investments are based on quoted market prices. Investments also include repurchase agreements. Certain marketable securities are designated as assets held in trust. These

8 ( Conti nued)




August 31 , 2006 and 2005

include assets held b,I trustees in accordance with the indentures relating to long-term debt. In addition, certain investments are set aside b,I the board of trustees for future capital imprcwements.

Investment income (including realized gains and losses, other than terrporary unrealized losses, interest, and dividends) is included in the excess (deficit) of revenues ewer expenses unless the income is restricted b,I donor or law. Unrealized gains and losses on investments are excluded from the excess (deficit) of revenues ewer expenses unless the investments are trading securities, or if an unrealized loss is deternined to be other than terrporary for any security that is available for sale or held to maturity. Management routinely evaluates its investments in marketable securities for other than temporary i rrpai rment.

(g) Property, Plant, and Equipment

Property, plant, and equipment are stated at cost, or in the case of donated items, at fair market value at the date of donation. Routine maintenance and repairs are charged to expense as incurred. Expenditures that increase values, change capacities, or extend useful lives are capitalized, as is interest for significant construction prqjects. In 2006 and 2005, $345,000 and $2,390,000, respectively, of net interest expense was capitalized for construction prqjects. In 2005, net interest expense included capitalized interest expense of $2,767,000, net of $377,000 of capitalized investment income from unspent bond proceeds.

Depreciation is computed b,I the straight-line method ewer the estimated useful lives of the assets, which range from 5 to 40years for buildings and imprewements and an average of 8years for equipment.

CMC management regularly reviews property, plant, and equipment for indications of impairment. I n 2005, a prqj ect i ncl uded i n construction in progress was determined to be i rrpai red, resul ti ng i n an impairment charge of $1,720,000, which is included in other expenses in the accompanying consolidated statements of operati ans.

(h) Self-Insurance and Other Benefit Plans

CMC is self-insured for workers' compensation claims and maintains a self-insured medical, dental, and vision care plan as an option for its emplO{ees. Claims are accrued under these plans as the incidents that give rise to them occur. Unpaid claim accruals are based on the actuarially estimated ultimate cost of sett I ement, including cl ai m sett I ement expenses. CM C has reinsurance arrangements with insurance companies to Ii nit its losses on claims for medical and workers' compensation expenses. The portion not expected to be paid within one year is included within other long-term obi i gati ans.

(i) Professional Liability Insurance

CMC maintains its professional liability insurance cewerage through a claims-made policy. Should the claims-made policy not be renewed or replaced with equivalent insurance, claims related to occurrences during the term of the claims-made policy but reported subsequent to its termination may be uninsured. Liabilities of $5,544,000 and $4,814,000 have been recorded for the actuarially

9 ( Conti nued)




August 31 , 2006 and 2005

estimated incurred but not reported liability that is not ccwered b,I insurance at August 31, 2006 and 2005, respectively, and are included within other long-term obligations in the accompanying consolidated balance sheets.

U) I ncome Taxes

Most entities included in CMC have been determined to be exerrpt organizations b,I the Internal Revenue Service and the California Franchise Tax Board and generally are not suqject to taxes on income pursuant to Section 501(c)(3) of the Internal Revenue Code and relevant state tax codes. Certain of CMC's affiliated corporations are taxable entities that have net cumulative losses. The deferred tax assets associated with these losses have been fully reserved. There was no tax pro.ti sion recorded for the years ended August 31, 2006 and 2005.

(k) Donor Gifts

Unconditional promises to give cash and other assets to CMC are reported at fair market value at the date the promise is received. Conditional pronises to give and indications of intentions to give are reported at fair market value at the date the gift is received and any conditions are substantially met. The gifts are reported as either temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accorrplished, restricted net assets are reel assi fi ed as unrestricted net assets.

(I) Reclassifications

Certain 2005 amounts have been reclassifiedtoconformtothe 2006 presentation.

(rn) Accounting Change

CMC adopted Financial Accounting Standards Board (FASB) Interpretation No. 47 (Fl N 47), Accounting for Conditional Asset Retirement Obligations, as of September 1, 2005. Fl N 47 clarifies that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. Because asbestos abatement is mandated under State of California laws, asbestos remcwal and disposal costs qualify as conditional asset retirement obligations under FIN 47. CMC will eventually be required to remcwe and dispose of asbestos in all its facilities.

Upon adoption of Fl N 47, CMC was required to recognize in its balance sheet (1) a liability for any existing asset retirement obligation, (2) an asset retirement cost capitalized as an increase to the carrying amount of the associated long-lived asset, and (3) accumulated depreciation on that capitalized cost. The accumulated depreciation on the capitalized asset retirement cost was calculated from the passage of California legislation on asbestos abatement (1985) to 2005. This amount totaling $2,931,000was recognized as the cumulative effect of a change in accounting principle in the accompanyi ng consol i dated statement of operati ans. At August 31, 2006, the esti mated Ii abi Ii ty for the asset retirement obligation of $4,700,000 is included in other long-term obligations in the accorrpanyi ng consolidated balance sheet.

10 ( Conti nued)




August 31 , 2006 and 2005

(n) Ne.v Accounting Pronouncements

In Septerrber 2006, the FASB issued Statement No. 158 (FAS 158), Enl)loyers' Accounting for Defined Benefit Pension and Other Postretirement Plans, which amends FAS 87, Employers' Accounting for Pensions, FAS 88, Enl)loyers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Temination Benefits, FAS 106, Enl)loyers' Accounting for Postretirement Benefits Other Than Pensions, and FAS 132 (revised 2003), Enl)loyers' Disclosures about Pensions and Other Postretirement Benefits, and other related accounting literature. Upon initial application of FAS 158and subsequently, an employer should continue to apply the pr0.tisions in Statements 87, 88, and 106 in measuring plan assets and benefit obligations as of the date of its statement of financial position and in deternining the amount of net periodic benefit cost. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit postreti rement pl an and to pr0.ti de the required di sci osures as of the end of the fi seal year ending after June 15, 2007, which for CMC will be fiscal year 2007. CMC management expects that the most significant effect of the adoption of this pronouncement wi 11 be the effect of i ncreasi ng recorded pension liabilities and decreasing net assets b,I the difference between the benefit obligation and the fair value of the assets as of the adoption date.

(4) Net Patient Service and Premium Revenues

(a) Net Patient Service Revenues

Net patient service revenues are reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered, including estimated retroactive acjjustments under reimbursement agreements with third-party pay ors. Estimated settlements under third-party reimbursement agreements are accrued in the period in which the related services are rendered and are acjjusted in future periods, based on updated information and as a result of final settlements.

Gross patient charges comprise usual and customary charges for services pro.tided to all patients. The composition of consolidated gross patient charges b,I major payor group as of the years ended August 31, 2006 and 2005 is as fol I o,vs:

Medicare M edi--Cal and managed M edi--Cal Contracted rate payors Commercial insurance and other payors Medically Indigent Services Program (MISP)

Total

11

2006

2436 28 27 16

5

10036

2005

28% 32 25 12

5

10036

( Conti nued)




August 31 , 2006 and 2005

CM C has agreements with third-party pay ors that pr0.ti de for payments to CM C at am:iunts different from its established rates. A summary of the payment arrangements with major third-party pay ors is as folio.vs:

Medicare

Inpatient acute care services, skilled nursing services, rehabilitation services, and certain outpatient services rendered to Medicare program beneficiaries are paid at prospectively deternined rates per diagnosis. These rates vary according to a patient classification system that is based on clinical, diagnostic, and other factors. Certain inpatient nonacute services and medical education costs related to Medicare beneficiaries are paid based on a cost reimbursement methodology. Professional services are reimbursed based on a fee schedule. In its initial years of operation through 2006, the Heart Hospital was reimbursed for capital costs using a cost-based reimbursement methodology.

Medi-Cal

Inpatient and outpatient services rendered to Medi-Cal program beneficiaries are reimbursed primarily under contracted rates. Additionally, CMC is allocated certain funds available from a pool of State of California funds for disproportionate share hospital services under the 58855 and SB1255;Private Hospital Fund programs based upon an annual deternination for eligibility. Revenues under the SB 855 program and SB 1255;Private Hospital Fund totaled $42,233,CXXl and $1,583,CXXl, respectively, for the year ended August 31, 2006, and $41,928,CXXl and $4,917,CXXl, respectively, for the year ended August 31, 2005. As of August 31, 2006 and 2005, CMC recorded receivables of $18,231,CXXl and $10,9<X,,CXXJ, respectively, for am:iunts due from the State of California forthe 58855, SB 1255, and other programs.

See note 16 for further discussion of recent events associated with County and State funding.

Cost reports fi I ed under the M edi care and M edi--Cal programs for services based on cost reimbursement are suqject to audit. The estimated am:iunts due to or from the program are revie.ved and acjjusted annually based on the status of such audits and any subsequent appeals. Differences between final settlements and am:iunts accrued in previous years are reported as adjustments to net revenue in the year in which the examination is completed. Net patient service revenue increased $3,322,CXXl and $3,745,CXXl in 2006 and 2005, respectively, related to updates of prior years' cost report reserves and b,I $2,828,CXXl and $1,834,CXXl, respectively, related to appeals of prior years' cost report sen I ements.

Other

CMC has entered into payment agreements with certain commercial insurance carriers, health maintenance organizations (HMOs), and preferred pr0.tider organizations. The basis for payment to CMC under these agreements includes prospectively determined rates per diagnosis, discounts from established charges, and prospectively deternined daily rates. CMC also receives State of California funds pursuant to Proposition 99.

12 ( Conti nued)

(5)

(b)




August 31 , 2006 and 2005

Charity Care

Healthcare services are pr0.tided to patients who meet certain criteria under CMC's charity care pol i ci es with out charge or at amounts I ess than established rates.

Community Benefits

Unpaid services (estimated cost in excess of third-party reimbursement) pr0.tided by CMC to the medically underserved and as a benefit to the community are as fol lo.vs for the years ended August 31, 2006 and 2005:

2006 % oftotal 2005 % oftotal (In thousands) expenses (In thousands) expenses

Traditional charity care at unpaid costs $ 15, 164 2.1% $ 11,909 1.7'/o

Unpaid costs of public programs forth, medically underserved 99,739 13.6 101,270 14.7

Unpaid costs of public programs for the elderly and disabled 28, 140 3.8 17,939 2.6

Unpaid costs of education and comnmity benefits, net 25,271 3.5 17,819 2.6

168,314 23.0'/o 148,937 21.6%

5 B 855 disproportionate share fundi rg (42,233) (5.8) (41,928) (6.1)

5 B 1255 emergency services fundirg accrual ( 1,583) (0.2) ( 4,917) (0.7)

Proposition 99 - Tobacco Tax (146) (177)

Net comrunity benefits $ 124,352 17.0'/o $ 101,915 14.8'/o

Traditional charity care c0.ters services pr0.tided to persons who meet certain criteria and cannot afford to pay. Unpaid costs of charity are the estimated costs of services pr0.tided to such patients. Foregone charity charges totaled $41,795,000 and $30, 119,000 in 2006 and 2005, respectively.

Unpaid costs of public programs for the medically underserved are the costs in excess of reimbursement for treating patients c0.tered by the state's Medi-Cal and Ml SP programs.

Unpaid costs of public programs for the elderly and disabled are the costs in excess of reimbursement for treating patients c0.tered by the Medicare program.

Unpaid costs of education and community benefits include the cost of training health professionals and educating the community with various seminars and classes, net of g0.ternment and other reimbursement for such activities.

13 ( Conti nued)




August 31 , 2006 and 2005

(6) AssetsLimitedastoUse

Assets limited as to use include marketable securities that are carried at fair value based on quoted market prices. Pledges receivable are carried at net realizable value. The corrposition of assets linited as to use at August 31, 2006 and 2005 is as follONs (in thousands):

Cash and cash equivalents $ U.S. government debt securities Corporate debt securities Equity securities Repurchase agreements Less short-term investments

Total cash and marketable securities

PI edges receivable, net

Cost

8,419 45,958 63,412 28,743 15,235

(62,452)

99,315

7,743

2006

Total assets Ii ni ted as to use $==10=7=,0=5=8=

Fair value and

carrying value

8,419 45,992 63, 126 30,518 15,235

(62,452)

100,838

7,743

108,581

Cost

13,938 38,728 44,083 22,725 15,239

(25,013)

109,700

8, 139

117,839

2005 Fair value

and carrying

value

13,938 39,040 44,024 23,505 15,239

(25,013)

110,733

8, 139

118,872

The follONing table summarizes the composition of CMC's investments with unrealized losses as of August 31, 2006(inthousands):

Unrealized losses existing [esstlian 12 montlis 12 montlis or lon~r Total Fair Unrealized Fair Unrealized Fair Unrealized

De9:::ription of securities value loss value loss value loss Bordsorcomrrercial ~r $ 13,868 (347) 44,784 (l,068) 58,652 (l ,415) Equity securities 6,018 (166) 2, 7'JJ (244) 8,748 (410)

T emp::,ran ly imp:iired $ 19,886 (513) 47,514 (l,312) 67,4(X) (l,825)

At August 31, 2006, investments with a fair market value of $67,400,000 were $1,825,000, or an average of 2.7%, belON their cost. CMC considers these unrealized losses to be the result of normal price fluctuations that are typical of the investment securities marketplace. CMC does not consider the size or the nature of this total unrealized I ass, or that of any individual investment that is a component of it, to be unrecoverable.

14 ( Conti nued)




August 31 , 2006 and 2005

The follo.ving table sumnarizes the cornp:isition of CMC's investments with unrealized losses as of August 31, 2005 ( i n thousands):

Unrealized losses existing [ ess tlian 12 montlis 12 montlis or lon~r Total Fair Unrealized Fair Unrealized Fair Unrealized

De9:::ription of securities value loss value loss value loss Bordsorcorrrrercial ~r $ 19,ffi3 (189) 18,622 (364) 38,225 (553) Equity securities 2,630 (122) 5,921 (476) 8,551 (598)

T emp::,ran ly imp:iired $ 22,233 (311) 24,543 (840) 46,776 (l,151)

At August 31, 2005, investments with a fair market value of $46,776,CXXlwere $1,151,CXXl, or an average of 2.5%, belo.v their cost. CMC considers these unrealized losses to be the result of normal price fluctuations that are typical of the investment securities marketplace. CMC does not consider the size or the nature of this total unrealized I ass, or that of any individual investment that is a component of it, to be unreco..rerabl e.

Investment income is cornp:ised of the follo.ving for the years ended August 31, 2006 and 2005 (in thousands):

I nterest income Net realized losses on sales of securities Dividends

(7) Property, Plant, and Equipment

$

2006

4,428 (507)

515

$ 4,436 ======

2005

2,924 (544) 275

2,655

Property, plant, and equipment consists of the follo.ving as of August 31, 2006 and 2005 (in thousands):

2006 2005

Land $ 23,575 20,660 Bui I dings and i mpro..rements 331,464 318,644 Equipment 252,440 238,026

607,479 577,330

Accumulated depreciation and armrtization (245,931) (213,304)

$ 361,548 364,026

15 ( Conti nued)




August 31 , 2006 and 2005

( 8) Other Assets

Other assets consist of the fol Io.vi ng as of August 31 , 2006 and 2005 (in thousands) :

2006

I nvestment i n rental properties $ 17,915 Real estate held for future development 9,507 I ntangi bl e assets, net 4,785 U namorti zed fi nanci ng costs, net 3,324 Assets held for sale 973 I nvestment i n j oi nt ventures 482 Other 109

$ 37,095

2005

18,795 9,116

4,120

4,164 414

36,609

CMC o.vns rental properties, recorded at cost, net of accumulated depreciation. Investments in rental properties consist of the fol Io.vi ng as of August 31, 2006 and 2005 (in thousands) :

2006 2005

Land $ 3,925 3,925 Buildings and land irrprCNements 24,577 24,365 Equipment 2,747 2,717

31,249 31,007

Accumulated depreciation (13,334) (12,212)

$ 17,915 18,795

Future ninimum lease payments to be received, b,r fiscal year and in the aggregate, from noncancelable operating I eases of the rental properties are as fol Io.vs ( i n thousands):

2007 $ 1,493 2008 896 2009 631 2010 426 2011 205 Thereafter 122

$ 3,773

16 ( Conti nued)




August 31 , 2006 and 2005

(9) Long-Term Debt

Long-term debt consists of the follo.ving as of August 31, 2006 and 2005 (in thousands):

2006

Central CaliforniaJoint Po.vers Health Financing Authority Certificates of Participation (Community Hospitals of Central California Project) Series 1993, interest ranging from 5% to 5.5% payable semiannually; principal payable in installments ranging from $2, 125,000 in 2007 to $4,890,000 in 2023, collateralized by gross revenues $ 71,340

U narmrti zed bond discount (2,002)

68,538

Central CaliforniaJoint Po.vers Health Financing Authority Certificates of Participation (Community Hospitals of Central California Prqject) Series 2000, interest ranging from 5% to 6'/o payable semiannually; principal payable in installments ranging from $1,305,000 in 2007 to $14,545,000 in 2030, collateralized by gross revenues 122,535

U narmrti zed bond discount (2,384)

120, 151

Central CaliforniaJoint Po.vers Health Financing Authority Certificates of Participation (Community Hospitals of Central California Prqject) Series 2001, interest ranging from 4.75% to 6'/o payable serriannually; principal payable in installments ranging from $1,075,000 in 2007 to $18,600,000 in 2031, collateralized by gross revenues 64,065

U narmrti zed bond discount (196)

63,869

Total certificates of participation 252,558

California Statewide Communities Development Authority Revenue Notes (Community Hospitals of Central California) Series 2004A, interest at 4.3% payable semiannually; principal payable in installments ranging from $655,000 in 2007 to $776,000 in 2011, collateralized by gross revenues 3,571

Line of credit with a bank, interest payable rmnthly, interest at the bank's reference rate less 0.5% (6.75% at August 31, 2006), expires inAugust2008; collateralized by real estate; current maxi mum armunt available underthi s agreement is $12,400,000 12,400

17

2005

75,565

(3, 168)

72,397

123,700

(2,519)

121,261

65,095

(207)

64,888

258,546

4,199

12,480

( Conti nued)




August 31 , 2006 and 2005

2006

Capital lease obligations, payable in monthly installments through 201 Owith interest ranging from 4.17'/o to 6.55%, col I ateral i zed by I eased equi pment 15,831

Note payable to an LLC and its o,vners, payable in monthly i nstal I ments through 2021, interest at & 7'3'/o ( see note 1 5) 2,435

Note payable to a corporation, payable in annual installments through 2009, interest i rnputed at 4. 73% 1,371

Other I ong-term obi i gati ons 32

288,278

Current maturities (10,205) $ 278,073

2005

18,879

294,104

(9,527) 284,577

Under the terms of the master trust indenture associated with the certificates of participation, certain members of CM C are designated as members of the Obi i gated Group. There are restrictive cOJenants requiring compliance by the Obligated Group. These include, among other things, !irritations on the issuance of addi ti anal debt and the maintenance of certai n financial ratios.

Scheduled principal repayments on long-term debt and payments on capital lease obligations by fiscal year are as fol I o,vs ( i n thousands):

Long-term Capital lease debt obligations

2007 $ 6,673 4,344 2008 18,204 4,357 2009 6,994 4,382 2010 6,848 4,203 2011 7,201 521 Thereafter 231,909

277,829 17,807

Less unamortized bond discount (5,382) Less amount representing interest under

capital lease obligations (1,976)

$ 272,447 15,831

The aggregate estimated fair value of CMC's long-term obligations at August 31, 2006 and 2005 of $302,165,000 and $312,801,000, respectively, were estimated using discounted cash flo,v analyses based on CM C's current incremental borrcwi ng rates for si mi I ar debt instruments.

18 ( Conti nued)

(10) Line of Credit

COMMUNITY HOSPITALS OF CENTRAL CALI FORNI A AND AF Fl LIATED CORPORATIONS



August 31 , 2006 and 2005

In addition to the line of credit included in note 9, CMC has a credit agreement with a bank that allo.vs CMC to borro.v up to $20,000,000. Borro.vings under the agreement, which expires on March 31, 2007, bear interest at the bank's reference rate (6.75% at August 31, 2006) and are collateralized b,r securities held b,r the bank. There was no balance outstanding under this agreement at August 31, 2006 and there was $10,000,000 outstanding under a prior line of credit agreement, which did not require col lateralization, at August 31, 2005.

(11) Pension Plan

CMC has a contributory defined benefit cash balance pension plan as defined b,r Statement of Financial Accounting Standards (SFAS) No. 87, Errployers' Accounting for Pensions. The pension plan cOJers substantially all employees. Benefit payments for participants in the plan are determined b,r application of a benefit formula to the average base earnings of participants. In addition to normal retirement benefits, under certain circumstances, the plan also pro.!ides early retirement, disability, death, and spousal benefits. Employees of CMC become eligible to participate in the plan on January 1 or July 1 follo.ving the completion of 1,000 hours and one year of service. The vesting period is five years.

Mandatory contributions are made to the plan b,r the employees as specified in the plan documents. Total employee contributions to the plan for the years ending August 31, 2006 and 2005 were $3,361,000 and $2,869,000, respectively. Total errployer contributions to the plan for the same periods were $4,200,000 and $4,200,000, respectively.

A rollforward of the change in benefit obligation and change in the fair value of plan assets for the plan based on August 31 , 2006 and 2005 measurement dates is as fol Io.vs ( i n thousands):

Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost PI an participants' contributions Actuarial I ass B enefi ts paid Administrative expenses paid

B enefi t obi i gati on at end of year

$

$

19

2006 2005

92,971 81,262 7,859 7, 115 4,778 4,775 3,361 2,869

737 1,775 (7,754) (4,825)

(252)

101,700 92,971 =====

( Conti nued)




August 31 , 2006 and 2005

Change in plan assets: Fair value of pl an assets at beginning of year Actual return on pl an assets E rnpl oy er contri buti ons PI an participants' contributions B enefi ts paid Administrative expenses paid

Fair value of pl an assets at end of year

Reconciliation of funded status: Funded status Unrecognized actuarial loss Unrecognized prior service cost

Prepaid pension cost at August 31

Unfunded accumulated pension benefit obligation

$

$

$

Pension liability recognized at August 31 $

Weighted average assumptions as of August 31 are as fol lo.vs:

Discount rate Expected long-term rate of return on assets Rate of compensation i ncrease

2006

81,874 5,812 4,200 3,361

(7,754) (252)

87,241 ======

(14,459) 14,914

(71)

384

(9,723)

(9,339) ======

2006

6.0036 7.50 4.00

2005

73,295 6,335 4,200 2,869

(4,825)

81,874

(11,097) 14,202

(89)

3,016

(9,788)

(6,772)

2005

5.25% 7.50 4.00

Net periodic pension cost for the pl an for 2006 and 2005 is incl uded in salaries, wages, and benefits in the accompanying consolidated statements of operations. Components of net periodic pension cost include the fol lo.vi ng (in thousands):

Service cost I nterest cost Expected return on pl an assets A morti zati on of prior service cost Recognized net actuarial losses

Net periodic pension cost

$

$

20

2006 2005

7,859 7, 115 4,778 4,775

(6,217) (5,600) (18) (18) 431 480

6,833 6,752

( Conti nued)




August 31 , 2006 and 2005

CM C's pension plan asset allocations at August 31, 2006 and 2005 b,r asset category are as fol lo.vs:

Asset category: Cash and equivalents Debt securities Equity securities

2006

936 32 59

10036

2005

836 44 48

10036

The expected long-term rate of return on plan assets is the expected average rate of return on the funds invested currently and on funds to be invested in the future in order to prOJi de for the benefits included in the prqjected benefit obligation. The CMC pension plan used 7.5036 in calculating the 2006 and 2005 expense amounts. This assumption is based on capital market assurrptions and the plan's target asset allocation. CMC continues to monitor the expected long-term rate of return if changes in those parameters cause 7.5036 to be outside of a reasonable range of expected returns, or if actual plan returns OJer an extended period oftime suggest general market assumptions are not representative of expected plan results.

The follo.ving pension benefit payments reflect expected future service. Payments expected to be paid wer the next lOyears are as fol lo.vs (in thousands):

Fi seal year: 2007 2008 2000 2010 2011 2012- 2016

$ 10,703 7,004 8,207 8,854

10,176 67,277

CM C expects to contribute approximately $4, 200,000 to the pension pl an duri ng the 2007 fi seal year.

21 ( Conti nued)




August 31 , 2006 and 2005

(12) Restricted Net Assets

Terrporarily and permanently restricted net assets are available for the follo.ving purposes as of August 31, 2006 and 2005 (in thousands):

T emporari ly restricted net assets: Purchase of property and equipment Burn and trauma facility construction Specified services Scholarships and other education Other Future periods

Permanently restricted net assets

Total temporari ly and permanently restricted net assets

(13) Functional Classification of Operating Expenses

2006 2005

$ 1,427 1,558 259 486

2,932 1,432 964 914 947 608

3,323 5,261

9,852 10,259 384 384

10,236 $======== 10,643

The follo.ving is a summary of management's estimated functional classification of operating expenses as of August 31, 2006 and 2005 (in thousands) :

2006 2005

Program services $ 656,739 619,578 Management and general 72,478 75,755 Fund-raising 1,342 1,380

$ 730,559 696,713

22 ( Conti nued)




August 31 , 2006 and 2005

(14) Operating Leases

CMC leases certain property and equipment under noncancelable operating leases that expire in various years through 2016. Future ninimum payments at August 31, 2006, b,r fiscal year and in the aggregate, under noncancelable operating leases with initial terms of one year of more consist of the follo.ving (in thousands):

2007 $ 5,674 2008 3,006 2000 2,100 2010 1,831 2011 1,563 Thereafter 5,652

$ 19,826

Total operating lease expense in 2006 and 2005 was $9,287,000 and $6,082,000, respectively.

(15) Acquisition Transactions

In August 2006 CMC completed a transaction to purchase the 4936 of the Fresno Heart Hospital that it did not already o.vn. Total consideration paid was $1,737,000. Additionally, the purchase agreement calls for delayed payments of up to $5.9 million based on future profitability of the Heart Hospital. This contingent consideration will not be recorded until the requisite future profitability is achieved.

Because the hospital has operated at a deficit in recent years and the contributed capital of the prior 4936 shareholders was previously depleted, CMC has incorporated 10036 of the Heart Hospital's losses in CM C's consolidated financial statements in both 2006 and 2005.

In December 2005, CMC completed a transaction to purchase an additional o.vnership interest in Ad.lanced Medical Imaging for consideration totaling $2.6 million, mostly in the form of notes payable. Prior to this transaction, CMC o.vned 5036 of AMI and accounted for this investment using the equity method. Subsequent to this transaction, CMC o.vns 86% of AMI. CMC began consolidating AMI subsequent to the purchase transaction.

Total consideration paid in these transactions exceeded the fair val ue of the net tangi bl e assets acqui red. Accordingly, intangible assets totaling $4.9 million were recognized in the transactions.

23 ( Conti nued)




August 31 , 2006 and 2005

The follo.ving unaudited proforma financial information presents (in thousands) the corrbined results of operations of CMC for the years ended August 31, 2006 and 2005 as if the additional o.vnership interests in FHH and AMI had been acquired on Septerrber 1, 2004:

Total revenues $ Deficit of revenues over expenses

(16) Commitments and Contingencies

(a) Claims and Regulatory Environment

2006

725,252 (9,471)

2005

689,971 (10,091)

CMC is involved in various claims and litigation, as both plaintiff and defendant, arising in the ordinary course of business. Additionally, CMC is .M'are of two court actions that were filed in 1999 against CHCC and Fresno Community Hospital and Medical Center b,r a former emplo,ree asserting violations of the False Claims Acts. The government has declined to intervene in these actions. One case has been dismissed. The other case is inactive. The records and files of both cases are currently under seal. CMC intends to defend these lawsuits vigorously. While there can be no assurance, CMC believes that such actions will not have a material acwerse effect on CM C's consolidated financial position.

The healthcare industry is suqjected to numerous laws and regulations of federal, state, and local governments. These I.M's and regulations include, but are not necessarily linited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare fraud and abuse. Recently, gOJernment activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations b,r healthcare pro.!iders. Violations of these laws and regulations could result in expulsion from government healthcare programs together with imposition of significant fines and penalties, as well as significant repayments for patient services previously billed.

(b) County and State Funding

In 2006, CMC and the County of Fresno amended the terms of their contract under which CMC pro.!ides medical services to the County. The one goal of the amendment was to allo.v CMC to receive additional funding from the State of California through an intergOJernmental transfers program. Under this program, the Federal government provides matching funds to States that are then allocated to healthcare providers. In 2006 CMC received incremental funding from the State underthis program.

24 ( Conti nued)




August 31 , 2006 and 2005

In January 2007, CMC was notified that the basis for the intergcwemmental transfers is being examined b,r the Federal Centers for Medicare and Medicaid Services (CMS) and that, because of certain prwisions in the amended County contract, the matching intergOJemmental transfer amounts are suqject to disallo.vance. Subsequently, the Der:artment of Health Services of the State of California and CMS have suggested modified language for the County of Fresno contract that should prOJide a remedy. Enacting this updated language will require the adoption of an additional amendment to the agreement between CMC and the County of Fresno. Efforts to secure this amendment are in process, but it is not kno.vn when or if the amendment will be adopted. Due to the uncertainty of realization of this revenue, a payable of $16.5 million has been recorded in the accornr:anying consolidated balance sheet reflecting amounts received in fiscal year 2006 that are suqject to rer:ayment should the revised contract amendment not be completed.

25

The Board of Trustees

KPMG llP 55

Independent Auditors' Report

Community Hospitals of Central California:

We have audited and reported separately herein on the consolidated financial statements of Community Hospitals of Central California and Affiliated Corporations dba Community Medical Centers as of and for the years ended August 31, 2cx:x, and 2005.

Our audits were made for the purpose of forning an opinion on the consolidated financial statements of Community Hospitals of Central California and Affiliated Corporations dba Community Medical Centers, taken as a whole. The consolidating information included on pages 27 through 29 is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position and results of operations of the components of Community Medical Center. The consolidating information has been suqjected to the auditing procedures appiied in the audits of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements talk en as a whole.

February 23, 2007

26

COMMUNITY HOSPITALS OF CENTRAL CALIFORNIA AND AF Fl LIATE D CORPORA Tl ONS


Cmsolidating Schedule- Balance Sheet I nfcrrmtion

A UJUSt 31, 2CXXi

(In thrusards)

Community Skilled Hospitals of Fresno OthEr Advanced Physician

Acute Care Nursing CEntral Heart Ccrpcrate Medical Management De;elopment Assets Services SErvices California Hospital Activities Imaging SErvices Activities Eliminations Consolidated

CurrEnt assets Cash ard equivalents $ 11,337 192 7,726 (2) 2,026 9,917 31, 197 S hat -term i nvestment~ 62,452 62,452 Patient accounts receivable, na: 83,638 1,473 6,509 402 1,260 93,282 Due from State of Califcrnia for

supplemental fundirg 18,231 18,231 Other receivalle~ 1,491 391 l 53 4,300 455 (132) 6,658 I nvEntcries 7,888 53 1,138 499 9,578 Prepaid exr:,enses and other 4,030 45 1,592 617 283 18 290 6,875

T ctal current assa:s 189,067 1,572 2,175 16,143 1,182 3,304 14,507 455 (132) 228,273

AsSEts linited as to use B oard--desi gnated assets 72,953 1,770 74,723 Assets held 0;1 trustee for

Donor-restricted asSEts 10,236 10,236 Pied-Jed securities 1,632 1,632 Debt sevice 21,060 930 21,990 Capital assa:s

Tctal asSEts linited as to use 95,645 930 12,006 108,581

Prq::,erty, plant, ard equiprrent, na: 285,401 930 17,902 54,758 28 1,614 905 10 361,548 Constructim in pro:Jress 4,197 576 (575) 4, 198 Othff asSEts 95,634 973 20,728 2,224 370 2,739 22 (85,595) 37,095

Tctal asSEts $ 669,944 3,475 42,311 73,125 1,580 7,657 l S,412 12,493 (86,302) 739,695

27 (Continued)

COMMUNITY HOSPITALS OF CENTRAL CALIFORNIA AND AF Fl LIATE D CORPORA Tl ONS


Cmsolidating Schedule- Balance Sheet I nfcrrmtion

A UJUSt 31, 2CXXi

(In thrusards)

Community Skilled Hospitals of Fresno OthEr Advanced Physician

Acute Care Nursing CEntral Heart Ccrpcrate Medical Management De;elopment Liabilities and Na:AsSEts Services SErvices California Hospital Activities Imaging SErvices Activities Eliminations Consolidated

CurrEnt liablities Accrunts payablE $ 19,931 108 fa, 2,400 7% 586 282 16 ( 131) 24,674 Accrued cotypensation and Emr:-,loyee

benefits 30,656 385 S,427 2,420 330 1,882 67 41, 167 Estimated third-party se:tlement~ 6,612 407 7,019 Other accrued liabilities and def Erred

reJE11UE 34,SSO 103 993 419 s 1,919 37,989 Current rmturities of long-term debt 6,238 1,176 2,619 172 10,205

Tctal current liabilities 97,987 5% 8,202 8,345 ffil 1,088 4,083 83 (131) 121,054

I ntErcanpany (receivable) payable (73,363) 8,827 52,471 (S,923) 20,318 (2,330) Lorg--tErm del::A:, less current trn.turities 249,975 18,395 9,309 394 278,073 PEnsion benefit obi igation 9,339 9,339 Othff lmg--tErm obligation~ 34,392 34,392

Tctal liabilities 308,991 9,423 88,407 17,654 (S, 122) 1,482 24,401 (2,247) (131) 442,858

M i nori ty i ntErest 768 768

Net assets (liablities) U nrestri cted 360,953 (S,948) (46,0%) SS,471 6,702 6, 175 (8,989) 4,504 (86,939) 285,833 Terrµ:irarily ard penmnently restricted 10,236 10,236

T ctal na: assets (liablities) 360,953 (S,948) (46,0%) SS,471 6,702 6, 175 (8,989) 14,740 (86,939) 2%,069

T ctal I i abi I i ti es and net assets $ 669,944 3,475 42,311 73,125 l ,Sffi 7,657 l S,412 12,493 (86,302) 739,695

See accomparr.;i ng i rdeperdEnt auditors' repxt

28 (Continued)



Ccrisdidating Schedule- Staterrent cf Orx=raticris I nfcrrraticri

Year erdedALrJUSt 31, 20'.)3

(In tfnlsards)

Community Skilled H ospi tal s of Fresno Other Advanced Physician

Acute Care Nursing Central Heart Ccrpcrate Medical M anagernent DEVelcpment Services Services Califcrnia Hospital Activities I rnaging Services Activities Eliminaticris Ccrisdidated

Unrestricted rEVenues, gains, ard ether SUIJIX)tt Net patient SE'!Vice rEVenues $ 597,533 6,760 49,024 2,257 8,673 (8) 664,239 P reni um rEVenue 957 957 I rwestrrent i ncorre 4,250 21 179 (14) 4,436 Other rEVfflUE 22,466 51 5,246 453 3,936 77 23,806 1,756 (6,154) 51,637

Total unrestricted rEVenues, gai ns, ard other suprx:rt 625,206 6,811 5,267 49,477 6,193 8,750 23,985 1,756 (6,176) 721,269

Expenses Salaries, wages, ard lxnefits 344,114 4,238 1,349 19,592 1,586 2,523 14,057 794 388,253 Sur.plies 98,700 735 49 13,211 3,484 426 2,103 53 118,761 Outside seivices 78,757 833 1,026 3,664 lll 3,388 3,075 311 (125) 91,040 I nsuranc:e 8,639 41 17 601 l 324 12 l 9,636 Depreciation and armrti zati cri 29,268 232 1,355 6,262 44 370 482 16 (47) 37,982 Rental and lease 8,944 42 48 446 84 258 1,813 83 (l,027) 10,691 Interest 15,314 3 194 5,706 l 69 l (5,023) 16,265 Othff 14,130 521 647 2,445 45 510 1,756 83 20, 137 Prwi sicri for h:ld debts 37,250 (109) 566 87 37,794

Total exr,enses 635,116 6,536 4,685 52,493 5,443 7,868 23,298 1,342 (6,222) 730,559

I ncorre(loss) fran operat1cris (9,910) 275 582 (3,016) 750 882 687 414 46 (9,290)

M i rrri ty i nterest (117) ( 117)

Excess (deficit) cf revenues wer expenses (9,910) 275 582 (3,016) 750 882 687 414 (71) (9,407)

Currulativeeffect of a charge in acccuntirg principle fcr asset reti rerrent cl) igatiCTI (2,931) (2,931)

I nccrre from di sconti nued operations 1,057 1,057

Net change in unrealized gains ard losses CTI I rwestrrents 541 (2) (21) (26) 492

Net assets released fran restrictions fcr equ1 prrent acqu1s1t1CT1 1,203 22 20 5,293 (5,579) 959

Charge in unfurded accurrulated l=fflSiCTI benefit cl) i gati CTI 65 65

Recaf)talizatiCTI cf subsidiary 10,737 (3,034) (7,688) 73,446 (27) 12 (73,446)

I rx:::rease ( decrease) i n unrestricted net assets $ (360) (l,704) (7,040) 70,450 723 6,175 687 400 (79,096) (9,765)

See acca,parrying i rdeµcndent au::litcrs' rerott

29

U nrestrictEd t1Et asSEts (I iab I ities) BalanceatAugJst31, 2fXJ5

Excess(dficit) ct re.iEnues OJEr exp:nses Currulative Effect ct a c~ in accounting

pi rcipe fcr asSEt re::i rerrent d::.l igrtim I rcorre from d sconti nued q::.eratims Ne: c~ in unrEalizEdglins(losses) m

irwestmrts Ne: asse:s released from resttictims fcr

EQJipllrt acqJi sitim C~ in unfun=Waccurrulatro p:nsim

t.enEfit d::.l igltiCTl Recaptalizatim ct sul:J;;idaiy

I rcrease ( d:crease) in unrestrictEd t1Et asSEts (liabl ities)

BalanceatAugJst31, 2<:lli

Teni:rrarily ard p:menently resttictffl nctassElS

BalanceatAugJst31, 2fXJ5

Donor--restri ctro contri ruti ms Ne: asse:s released from resttictims fcr

q::.eratims Ne: asse:s released from resttictims to

unrestti ctro c:blatims Ne: asse:s released from resttictims fcr

EQJipllrt acqJi sitim

Decrease in lffilX)rarily ard p:menently resttictffl t1Et asse:s

BalanceatAugJst31, 2<:lli

SeeaccaTf.8/ly'ingi~at.dtrrs' reµ:rt.

Acute Care SEfVices

$ 361,313 (9,910)

(2,931)

541

1,203

10,737

(360)

$ 360,953

$

$

COMMUNITY HOSPITALS OF CENTRAL CALIFORNIA ANDAFFI LIATED CORPORATIONS

db1.COMMUNITY MEDICAL CENTERS

CmsolidrtingSdlB"ille- StatErrfl11:ct Charg:5 in NEi:AsSEts lnfcrtrntim

Year en=k:l A ugJSt 31 , 2<:lli

(In tlu.lsands)

Comnunity SkillEd Hosptalsct Fresno OthEf AdvancEd

Nursing CEntral Heart CcrpxatE MEdical SErvices Califcrnia Hosptal Activities lma(Jn~

(4,244) (39,056) (14,979) 5,979 275 582 (3,016) 750 882

l ,Cf57

(2) (21)

22 20 5,293

65 (3,034) (7,688) 73,446 (27)

(l,704) (7,040) 70,450 723 6,175

(5,948) (46,096) 55,471 6,702 6,175

30

Physician Managment De.ielcµTfllt

SErvices Activities Eliminatims Cmsol idatec

(9,676) 4,104 (7,843) 295,598 687 414 (71) (9,407)

(2,931) l ,Cf57

(26) 492

(5,579) '159

65 12 (73,446)

687 400 (79,096) (9,765)

(8989) 4,504 (86,939) 285,833

10,643 10,643 2,843 2,843

(l,104) (l,104)

(l,187) (l,187)

('159) ('159)

(407) (407)

10,236 10,236

APPENDIX C

SUMMARY OF PRINCIPAL DOCUMENTS

TABLE OF CONTENTS Page

SUMMARY OF PRINCIPAL DOCUMENTS ....................................................................................................... C-1

DEFINITIONS OF CERTAIN TERMS .................................................................................................................. C-1

INSTALLMENT PURCHASE AGREEMENT .................................................................................................... C-19

Installment Purchase and Sale of the Real Property ................................................................................ C-19 Payment Pr01isions ................................................................................................................................. C-19 Purchase Agreement Defaults and Remedies .......................................................................................... C-20

INSTALLMENT SALE AGREEMENT ............................................................................................................... C-21

Installment Purchase and Sale of the Real Property ................................................................................ C-21 Payment Pr01isions ................................................................................................................................. C-21 Particular CCNenants ............................................................................................................................... C-24 Non-Liability of Authority; Expenses; Indemnification .......................................................................... C-24 Sale Agreement Defaults and Remedies ................................................................................................. C-25

TRUST AGREEMENT ......................................................................................................................................... C-27

Validity of Certificates ............................................................................................................................ C-27 FundsandAccounts ................................................................................................................................ C-27 Particular CCNenants ............................................................................................................................... C-31 Events of Default and Remedies ............................................................................................................. C-32 Modification or Amendment ofTrustAgreement, Purchase Agreement and Sale Agreement ............... C-35 Defeasance .............................................................................................................................................. C-36

MASTER INDENTURE OF TRUST .................................................................................................................... C-37

General .................................................................................................................................................... C-37 Authorization and Issuance of Obligations ............................................................................................. C-37 Particular CCNenants of the Merrliers ..................................................................................................... C-37 Events of Default and Remedies ............................................................................................................. C-45 Supplements and Amendments ............................................................................................................... C-47 Satisfaction and Discharge of Master Indenture ...................................................................................... C-48 Credit Enhancer Deemed Holder of Obligation ...................................................................................... C-49

SUPPLEMENTAL MASTER INDENTURE OF TRUST FOR OBLIGATION NO. 1 ....................................... C-49

G eneral .................................................................................................................................................... C-49 Payments on Obligation No. 1; Credits ................................................................................................... C-49 Prepayment of Obligation No. 1 .............................................................................................................. C-49 Registration, Nurrlier, Negotiability and Transfer of Obligations .......................................................... C-50 Right to Redeem ...................................................................................................................................... C-50

SUMMARY OF PRINCIPAL DOCUMENTS

The follo.ving is a sumrrary of certain prCNisions of the Installment Purchase Agreement, dated as of May 1, 2007 (the "Installment Purchase Agreement'' or the "Purchase Agreement"), among the California Municipal Finance Authority (the "Authority"), Community Hospitals of Central California ("CHCC" or the "Corporation"), Fresno Community Hospital and Medical Center ("FCH"), Fresno Heart Hospital, LLC ("FHH"), and Sierra Hospital Foundation ("SHF"), the Installment Sale Agreement, dated as of May 1, 2007 (the "Installment Sale Agreement" or the "Sale Agreement"), among the Authority, CHCC, FCH, FHH and SHF, the Trust Agreement, dated as of May 1, 2007 (the "Trust Agreement'), among the Authority, CHCC, FCH, FHH, SHF and The Bank of Ne.v York Trust Company, N. A. ("B NY"), as trustee, the Master Indenture of Trust, dated as of May 1, 2007 (the "Master Indenture of Trust''), among CHCC, FCH, FHH, SHF, and B NY, as mastertrustee, and the Supplemental Master Indenture of Trust for Obligation No. 1, dated as of May 1, 2007 ("Supplement No. 1" or "Supplemental Indenture No. 1"), between CHCC, acting on behalf of itself, FCH, FHH and SHF, and BNY, as master trustee. This sumrrary does not purport to be comprehensive or definitive, is supplemental to the sumrrary of other pr01isions of such documents which are described else.vhere in this Official Statement and is qualified in its entirety by reference to the full terms of the Installment Purchase Agreement, the Installment Sale Agreement, the Trust Agreement, the Master Indenture of Trust and Supplement No. 1. All capitalized terms not defined in this Official Statement have the meanings set forth in the Installment Sale Agreement or, if not set forth in the Installment Sale Agreement, in the Master I ndenture of Trust

DEFINITIONS OF CERT Al N TERMS

Act means Articles 1, 2, 3 and 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the GCNernment Code of the State, as no.v in effect and as it rray from time to time hereafter be amended, supplemented or recodified.

Accountant means any firm of independent certified public accountants of national or regional reputation selected by the Obligated Group Representative.

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

Affiliated Corporation means any corporation which, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, an Obligated Group Member.

Annual Debt Service means for each Fiscal Year the sum (without duplication) of (1) the aggregate amount of principal and interest becorring due and payable in such Fiscal Year on all Long-Term Indebtedness of the Obligated Group then Outstanding and (2) the aggregate amount of Obligation Payments becoming due and payable in such Fiscal Year (in either case by scheduled rraturity, acceleration, rrandatory redemption or otherwise), less any amounts of such principal, interest or Obligation Payments to be paid during such Fiscal Year from (a) the proceeds of Indebtedness or (b) moneys or GCNernment Obligations deposited in trust forthe purpose of paying such principal, interest or Obligation Payments; pr01ided that if a Financial Products Agreement has been entered into by any Obligated Group Member with respect to Long-Term Indebtedness, interest on such Long-Term Indebtedness shall be included in the calculation of Annual Debt Service by including for each Fiscal Year an amount equal to the amount of interest payable on such Long-Term I ndebtedness in such Fi seal Year at the rate or rates stated in such Long-Term Indebtedness plus any Financial Product Payments payable in such Fiscal Year rrinus any Financial Product Receipts receivable in such Fiscal Year; prCNided that in no a,ent shall any calculation rrade pursuant to this clause result in a number less than zero being included in the calculation of Annual Debt Service.

Annual Debt Service CCNerage Ratio means, for any Fiscal Year, the ratio deterrrined by dividing Income Available for Debt Service by Annual DebtServicefor such Fiscal Year.

Authority means the California Municipal Finance Authority.

C-1

Authorized Representative means, (1) with respect to the Authority, any Merrlier of the Board of Directors of the Authority or any other person designated as an Authorized Representative of the Authority 0y a Statement of the Authority signed 0y any Merrlier of the Board of Directors and filed with the Trustee, and (2) with respect to the Health Institutions, either (a) the chairmm of the go;erning body of the Corporation, the chief executive officer of the Corporation, or the chief financial officer of the Corporation or (b) any other person designated as an Authorized Representative of the Health Institutions 0y a Statement of the Health Institutions signed 0y the chairmm of the go;erning body of the Corporation, the chief executive officer of the Corporation, or the chief financial officer of the Corporation and filed with the Trustee.

Authorized Representative means with respect to each Obligated Group Member, its chairmm of the board, president, chief executive officer, chief operating officer, senior vice president, chief financial officer, treasurer or any other person designated as an Authorized Representative of such Obligated Group Member 0y a Certificate of that Obligated Group Member signed 0y its chairmm of the board, president, chief executive officer, chief operating officer, senior vice president, chief financial officer or treasurer and fi I ed with the Master Trustee.

Balloon Indebtedness means Long-Term Indebtedness, 25% or more of the principal of which (calculated as of the date of issuance) becomes due during any period of 12 consecutive months, if such m1turing principal amount is not required 0y the debt instrument to be amortized belo.v such percentage 0y m1ndatory redemption prior to such 12-rronth period.

Beneficial Owner means any Person who has the po.ver, directly or indirectly, to vote or consent with respect to, or to dispose of o.vnership of, any Certificate, including, without !irritation, any Persons holding Certificates through norrinees or depositories, including the Depository.

Book Value means, when used in connection with Property, Plant and Equipment or other Property of any Obligated Group Merrlier, the value of such property, net of accumulated depreciation, as it is carried on the books of such Obligated Group Merrlier and in conforrrity with generally accepted accounting principles, and when used in connection with Property, Plant and Equipment or other Property of the Obligated Group, means the aggregate of the values so deterrrined with respect to such Property of each Obligated Group Merrlier deterrrined in such a way that no portion of such value of Property of any Obligated Group Merrlier is included more than once.

Business Day means a day of the year on which banks located in the cities in which the principal corporate trust office of the Master Trustee or Trustee are located are not required or authorized to be closed.

CERCLA means the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U .S.C. §§ 9601 et seq.), as heretofore or hereafter amended from time to time.

Certificate Escro.v Agent means The Bank of Ne.v York Trust Company, N. A., as successor trustee for Series 1993 Certificates, the Series 2000 Certificates and the Series 2001 Certificates.

Certificate Escro.v Agreement means that certain Escro.v Agreement, dated as of May 1, 2007, among the Authority, the Health Institutions and the Certificate Escro.v Agent, relating to the refunding and prepayment of the Series 1993 Certificates, the Series 2000 Certificates and the Series 2001 Certificates.

Certificate Payment Date means, with respect to a Certificate, the date on which principal evidenced 0y such Certificate becomes due and payable.

Certificate Reserve Fund means the fund so designated and established pursuant to the Trust Agreement.

Certificate Reserve Requirement means, as of any date of calculation, an amount equal to the lesser of: (i) Maximum Annual Certificate Service; (ii) 125% of average annual debt service with respect to the Certificates; and (iii) 10!6 of the initial offering price of the Certificates to public, as such initial offering price is determined under the Code.

C-2

Certificate Year means, for purposes of the Purchase Agreement, the Sale Agreement and the Trust Agreement, the period of 12 consecutive months ending on August 31 in any year in which Certificates are Outstanding, prCNided that the first Certificate Year shall commence on the date of initial execution and delivery of the Certificates and shall end on the first August 31 thereafter.

Certificates means the certificates of participation evidencing an undivided o.vnership interest of the Holders thereof in Installment Payments to be m1de t,,, the Authority pursuant to the Purchase Agreement.

C HCC means Community Hospitals of Central California, a nonprofit corporation duly organized and existing under the laws of the State of California, or any corporation which is the surviving, resulting or transferee corporation in any merger, consolidation or transfer of assets perrritted under the Master Indenture.

Code means the Internal Ra,enue Code of 1986, and the regulations issued thereunder, or any successor thereto. Reference to any particular Code section shall, in the a,ent of such a successor Code, be deemed to be reference to the successor to such Code section.

Collateral means the Gross Revenues and the Gross Ra,enue Fund and the proceeds thereof.

Completion Indebtedness means any Long-term Indebtedness incurred for the purpose of financing the completion of construction or equipping of any project for which Long-Term Indebtedness has theretofore been incurred in accordance with the prCNisions of the Master Indenture, (i) to the extent necessary to prCNide a completed and fully equipped facility of the type and scope contemplated at the time said Long-Term Indebtedness was incurred, and (ii) in accordance with the general plans and specifications for such facility as originally prepared and apprCNed in connection with the related financing, modified or amended only in conform1nce with the pr01isions of the documents pursuant to which the related financing was undertaken.

Continuing Disclosure Agreement or Disclosure Agreement means that certain Continuing Disclosure Agreement, dated the date of initial execution and delivery of the Certificates, among the Authority, the Health Institutions and The Bank of Ne.v York Trust Company, N. A., acting as Trustee and as disserrination agent, as originally executed and as it m1y from time to time be supplemented, modified or amended in accordance with the terms thereof.

Corporate Trust Office means the office of the Trustee or the Master Trustee, as applicable, at 550 Kearny Street, Suite 600, San Francisco, California 94108, Attention: Corporate TrustAdrrinistration, or such other or additional offices as m1y be designated t,,, the Trustee orthe Master Trustee, as applicable.

Corporation means Community Hospitals of Central California, a nonprofit corporation duly organized and existing under the laws of the State of California, or any corporation which is the surviving, resulting or transferee corporation in any merger, consolidation or transfer of assets permitted under the Master I ndenture.

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

Costs of Delivery Fund means the fund so designated and established pursuant to the prCNisions of the Trust Agreement

County means the County of Fresno, a county and political subdivision of the State duly organized and existing under the Constitution and the laws of the State.

C-3

Debt Service CCNerage Ratio means, for any period of time, the ratio deterrrined 0y dividing Income Available for Debt Service 0y MaximumAnnual Debt Service.

Default means an a,ent that, with the passage of time or the giving of time or both, would become an Event of Default

Depository means The Depository Trust Company and its successors and assigns, or any other depository selected in accordance with the prCNisions of the Trust Agreement, which agrees to follo.v the procedures requires to be follo.ved 0y such depository in connection with the Certificates.

Depository Bank means the banking institution or institutions at which Members of the Obligated Group deposit Gross Ra,enues.

Dissemination Agent means The Bank of New York Trust Company, N. A., a national banking association duly organized and existing under the laws of the United States of America, or its successor, as Disserrination Agent under the Continuing Disclosure Agreement as prCNided in Section 7 of the Continuing Disclosure Agreement.

Environmental Laws means all present and future federal, state or local laws, rules or regulations relating to environmental m1tters, perrrits, pollution, waste disposal, industrial hygiene, land use and other requirements of gCNernmental authorities relating to the environment or to any Hazardous Material or Hazardous Material Activity (including, without !irritation, CERCLA and the applicable prCNisions of the Health and Safety Code of the State and the Water Code of the State) or the protection of hum1n or anim1I health or welfare, including, without limitation, those related to any Release or threatened Release of Hazardous Materials and to the generation, use, storage, transportation, or disposal of any Hazardous Materials, in any m1nner applicable to the Facilities or the Project

Event of Default, for purposes of the Trust Agreement, means any of the a,ents of default specified in the Trust Agreement and, for purposes of the Master Indenture, means any of the a,ents of default specified in the Master I ndenture.

Facilities means (i) the Real Property described in an exhibit to the Installment Sale Agreement; (ii) all buildings, structures, fixtures and imprCNements on the aforesaid Real Property; and (iii) all personal property o.vned 0y FCH and used in, around or about the aforesaid Real Property, whether no.v existing or hereafter constructed, installed or acquired.

Fair Market Value, when used in connection with Property, means the fair m1rket value of such Property as determined 0y either:

( 1) an appraisal of the portion of such Property which is real property m1de within 5 years of the date of deterrrination 0y a "Member of the Appraisal Institute" and 0y an appraisal of the portion of such Property which is not real property m1de within 5 years of the date of determination 0y any expert qualified in relation to the subject m1tter, prCNi ded that any such appraisal shal I be performed 0y an I ndependent Consultant, adjusted for the period, not in excess of 5 years, from the date of the last such appraisal for changes in the implicit price deflator for the gross national product as reported 0y the United States Department of Commerce or its successor agency, or if such index is no longer published, such other index certified to be comparable and appropriate in an Officer's Certificate delivered to the Master Trustee;

(2) a bona fide offer for the purchase of such Property m1de on an arms-length basis within 6 months of the date of determination, as established 0y an Officer's Certificate; or

(3) an officer of the Obligated Group Representative (whose determination shall be m1de in good faith and set forth in an Officer's Certificate filed with the Master Trustee) if the fair m1rket value of such Property is less than or equal to $1,000,000.

C-4

FCH means Fresno Comnunity Hospital and Medical Center, a nonprofit public benefit corporation duly organized and existing under the laws of the State, or any corporation which is the surviving, resulting or transferee corporation in any merger, consolidation or transfer of assets perrritted under the Master Indenture.

F HH means Fresno Heart Hospital, LLC, a limited liability company whose sole member is FCH, or any entity which is the surviving, resulting or transferee entity in any merger, consolidation or transfer of assets perrritted under the Master Indenture.

Financial Products Agreement means an interest rate swap, asset swap, basis swap, cap, collar, direct funding transaction, option, floor, or other derivative, hedging agreement, arrangement or security, ho.va,er denorrinated, entered into on either a current or forward basis identified to the Master Trustee in a Certificate of the Obligated Group Representative as having been entered into 0y an Obligated Group Member with a Qualified PrCNider: (a) with respect to Indebtedness for the purpose of (1) reducing or otherwise managing the Obligated Group Member's risk of interest rate changes or (2) effectively corNerting the Obligated Group Member's interest rate exposure, in whole or in part, from a fixed rate exposure to a variable rate exposure, or from a variable rate exposure to a fixed rate exposure; or (b) for any other interest rate, investment, asset or liability management purpose.

Financial Product Extraordinary Payments means any payments required to be paid to a counterparty 0y an Obligated Group Member pursuant to a Financial Product Agreement in connection with the terrrination thereof, tax gross-up payments, expenses, default interest, and any other payments or indemnification obligations to be paid to a counterparty 0y an Obi igated Group Member under a Financial Product Agreement, which payments are not Financial Product Payments.

Financial Product Payments means regularly scheduled payments required to be paid to a counterparty 0y an Obligated Group Member pursuant to a Financial Products Agreement

Financial Product Receipts means regularly scheduled payments required to be paid to an Obligated Group Member 0y a counterparty pursuant to a Financial Products Agreement

Fiscal Year means the period beginning on September 1 of each year and ending on the next succeeding August 31, or any other twelve-month period hereafter designated 0y the Obligated Group Representative as the fiscal year of the Obligated Group.

G CNerning Body means, when used with respect to any Obligated Group Member, its board of directors, board of trustees or other board or group of individuals in which all of the po.vers of such Obligated Group Member are vested, except for those po.vers reserved to the corporate membership of such Obi igated Group Member 0y the articles of incorporation or o,laws of such Obligated Group Member.

G CNernment Issuer means any municipal corporation, political subdivision, state, territory or possession of the United States, or any constituted authority or agency or instrumentality of any of the foregoing empo.vered to issue obi igati ons on behalf thereof, which obi i gati ons would constitute Related Bonds under the Master I ndenture.

GCNernment Obligations means: (1) direct obligations of the United States of America (including obligations issued or held in book-€ntry form on the books of the Department of the Treasury of the United States of America) or obligations the timely payment of the principal of and interest on which are fully guaranteed 0y the United States of America; (2) obligations issued or guaranteed 0y any agency, department or instrumentality of the United States of America if the obligations issued or guaranteed 0y such entity are rated in one of the two highest rating categories of a Rating Agency (without regard to any gradation of such rating category); (3) certificates which evidence o.vnership of the right to the payment of the principal of and interest on obligations described in clauses (1) andpr (2), prCNided that such obligations are held in the custody of a bank or trust company in a special account separate from the general assets of such custodian; and (4) obligations the interest on which is excluded from gross income for purposes of federal income taxation pursuant to Section 1 03 of the I nternal R a,enue Code of 1986, and the timely payment of the principal of and interest on which is fully prCNided for 0y the deposit in trust of cash andpr obligations described in clauses ( 1), (2) and/or (3).

C-5

Gross Ra,enues means all ra,enues, income, receipts and money received 0y each Merrlier, including: (a) gross ra,enues collected from its operations and possession of and pertaining to its properties; (b) gifts, grants, bequests, donations and contributions, exclusive of any gifts, grants, bequests, donations and contributions to the extent specifically restricted 0y the donor to a particular purpose inconsistent with their use for the payment of Required Payments or the payment of operating expenses; (c) proceeds derived from (i) condemnation proceeds, (ii) accounts receivable, (iii) securities and other investments, (iv) inventory and other tangible and intangible property, (v) medical reimbursement programs and agreements, (vi) insurance proceeds, and (vii) contract rights and other rights and assets ncm or hereafter o.vned, held or possessed 0y or on behalf of any Merrlier; and (d) rentals received from the I ease of office space.

Gross Ra,enue Fund means the fund 0y that name established pursuant to the pr01isions of the Master Indenture.

Guaranty means all loan commitments and all obligations of any Obligated Group Member guarantying in any rranner whata,er, whether directly or indirectly, any obligation of any other Person, that would, if such other Person were an Obligated Group Merrlier, constitute Indebtedness or a Financial Product Payment.

Hazardous Material Activity means any actual, proposed or threatened storage, holding, existence, release, errission, discharge, generation, processing, abatement, rern01al, disposition, handling or transportation of any Hazardous Materials from, under, into or on the Facilities orthe Project.

Hazardous Material means (a) any chemical, rraterial or substance no.v or in the future defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous rraterials," "extremely hazardous waste," "restricted hazardous waste," "infectious waste," "toxic pollutant'' or "toxic substances" or any other term intended to define, list, or classify substances 0y reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity," or "EP toxicity" or words of sirrilar import under any applicable local, state or federal law or under the regulations adopted or publications promulgated pursuant thereto, including, without !irritation, Environmental Laws, (b) any oil, petroleum or petroleum derived substance, (c) any drilling fluids, produced waters and other wastes associated with the exploration, da,elopment or production of crude oil, natural gas or geotherrral resources, (d) any flamrrable substances or explosives, (e) any radioactive rraterials, (f) asbestos in any form which is or could become friable, (g) urea forrraldehyde foam insulation, (h) electrical equipment which contains any oil or dielectric fluid containing la,els of polychlorinated biphenyls in excess of fifty parts per rrillion, (i) pesticides, and U) any other cherrical, rraterial or substance, exposure to which is prohibited, limited or regulated 0y any g01ernmental authority as one that rray or could pose a hazard to the health and safety of the o.vners, occupants or any persons in the vicinity of the Facilities orthe Project.

Health Facilities means the health care facilities o.vned and operated 0y the Health Institutions.

Health lnstitutionsmeanstheCorporation, FCH, FHH andSHF.

Holder or Certificateholder, whena,er used with respect to a registered Certificate, means the person in whose name such Certificate is registered.

Holder, whena,er used with respect to an Obligation, means the registered o.vner of any Obligation in registered form orthe bearer of any Obligation in coupon form that is not registered or is registered to bearer.

Immaterial Affiliates means Persons whose combined total revenues (calculated as if such Persons were Merrliers of the Obligated Group), as sho.vn on their financial statements for their most recently completed fiscal year, were less than 10!6 of the Total Revenues of the Obligated Group (including the Total Ra,enues of such Persons) as sho.vn on the audited financial statements for the most recently completed Fiscal Year of the Obligated Group.

I ncomeAvailablefor Debt Service means, as to any period of time, the combined excess of ra,enues CNer expenses (or, in the case of for-profit Obligated Group Merrliers, net income after taxes) of the Obligated Group

C-6

Merrliers for such period, as deterrrined in accordance with generally accepted accounting principles, to which shall be added depreciation, amortization and interest expense (and Obligation Payments to the extent that such Obligation Payments are treated as an expense during such period of time in accordance with generally accepted accounting principles), prCNided that the calculation shall not include (1) any gain or loss resulting from (a) the extinguishment of Indebtedness, (b) any disposition of capital assets not made in the ordinary course of business, (c) any discontinued operations or (d) adjustments to the value of assets or liabilities resulting from changes in generally accepted accounting principles, (2) unrealized gains or losses on marketable securities held 0y an Obligated Group Merrlier as of the last date of such period of time, (3) unrealized gains or losses resulting from changes in valuation of Financial Product Agreements and other hedging or derivative instruments, (4) unrealized gains or losses from the write--do.vn, reappraisal or revaluation of assets including investments for "other than temporary" declines in value, (5) any extraordinary gains or losses or (6) any nonrecurring items which do not involve the receipt, expenditure or transfer of assets.

Indebtedness means any Guaranty (other than any Guaranty 0y any Obligated Group Merrlier of Indebtedness of any other Obligated Group Mermer) and any obligation of any Obligated Group Merrlier (1) for borro.ved money, (2) with respect to leases which are considered capital leases or (3) under installment sale agreements, in each case as deterrrined in accordance with generally accepted accounting principles; prCNided, ho.vever, that if more than one Obligated Group Merrlier shall have incurred or assumed a Guaranty of a Person otherthan an Obligated Group Merrlier, or if more than one Obligated Group Member shall be obligated to pay any obligation, for purposes of any computations or calculations under the Master Indenture such Guaranty or obligation shall be included only one time. Financial Products Agreements shall not constitute Indebtedness.

Independent Consultant means a firm (but not an individual) which ( 1) is in fact independent, (2) does not have any direct financial interest or any material indirect financial interest in any Obligated Group Merrlier (other than the agreement pursuant to which such firm is retained), (3) is not connected with any Obligated Group Merrlier as an officer, empl0yee, promoter, trustee, partner, director or person perforrring sirrilar functions and (4) is qualified to pass upon questions relating to the financial affairs of organizations sirrilarto the Obligated Group or facilities of the type or types operated 0y the Obligated Group and having the skill and experience necessary to render the particular opinion or report required 0y the Master Indenture prCNision in which such requirement appears.

Industry Restrictions means federal, state or other applicable gCNernmental laws or regulations, including conditions imposed specifically on the Obligated Group Members or the Obligated Group Merrliers' facilities, or general industry standards or general industry conditions placing restrictions and I irritations on the rates, fees and charges to be filed, charged and collected 0y the Obligated Group Merrliers.

Information Services means: Financial Information, Inc., Daily Called Bond Service; Kenny Information Systems, Called Bond Department; Moody's Investors Service, Information Center; and Standard & Poor's Rating Services, Called Bond Record; or, in accordance with then-rnrrent guidelines of the Securities and Exchange Comrrission, such other service or services prCNiding information with respect to called bonds or certificates, or no such services, as the Health Institutions may designate.

Installment Payments means all of the payments so designated and required to be made 0y the Authority pursuant to the Purchase Agreement

Installment Purchase Agreement or Purchase Agreement means that certain Installment Purchase Agreement, dated as of May 1, 2007, among the Authority and the Health Institutions, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of the Trust Agreement

Installment Sale Agreement or Sale Agreement means that certain Installment Sale Agreement, dated as of May 1, 2007, among the Authority and the Health Institutions, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of the Trust Agreement.

I nsuranceConsultant means a Person or firm (which may bean insurance broker or agent of an Obligated Group Member) which (1) is in fact independent, (2) does not have any direct financial interest or any material

C-7

indirect financial interest in any Obligated Group Merrlier (other than the agreement pursuant to which such Person or firm is retained) and (3) is not connected with any Obligated Group Merrlier as an officer, ernpl0yee, promoter, underwriter, trustee, partner, di rector or Person perf omi ng similar functions, and designated 0y the Obi igated G roup Representative, qualified to survey risks and to recommend insurance cCNerage for hospitals, health-related facilities and services and organizations engaged in such operations.

Insured Financial Product Agreement means any Financial Product Agreement wherein the Financial Product Payments are insured under a swap insurance policy from an insurer who has also insured Indebtedness with respect to which such Financial Product Agreement was executed, with such Indebtedness having an outstanding principal amount at least equal to the notional amount of the Financial Product Agreement on the date of execution of such Financial Product Agreement.

Insured Financial Product Payments means any payment obligation of the Merrliers of the Obligated Group pursuant to an Insured Financial Product Agreement that is insured as to timely payment pursuant to the terms of the swap insurance policy insuring the Insured Financial Product Agreement

Interest Fund means the fund 0y that name established pursuant to the prCNisions of the Trust Agreement.

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

(i) any bonds or other obligations which as to principal and interest constitute direct obligations of, or are unconditionally guaranteed o,, the United States of America, including obligations of any of the federal agencies and federally sponsored entities set forth in clause (iii) belo.v to the extent unconditionally guaranteed 0y the United States of America and including interest strips of bonds issued 0y the Resolution Funding Corporation and held in book-€ntry form 0y the Federal Reserve Bank of New York;

(ii) any certificates, receipts, securities or other obligations evidencing o.vnership of, or the right to receive, a specified portion of one or more interest payments or principal payments, or any combination thereof, to be m1de on any bond, note, or other obligation described abCNe in clause (i);

(iii) obligations issued 0y Banks for Cooperatives, Federal Land Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks, Federal Home Loan Banks, the Federal Home Loan Bank Board, the Federal Home Loan Mortgage Corporation, the Resolution Funding Corporation, or in obligations, participations, or other instruments of, or issued o,, or fully guaranteed as to principal and interest o,, the Federal National Mortgage Association, or in guaranteed portions of Sm1II Business Adrrinistration notes or in obligations, participations, or other instruments of, or issued o,, a federal agency or a United States gCNernment-5ponsored enterprise;

(iv) housing authority bonds issued 0y public agencies or municipalities and fully secured as to the payment of both principal and interest 0y a pledge of annual contributions under an annual contributions contract or contracts with the United States of America; or prqject bonds issued 0y public agencies or municipalities and fully secured as to the payment of both principal and interest 0y a requisition or payment agreement with the United States of America;

(v) obligations of any state, territory or commonwealth of the United States of America or any political subdivision thereof or any agency or department of the foregoing; prCNided that such obligations are rated in either of the two highest rating categories 0y either Moody's or Standard & Poor's;

(vi) any bonds or other obligations of any state of the United States of America or any political subdivision thereof: (a) which are not callable prior to m1turity or as to which irrevocable instructions have been given to the trustee of such bonds or other obligations 0y the obligor to give due notice of redemption and to call such bonds or other obligations for redemption on the date or dates specified in such instructions; (b) which are secured as to principal and interest and rederrption prerrium, if any, 0y a fund consisting only of cash or bonds or other obligations of the character described in clause (i) or (ii) abCNe, which fund m1y be applied only to the payment of such principal of and interest and rederrption prerrium, if any, on such bonds or other obligations on the

c-s

interest payment dates and the m1turity date or dates thereof or the specified rederrption date or dates pursuant to such irra,ocable instructions, as appropriate; (c) as to which the principal of and interest on the bonds and obligations of the character described in clause (i) or (ii) alxNewhich have been deposited in such fund along with any cash on deposit in such fund are sufficient to pay the principal of and interest and rederrption premium, if any, on the bonds or other obligations described in this clause (vi) on the interest payment dates and the m1turity date or dates thereof or on the rederrption date or dates specified in the irra,ocable instructions referred to in subclause (a) of this clause (vi), as appropriate; and (d) which are rated in one of the two highest long-term rating categories 0y either Moody's or Standard & Poor's;

(vii) bonds, notes, debentures or other a,idences of indebtedness issued or guaranteed 0y any corporation which are rated 0y either Moody's or Standard & Poor's in their highest short-term rating category, or, if the term of such indebtedness is longer than 3 years, rated 0y either Moody's or Standard & Poor's in one of their two highest long-term rating categories, for comparable types of debt obi i gati ons;

(viii) dem1nd or time deposits or certificates of deposit, whether negotiable or nonnegotiable, issued 0y any bank or trust company organized under the laws of any state of the United States of America or any national banking association (including the Trustee or any of its affiliates) or 0y a state licensed branch of any foreign bank, prCNided that such certificates of deposit shall be purchased directly from such a bank, trust company, national banking association or branch and shall be either (1) continuously and fully insured 0y the Federal Deposit Insurance Corporation, (2) continuously and fully secured 0y such securities and obligations as are described in clauses (i) through (v) alxNe inclusive, which shall have a m1rket value (exclusive of accrued interest) at all ti mes at least equal to the principal amount of such certificates of deposit and shall be lodged with the Trustee or third-party agent, as custodian, 0y the bank, trust company, national banking association or branch issuing such certificates of deposit, and the bank, trust company, national banking association or branch issuing each such certificate of deposit required to be so secured shall furnish the Trustee with an undertaking satisfactory to the Trustee that the aggregate m1rket value of all such obligations securing each such certificate of deposit will at all times be an amount equal to the principal amount of each such certificate of deposit and the Trustee shall be entitled to rely on each such undertaking, or (3) be issued 0y an institution the senior debt obligations of which are rated "Aa" or better 0y Moody's or "AA" or better 0y Standard & Poor's;

(ix) taxable commercial paper or tax-€Xempt commercial paper rated in the highest rating category 0y either Moody's or Standard & Poor's;

(x) variable rate obligations required to be purchased 0y the obligor or its agent or designee upon dem1nd of the holder thereof secured as to such purchase requirement 0y a liquidity agreement with a corporation and as to the payment of interest and principal either upon m1turity or rederrption thereof 0y an unconditional credit facility of a corporation, prCNided that the variable rate obligations themselves are rated 0y either Moody's or Standard & Poor's in the highest rating category with respect to short-term ratings, if any, and in either of the two highest rating categories with respect to long-term ratings, if any, and that the corporations prCNiding the liquidity agreement and credit facility have, at the date of acquisition of the variable rate obligation 0y the Trustee, an outstanding issue of unsecured, uninsured and unguaranteed debt obligations rated in either of the two highest longterm rating categories 0y either Moody's or Standard & Poor's;

(xi) any repurchase agreement with any bank or trust company organized under the laws of any state of the United States or any national banking association (including the Trustee or any of its affiliates), having a rrinimum perm1nent capital of sa,enty--five rrillion dollars ($75,000,000) and rated in either of the two highest long-term rating categories 0y either Moody's or Standard & Poor's, or with a gCNernment bond deal er reporting to, trading with, and recognized as a prim1ry dealer 0y the Federal Reserve Bank of Ne.v Y orkand rated in either of the two highest long-term rating categories 0y either Moody's or Standard & Poor's, or with a financial institution or insurance company which has at the date of execution thereof an outstanding issue of unsecured, uninsured and unguaranteed debt obligations or a claims paying ability rated (or if the repurchase agreement is guaranteed 0y the parent company of such financial institution or insurance company, the parent company of which is rated) in either of the two highest long-term rating categories 0y either Moody's or Standard & Poor's, which repurchase agreement is secured 0y any one or more of the securities and obligations described in clauses (i), (ii), (iii) or (iv) alxNe, which shall have a m1rket value (valued at least weekly) at least equal to 103% of the amount of such investment and which shall be lodged with the Trustee or other fiduciary, as custodian, 0y the bank, trust company, national banking

C--9

association, bond dealer, financial institution or insurance corrpany executing such repurchase agreement, and the entity executing each such repurchase agreement required to be so secured shall furnish the Trustee with an undertaking satisfactory to the Trustee that the aggregate m1rket value of all such obligations securing each such repurchase agreement (as valued at least weekly) will be an amount equal to 103% of the principal and interest amount of each such repurchase agreement and the Trustee shall be entitled to rely on each such undertaking;

(xii) any cash sweep or sirrilar account arrangement of or available to the Trustee, the investments of which are lirrited to investments described in clauses (i), (ii), (iii) and (iv) of this definition of Investment Securities and any money m1rket fund, including money m1rket funds frornwhich the Trustee or its affiliates derive a fee for investment advisory or other services prCNided to such fund, the entire investments of which are lirrited to investments described in clauses (i), (ii), (iii) and (iv) of this definition of I rNestment Securities;

(xiii) any investment agreement with a financial institution or insurance corrpany which has at the date of execution thereof an outstanding issue of unsecured, uninsured and unguaranteed debt obligations or a claims paying ability rated (or if the investment agreement is guaranteed 0y the parent corrpany of such financial institution or insurance corrpany, the parent corrpany of which is rated) in either of the two highest long-terrn rating categories 0y either Moody's or Standard & Poor's;

(xiv) shares of beneficial interest in diversified m1nagement corrpanies investing exclusively in securities and obligations described in clauses (i) through (iv) of this definition of Investment Securities and which corrpanies have either the highest rating 0y either Moody's or Standard & Poor's or have an investment advisor registered with the Securities and Exchange Cornrrission with not less than 5 years experience investing in such securities and obi igations and with assets under m1nagement in excess of $500,000,000; and

(xv) any investment for which confirm1tion is received frorn each nationally recognized rating agency then m1intaining a rating on the Certificates that such investment will not adversely affect such rating agency's rating on the Certificates.

J PA Agreement means the joint exercise of po.vers agreement, dated as of January 1, 2004, among certain local agencies throughout the State of California, as supplemented and amended frorn time to time pursuant to its terms.

Lien means any mortgage or pledge of, or security interest in, or lien or encumbrance on, any Property, including Gross Ra,enues, of an Obligated Group Member (i) which secures any Indebtedness or any other obligation of such Obligated Group Member or (ii) which secures any obligation of any Person other than an Obligated Group Member, and excluding liens applicable to Property in which any Member has only a leasehold interest, unless the lien secures Indebtedness of that Obligated Group Member.

Long-Terrn Indebtedness means Indebtedness having an original m1turity greater than one year or rene.vable at the option of an Obi i gated G roup Member for a period greaterthan one year frorn the date of original incurrence or issuance thereof unless, 0y the terms of such Indebtedness, no Indebtedness is perrritted to be outstanding thereunder for a period of at least 20 consecutive days during each calendar year.

Mandatory Sinking Account Payment means, with respect to Certificates of any Certificate Payment Date, the amount required pursuant to the prCNisions of the Trust Agreement to be applied 0y the Trustee for the retirement of T errn Certificates of such Certificate Payment Date.

Master Indenture means that certain Master Indenture of Trust, dated as of May 1, 2007, among the Corporation, FCH, FHH, SHF and the Master Trustee, as originally executed and as it m1y frorn time to time heretofore or hereafter be supplemented, modified or amended in accordance with its terms, including as supplemented 0y Supplement No. 1.

Master Trustee means The Bank of Ne.vYork Trust Company, N. A., a national banking association duly organized and existing under the laws of the United States of America, or its successor, as ITT1Ster trustee under the Master Indenture.

C-10

Maximum Annual Certificate Service means, as of any date of calculation, the sum of (1) the interest falling due with respect to the Certificates then Outstanding (assurring that all Serial Certificates then Outstanding are retired on their respective Certificate Payment Dates and that all Term Certificates then Outstanding are retired at the times of and in the amounts pr01ided for 0y Mandatory Sinking Account Payments), (2) the principal installments for Serial Certificates than Outstanding falling due 0y their terms, and (3) the amount of all Mandatory Sinking Account Payments required; all as computed forthe Certificate Year in which such sum shall be the largest.

Maximum Annual Debt Service means the greatest amount of Annual Debt Service becorring due and payable in any Fiscal Year including the Fiscal Year in which the calculation is made or any subsequent Fiscal Year; pr01i ded, ho.va,er, that for the purposes of computing Maxi mum Annual Debt Service:

(a) with respect to a Guaranty, (i) 100)6 of the Obligated Group Members' monetary liability under a Guaranty which has been drawn upon shall be included in the calculation of Annual Debt Service in the Fiscal Year in which such Guaranty has been drawn upon and 100!6 of the Obligated Group Members' monetary liability under a Guaranty which has been drawn upon shal I continue to be included unti I such ti me as al I amounts drawn upon the Guaranty have been repaid to the Obligated Group Members; and (ii) otherwise 10!6 of the Obligated Group Members' maximum possible monetary liability under a Guaranty shall be included in the calculation of Annual Debt Service of the Obligated Group Members in any Fiscal Year;

(b) if interest on Long-Term Indebtedness is payable pursuant to a variable interest rate formula (or if Financial Product Payments or Financial Product Receipts are determined pursuant to a variable rate formula), the interest rate on such Long-Term Indebtedness (orthe variable rate formula for such Financial Product Payments or Financial Product Receipts) for periods when the actual interest rate cannot yet be determined shall be assumed to be equal to (i) if such Long-Term Indebtedness is subject to a Financial Product Agreement that effectively converts the interest rate on such Long-Term Indebtedness to a fixed rate of interest, the fixed rate of interest specified in such Financial Product Agreement during the stated term of such Financial Product Agreement or (ii) otherwise, a fixed rate equal to the Thirty-Year Ra,enue Bond Index most recently published in The Bond Buyer;

(c) if moneys or Go;ernment Obligations have been deposited with a trustee or escro.v agent in an amount, together with earnings thereon, sufficient to pay all or a portion of the principal of or interest on Long-Term Indebtedness as it comes due, such principal or interest, as the case may be, to the extent pro;ided for, shall not be included in computations of Maximum Annual Debt Service;

(d) debt service on Long-Term Indebtedness incurred to finance capital impr01ements shall be included in the calculation of Maximum Annual Debt Service only in proportion to the amount of interest on such Long-Term Indebtedness which is payable in the then-rnrrent Fiscal Year from sources other than the funds held 0y a trustee or escro.v agent for such purpose; and

(e) with respect to Balloon Indebtedness, at the option of the Obligated Group Representative, such Balloon Indebtedness shall be treated as Long-Term Indebtedness with substantially la,el debt service o;er a period of 25 years from the date of incurrence of such Balloon Indebtedness at an interest rate equal to a fixed rate equal to the Thirty-Year Revenue Bond Index most recently published in The Bond Buyer; pro;ided, ho.va,er, that the entire principal amount of such Balloon Indebtedness shall be included in the calculation of Maximum Annual Debt Service if such calculation is made within 12 months of the maturity of such Balloon Indebtedness.

Member means an Obligated Group Member.

Members of the Authority means the City of Clo;is and the City of Fresno, each of which is a party to the J PA Agreement, and each other public agency which has executed theJ PA Agreement and which has not withdrawn as a Member of the Authority.

Merger Transaction means the merger or consolidation of an Obligated Group Member with a Person who is not an Obligated Group Member or the sale or conveyance of all or substantially all of the assets of an Obligated Group Member to a Person who is not an Obligated Group Member.

C-11

Moody's means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated 0y the Authorized Representative of the Health I nstituti ons 0y notice to the Authority and the Trustee.

Nonrecourse Indebtedness means any Indebtedness which is not a general obligation and which is secured 0y a Lien on Property, Plant and Equipment acquired or constructed with the proceeds of such Indebtedness, liability for which is effectively limited to the Property, Plant and Equipment subject to such Lien, with no recourse, directly or indirectly, to any other Property of any Obligated Group Member ortoany Obligated Group Member.

Notes means the California State.vide Communities Development Authority Ra,enue Note (Community Hospitals of Central California), Series 2004 A, dated June 1, 2004, and the Community Hospitals of Central California and Fresno Community Hospital and Medical Center Series 2004 B Note, datedJ une 1, 2004.

Obligated Group means all Obligated Group Members.

Obligated Group Member means the Corporation, FCH, FHH, SHF and each other Person which is obligated under the Master Indenture to the extent and in accordance with the prCNisions of the Master Indenture, from and after the date upon which such Person joins the Obligated Group, but excluding any Person which withdraws from the Obligated Group to the extent and in accordance with the pr01isions of Master Indenture, from and after the date of such withdrawal.

Obligated Group Representative means the Corporation or such other Obligated Group Member (or Obligated Group Members actingjointiy) as m1y have been designated pursuant to written notice to the Master Trustee executed 0y Corporation.

Obligation means any obligation of the Obligated Group issued underthe Master Indenture, as ajointand several obligation of each Obligated Group Member, which m1y be in any form set forth in a Related Supplement, including, but not lirrited to, bonds, notes, obligations, debentures, reimbursement agreements, loan agreements, Financial Products Agreements or leases.

Obligation No. 1 means the obligation issued 0y the Corporation pursuant to the Master Indenture and Supplement No. 1.

Obligation Payments means payments (ho.vever designated) required under any Obligation then Outstanding which does not constitute Indebtedness.

Officer's Certificate means a certificate signed 0y an Authorized Representative of the Obligated Group Representative.

Official Statement means that certain Official Statement dated the date of sale of the Certificates relating to the Certificates (including all exhibits or appendices thereto), used in connection with the offer and sale of the Certificates.

Opinion of Bond Counsel means a written opinion signed 0y an attorney or firm of attorneys experienced in the field of public finance whose opinions are generally accepted 0y purchasers of bonds issued 0y or on behalf of a G CNernment Issuer.

Opinion of Counsel when used with reference to the Installment Sale Agreement means a written opinion of counsel (who m1y be counsel for the Authority) selected 0y the Authority and not objected to 0y the Trustee.

Opinion of Counsel when used with reference to the Master Indenture means a written opinion signed 0y a reputable and qualified attorney or firm of attorneys who m1y be counsel for the Obligated Group Representative.

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Optional Prepayment Account means the account 0y that name in the Prepayment Fund established pursuant to the prCNisi ons of the Trust Agreement.

Outstanding, when used as of any particular time with reference to Certificates, means (sul:Jject to the prCNisions of the Trust Agreement) all Certificates theretofore, or thereupon being, authenticated and delivered 0y the Trustee under the Trust Agreement except: (1) Certificates theretofore cancelled 0y the Trustee or surrendered to the Trustee for cancellation; (2) Certificates with respect to which all liability of the Authority shall have been discharged in accordance with the def easance prCNi si ons of the Trust Agreement; and ( 3) Certificates for the transfer or exchange of or in lieu of or in substitution for which other Certificates shall have been executed and delivered 0y the Trustee pursuant to the Trust Agreement.

Outstanding, when used with reference to Indebtedness or Obligations, means, as of any date of deterrri nation, al I I ndebtedness or O bl i gati ons theretofore issued or incurred and not paid and discharged otherthan ( 1) Obligations theretofore cancelled 0y the Master Trustee or delivered to the Master Trustee for cancellation, or otherwise deemed paid in accordance with the terms of the Master Indenture, including, without limitation, Obligations securing Related Bonds which have been defeased pursuant to their terms, (2) Obligations in lieu of which other Obligations have been authenticated and delivered or which have been paid pursuant to the prCNisions of a Related Supplement regarding mutilated, destr0yed, lost or stolen Obligations unless proof satisfactory to the Master Trustee has been received that any such Obligation is held 0y a bona fide purchaser, (3) any Obligation held 0y any Obligated Group Member and (4) Indebtedness deemed paid and no longer outstanding pursuant to the terms thereof; prCNided, ho.va,er, that if two or more obligations that constitute Indebtedness represent the same underlying obligation (as when an Obligation secures an issue of Related Bonds and another Obligation secures repayment obligations to a bank under a letter of credit that secures such Related Bonds) for purposes of the various financial cCNenants contained in the Master Indenture, but only for such purposes, only one of such Obligations shall be deemed Outstanding and the Obligation so deemed to be Outstanding shall be that Obligation that produces the greatest amount of Annual Debt Service to be included in the calculation of such cCNenants.

Participating Underwriter means the original underwriter of the Certificates required to comply with Rule 15c2-12(b)(5) adopted 0y the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same m1y be amended from ti me to ti me, or any successor in interest thereto.

Payment Date means each February 1 and August 1, commencing August 1, 2007, so long as any Certificate is Outstanding.

Permitted Liens means and includes:

(a) Any judgment lien or notice of pending action against any Obligated Group Member so long as the judgment or pending action is being contested and execution thereon is stayed or while the period for responsive pleading has not lapsed;

(b) (i) Rights reserved to or vested in any municipality or public authority 0y the terms of any right, po.ver, franchise, grant, license, permit or prCNision of law, affecting any Property, to (A) terminate such right, po.ver, franchise, grant, license or permit, prCNided that the exercise of such right would not m1terially impair the use of such Property or m1terially and adversely affect the value thereof, or (B) purchase, condemn, appropriate or recapture, or designate a purchase of, such Property; (ii) any liens on any Property for taxes, assessment, la,ies, fees, water and se.ver charges, and other gCNernmental and sirrilar charges and any liens of mechanics, m1terialmen, laborers, suppliers or vendors for work or services performed or m1terials furnished in connection with such Property, which are not due and payable or which are not delinquent or which, or the amount or validity of which, are being contested and execution thereon is stayed or, with respect to liens of mechanics, m1terialmen and laborers, have been due and payable or which are not delinquent or which, or the amount or validity of which, are being contested and execution thereon is stayed or, with respect to liens of mechanics, m1terialmen and laborers, have been due for less than 60 days or for which a bond has been furnished; (iii) easements, rights-of-way, servitudes, restrictions and other rrinor defects, encumbrances, and irregularities in the title to any Property that do not m1terially impair the use of such Property or m1terially and adversely affect the value thereof; and (iv) rights reserved to or vested in any municipality or public authority to control or regulate any Property or to use such

C-13

Property in any mmner, which rights do not materially impair the use of such Property in any manner, or materially and adversely affect the value thereof;

(c) Any Lien described in Appendix A of the Master Indenture that is existing on the date of execution of the Master Indenture or upon addition of an Obligated Group Member, prCNided that no such Lien (or the amount of Indebtedness or other obligations secured theret,,,) may be increased, extended, rene.ved or modified to apply to any Property of any Obligated Group Member not subject to such Lien on such date, unless such Lien as so extended, rene.ved or modified otherwise qualifies as a Perrritted Lien;

(d) Any Lien in favor of the Master Trustee securing all Outstanding Obligations equally and ratably;

(e) Liens arising t,,, reason of good faith deposits with any Obligated Group Member in connection with leases of real estate, bids or contracts (other than contracts for the payment of money), deposits t,,, any Obligated Group Member to secure public or statutory obligations, or to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other si rri lar charges;

(f) Any Lien arising t,,, reason of deposits with, or the giving of any form of security to, any gCNernmental agency or any body created or apprCNed t,,, law or gCNernmental regulation as a condition to the transaction of any business or the exercise of any privilege or license, orto enable any Obligated Group Memberto maintain self-insurance or to participate in any funds established to cCNer any insurance risks or in connection with workers' compensation, unempl0yment insurance, pension or profit sharing plans or other similar social security plans, orto share in the privileges or benefits required for companies participating in such arrangements;

(g) Any Lien arising t,,, reason of any escro.v or reserve fund established to pay debt service with respect to I ndebtedness;

(h) proceeds;

Any Lien in favor of a trustee on the proceeds of Indebtedness prior to the application of such

(i) Liens on moneys deposited t,,, patients or others with any Obligated Group Member as security for or as prepayment for the cost of patient care;

U) Liens on Property received t,,, any Obligated Group Member through gifts, grants or bequests, such Liens being due to restrictions on such gifts, grants or bequests of Property or the income thereon, up to the Fair Market Value of such Property;

(k) rights of the United States of America, including, without limitation, the Federal Emergency Management Agency ("FEMA") or the State of California, including without I irritation the GCNernor's Office of Emergency Services, t,,, reason of FEMA and other federal and State of California funds made available to any Member of the Obligated Group under federal or State of California;

(I) Liens on Property securing Indebtedness incurred to refinance Indebtedness pra,iously secured t,,, a Lien on such Property prCNided that the aggregate principal amount of such ne.v Indebtedness does not exceed the aggregate principal amount of such refinanced Indebtedness;

(in

(n) Indenture;

(o)

Liens granted t,,, an Obligated Group Member to another Obligated Group Member;

Liens securing Nonrecourse Indebtedness incurred pursuant to the prCNisions of the Master

Liens consisting of purchase money security interests and lessors' interest in capitalized leases;

(p) Liens on the Obligated Group Members' accounts receivable securing Indebtedness in an amount notto exceed 20!6 of the Obligated Group Members' net accounts receivable;

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(q) Liens on Gross Revenues constituting rentals in connection with any other Lien permitted under the pr01isions of the Master Indenture on the Property from which such rentals are derived;

(r) the lease or license of the use of a part of an Obligated Group Member's facilities for use in performing professional or other services necessary for the proper and econorrical operation of such facilities in accordance with custom1ry business practices in the industry;

(s) Liens junior to Liens in favor of the Master Trustee; and

(1) Any other Lien on Property, including, without !irritation, Liens on cash and securities deposited 0y an Obligated Group Member pursuant to a security annex or similar document to collateralize obligations of such Member under a Financial Products Agreement, prCNided that at the time of creation of such Lien the Value of all Property encumbered 0y all Liens permitted as described in this clause (u) does not exceed twenty percent (20!6) of net Property, Plant and Equipment of the Obligated Group Members as sho.vn on the audited financial statements of the Obligated Group forthe most recent Fiscal Year available at the time of creation of such Lien.

Person means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a g01ernmental entity or any agency or political subdivision thereof.

Prepayment Fund means the fund 0y that name established pursuant to the prCNisions of the Trust Agreement.

Prepayment Pr ice means, with respect to any Certificate (or portion thereof), the principal amount with respect to such Certificate (or portion) plus the applicable prerrium, if any, payable upon prepayment thereof pursuant to the prCNisions of such Certificate and the Trust Agreement

Principal Fund means the fund 0y that name established pursuant to the prCNisions of the Trust Agreement.

Project means the refinancing and financing and/or reimbursement of costs incurred in connection with the acquisition, construction, imprCNement, expansion and equipping of certain portions of certain of the Health Facilities, as more fully described in an exhibit to the Sale Agreement.

Project Fund means the fund so designated and established pursuant to the Trust Agreement.

Property means any and all rights, titles and interests in and to any and all property of any Obligated Group Member, whether real or personal, tangible or intangibleandwhera,er situated.

Property, Plant and Equipment means all Property of any Obligated Group Member which is considered property, plant and equipment of such Obligated G roup Member under generally accepted accounting pri nci pl es.

Purchase Agreement or Installment Purchase Agreement means that certain Installment Purchase Agreement, dated as of May 1, 2007, among the Authority and the Health Institutions, as originally executed and as it m1y from time to time be supplemented, modified or amended in accordance with the terms thereof and of the Trust Agreement

Purchase Agreement Default means any of the a,ents of default so specified in the Purchase Agreement.

Purchase Payments means the payments so designated and required to be m1de 0y the Health Institutions pursuant to the prCNisions of the Sale Agreement.

Qualified PrCNider means any financial institution or insurance company which is a party to a Financial Products Agreement if (i) the unsecured long-term debt obligations of such financial institution or insurance company (or of the parent or a subsidiary or a replacement counterparty or replacement counterparty guarantor of such financial institution or insurance company if such parent or subsidiary or replacement counterparty or

C-15

replacement counterparty guarantor guarantees or otherwise assures the performance of such financial institution or insurance corrpany under such Financial Products Agreement), or (ii) obi igations secured or supported 0y a letter of credit, contract, guarantee, agreement, insurance policy or surety bond issued 0y such financial institution or insurance company (or such guarantor or assuring parent or subsidiary or replacement counterparty or replacement counterparty guarantor) are rated in one of the three highest rating categories of a national rating agency (without regard to any gradation or such rating category) at the time of the execution and delivery of the Financial Products Agreement.

Rating Agency means Moody's Investors Service, Inc., Standard & Poor's, a division of The McGraw-Hill Corrpanies, and any other national rating agency then rating Obligations or Related Bonds.

Rating Category means a generic securities rating category, without regard to any refinement or gradation of such rating category 0y a numerical modifier or otherwise.

Real Property means: (i) the real estate described in Exhibit A to the Purchase Agreement and Exhibit A to the Sale Agreement; and (ii) al I bui I dings, structures, fixtures and i mprCNements on the aforesaid Real Property.

Rebate Fund means the Rebate Fund established pursuant to the prCNisions of the Trust Agreement.

Record Date means with respect to any Payment Date, the 15th day of the calendar month preceding the calendar month in which a Payment Date occurs, whether or not such day isa Business Day.

Related Bonds means the ra,enue bonds or other obligations (including, without I irritation, certificates of participation) issued 0y any GCNernment Issuer, the proceeds of which are lent or otherwise made available to an Obligated Group Member in consideration of the execution, authentication and delivery of an Obligation or Obligations to or forthe order of such GCNernment Issuer.

Related Bond Indenture means any indenture, bond resolution, trust agreement or other comparable instrument pursuant to which a series of Related Bonds is issued.

Related Bond Issuer means theGCNernment Issuer of any issue of Related Bonds.

Related Bond Trustee means the trustee and its successors in the trusts created under any Related Bond Indenture, and if there is no such trustee, means the Related Bond Issuer.

Related Supplement means an indenture supplemental to, and authorized and executed pursuant to the terms of, the Master I ndenture.

Release means any release, spill, em1ss1on, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, leaching, or migration into the indoor or outdoor environment (including, without limitation, the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), or into or out of the Real Property, the Facilities or the Project, including the mCNement of any Hazardous Material through the air, soil, surface water, groundwater or property, and any release as defined in CERCLA.

Required Payment means any payment, whether at maturity, 0y acceleration, upon proceeding for redemption or otherwise, including without limitation, Insured Financial Product Payments, Uninsured Financial Product Payments, and the purchase price of Related Bonds tendered or deemed tendered for purchase pursuant to the terms of a Related Bond Indenture, required to be made 0y any Obligated Group Member under the Master Indenture, any Related Supplement or any Obligation.

Ra,enues means all amounts received 0y the Authority or the Trustee for the account of the Authority under the Trust Agreement pursuant or with respect to the Sale Agreement or Obligation No. 1, including, without limiting the generality of the foregoing, Installment Payments (including both timely and delinquent payments, any late charges, and regardless of source), prepayments, insurance proceeds, condemnation proceeds, and all interest,

C-16

profits or other income derived from the investment of amounts in any fund or account established pursuant to the Trust Agreement, but not including any Adrrinistrative Fees and Expenses, amounts received or on deposit in the Rebate Fund or any indemnification payments received 0y the Authority from the Health Institutions pursuant to the Purchase Agreement, the Sale Agreement or the Trust Agreement.

Sale Agreement or Installment Sale Agreement means the Installment Sale Agreement, dated as of May 1, 2007, among the Authority and the Health Institutions, as originally executed and as it m1y from time to time be supplemented, modified or amended in accordance with the terms thereof and of the Trust Agreement.

Sale Agreement Default means any of the a,ents of default so specified in the Sale Agreement

Senior Financial Product Payment means any payment obligation of the Members of the Obligated Group due pursuant to a Financial Product Agreement otherthan a Subordinate Financial Product Payment

Serial Certificates means the Certificates falling due 0y their terms in specified years, for which no Mandatory Sinking Account Payments are prCNided.

Series 1993 Certificates means the certificates of participation evidencing an undivided o.vnership interest of the holders thereof in installment payments to be m1de 0y the Authority pursuant to that certain Installment PurchaseAgreement, dated as of August 1, 1993, amongtheAuthority andCHCC, FCH andSHF.

Series 2000 Certificates means the certificates of participation evidencing an undivided o.vnership interest of the holders thereof in installment payments to be m1de 0y the Authority pursuant to that certain Installment PurchaseAgreement, dated as of August 1, 2000, amongtheAuthority andCHCC, FCH andSHF.

Series 2001 Certificates means the certificates of participation evidencing an undivided o.vnership interest of the holders thereof in installment payments to be m1de 0y the Authority pursuant to that certain Installment Purchase Agreement, dated as of July 1, 2001, among the Authority and CHCC, FCH and SHF.

Short-Term Indebtedness means all Indebtedness having an original m1turity less than or equal to one year and not rene.vable at the option of an Obligated Group Member for a period ending more than one year after the date of original incurrence or issuance unless, 0y the terms of such Indebtedness, no Indebtedness is perrritted to be outstanding thereunder for a period of at least 20 consecutive days during each calendar year.

SH F means Sierra Hospital Foundation, a nonprofit public benefit corporation duly organized and existing under the laws of the State, or any corporation which is the surviving, resulting or transferee corporation in any merger, consolidation or transfer of assets perrritted under the Master Indenture.

Sinking Accounts means the subaccounts in the Principal Fund so designated and established pursuant to the prCNi si ons of the Trust Agreement.

Special Prepayment Account means the account 0y that name in the Prepayment Fund established pursuant to the prCNisi ons of the Trust Agreement.

Special Services CCNenant means the prCNisions of the Sale Agreement so designated 0y which each of the Health Institutions agrees to prCNide certain services as described in the Sale Agreement.

Standard & Poor's means Standard & Poor's Ratings Services, a Division of The McGraw Hill Companies, a corporation duly organized and existing under and 0y virtue of the laws of the State of Ne.v York, its successors and their assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency selected 0y the Authorized Representative of the Health I nstitutions 0y notice to the Authority and the Trustee.

State means the State of California.

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Statement, Request, Requisition and Order of the Authority or the Health Institutions mean, respectively, a written statement, request, requisition or order signed in the name of the Authority or the Health I nstituti ons 0y an Authorized Representative of the Authority or the Health I nstitutions, respectively.

Subordinate Financial Product Payment means (1) with respect to an Uninsured Financial Product Agreement, any Financial Product Extraordinary Payment and (2) with respect to an Insured Financial Product Agreement, any Uninsured Financial Product Payment

Subordinated Indebtedness means Indebtedness specifically subordinated as to JE.yment and security to the JE.yment of all Required Payments and other obligations of the Obligated Group Members under the Master Indenture.

Supplement No. 1 or Supplemental Indenture No. 1 means that certain Supplemental Master Indenture of Trust for Obligation No. 1, dated as of May 1, 2007, between the Corporation and the Master Trustee.

Supplemental Payments means the JE.yments so designated and required to be made 0y the Health I nstituti ons pursuant to the prCNi si ons of the Sale Agreement.

Supplemental Purchase Agreement means any installment purchase agreement hereafter duly authorized and entered into among the Authority and the Health Institutions, supplementing, modifying or amending the Purchase Agreement; but only if and to the extent such Supplemental Purchase Agreement is specifically authorized under the Purchase Agreement and under the Trust Agreement

Supplemental Sale Agreement means any sale agreement hereafter duly authorized and entered into among the Authority and the Health Institutions, supplementing, modifying or amending the Sale Agreement; but only if and to the extent that such Supplemental Sale Agreement is specifically authorized under the Sale Agreement and under the Trust Agreement.

Supplemental Trust Agreement means any trust agreement hereafter duly authorized and entered into among the Authority, the Health Institutions and the Trustee, supplementing, modifying or amending the Trust Agreement; but only if and to the extent such Supplemental Trust Agreement is specifically authorized under the Trust Agreement

Surviving Entity means the successor or surviving entity after giving effect to a Merger Transaction under the Master I ndenture.

Tax Agreement means that certain Tax Certificate and Agreement, dated as of the date of initial execution and delivery of the Purchase Agreement and the Certificates, and executed 0y the Authority and the Health Institutions, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof.

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

Total Ra,enues means, for the period of calculation in question, the sum of operating revenue (including net JE.tient service ra,enue, capitation or premium ra,enue and other revenue) and nonoperating gains (losses), as sho.vn on the audited financial statements of the Obligated Group for the most recent Fiscal Year determined in accordance with generally accepted accounting principles.

Transaction Test means with respect to any specified transaction, that: (i) no Event of Default or Default then exists; (ii) follo.ving such transaction, the Obligated Group could satisfy the conditions for the issuance of $1.00 of additional Long-Term Indebtedness set forth in the prCNisions of the Master Indenture, assurring that such transaction occurred at the start of the most recent Fiscal Year; and (iii) follo.ving such transaction, the combined net

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assets of the Obligated Group after giving effect to such transaction will be at least equal to 90!6 of the combined net assets of the Obligated Group immediately prior to such transaction.

Trust Agreement means that certain Trust Agreement, dated as of May 1, 2007, among the Authority, the Health Institutions and the Trustee, as originally executed and as it m1y from time to time be supplemented, modified or amended in accordance with the terms thereof.

Trustee means The Bank of Ne.v York Trust Company, N. A., a national banking association duly organized and existing under the laws of the United States of America, or its successor, as trustee under the prCNisions of the Trust Agreement

Uninsured Financial Product Agreement means a Financial Product Agreement other than an Insured Financial ProductAgreement.

Uninsured Financial Product Payment means any payment obligation of the Members of the Obligated Group due pursuant to a Financial Product Agreement otherthan Insured Financial Product Payments.

Value, when used with respect to Property, means the aggregate value of all such Property, with each component of such Property valued, at the option of the Obligated Group Representative, at either its Fair Market Value or its Book Value.

INSTALLMENT PURCHASE AGREEMENT

Installment Purchase and Sale of the Real Property

FCH in the Purchase Agreement sells to the Authority, and the Authority purchases from FCH, the Real Property at the price set forth in the Purchase Agreement and otherwise in the m1nner and in accordance with the prCNisions of the Purchase Agreement The Authority and FCH agree that legal and equitable title to the Real Property shal I immediately be deemed conveyed to and vested in the Authority.

Payment PrCNisions

Purchase Price. The purchase price of the Real Property is $320,615,000 (the "principal component") plus the interest to accrue on the unpaid balance of such principal component CNer the term of the Purchase Agreement, all in accordance with the installment payment schedule set forth in the Purchase Agreement. All amounts attributable to interest (the "interest component") as specified in said schedule shall be paid 0y the Authority as and constitute interest

The Authority shall pay the purchase price through Installment Payments, CNer a period of approxim1tely thirty-nine (39) years; prCNided, ho.va,er, that the Authority's obligation to m1ke the Installment Payments is limited exclusively to the payments, and other moneys and assets received 0y the Trustee on behalf of the Authority pursuant to the Sale Agreement or Obligation No. 1, and the Authority is not directly or indirectly or contingently or morally obligated to m1ke Installment Payments from any other moneys or assets of the Authority. Subject to that limitation, the Installment Payments shall be m1de semiannually 0y the Authority.

The Installment Payments shall be m1de to the Trustee at the Corporate Trust Office. In the a,ent the Authority should fail to m1ke any of the Installment Payments, the Installment Payments so unpaid shall continue as an obligation of the Authority until such amount shall have been fully paid and the Authority agrees to pay the same with interest thereon at a rate of interest equal to the rate of interest on the unpaid principal components of such unpaid Installment Payments, subject to the I irritations set forth in the Purchase Agreement.

Each of the Health Institutions agrees in the Sale Agreement to m1ke each Purchase Payment directly to the Trustee in satisfaction of the Authority's Installment Payment obligations. The Authority grants to the Health Institutions a security interest in the Purchase Payments forthe purpose of securing the Installment Payments due from the Authority under the Purchase Agreement.

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The Authority shall have the right at any time or from time to time to prepay all or any part of the Installment Payments from prepayments received from the Health Institutions pursuant to and subject to the terms of the Sale Agreement.

Obligations of Authority Unconditional. The obligations of the Authority to make the payments required under the Purchase Agreement and to perform and observe the other agreements on its part contained in the Purchase Agreement are absolute and unconditional except as otherwise pr01ided the Purchase Agreement, and, until such time as all of the Installment Payments shall have been fully paid (or prCNision for the payment thereof shall have been made in accordance with the prCNisions of the Purchase Agreement), the Authority (i) will not suspend or discontinue any payments prCNided for in the Purchase Agreement, (ii) will perform and observe all of its other agreements contained in the Purchase Agreement and (iii) will not terrrinate the Purchase Agreement for any cause including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Facilities or the Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either or any failure of FCH or any other Health Institutions to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Purchase Agreement

Nothing in the Purchase Agreement shall be construed to release FCH or any of the other Health Institutions from the performance of any of the agreements on its part contained in the Purchase Agreement; and in the a,ent FCH or any other Health Institutions should fail to perform any such agreement, the Authority may institute such action against FCH as the Authority may deem necessary to compel performance or recCNer its damages for nonperformance so long as such action shall not violate the agreements of the Authority contained in the Purchase Agreement.

Limitation on Liability of Authority. Notwithstanding anything to the contrary contained in the Purchase Agreement, neither the Authority nor any Member of the Authority shall be obligated to pay any Installment Payment or any portion of the purchase price or make any other payments or advance any moneys or be liable for any other costs or expenses except from the payments and other moneys and assets received 0y the Authority pursuant to the Sale Agreement or Obligation No. 1. Neither the Authority nor any Member of the Authority shall be directly or indirectly or conti ngentiy or morally obi i gated to use any other moneys or assets of the Authority or any Member of the Authority for all or any portion of the purchase price or for all or any portion of such other costs or expenses.

Purchase Agreement Defaults and Remedies

Purchase Agreement Defaults Defined. Thefollo.ving events shall be "Purchase Agreement Defaults":

(A) Failure 0y the Authority to pay or cause to be paid any Installment Payment required to be paid under the Purchase Agreement at the ti me specified therein.

(B) Failure 0y the Authority to observe and perform any cCNenant, condition or agreement in the Purchase Agreement on its part to be observed or performed, other than as described abCNe in paragraph (A) for a period of fO days after written notice, specifying such failure and requesting that it be remedied, has been given to the Authority 0y the Authorized Representative FCH, unless FCH shall agree in writing to an extension of such time prior to its expiration.

(C) A Sale Agreement Default.

Remedies on Default. Whena,er any Purchase Agreement Default shall have happened and be continuing, the Health Institutions may take any one or more of the remedial steps set forth belo.v:

(A) The Health Institutions may, if the payment of the Certificates has been accelerated pursuant to the prCNisions of the Trust Agreement and upon notice to the Authority, declare the principal component of all Installment Payments, pl us al I accrued and unpaid interest thereon, to be immediately due and payable, whereupon the same shall become immediately due and payable; prCNided, ho.va,er, that if acceleration of the Certificates has been rescinded and annulled pursuant to the prCNisions of the Trust Agreement, acceleration of the Installment

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Payments shall be rescinded and annulled, but no such recision and annulment shall extend to or affect any subsequent default or shal I impair or exhaust any right or po.ver consequent thereto;

(B) The Health Institutions m1y exercise and enforce all or any of the rights and remedies pr01ided for intheSaleAgreement; and/or

(C) The Health Institutions m1y take whata,er action at law or in equity as m1y appear necessary or desirable to enforce perform1nce and observance of any obligation, condition or cCNenant of the Authority under the Purchase Agreement.

No Remedy Exclusive. No remedy conferred upon or reserved to the Health Institutions is intended to be exclusive of any other available remedy or remedies, but each and a,ery such remedy shall be cumulative and shall be in addition to a,ery other remedy given underthe Purchase Agreement or ncm or hereafter existing at law or in equity or by statute. No delay in exercising or on"ission to exercise any right or po.ver accruing upon any default shall impair any such right or po.ver or shall be construed to be a waiver thereof, but any such right or po.ver m1y be exercised from time to time and as often as m1y be deemed expedient. In order to entitle the Health Institutions to exercise any remedy reserved to it, it shall not be necessary to give any notice, other than such notice as m1y be expressly required under the Purchase Agreement. The Holders of the Certificates executed and delivered pursuant to the Trust Agreement shall be deemed third party beneficiaries of all cCNenants and conditions contained in the Purchase Agreement.

No Additional Waiver Implied by One Waiver. In the event any agreement contained in the Purchase Agreement should be breached by any party and thereafter waived by the other parties, such waiver shall be limted to the particular breach so waived and shal I not be deemed to waive any other breach.

INSTALLMENT SALE AG REEM ENT

Installment Purchase and Sale of the Real Property

The Authority in the Sale Agreement sells to FCH, and FCH purchases from the Authority, the Real Property at the purchase price (payable in installments) specified in the Sale Agreement and otherwise in the m1nner and in accordance with the prCNisions of the Sale Agreement The Authority and FCH agree that legal and equitable title to the Real Property shall immediately be deemed conveyed to and vested in FCH. In consideration of the application of a portion of the proceeds of the Certificates for the benefit of the Corporation, FHH and SHF, the Corporation, FHH and SHF agree to enter into the Sale Agreement as co-obligors.

As additional consideration for the conveyance of the Real Property to FCH, the Corporation, acting on its o.vn behalf and on behalf of the other Obligated Group Members, agrees to issue and cause to be authenticated and delivered to the Authority or its designee, pursuant to the Master Indenture and Supplement No. 1, Obligation No. 1. The Authority agrees that Obligation No. 1 shall be registered in the name of the Trustee.

Payment PrCNisions

Purchase Price. Each of the Health Institutions jointly and sa,erally agrees to pay the purchase price for the Real Property conveyed to FCH by m1king installment payments, to be referred to as "Purchase Payments" in accordance with the schedule set forth in the Sale Agreement. The Health Institutions shall pay the Purchase Payments to the Trustee, as assignee of the Authority, for deposit in the Interest Fund and Principal Fund. The Purchase Payments shall be due and payable on or priorto the fifth Business Day next preceding each Payment Date in an amount equal to the amount required by the Trustee to m1ke the deposits required by the Trust Agreement on the applicable Payment Date, taking into account any other funds in the Interest Fund or Principal Fund, as applicable, available for such deposits. Each Purchase Payment shall be paid in lawful money of the United States of America to the Trustee at the Corporate Trust Office and held, invested, disbursed and applied as prCNided in the Trust Agreement The Authorized Representative of Health Institutions shall m1ke each such Purchase Payment directly to the Trustee in satisfaction of the Authority's Installment Payment obligations under the Purchase Agreement. In the event that the Authorized Representative of the Health Institutions should fail to m1ke any of the

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payments required 0y the prCNisions of the Sale Agreement described herein, the installment so in default shall continue as an obligation of the Health Institutions until the amount in default shall have been fully paid with interest thereon at a rate of interest equal to the rate of interest on the principal components of such unpaid Purchase Payments.

The Health Institutions shall pay to the Authority, at the time the Sale Agreement is executed and delivered, an amount sufficient to pay any taxes which may be imposed 0y the State or the County on the sale, resale, use, possession or o.vnership of the Real Property conveyed pursuant to the Sale Agreement and the Purchase Agreement. If the State or the County later requires the payment of additional taxes on such sale, and resale, use, possession or o.vnership, the Authorized Representative of the Health Institutions will pay such amounts when and as due and payable.

Supplemental Payments. In addition to Purchase Payments, each of the Health Institutions jointly and severally agrees to pay to the Authority ortothe Trustee, as the case may be, "Supplemental Payments," as folio.vs:

(A) All taxes and assessments of any type or character charged to the Authority or to the Trustee affecting the amount available to the Authority or the Trustee from payments to be received under the Sale Agreement or in any way arising due to the transactions contemplated 0y the Sale Agreement, the Purchase Agreement or the Trust Agreement (including taxes and assessments assessed or la,ied 0y any public agency or gCNernmental authority of whatsoa,er character having po.ver to levy taxes or assessments) but excluding franchise taxes based upon the capital andpr income of the Authority or the Trustee and taxes based upon or measured 0y the net income of the Authority or the Trustee; pr01ided, ho.va,er, that the Health Institutions shall have the right to protest and contest any such taxes or assessments and to require the Authority or the Trustee, at the expense of the Health Institutions, to protest and contest any such taxes or assessments la,ied upon the Authority orthe Trustee and that the Health Institutions shall have the right to withhold payment of any such taxes or assessments pending disposition of any such protest or contest unless such withholding, protest or contest would adversely affect the rights or interests of the Holders, the Authority ortheTrustee;

(B) The annual (or other regular) fees and expenses of the Trustee and all reasonable fees, charges and expenses of the Trustee for any extraordinary services rendered 0y the Trustee under the Trust Agreement, as and when the same become due and payable;

(C) The reasonable fees and expenses of such accountants, management consultants, attorneys and other experts as may be engaged 0y the Authority or the Trustee to prepare audits, financial statements, reports or opinions orto prCNide such other services required underthe Sale Agreement, the Purchase Agreement orthe Trust Agreement;

(D) The annual fee of the Authority and the reasonable fees and expenses of the Authority or any agent or attorney selected 0y the Authority to act on its behalf in connection with the Sale Agreement, the Purchase Agreement, the Certificates, the Trust Agreement or Obligation No. 1, including, without I irritation, any and all expenses incurred in connection with the authorization, sale and delivery of the Certificates or in connection with any litigation which may at any time be instituted involving the Sale Agreement, the Purchase Agreement, the Certificates, the Trust Agreement, the Tax Agreement or Obligation No. 1 or any of the other documents contemplated thereo,, or in connection with the reasonable inspection of the Health Institutions, their property, assets or operations or otherwise in connection with the adrrinistration of the Sale Agreement, the Purchase Agreement, the Certificates, the Trust Agreement, the Tax Agreement or Obligation No. 1 or any of the cther documents contemplated thereo,; and

(E) All other reasonable and necessary fees and expenses attributable to the Sale Agreement.

Such Supplemental Payments shall be billed to the Authorized Representative of the Health Institutions 0y the Authority or the Trustee from time to time, together with a statement certifying that the amount billed has been incurred or paid 0y the Authority or the Trustee for one or more of the abOle items. After such a demand, amounts so billed shall be paid 0y the Health Institutions within 30 days after receipt of such bill.

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Obligations of the Health Institutions Unconditional; Net Contract. The obligations of each of the Health Institutions to m1ke the Purchase Payments and Supplemental Payments required under the Sale Agreement and to perform and observe the other agreements on its part contained in the Sale Agreement are absolute and unconditional, and shall not be abated, rebated, set-off, reduced, abrogated, terrrinated, waived, dirrinished, postponed or otherwise modified in any m1nner or to any extent whatsoe/er, while any Certificates rem1in Outstanding or any Supplemental Payments rem1in unpaid, regardless of any contingency, act of God, event or cause whatsoe/er, including, without limiting the generality of the foregoing, any acts or circumstances that m1y constitute failure of consideration, a,iction or constructive a,iction, the taking 0y eminent dom1in or destruction of or dam1ge to the Real Property or the Facilities or the Project, commercial frustration of purpose, any change in the laws of the United States of America or of the State or any political subdivision of either or in the rules or regulations of any go;ernmental authority, or any failure of the Authority to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Sale Agreement, the Purchase Agreement or the Trust Agreement. The Sale Agreement shall be deemed and construed to be a "net contract," and the Health Institutions shall pay absolutely net the Purchase Payments, Supplemental Payments and al I other payments required under the Sale Agreement, regardless of any rights of set-off, recoupment, abatement or counterclaim that such Health Institutions might otherwise have against the Authority or the Trustee or any other party or parties.

Credits for Payments. The Health Institutions shall receive credit against its payments required under the Sale Agreement, in addition to any credits resulting from payment or repayment from other sources, as folio.vs:

(A) on installments of interest in an amount equal to moneys in the Interest Fund to the extent such amounts have not previously been credited against such payments;

(B) on installments of principal in an amount equal to moneys in the Principal Fund to the extent such amounts have not previously been credited against such payments; and

(C) on installments of principal and interest in an amount equal to the amount specified in the Certificate of the Authorized Representative of the Health Institutions filed with the Trustee pursuant to the pro;isions of the Sale Agreement and delivered to the Trustee for deposit in the Prepayment Fund in connection with the prepayment of Purchase Payments. Such credits shall be m1de against the installments of Purchase Payments specified in said Certificate of the Authorized Representative of the Health I nstituti ons.

Prepayment. The Health Institutions shall have the right at any time or from time to time to the extent, in the m1nner and as perrritted 0y the pro;isions of the Trust Agreement, to prepay all or any part of the Purchase Payments due from the Health Institutions, and the Authority shall accept such prepayments when the same are tendered 0y the H ea Ith I nstituti ons. A 11 optional prepayments (and the additional payment of any amount necessary to pay the prepayment prerriums, if any, payable upon the prepayment of Certificates) shall be deposited upon receipt in the Optional Prepayment Account and, at the Request of the Authorized Representative of the Health Institutions, credited against Purchase Payments due from the Health Institutions in order of their due date or used for the prepayment or purchase of Outstanding Certificates in the m1nner and subject to the terms and conditions set forth in the Trust Agreement. The Health Institutions also shall have the right to surrender Certificates acquired 0y the Health Institutions in any m1nner whatsoe/er to the Trustee for cancellation, and such Certificates, upon such surrender and cancel la ti on, shal I be deemed to be paid and retired, and shal I be applied as set forth in the Trust Agreement. Notwithstanding any such prepayment or surrender of Certificates, as long as any Certificates rem1in Outstanding or any Purchase Payments or Supplemental Payments rem1in unpaid, the Health Institutions shall not be relia,ed of their obligations underthe Sale Agreement.

The Health Institutions shall also have the right at any time or from time to time to prepay all or any part of the Purchase Payments from moneys derived from condemnation awards or the proceeds of hazard insurance relating to the Facilities, and the Authority shall accept such prepayments when the same are tendered. All prepayments m1de from moneys derived from condemnation awards or the proceeds of hazard insurance shal I be deposited in the Special Prepayment Account and used for the prepayment or purchase of Outstanding Certificates in the m1nner and subject to the terms and conditions set forth in the Trust Agreement.

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Particular CCNenants

Tax CCNenants. The Health Institutions shall not take any action, or fail to take any action, if such action or failure to take action would adversely affect the exclusion from gross income for federal income tax purposes under Section 103 of the Code of the interest component payable with respect to the Certificates.

Special Services CO/enant. As long as any Certificates are Outstanding, each of the Health Institutions cCNenants and agrees that it will operate one or more of its Health Facilities within the territorial limits of one or more Members of the Authority for the benefit of, among others, the Members of the Authority and their residents. For the benefit of one or more Members of the Authority and their residents, each of the Health Institutions further cCNenants and agrees that, as long as any Certificates are Outstanding (except as hereinafter in this paragraph described), it will prCNide or cause to be pr01ided general acute care services to the residents of one or more Members of the Authority and such community health education programs as it may from time to time determine. Notwithstanding the foregoing, each of the Health I nstitutions may, without the consent of the Authority, term nate any service prCNided on the date of execution and delivery of the Certificates which, in the opinion of such Health I nstituti on, becomes obsolete or outmoded due to an advance in medical technique or technology or otherwise.

Continuing Disclosure CCNenant. The Health Institutions cCNenant and agree that they will comply with and carry out all of the prCNisions of the Continuing Disclosure Agreement. Notwithstanding any other prCNision of the Sale Agreement, failure of the Health Institutions to comply with the Continuing Disclosure Agreement shall not constitute a Sale Agreement Default; ho.vever, the Trustee, at the request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount in Outstanding Certificates, shall (but only to the extent funds in an amount satisfactory to the Trustee have been pr01ided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges of the Trustee whatsoever, including, without limitation, reasonable fees and expenses of its attorneys), or any Holder or any Beneficial Owner may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance 0y court order, to cause the Health I nstituti ons to comply with their obi i gations concerning continuing di sci osure underthe Sale Agreement.

Non-Liability of Authority; Expenses; Indemnification

Non-Liability of Authority. NeithertheAuthority nor any Member of the Authority shall be obligated to pay Installment Payments or the principal component, prepayment premium, if any, or interest component with respect to the Certificates, except from Revenues. N eitherthe Authority nor any Member of the Authority shall be directly or indirectly or contingently or morally obligated to use any other moneys or assets for all or any portion of the sale price or Installment Payments or for all or any portion of such other costs or expenses. Neitherthe faith and credit nor the taxing po.ver of the State, or any political subdivision thereof, or the County or the Authority or any Member of the Authority is pledged to the payment of the principal component, prepayment prerrium, if any, or interest component with respect to the Certificates.

Each of the Health Institutions ackno.vledges in the Sale Agreement that the Authority's sole source of moneys to pay Installment Payments will be prCNided 0y the payments made 0y the Health Institutions pursuant to the Sale Agreement and payments made under Obligation No. 1, and agrees that if the payments to be made under the Sale Agreement shall ever prOle insufficient to pay any Installment Payment or all principal components, prepayment prerri um, if any, and interest components with respect to the Certificates as the same shall become due (whether 0y maturity, prepayment, acceleration or otherwise), then upon notice from the Trustee, the Health Institutions shall pay such amounts as are required from time to time to prevent any deficiency or default in the payment of such principal components, prepayment prerrium or interest components, including, but not limited to, any deficiency caused 0y acts, orrissions, nonfeasance or malfeasance on the part of the Authority, any Member of the Authority, the Trustee, the Health Institutions, the Authority or any third party.

Expenses. Each of the Health Institutions cCNenants and agrees to pay and to indemnify the Authority and the Trustee (the assignee of the Authority's rights under the Sale Agreement) against all fees, costs and charges, including reasonable fees of attorneys, accountants, consultants and other experts, incurred in good faith or arising out of or in connection with the Sale Agreement, the Purchase Agreement, the Trust Agreement, the Certificates or any related document.

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Indemnification. The Health Institutions agree, to the extent perrritted 0y law, to indemnify, defend and hold harmless the Authority and its members, directors, officers, empl0yees and agents, each Member of the Authority and its go;erning body members, directors, officers, empl0yees and agents, and the Trustee (the assignee of the Authority's rights under the Sale Agreement) and its members, directors, officers, empl0yees and agents from and against any and all losses, claims, damages, liabilities or expenses, of every conceivable kind, character and nature whatsoever (excepting therefrom only such losses, claims, damages, liabilities, or expenses arising from the willful rrisconduct of the Authority or any Member of the Authority or the negligence of the Trustee), including, but not lirrited to, losses, claims, damages, liabilities, penalties, fines or reasonable expenses arising out of, resulting from or in any way connected with (1) the Facilities or the Project or the conditions, occupancy, use, possession, conduct or management of, or work done in or about, or from the planning, design, acquisition, installation or construction of the Facilities or the Project or any part thereof, including, without limitation, losses, claims, damages, liabilities, fines, penalties or reasonable expenses arising out of, resulting from or in any way relating to any generation, processing, handling, transportation, storage, treatment or disposal of solid wastes, Hazardous Materials or any other Hazardous Material Activity relating to the Real Property, the Facilities or the Project including, but not lirrited to, any of such activities occurring, to occur or having pra,iously occurred on the Real Property or the Facilities or the Project, and any Releases on, under, or from the Real Property, the Facilities or the Project to the extent occurring or existing prior to the execution and delivery of the Purchase Agreement and the Sale Agreement; (2) the execution, delivery and sale of any Certificates and the carrying out of any of the transactions contemplated 0y the Certificates, the Sale Agreement, the Purchase Agreement, the Trust Agreement, the Tax Agreement, Obligation No. 1 or any related document; (3) with respect to the Trustee, the acceptance or adrrinistration of the trusts granted under the Trust Agreement so long as such trusts are discharged in good faith in accordance with the pro;isions of the Trust Agreement; or (4) any untrue statement or alleged untrue statement of any material fact or orrission or alleged omission to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading in any official statement (subject to such exceptions as are specified in the Sale Agreement) or other offering circular utilized in connection with the sale of the Certificates. The Health Institutions further agree, to the extent permitted 0y law, to pay or to reimburse the Authority, the Members of the Authority, the Trustee and their respective go;erning body members, directors, officers, empl0yees and agents for any and all costs, reasonable attorneys' fees, liabilities or reasonable expenses incurred in connection with investigating, defending against or otherwise in connection with any such losses, claims, damages, liabilities, expenses or actions.

Sale Agreement Defaults and Remedies

Sale Agreement Defaults. The follo.ving a,ents shall be "Sale Agreement Defaults:"

(A) Failure 0y any of the Health Institutions to pay in full any payment required under the Sale Agreement when due, whether at maturity, upon a date fixed for prepayment, 0y declaration or otherwise pursuant to the terms of the Sale Agreement;

(B) If any representation or warranty made 0y any of the Health Institutions in the Sale Agreement or in any document, instrument or certificate furnished to the Trustee or the Authority in connection with the execution and delivery of the Certificates shall at any time pro;e to have been incorrect in any material respect as of the time made;

(C) If any of the Health Institutions shall fail to observe or perform any co;enant, condition, agreement or pro;ision in the Sale Agreement on its part to be observed or performed, other than as described in paragraph (A) or (B), awe, or shall breach any warranty 0y such Health Institution contained in the Sale Agreement, for a period of fO days after written notice, specifying such failure or breach and requesting that the same be remedied, has been given to the Authorized Representative of the Health Institutions 0y the Authority orthe Trustee; except that, if such failure or breach can be remedied but not within such fO day period and if such Health Institution has taken all action reasonably possible to remedy such failure or breach within such fO day period, such failure or breach shall not become a Sale Agreement Default for so long as such Health Institution shall diligently proceed to remedy the same in accordance with and subject to any directions or !irritations of time established 0y the Trustee;

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(D) If any of the Health Institutions files a petition in voluntary bankruptcy, forthe corrposition of its affairs or for its corporate reorganization under any state or federal bankruptcy or insolvency law, or m1kes an assignment for the benefit of creditors, or adrrits in writing to its insolvency or inability to pay debts as they m1ture, or consents in writing to the appointment of a trustee or receiver for itself or forthewhole or any substantial part of such Health Institution's facilities;

(E) If a court of corrpetentjurisdiction shall enter an order, judgment or decree declaring any of the Health Institutions an insolvent, or adjudging a Health Institution bankrupt, or appointing a trustee or receiver of any of the Health Institutions or of the whole or any substantial part of such Health Institution's facilities, or apprCNing a petition filed against any of the Health Institutions seeking reorganization of such Health Institution under any applicable law or statute of the United States of America or any state thereof, and such order, judgment or decree shall not be vacated or set aside or stayed within 60 days from the date of the entry thereof;

(F) If, under the prCNisions of any other law for the relief or aid of debtors, any court of corrpetent jurisdiction shall assume custody or control of any of the Health Institutions or of the facilities of any of the Health Institutions, and such custody or control shall not be terrrinated within 60 days from the date of assumption of such custody or control;

(G) If any Event of Default underthe Trust Agreement or a Purchase Agreement Default shall occur; or

( H) If any Event of Default underthe Master Indenture shall occur.

Remedies on Default. If a Sale Agreement Default shall occur, then, and in each and every such case during the continuance of such Sale Agreement Default, the Authority or the Trustee m1y take any one or more of the remedial steps set forth bel o.v:

(A) If Obligation No. 1 has been declared immediately due and payable and if the Purchase Payments and the Certificates represented thereo, have been declared to be due and payable immediately pursuant to the prCNisions of the Trust Agreement and upon notice in writing to the Authorized Representative of the Health Institutions, the Authority or the Trustee shall declare all installments of Purchase Payments and Supplemental Payments payable for the rem1inder of the term of the Sale Agreement to be immediately due and payable, whereupon the same shall be immediately due and payable, anything in the Sale Agreement to the contrary notwithstanding; "all installments" as used in this subparagraph shall mean an amount equal to the entire principal components of the Purchase Payments represented 0y the Certificates then Outstanding, together with any applicable prepayment premiums and all interest components of the Purchase Payments accrued or to accrue on and prior to the next succeeding prepayment date or dates on which the Certificates can be prepaid after giving notice to the Holders thereof as required 0y the Trust Agreement (less moneys available for such purpose then held 0y the Trustee) plus any other payments due or to become due under the Sale Agreement, including, without Ii rritation, any unpaid fees and expenses of the Trustee which are then due or will become due prior to the time that the Certificates are paid in full and the trust established 0y the Trust Agreement is terrrinated; prCNided, ho.va,er, that if acceleration of the Certificates has been rescinded and annulled pursuant to the prCNisions of the Trust Agreement, acceleration of the Purchase Payments and the Supplemental Payments shal I be rescinded and annul I ed.

(B) The Authority and the Trustee m1y take whata,er action, at law or in equity, as m1y appear necessary or desirable to collect the Purchase Payments, Supplemental Payments and any other payments then due and thereafter to become due under the Sale Agreement or to enforce the perform1nce and observance of any obligation, cCNenant, agreement or prCNision contained in the Sale Agreement to be observed or performed 0y any of the Health Institutions.

Any such action 0y the Authority or the Trustee, ho.va,er, is subject to the condition that if, at any time after such action and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, there shall be deposited with the Trustee a sum sufficient to pay all Purchase Payments the payment of which is CNerdue, with interest on such CNerdue principal component of such CNerdue Purchase Payments at the rate borne 0y the respective Certificates, and the reasonable charges and expenses of the Trustee, and any and all other defaults kno.vn to the Trustee (other than in the payment of the Purchase Payments due and payable solely 0y reason

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of such action) shall have been m1de good or cured to the satisfaction of the Trustee or prCNision deemed 0y the Trustee to be adequate shall have been m1de therefor, then, and in a,ery such case, the Trustee shall rescind and annul such action and its consequences and waive such default; but no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust any right or po.ver consequent thereon.

Remedies Not Exclusive; No Waiver of Rights. No remedy conferred upon or reserved to the Authority or the Trustee under the Sale Agreement is intended to be exclusive of any other available remedy or remedies, but each and a,ery such remedy, to the extent permitted 0y law, shall be cumulative and shall be in addition to a,ery other remedy given under the Sale Agreement or no.v or hereafter existing at law or in equity or otherwise. In order to entitle the Authority or the Trustee to exercise any remedy, to the extent perrritted 0y law, reserved to such party in the Sale Agreement, it shall not be necessary to give any notice, other than such notice as m1y be expressly required under the Sale Agreement. Such rights and remedies as are given to the Authority under the Sale Agreement shall also extend to the Trustee, and the Trustee m1y exercise any rights and will be charged with the obligations of the Authority underthe Sale Agreement, and the Trustee and the Holders of the Certificates executed and delivered under the Trust Agreement shall be deemed third party beneficiaries of all cO/enants and conditions contained in the Sale Agreement

No delay in exercising or orritting to exercise any right or po.ver accruing upon any default shall impair any such right or po.ver or shal I be construed to be a waiver of any such default or an acquiescence therein, and a,ery such right and po.ver m1y be exercised from time to time and as often as m1y be deemed expedient

Expenses on Default. In the a,entany of the Health Institutions should default under any of the prCNisions of the Sale Agreement and the Authority or the Trustee should empl0y attorneys or incur other expenses for the collection of the payments due under the Sale Agreement, each of the Health Institutions agrees that it will on dem1nd therefor cause the Authorized Representative of the Health Institutions to pay to the Authority or the Trustee the reasonable fees such attorneys and such other reasonable expenses so incurred 0y the Authority or the Trustee.

TRUST AGREEMENT

Validity of Certificates

The validity of the authorization, execution and delivery of the Certificates is not dependent on and shall not be affected in any way 0y any proceedings taken 0y the Authority or the Trustee with respect to or in connection with the Sale Agreement or the Purchase Agreement.

Funds and Accounts

The Trustee shal I establish the foll o.vi ng funds and accounts pursuant to the Trust Agreement:

(1) Costs of Delivery Fund;

(2) Project Fund;

(3) I nterest Fund;

(4) Principal Fund;

(5) Certificate Reserve Fund;

(6) Prepayment Fund; and

(7) Rebate Fund;

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Costs of Delivery Fund. All moneys deposited in the Costs of Delivery Fund shall be used to pay Costs of Delivery of the Certificates.

Project Fund. The Trustee shall establish, rraintain and hold in trust a separate fund designated as the "Prqject Fund." The moneys in the Project Fund shall be used and withdrawn 0y the Trustee, as directed 0y requisition of the Health Institutions subrritted 0y the Authorized Representative of the Health Institutions, to pay costs of the portion of the Project being financed. Upon completion of the Project, any amounts on deposit in the Project Fund shall be transferred to the Interest Fund orthe Optional Prepayment Account of the Prepayment Fund as the Authorized Representative of the Health Institutions shall direct

Application of Interest Fund. The Trustee shall establish, rraintain and hold in trust a separate fund designated as the "Interest Fund." Moneys in the Interest Fund shall be held, disbursed, allocated and applied 0y the Trustee only as prCNided in the Trust Agreement

(A) The Trustee shall deposit the follo.ving Revenues in the Interest Fund when and as such Ra,enues are received:

( 1) the interest component of al I Purchase Payments, including the interest component of al I cash prepayments of Purchase Payments rrade pursuant to the pr01isions of the Sale Agreement;

(2) the interest component of all payments rrade pursuant to Obligation No. 1;

(3) subsequent to completion of the Project, all interest, profits and other income received from the investment of moneys in the Interest Fund; and

(4) any other Ra,enues not required to be deposited in any other fund or account established pursuant to the Trust Agreement.

(B) All amounts in the Interest Fund shall be used and withdrawn 0y the Trustee solely forthe purpose of paying the interest component of the Installment Payments of the Authority as the same become due and payable pursuant to the Purchase Agreement (including accrued interest with respect to any Certificates purchased or prepaid priorto their Certificate Payment Date pursuant to the Trust Agreement), which interest is payable to the Holders as their respective Certificates become due and payable, al I pursuant to the Trust Agreement

Application of Principal Fund. The Trustee shall establish, rraintain and hold in trust a separate fund designated as the "Principal Fund." Moneys in the Principal Fund shall be held, disbursed, allocated and applied 0y the Trustee only as prCNided in theTrustAgreement

(A) The Trustee shall deposit the follo.ving Revenues in the Principal Fund when and as such Ra,enues are received:

( 1) the principal component of all Purchase Payments, but excluding the principal component of all cash prepayments of Purchase Payments rrade pursuant to the prCNisions of the Sale Agreement, which shall be deposited in the applicable account of the Prepayment Fund;

(2) the principal component of all payments rrade pursuant to Obligation No. 1, but excluding the principal component of all cash prepayments of Purchase Payments rrade pursuant to Obligation No. 1, which shall be deposited in the applicable account of the Prepayment Fund; and

(3) subsequent to completion of the Project, all interest, profits and other income received from the investment of moneys in the Principal Fund.

(B) All amounts in the Principal Fund shall be used and withdrawn 0y the Trustee solely for the purpose of paying the principal component of the Installment Payments of the Authority as the same become due and payable pursuant to the Purchase Agreement, which principal component is payable to the Holders as their

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respective Certificates become due and payable, except that all annunts in any Sinking Account shall be used and withdrawn 0y the Trustee solely to purchase, prepay or pay Term Certificates to which such Sinking Account relates on their stated Certificate Payment Dates, as prCNi ded the Trust Agreement.

(C) The Trustee shall establish and maintain within the Principal Fund a separate subaccount for the Term Certificates of each stated Certificate Payment Date, designated as the " Sinking Account," inserting therein the stated Certificate Payment Date (if nnre than one such account is established) designation of such Certificates. With respect to each Sinking Account, on each Mandatory Sinking Account Payment Date established for such Sinking Account, the Trustee shall apply the Mandatory Sinking Account Payment required on that date to the prepayment (or payment on their stated Certificate Payment Date, as the case may be) of Term Certificates of the stated Certificate Payment Date for which such Sinking Account was established, upon the notice and in the manner prCNided in the Trust Agreement; prCNided that, at any time prior to giving notice of such prepayment, the Trustee may apply nnneys in such Sinking Account to the purchase of Term Certificates of such stated Certificate Payment Date at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Fund) as directed in writing 0y the Authorized Representative of the Health Institutions, except that the purchase price (excluding accrued interest) shall not exceed the stated annunt that would be payable for such Certificates upon prepayment 0y application of such Mandatory Sinking Account Payment. If, during the 12-rronth period immediately preceding said Mandatory S inking Account Payment date, the Trustee has purchased Term Certificates of such stated Certificate Payment Date with nnneys in such Sinking Account, or, during said period and prior to giving said notice of prepayment, the Health Institutions have deposited Term Certificates of such stated Certificate Payment Date with the Trustee (together with a Request of the Health Institutions to apply such Certificates so deposited to the Mandatory Sinking Account Payment due on said date with respect to the Term Certificates of such stated Certificate Payment Date), or Term Certificates of such stated Certificate Payment Date were at any time purchased or prepaid 0y the Trustee from the Prepayment Fund and allocable to said Mandatory Sinking Account Payment, such Certificates so purchased or deposited or prepaid shall be applied, to the extent of the full principal component thereof, to reduce said Mandatory Sinking Account Payment All Certificates purchased or deposited pursuant to the prCNisions of the Trust Agreement described in this clause (c), if any, shall be cancelled. Any annunts remaining in a Sinking Account when all of the Term Certificates for which such account was established are no longer Outstanding shall be withdrawn 0y the Trustee and transferred to the Principal Fund.

Application of Certificate Reserve Fund. The Trustee shall establish, maintain and hold in trust a separate fund designated as the "Certificate Reserve Fund." Upon delivery of the Certificates, an annunt equal to the Certificate Reserve Requirement shall be deposited in the Certificate Reserve Fund. All annunts in the Certificate Reserve Fund (including all annunts which may be obtained from letters of credit, surety bonds and/or insurance policies deposited in the Certificate Reserve Fund in accordance with the prCNisions of the Trust Agreement shall be used and withdrawn solely 0y the Trustee solely for the purpose of making up any deficiency in the Interest Fund or the Principal Fund or (together with any other nnneys available therefor) for the payment or prepayment of all Certificates then Outstanding.

In the a,ent of any transfer from the Certificate Reserve Fund forthe purpose of making up any deficiency in the Interest Fund or the Principal Fund, the Trustee shall immediately notify the Authorized Representative of the Health Institutions of the annunt of such transfer, and the Health lnstitutionsjointiy and sa,erally agree to restore the annunt or deposit in the Certificate Reserve Fund to an annunt equal to the Certificate Reserve Requirement no later than 120 days from the date of such transfer, such annunt to be paid to the Trustee in four (4) substantially equal nnnthly installments.

All Investment Securities held on deposit in the Certificate Reserve Fund shall be valued 0y the Trustee at their fair market value at I east annually on J anuary 1 ( or nnre frequently as may be reasonably requested 0y the Authorized Representative of the Health Institutions) and such valuation shall be reported immediately to the Authorized Representative of the Health I nstituti ons. Subject to the prCNisi ons of the Trust Agreement, any annunt in the Certificate Reserve Fund in excess of the Certificate Reserve Requirement shall be transferred to the Interest Fund. To the extent that the annunt then on deposit in the Certificate Reserve Fund is less than the Certificate Reserve Requirement, the Health Institutions shall, within 90 days after receiving notice of such annual evaluation, pay to the Trustee an annunt sufficient to increase the balance in the Certificate Reserve Fund to the Certificate Reserve Requirement

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In lieu of m1king the Certificate Reserve Requirement deposit in cash or in replacement of moneys then on deposit in the Certificate Reserve Fund (which shall be transferred to the Optional Prepayment Account of the Prepayment Fund and used to prepay Certificates), the Health Institutions m1y deliverto the Trustee an irra,ocable letter of credit issued 0y a financial institution having unsecured debt obligations rated in one of the two highest rating categories of each nationally recognized rating agency then rating the Certificates in an amount, which, together with moneys, Investment Securities or surety bonds or insurance policies on deposit in the Certificate Reserve Fund, will equal the Certificate Reserve Requirement. Such letter of credit shall have an original term of no less than 3 years or, if less, the m1turity of the Certificates and such letter of credit shall prCNide 0y its terms that it m1y be drawn upon as prCNided in the Trust Agreement. If the credit rating of the financial institution issuing such irra,ocable letter of credit falls belo.v the rating categories specified abCNe, the Health Institutions shall within twelve (12) months of such do.vngrading, either (i) deliver a replacement irrevocable letter of credit satisfying the requirements of the Trust Agreement described in this paragraph, ( ii) fund the Certificate Reserve Fund through the deposit of cash or a surety bond or insurance policy satisfying the requirements of the Trust Agreement described in the paragraph follo.ving this paragraph, or (iii) fund the Certificate Reserve Fund through a combination of (i) and (ii). At least one ( 1) year priorto the stated expiration of such letter of credit, the Health Institutions shall deliver to the Trustee either (i) a replacement letter of credit, (ii) an extension of the letter of credit for at least one (1) additional year or, if less, the m1turity of the Certificates, or (iii) a surety bond or an insurance policy satisfying the requirements set forth in the Trust Agreement. Upon delivery of such replacement letter of credit, extension of the letter of credit, or surety bond or insurance policy, the Trustee shall deliver the then-€ffective letter of credit to or upon the order of the Authorized Representative of the Health Institutions. If the Authorized Representative of the Health Institutions shall fail to deposit a replacement letter of credit, an extension of the letter of credit or surety bond or insurance policy with the Trustee, the Health Institutions shall immediately commence to m1ke monthly deposits to the Trustee so that an amount equal to the Certificate Reserve Requirement will be on deposit in the Certificate Reserve Fund no later than the stated expiration date of the letter of credit. If an amount equal to the Certificate Reserve Requirement as of the date follo.ving the expiration of the letter of credit is not on deposit in the Certificate Reserve Fund one week prior to the stated expiration date of the letter of credit (excluding from such deterrrination of the letter of credit then in effect), the Trustee shall draw on the letter of credit then in effect to fund the deficiency resulting therefrom in the Certificate Reserve Fund.

In lieu of m1king the Certificate Reserve Requirement deposit in cash, or in replacement of moneys then on deposit in the Certificate Reserve Fund (which shall be transferred 0y the Trustee to the Optional Prepayment Account of the Prepayment Fund and used to prepay Certificates), the Health Institutions m1y deliver to the Trustee a surety bond or an insurance policy securing an amount, which, together with moneys, Investment Securities or letters of credit on deposit in the Certificate Reserve Fund, will equal the Certificate Reserve Requirement. Such surety bond or insurance policy shall be issued 0y an insurance company whose unsecured debt obligations (or for which obligations secured 0y such insurance company's insurance policies) are rated in one of the two highest rating categories of each nationally recognized rating agency then rating the Certificates. Such surety bond or insurance policy shall have a term of no less than the m1turity of the Certificates. In the a,ent that such surety bond or insurance policy for any reason lapses or expires, the Health Institutions shall immediately comply with prCNisions set forth in the Trust Agreement or shall m1ke the required deposits to the Certificate Reserve Fund.

In the a,ent of a deficiency in the Interest Fund or the Principal Fund and if a letter of credit, surety bond or insurance policy has been delivered to the Trustee in order to satisfy all or a portion of the Certificate Reserve Requirement, the Trustee shall, on a pro rata basis with respect to the portion of the Certificate Reserve Fund held in cash or Investment Securities and amounts held in the form of letters of credit and amounts held in the form of surety bonds and insurance policies (calculated 0y reference to the maximum amounts of such letters of credit and surety bonds and insurance policies and the amount of the initial deposit of such cash and Investment Securities), draw under each letter of credit or Certificate Reserve Fund, in a timely m1nner and pursuant to the terms of such letter of credit or surety bond or insurance policy to the extent necessary in order to obtain sufficient funds on or prior to the date such funds are needed to pay, when due, the principal component and the interest component of the Certificates, including Sinking Account payments. In the a,ent that the Trustee has written notice that any payment m1de with respect to the principal component or interest component of a Certificate has been recCNered from a Holder pursuant to the United States Bankruptcy Code 0y a trustee in bankruptcy in accordance with the final, nonappealabl e order of a court having competentj urisdi ction, the Trustee, pursuant to and prCNi ded that the terms of the letter of credit or surety bond or bond insurance policy, if any, securing the Certificates so prCNide, shall so notify the issuer thereof and draw on such I etter of credit or surety bond or pol icy to the I esser of the extent required

C-30

or the maxirrum amount of such letter of credit or surety bond or policy in order to pay to such Holder the amount of principal component and interest component so recCNered.

Application of Prepayment Fund. The Trustee shall establish, m1intain and hold in trust a Prepayment Fund and shall establish and m1intain within the Prepayment Fund, a separate Optional Prepayment Account and a separate Special Prepayment Account. Al I amounts deposited in the Optional Prepayment Account and the Special Prepayment Account shall be used and withdrawn 0y the Trustee solely for the purpose of prepaying the principal components of the Installment Payments of the Authority and thereo, prepaying Certificates, in the m1nner and upon the terms and conditions specified in the Trust Agreement, at the next succeeding date of prepayment for which notice has not been given and at the Prepayment Prices then applicable to prepayments from the Optional Prepayment Account and the Special Prepayment Account, respectively; prCNided that, at any time prior to giving such notice of prepayment, the Trustee m1y apply such amounts to the purchase of Certificates at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Fund) as the Trustee m1y in its discretion deterrrine or as m1y be directed 0y the Authorized Representative of the Health Institutions, except that the purchase price (exclusive of accrued interest) m1y not exceed said applicable Prepayment Price; and prCNided further that, in the case of the Optional Prepayment Account in lieu of prepayment at such next succeeding date of prepayment, or in combination there.vith, amounts in such account m1y be transferred to the Principal Fund and credited against the principal components of Installment Payments in order of their due dates as set forth in a Request of the Health Institutions.

Application of the Rebate Fund. The Trustee shall establish and m1intain the Rebate Fund in accordance with the prCNi si ons of the Trust Agreement and the Tax Agreement.

Investment of Moneys in Funds and Accounts. Subject to the limitations set forth in the Trust Agreement, all moneys in any of the funds and accounts established pursuant to the Trust Agreement shall be invested 0y the Trustee at the written direction of the Authorized Representative of the Health Institutions solely in I nvestrnent Securities. I n the absence of written investment directions from the Authorized Representative of the Health Institutions, the Trustee shall invest solely in Investment Securities described in clause (xii) of the definition thereof. All I nvestrnent Securities shall be acquired subject to the I irritations set forth in the Trust Agreement and such additional limitations or requirements consistent with such limitations as m1y be established 0y Request of the Authorized Representative of the Health Institutions.

All interest, profits and other income received from the investment of moneys in the Rebate Fund shall be deposited when received in such fund. All interest, profits and other income received from the investment of moneys in the Project Fund shall be deposited when received in such fund. All interest, profits and other income received from the investment of moneys on deposit in any other fund or account prior to completion of the Project shall be deposited when received in the Project Fund and thereafter shall be deposited when received in such fund or account.

I nvestrnent Securities acquired as an investment of moneys in any fund or account established under the Trust Agreement shall be credited to such fund or account

Particular CCNenants

Extension of Payment of Certificates. Neither any of the Health Institutions nor the Authority shall directly or indirectly extend or assent to the extension of the payment dates of any of the Installment Payments or Certificates represented thereo, or the time of payment of any of the claims for interest represented thereo, 0y the purchase or funding of such Certificates or claims for interest or 0y any other arrangement and if the payment dates of any of the Installment Payments or Certificates represented thereo, orthe time of payment of any such claims for interest shall be extended, such Certificates or claims for interest shall not be entitled, in case of any default under the Trust Agreement, to the benefits of the Trust Agreement, except subject to the prior payment in full of the principal component of all of the I nstal I ment Payments or Certificates represented thereo, then Outstanding and of all claims for interest with respect thereto which shall not have been so extended.

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Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Ra,enues and other assets pledged or assigned pursuant to the Trust Agreement whi I e any of the Certificates are Outstanding, except the pl edge and assignment created 0y the Trust Agreement.

Accounting Records of the Trustee. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with sound industry practice, in which complete and accurate entries shall be made of all transactions relating to the proceeds of Certificates, the Revenues, the Sale Agreement, the Purchase Agreement, and al I funds and accounts established pursuant to the Trust Agreement Such books of record and account shall be available for inspection 0y the Authority, the Authorized Representative of the Health Institutions and any Holder, or his agent or representative duly authorized in writing, upon reasonable notice, at reasonable hours and under reasonable circumstances.

The Trustee shall file and furnish to the Authority (if requested in a Request of the Authority) and to each Holder who shall have filed his name and address with the Trustee for such purpose within the preceding 12 months (at such Holder's cost) (1) a cor,, of the most recent audited financial statements of the Members of the Obligated Group, as furnished to the Trustee pursuant to the Sale Agreement, and (2) on or before March 1 of each year, a statement (which need not be audited) cCNering receipts, disbursements, allocation and application of Revenues and any other moneys (including proceeds of Certificates) in any of the funds and accounts established pursuant to the Trust Agreement for the year ended on the preceding February 1.

Continuing Disclosure. Pursuant to the prCNisions of the Sale Agreement, the Health Institutions have undertaken all responsibility for compliance with continuing disclosure requirements, and the Authority shall have no liability to the Holders of the Certificates or any other person with respect to such disclosure matters. Each of the Health Institutions and the Trustee cCNenant and agree that they will comply with and carry out all of the prCNisions of the Continuing Disclosure Agreement and of the Sale Agreement concerning continuing disclosure applicable to such party. Notwithstanding any other prCNision of the Trust Agreement, failure of the Health Institutions or the Trustee or the Dissemination Agent to comply with the Continuing Disclosure Agreement shall not constitute an Event of Default; ho.va,er, at the request of the Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Certificates, the Trustee shall (but only to the extent funds in an amount satisfactory to the Trustee have been prCNided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges of the Trusteewhatsoa,er, including, without I irritation, reasonable fees and expenses of its attorneys), or any Holder or any Beneficial Owner may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance 0y court order, to cause the Health Institutions to comply with their obligations under the prCNisions of the Sale Agreement concerning continuing disclosure or to cause the Trustee to comply with its obi i gati ons concerning continuing disclosure under the Trust Agreement.

Events of Default and Remedies

Events of Default. The term "Event of Default'' as used in the Trust Agreement means any of the follo.ving:

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

(B) default 0y the Authority or any of the Health Institutions in the observance of any of the cCNenants, agreements or conditions on its part contained in the Trust Agreement, if such default shall have continued for a period of fO days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority and the Authorized Representative of the Health Institutions 0y the Trustee, or to the Authority, the Authorized Representative of the Health Institutions and the Trustee 0y the Holders of not less than 25% in aggregate principal amount of the Certificates at the time Outstanding; or

(C) a Purchase Agreement Default or a Sale Agreement Default;

Acceleration. If any Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee may, and upon the written direction of the Holders of a majority in aggregate principal amount of the Certificates then Outstanding shall, upon notice in writing to the Authority and

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the Authorized Representative of the Health Institutions, declare the principal corrponent of all of the Installment Payments and the Certificates 0y which they are represented then Outstanding, and the interest accrued with respect thereto, to be due and payable imnediately, and upon such declaration the same shall become and shall be immediately due and payable.

Any such declaration, ho.vever, is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shal I have been obtained or entered, there shall be deposited with the Trustee a sum sufficient to pay all Installment Payments the payment of which is CNerdue, with interest on such CNerdue principal component of such CNerdue Installment Payments at the rate borne 0y the respective Certificates, and the reasonable charges and expenses of the Trustee, and any and all other defaults kno.vn to the Trustee (other than in the payment of the Installment Payments due and payable solely 0y reason of such declaration) shall have been m1de good or cured to the satisfaction of the Trustee or prCNision deemed 0y the Trustee to be adequate shall have been m1de therefor, then, and in a,ery such case, the Holders of not less than a m1jority in aggregate principal amount with respect to the Certificates then Outstanding, 0y written notice to the Authority, the Authorized Representative of the H ea Ith I nstitutions and the Trustee orthe Trustee if such declaration was m1de 0y the Trustee, m1y, on behalf of the Holders of all of the Certificates, rescind and annul such declaration and its consequences and waive such default; but no such rescission and annulment shall extend to or shall affect any subsequent default, or shal I impair or exhaust any right or po.ver consequent thereon.

Application of Ra,enues and Other Funds After Default. If an Event of Default shall occur and be continuing, all Ra,enues and any other funds then held or thereafter received 0y the Trustee under any of the pr01isions of the Trust Agreement (except as otherwise set forth in the Trust Agreement and except for amounts on deposit in the Rebate Fund) shall be applied 0y the Trustee as fol lo.vs and in the follo.ving order:

( 1) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Holders of the Certificates and payment of reasonable charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the perform1nce of its po.vers and duties under the Trust Agreement;

(2) To the payment of the principal or Prepayment Price and interest then due with respect to the Certificates (upon presentation of the Certificates to be paid, and stamping thereon of the payment if only partially paid, or surrenderthereof if fully paid) subject to the prCNisions of the Trust Agreement, as fol lo.vs:

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

First: To the payment to the Persons entitled thereto of all installments of interest then due in the order of the m1turity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments m1turing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference; and

Second: To the payment to the Persons entitled thereto of the unpaid principal or Prepayment Price with respect to any Certificates which shall have become due, whether on their Certificate Payment Dates or 0y call for prepayment, in the order of their due dates, with interest on the CNerdue principal at the rate borne 0y the respective Certificates, and, if the amount available shall not be sufficient to pay or prepay in full all the Certificates due on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal or Prepayment Price due on such date to the Persons entitled thereto, without any discrirrination or preference; and

(ii) If the principal corrponent of the Installment Payments shall have become or have been declared due and payable, to the payment of the principal and interest then due and unpaid with respect to the Certificates, with interest on the CNerdue principal at the rate borne 0y the respective Certificates, and, if the amount available shall not be sufficient to pay in full the whole amount so due and unpaid, then to the payment thereof ratably, without preference or priority of principal CNer interest, or of interest CNer principal, or of any installment of interest CNer any other installment of interest, or of any Certificate CNer any other Certificate, according to the

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arrounts due respectively for princiJRI and interest, to the Persons entitled thereto without any discrirrination or preference.

Trustee to Represent Holders. The Trustee is irra,ocably appointed under the Trust Agreement (and the successive respective Holders of the Certificates 0y taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Holders of the Certificates for the purpose of exercising and prosecuting on their behalf such rights and remedies as m1y be available to such Holders under the prCNisions of the Certificates, the Trust Agreement, the Sale Agreement, the Purchase Agreement, Obligation No. 1 and applicable prCNisions of any other law. Upon the occurrence and continuance of an Event of Default under the Trust Agreement or other occasion giving rise to a right in the Trustee to represent the Holders, the Trustee in its discretion m1y, upon the written request of the Holders of not less than 25% in aggregate princiJRI arrount of the Certificates then Outstanding, and upon being indemnified to its satisfaction therefor, shall proceed to protect or enforce its rights or the rights of such Holders 0y such appropriate action, suit, m1ndarnus or other proceedings as it shall deern rnost effectual to protect and enforce any such right, at law or in equity, either for the specific perform1nce of any cCNenant or agreement contained in the Trust Agreement, or in the aid of the execution of any po.ver granted in the Trust Agreement, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Holders under the Trust Agreement, the Sale Agreement, the Purchase Agreement, Obligation No. 1 or any law; and upon instituting such proceeding, the Trustee shall be entitled, as a m1tter of right, to the appointment of a receiver of the Ra,enues and other assets pledged under the Trust Agreement pending such proceedings. All rights of action under the Trust Agreement or the Certificates or otherwise m1y be prosecuted and enforced 0y the Trustee without the possession of any of the Certificates or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted 0y the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Holders of such Certificates, subject to the prCNisions of the Trust Agreement

Holders' Direction of Proceedings. Anything intheTrustAgreementtothecontrary notwithstanding, the Holders of a m1jority in aggregate princiJRI arrount of the Certificates then Outstanding shall have the right, 0y an instrument or concurrent instruments in writing executed and delivered to the Trustee, to direct the method of conducting all remedial proceedings taken 0y the Trustee under the Trust Agreement, prCNided that such direction shall not be otherwise than in accordance with law and the prCNisions of the Trust Agreement, and that the Trustee shall have the right to decline to follo.v any such direction which in the opinion of the Trustee would be unjustly prejudicial to Holders not JRrties to such direction.

Limitation on Holders' Right to Sue. No Holder of any Certificate shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Trust Agreement, the Sale Agreement, the Purchase Agreement, Obligation No. 1 or any other applicable law with respect to such Certificate, unless: (1) such Holder shall have given to the Trustee written notice of the occurrence of an Event of Default; (2) the Holders of not less than 25% in aggregate princiJRI arrount of the Certificates then Outstanding shall have m1de written request upon the Trustee to exercise the po.vers granted under the Trust Agreement orto institute such suit, action or proceeding in its o.vn name; (3) such Holder or said Holders shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (4) the Trustee shall have refused or orritted to comply with such request for a period of 60 days after such written request shall have been received o,, and said tender of indemnity shall have been m1de to, the Trustee.

Termination of Proceedings. In case any proceedings taken 0y the Trustee or any one or rrore Holders on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been deterrrined adversely to the Trustee or the Holders, then in a,ery such case the Authority, the Health Institutions, the Trustee and the Holders, subject to any determination in such proceedings, shall be restored to their former positions and rights under the Trust Agreement, sa,erally and respectively, and all rights, remedies, po.vers and duties of the Authority, the Health Institutions, the Trustee and the Holders shall continue as though no such proceedings had been taken.

No Waiver of Default. No delay or orrission of the Trustee or of any Holder of the Certificates to exercise any right or po.ver arising upon the occurrence of any default shall irnJRir any such right or po.ver or shall be construed to be a waiver of any such default or an acquiescence therein; and every po.ver and remedy given 0y the

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Trust Agreement to the Trustee or to the Holders of the Certificates rray be exercised from time to time and as often as rray be deemed expedient.

Modification or Amendment of Trust Agreement, Purchase Agreement and Sale Agreement

Amendments Permitted. (A) The Trust Agreement, the Purchase Agreement and the Sale Agreement, and the rights and obligations of the Authority, the Health Institutions, the Holders of the Certificates and the Trustee rray be modified or amended from time to time and at any time 0y a Supplemental Trust Agreement, S upplemental Purchase Agreement or S uppl emental Sale Agreement, which the Authority, the Health I nstituti ons and the Trustee, as applicable, rray enter into when the written consent of the Holders of at least a rrajority in aggregate principal amount of the Certificates then Outstanding shall have been filed with the Trustee; prCNided that if such modification or amendment will, 0y its terms, not take effect so long as any Certificates of any particular rraturity rerrain Outstanding, the consent of the Holders of such Certificates shall not be required and such Certificates shal I not be deemed to be Outstanding forthe purpose of any calculation of Certificates Outstanding.

No such modification or amendment shall: (1) extend the Certificate Payment Date of any Certificate, or reduce the amount of principal represented thereo,, or extend the time of payment or reduce the amount of any Mandatory Sinking Account Payment prCNided in the Trust Agreement for the payment of any Certificate, or reduce the rate of interest with respect thereto, or extend the time of payment of interest with respect thereto, or reduce any prerrium payable upon the prepayment thereof, without the written consent of the Holder of each Certificate so affected; or (2) reduce the aforesaid percentage of Certificates the consent of the Holders of which is required to effect any such modification or amendment, or perrrit the creation of any lien on the Ra,enues and other assets pledged underthe Trust Agreement priorto or on a parity with the lien created 0y the Trust Agreement, or deprive the Holders of the Certificates of the lien created 0y the Trust Agreement on such Ra,enues and other assets (except as expressly prCNided in the Trust Agreement), without the consent of the Holders of all of the Certificates then Outstanding.

(B) The Trust Agreement, the Purchase Agreement and the Sale Agreement and the rights and obligations of the Authority, the Health Institutions, the Trustee and the Holders of the Certificates rray also be modified or amended from time to time and at any time 0y a Supplemental Trust Agreement, Supplemental Purchase Agreement or Supplemental Sale Agreement, respectively, which the Authority, the Health Institutions and the Trustee, as applicable, rray enter into without the consent of any Holders, but only for any one or more of the foll o.vi ng purposes:

(1) to add to the cCNenants and agreements of the Authority or the Health Institutions contained in the Trust Agreement, the Purchase Agreement or the Sale Agreement other cCNenants and agreements thereafter to be observed, to pledge or assign additional security for the Certificates (or any portion thereof), or to surrender any right or po.ver reserved to or conferred upon the Authority or the Health Institutions in the Trust Agreement, prCNided, that no such cCNenant, agreement, pledge, assignment or surrender shall rraterially adversely affect the interests of the Holders of the Certificates;

(2) to rrake such prCNisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective prCNision, contained in the Trust Agreement, the Purchase Agreement or the Sale Agreement, or in regard to rratters or questions arising under the Trust Agreement, the Purchase Agreement orthe Sale Agreement, orto rrake any other revisions or additions to the Trust Agreement, the Purchase Agreement or the Sale Agreement as the Authority or the Health Institutions rray deem necessary or desirable, and which, in the opinion of the Trustee, shall not rraterially adversely affect the interests of the Holders of the Certificates;

(3) to modify, amend or supplement the Trust Agreement in such rranner as to perrrit the qualification of the Trust Agreement under the Trust Indenture Act of 1939, as amended, or any sirrilar federal statute hereafter in effect, and to add such other terms, conditions and prCNisions as rray be perrritted 0y said act or sirrilar federal statute, and which modification, amendment or supplement shall not rraterially adversely affect the interests of the Holders of the Certificates; or

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(4) to prCNide any additional procedures, cCNenants or agreements to traintain the exclusion from gross income for federal income tax purposes of interest payable with respect to the Purchase Agreement and the Certificates.

(C) The Trustee tray in its discretion, but shall not be obligated to, enter into any such Supplemental Trust Agreement, Supplemental Sale Agreement or Supplemental Purchase Agreement authorized under the prCNisions described abCNe which adversely affects the Trustee's o.vn rights, duties or immunities under the Trust Agreement or otherwise.

Defeasance

Discharge of Trust Agreement. When the obligations of the Authority under the Purchase Agreement shall cease pursuant to the prCNisions of the Purchase Agreement (except for the right of the Trustee and the obligation of the Authority to have the money and Investment Securities mentioned therein applied to the payment of Installment Payments as therein set forth), then and in that case the obligations created 0y the Trust Agreement shall thereupon cease, terminate and become void, except for the right of the Trustee to apply such moneys and Investment Securities to the payment of the Certificates as therein set forth, and the Trustee shall turn Oler to the Authorized Representative of the Health Institutions, as an CNerpayment of Purchase Payments, any balances retraining in any of the funds or accounts established under the Trust Agreement (except the Rebate Fund which shall be gCNerned 0y the Tax Agreement) other than moneys and Investment Securities held for the payment of the Certificates on their Certificate Payment Date or on prepayment, which moneys and Investment Securities shall continue to be held 0y the Trustee in trust for the benefit of the Holders and shall be applied 0y the Trustee to the payment, when due, of the principal premium, if any, and interest represented 0y the Certificates, and after such payment, the Trust Agreement shal I become void.

Deposit of Money or Securities with Trustee. Whena,er in the Trust Agreement or the Purchase Agreement it is prCNided or permitted that there be deposited with or held in trust 0y the Trustee money or securities in the necessary amount to pay or prepay any Certificates, the money or securities so to be deposited or held tray include money or securities held 0y the Trustee in the funds and accounts established pursuant to the Trust Agreement (exclusive of the Rebate Fund) and shall be:

(A) lawful money of the United States of America in an amount equal to the principal amount of such Certificates and all unpaid interest thereto to their Certificate Payment Dates, except that, in the case of Certificates which are to be prepaid priorto their Certificate Payment Dates and in respect of which notice of such prepayment shall have been given or prCNision satisfactory to the Trustee shall have been trade for the giving of such notice, the amount to be deposited or held shall be the principal amount or Prepayment Price with respect to such Certificates and al I unpaid interest thereon to the prepayment date; or

(B) Investment Securities (which are noncallable 0y the issuer thereof prior to traturity) described in clause ( 1) of the definition thereof, the principal of and interest on which when due will prCNide money sufficient to pay the principal or Prepayment Price and all unpaid interest to the stated Certificate Payment Dates or to the prepayment date, as the case tray be, represented 0y the Certificates to be paid or prepaid, as such principal or Prepayment Price and interest become due, prCNided that, in the case of Certificates which are to be prepaid prior to their Certificate Payment Dates, notice of such prepayment shall have been given or prCNision satisfactory to the Trustee shall have been trade for the giving of such notice; prCNided, in each case, that the Trustee shall have been irra,ocably instructed (o, the terms of the Trust Agreement and the Purchase Agreement or 0y Order of the Authority) to apply such money to the payment of such principal or Prepayment Price and interest with respect to such Certificates.

Payment of Certificates After Discharge of Trust Agreement. Notwithstanding any prCNisions of the Trust Agreement, any moneys held 0y the Trustee in trust for the payment of the principal, Prepayment Price, or interest with respect to any Certificates and retraining unclaimed for one (1) year after such principal, Prepayment Price of, or interest with respect to all of the Certificates has become due and payable (whether at the stated Certificate Payment Dates or upon call for prepayment or 0y acceleration as prcNided in the Trust Agreement), if such moneys were so held at such date or for one (1) year after the date of deposit of such principal, Prepayment Price of, or interest with respect to any of the Certificates, if such moneys were deposited after the date when such

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Certificates became due and payable, shall be repaid to the Health Institutions free from the trusts created 0y the Trust Agreement and all liability of the Trustee with respect to such moneys shall thereupon cease; prCNided, ho.vever, that before the repayment of such moneys to the Health Institutions as aforesaid, the Health Institutions or the Trustee, as the case m1y be, m1y (at the cost of the H ea Ith I nstituti ons) first m1i I a notice, in such form as m1y be deemed appropriate 0y the Trustee to the Holders of the Certificates so payable and not presented and with respect to the prCNisions relating to the repayment to the Health Institutions of the moneys held for the payment thereof at the addresses sho.vn on the registration books m1intained 0y the Trustee. In the a,ent of the repayment of any such moneys to the Health Institutions as aforesaid, the Holders of the Certificates with respect to which such moneys were deposited shall thereafter be deemed to be general unsecured creditors of the Health Institutions for amounts equivalent to the respective amounts deposited for the payment of such Certificates and so repaid to the Health I nstituti ons (without interest thereon), subject to any applicable statute of Ii mitati ons.

MASTER INDENTURE OF TRUST

General

The Master Indenture authorizes the issuance of Obligations 0y the Obligated Group. An Obligation is stated in the Master Indenture to be ajointand sa,eral obligation of each Obligated Group Member.

Authorization and Issuance of Obligations

Each Obligated Group Member authorizes to be issued from time to time Obligations or Series of Obligations, without I irritation as to amount, except as prCNided in the Master Indenture or as m1y be limited 0y law, and subject to the terms, conditions and !irritations established in the Master Indenture and in any Related Supplement.

Particular CCNenants of the Members

Payment of Required Payments. The Obligated Group Members jointly and sa,erally agree to pay or cause to be paid promptly all Required Payments at the place, on the dates and in the m1nner prCNided in the Master Indenture, or in any Related Supplement or Obi igation.

Maintenance of Properties, Payment of Indebtedness, Etc. Each Obligated Group Member cCNenants to: (a) m1intain its Property, Plant and Equipment in accordance with all valid and applicable gCNernmental laws, ordinances, apprCNals and regulations including, without limitation, such zoning, sanitary, pollution and safety ordinances and laws and such rules and regulations thereunder as m1y be binding upon it; prCNided, ho.vever, that no Obligated Group Member shall be required to comply with any law, ordinance, apprCNal or regulation as long as it shall in good faith contest the validity thereof; (b) m1intain and operate its Property, Plant and Equipment in reasonably good working condition, and from ti me to ti me m1ke or cause to be m1de al I needful and proper replacements, repairs and irnprCNements so that the operations of such Obligated Group Member will not be m1terially impaired; (c) pay and discharge all applicable taxes, assessments, gCNernmental charges of any kind whatsoever, water rates, meter charges and other utility charges which m1y be or have been assessed or which m1y have become Liens upon the Property, Plant and Equipment and will m1ke such payments or cause such payments to be m1de in due time to prevent any delinquency thereon or any forfeiture or sale of any part of the Property, Plant and Equipment, and, upon request, will furnish to the Master Trustee receipts for all such payments, or other evidences satisfactory to the Master Trustee; prCNided, ho.vever, that no Obligated Group Member shall be required to pay any tax, assessment, rate or charge as long as it shall in good faith contest the validity thereof as set out in the definition of Permitted Liens; (d) pay or otherwise satisfy and discharge all of its obligations and Indebtedness and all dem1nds and claims against it as and when the same become due and payable, other than obligations, Indebtedness, dem1nds or claims (exclusive of the Obligations issued and Outstanding hereunder) the validity, amount or collectibility of which is being contested in good faith; (e) at all times comply with all terms, cCNenants and prCNisions of any Liens at such time existing upon its Property or any part thereof or securing any of its Indebtedness noncompliance with which would have a m1terial adverse effect on the operations of the Obligated Group or its Property; and (f) use its best efforts to m1intain (as long as it is in its best interests and will not m1terially adversely affect the interests of the Holders) all permits, licenses and other gCNernmental apprCNals necessary for the operation of its Property.

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Nothing in the prCNisions of the Master Indenture described underthis caption shall be construed to require an Obligated Group Member to m1intain any perrrit, license or other gCNernmental apprCNal, or to continue to operate or m1intain any Property, Plant or Equipment, if, in the reasonable good faith judgment of the Obligated Group Member, such perrrit, license, gCNernmental apprCNal or Property, Plant or Equipment is, or within the next succeeding 12 calendar months is reasonably expected to become, inadequate, obsolete, unsuitable, undesirable or unnecessary for the business of the Obligated Group and failure to m1intain or operate such perrrit, license, gCNernmental apprCNal or Property, Plant or Equipment will not m1terially adversely impair the operation of the Obligated Group.

Against E ncurnbrances. Each Obligated Group Member agrees that it will not create, assume or suffer to exist any Lien upon the Property of the Obligated Group, except for Permitted Liens. Each Obligated Group Member further agrees that if such a Lien (otherthan a Permitted Lien) is created or assumed 0y any Member, it will m1ke or cause to be m1de effective a prCNision whereo, all Obligations will be secured prior to any such Indebtedness or other obligation secured 0y such Lien.

Debt CCNerage. (a) Within 5 months after the end of each Fiscal Year (commencing with the first full Fiscal Year follo.ving the execution of the Master Indenture), the Obligated Group Representative shall compute the Annual Debt Service CCNerage Ratio for the Obligated Group for such Fiscal Year and furnish to the Master Trustee, an Officer's Certificate setting forth the results of such computation. The Obligated Group Representative cCNenants that if at the end of such Fiscal Year the Annual Debt Service CCNerage Ratio shall have been less than 1.1: 1.0, it will promptly emplo, an Independent Consultant to m1ke recommendations as to a ra,ision of the rates, fees and charges of the Obligated Group orthe methods of operation of the Obligated Group to increase the Annual Debt Service CCNerage Ratio to at least 1.1 :1.0 for subsequent Fiscal Years (or, if in the opinion of the Independent Consultant, the attainment of such la,el is impracticable, to the highest practicable level). Copies of the recommendations of the Independent Consultant shall be filed with the Master Trustee within 90 days of the retention of the Independent Consultant. Each Obligated Group Member shall, promptly upon its receipt of such recommendations, subject to applicable requirements or restrictions imposed 0y law and to a good faith determination 0y the GCNerning Body of the Obligated Group Representative that such recommendations are in the best interest of the Obligated Group, ra,ise its rates, fees and charges or its methods of operation or collections and shall take such other action as shall be in conforrrity with such recommendations.

If either (i) the Obligated Group complies in all m1terial respects with the reasonable recommendations of the Independent Consultant with respect to their rates, fees, charges and methods of operation or collection or (ii) the Obi i gated G roup Representative deterrri nes that such recommendations are not in the best interests of the Obi igated Group (and accordingly will not be follo.ved), the Obligated Group will be deemed to have complied with the cCNenants of the Master Indenture described under this caption for such Fiscal Year, notwithstanding that the Annual Debt Service CCNerage Ratio shall be less than 1.1 :1.0; prCNided, ho.va,er, that the Annual Debt Service CCNerage Ratio shall not be reduced to less than 1.0: 1.0 for any Fiscal Year. The Obligated Group Members shall not be excused frorn taking any action or perforrring any duty required under the Master Indenture and no other Event of Default shall be waived 0y the operation of the prCNisions of the Master Indenture described under this caption.

(b) If a written report of an Independent Consultant is delivered to the Master Trustee stating that Industry Restrictions have m1de it impossible for the Annual Debt Service CCNerage Ratio of 1.1 :1.0 to be rnet, then such ratio shall be reduced to the rnaxirnurn ratio which the Industry Restrictions would allo.v the Obligated Group Members to achia,e, but in no event less than a ratio of 1.0: 1.0.

(c) Notwithstanding the foregoing, any Obligated Group Member m1y permit the rendering of services or the use of its Property without charge or at reduced charges, at the discretion of the GCNerning Body of such Obligated Group Member, to the extent necessary for m1intaining its tax-€)(empt status or the tax-€)(empt status of its Property, Plant and Equipment or its eligibility for grants, loans, subsidies or payments frorn gCNernmental entities, or in compliance with any recommendation for free services that m1y be m1de 0y an Independent Consultant; prCNided, ho.va,er, that the Annual Debt Service CCNerage Ratio shall not be reduced to less than a ratio of 1.0: 1.0.

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Merger, Consolidation, Sale or Conveyance. Each Obligated Group Merrlier agrees that it will not merge or consolidate with any other Person that is not an Obligated Group Merrlier or sell or convey all or substantially all of its assets to any Person that is not an Obligated Group Merrlier (a "Merger Transaction") unless:

(a) After giving effect to the Merger Transaction, (i) the successor or surviving entity (hereinafter, the "Surviving Entity") is an Obligated Group Member or (ii) the Surviving Entity shall (x) be a corporation or other entity organized and existing under the laws of the United States of America or any state thereof and (y) become an Obligated Group Member pursuant to the prCNisions of the Master Indenture and, pursuant to the Related Supplement required 0y the prCNisions of the Master Indenture, shall expressly assume in writing the due and punctual JE.yment of all Required Payments of the disappearing Obligated Group Member under the Master Indenture;

(b) The Master Trustee receives an Officer's Certificate to the effect that the Transaction Test is satisfied in connection with the Merger Transaction;

(c) So long as any Related Bonds that are tax-€Xerrpt obligations are Outstanding, the Master Trustee receives an Opinion of Bond Counsel to the effect that, under then existing law, the consumm1tion of the Merger Transaction, in and of itself, would not result in the inclusion of interest on such Related Bonds in gross income for purposes of federal income taxation;

(d) The Master Trustee receives an Opinion of Counsel to the effect that: (i) all conditions in the pr01isions of the Master Indenture described under this caption relating to the Merger Transaction have been complied with and the Master Trustee is authorized to join in the execution of any instrument required to be executed and delivered; (ii) the Surviving Entity meets the conditions set forth in the prCNisions of the Master Indenture described under this caption and is liable on all Obligations then Outstanding; (iii) the Merger Transaction will not adversely affect the validity of any Obligations then Outstanding; and (iv) the Merger Transaction will not cause the Master Indenture or any Obligations to be subject to registration under federal or state securities laws or the Trust I ndentureAct of 1939, as amended (or, that any such registration, if required, has occurred); and

(e) The Surviving Entity shall be substituted for its predecessor in interest in all Obligations and agreements then in effect which affect or relate to any Obligation, and the Surviving Entity shall execute and deliver to the Master Trustee appropriate documents in orderto effect the substitution.

From and after the effective date of such substitution (as set forth in the awe-mentioned documents), the Surviving Entity shall be treated as though it were an Obligated Group Merrlier as of the date of the execution of the Master Indenture and shall thereafter have the right to JRrticiJRte in transactions hereunder relating to Obligations to the same extent as the other Obligated Group Members. All Obligations issued hereunder on behalf of a Surviving Entity shall have the same legal rank and benefit under the Master Indenture as Obligations issued on behalf of any other Obligated G roup M errlier.

Membership in Obligated Group. Additional Obligated Group Merrliers m1y be added to the Obligated G roup from ti me to ti me, prCNided that pri orto such addition the Master Trustee receives:

(a) a cor,, of a resolution of the GCNerning Body of the proposed ne.v Obligated Group Merrlier which authorizes the execution and delivery of a Related Supplement and compliance with the terms of the Master Indenture;

(b) a Related Supplement executed 0y the Obligated Group Representative, the ne.v Obligated Group M errlier and the Master Trustee pursuant to which the proposed ne.v Obi igated G roup Member ( i) agrees to become an Obi igated Group Member, (ii) agrees to be bound 0y the terms of the Master Indenture, the Related Supplements and the Obligations, and (iii) irra,ocably appoints the Obligated Group Representative as its agent and attorney--infact and grants to the Obligated Group Representative the requisite po.ver and authority to execute Related Supplements authorizing the issuance of Obligations or Series of Obligations and to execute and deliver Obligations;

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(c) an Opinion of Counsel to the effect that: (i) the proposed ne.v Obligated Group Member has taken all necessary action to become an Obligated Group Member, and upon execution of the Related Supplement, such proposed ne.v Obligated Group Member will be bound 0y the terms of the Master Indenture; (ii) the addition of such Obligated Group Member would not adversely affect the validity of any Obligation then Outstanding; and (iii) the addition of such Obligated Group Member will not cause the Master Indenture or any Obligations to be subject to registration under federal or state securities laws or the Trust Indenture Act of 1939, as amended (or, that any such registration, if required, has occurred);

(d) an Officer's Certificate to the effect that immediately after the addition of the proposed ne.v Obligated Group Member, the Transaction Test would be satisfied; and

(e) so long as any Related Bonds that are tax-€Xerrpt obligations are Outstanding, an Opinion of Bond Counsel to the effect that the addition of the proposed ne.v Obligated Group Member will not, in and of itself, result in the inclusion of interest on any Related Bonds in gross income for purposes of federal income taxation.

Withdrawal from Obligated Group. Any Obligated Group Member m1y withdraw from the Obligated Group and be released from further liability or obligation under the prCNisions of the Master Indenture, prCNided that prior to such withdrawal the Master Trustee receives:

(a) an Officer's Certificate to the effect that the Obligated Group Representative has apprCNed the withdrawal of such Obligated Group Member;

( b) an Officer's Certificate to the effect that immediately folio.vi ng the withdrawal of such Obi igated Group Member, theTransactionTestwould be satisfied; and

(c) an Opinion of Counsel to the effect that: (i) the withdrawal of such Obligated Group Member would not adversely affect the validity of any Obligation then Outstanding; and (ii) the withdrawal of such Obligated Group Member will not cause the Master Indenture or any Obligations to be subject to registration under federal or state securities laws or the Trust Indenture Act of 1939, as amended (or, that any such registration, if required, has occurred).

Upon compliance with the conditions contained in the prCNisions of the Master Indenture described under this caption, the Master Trustee shal I execute any documents reasonably requested 0y the withdrawing Member to a,idence the terrrination of such Member's obligations hereunder, under all Related Supplements and under all Obi i gati ons.

Notwithstanding the foregoing, FCH m1y not withdraw from the Obligated Group unless prior to or concurrently with such withdrawal, FC H shal I transfer all or substantially al I of its assets to another Member of the Obligated Group.

Limitation on Disposition of Assets.

(a) Each Obligated Group Member cCNenants that it will not sell, lease or otherwise dispose of any part of its Property in any Fiscal Year (otherthan (i) in the ordinary course of business or (ii) as part of a disposition of all or substantially all of its assets as permitted pursuant to the Master Indenture), unless priorto said disposition:

( 1) there shall have been delivered to the Master Trustee an Officer's Certificate to the effect that such Property is or shall become within the next two (2) Fiscal Years inadequate, obsolete, unsuitable, undesirable or unnecessary for the operation and functioning of the prim1ry business of the Obligated G roup Members; or

(2) there shall have been delivered to the Master Trustee an Officer's Certificate to the effect that the Value of the Property so disposed of 0y the Obligated Group Members in any Fiscal Year pursuant to the pr01isions of the Master Indenture described in this clause (2) does not exceed 5% of the Total Value of the Property of the Obligated Group; or

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(3) if the Book Value of the Property being disposed of is less than or equal to $1,000,000, there shall have been delivered to the Master Trustee an Officer's Certificate to the effect that the Authorized Representative of the Obligated Group Representative delivering such Officer's Certificate has made a good faith deterrrination that the Property being disposed of is being disposed for Fair Market Value; or

(4) there shall have been delivered to the Master Trustee an Officer's Certificate to the effect that the Transaction Test is satisfied.

(b) Notwithstanding the foregoing, nothing shall prohibit any disposition of assets among Obligated G roup M errliers.

(c) Notwithstanding the foregoing, nothing shall prohibit the Obligated Group Members from (i) making loans, prCNided that such loans are in writing and the Master Trustee receives an Officer's Certificate to the effect that (x) the Obligated Group Members reasonably expect such loans to be repaid; and (y) such loans bear interest at a reasonable rate of interest and on commercially reasonable terms; or (ii) transferring restricted gifts for the Obligated Group Merrliers to an Affiliated Corporation which has the purpose to receive and disburse said restricted gifts.

Limitation on Indebtedness. Each Obligated Group Merrlier cCNenants that it will not incur any Indebtedness, except that the Obligated Group Merrliers may incur Indebtedness 0y complying with any of the follo.ving prCNisions:

(a) Long-Term Indebtedness, if prior to the date of incurrence of the Long-Term Indebtedness there is delivered to the Master Trustee an Officer's Certificate to the effect that:

(1) the aggregate principal amount of all Long-Term Indebtedness incurred and Outstanding pursuant to this clause (a)(l) does not exceed 5% of Total Ra,enues; or,

(2) the Debt Service CCNerage Ratio for the most recent Fiscal Year for which audited financial statements are available with respect to al I Long-Term Indebtedness then Outstanding at the ti me of such certification and the additional Long-Term Indebtedness to be incurred, but excluding any LongTerm Indebtedness to be refunded with the proceeds of said additional Long-Term Indebtedness to be incurred, was not less than 1.2: 1.0; or

(3) (i) the Debt Service CCNerage Ratio for the most recent Fiscal Year for which audited financial statements are available was not less than 1.2:1.0 and (ii) the Debt Service CCNerage Ratio for each of the two Fiscal Years beginning with the Fiscal Year commencing after the estimated completion of the construction, acquisition or equipping of Property to be financed 0y such Indebtedness (or, if the proceeds of such Indebtedness are not to be used for the construction, acquisition or equipping of Property, each of the two Fiscal Years beginning with the Fiscal Year commencing after the incurrence of such Indebtedness) with respect to all Long-Term Indebtedness projected to be Outstanding (including the additional Long-Term I ndebtedness to be incurred, but excluding any Long-Term I ndebtedness to be refunded with the proceeds of said additional Long-Term Indebtedness to be incurred), is not less than 1.25:1.0. Notwithstanding the foregoing, if the Master Trustee receives a report of an Independent Consultant to the effect that Industry Restrictions prevent the Obligated Group Merrliers from generating the required la,els of Net I ncomeAvailable for Debt Service sufficient to result in a Debt Service CCNerage Ratio of not less than 1.25:1.0, the 1.25: 1.0 ratio requirement described in this prCNision shall be reduced to the maximum ratio which the Industry Restrictions would allo.v the Obligated Group Merrliers to achieve, which ratio shall in no a,ent be less than a ratio of 1.0:1.0.

(b) Completion Indebtedness; prCNided that the aggregate principal amount of such Completion Indebtedness does not exceed 10)6 of the original Indebtedness incurred with respect to the prqject relating to such Completion Indebtedness and the Master Trustee receives an Officer's Certificate stating: (i) the estimated cost of completing the project related to the Completion Indebtedness to be incurred; (ii) that such Completion Indebtedness

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and other funds then available or reasonably anticipated to be available will be sufficient to corrplete said project; and (iii) the reasons why the original Indebtedness incurred with respect to said project is not sufficient to corrplete said project, all as confirmed 0y an architect selected 0y the Obligated Group Representative.

(c) Short-Term Indebtedness prCNided that either the prCNisions described in clause (a) abCNe are satisfied calculated as if such Short-Term Indebtedness was Long-Term Indebtedness or:

( 1) the total amount of such Short-Term Indebtedness shal I not exceed 15% of Total Ra,enues; and

(2) the total amount of such Short-Term Indebtedness and Indebtedness incurred pursuant to the prCNision described in clause (g) belo.v then outstanding shall not exceed 25% of Total Ra,enues; and

( 3) In a,ery Fiscal Year, there shal I be at least a consecutive twenty (20) day period when the balances of such Short-Term Indebtedness is reduced to an amount which shall not exceed~ of Total Ra,enues.

( d) N onrecourse I ndebtedness without Ii rritation.

(e) Long-Term Indebtedness, if such Long-Term Indebtedness is issued or incurred to refund Long-Term Indebtedness and if prior to issuance or incurrence thereof there is delivered to the Master Trustee a resolution of the GCNerning Body of the Obligated Group Representative determining that such refunding is in the best interests of the Obligated Group, which resolution shall also state the reasons for such deterrrination.

(f) Subordinated Indebtedness, without Ii rritation.

(g) Any other Indebtedness, prCNided that the aggregate principal amount of such Indebtedness, together with the aggregate principal amount of Indebtedness incurred pursuant to the prCNisions of clause (a)(l), ( c), ( d) and (f) abCNe, does not, as of the date of i ncurrence, exceed 25% of Total Revenues.

Preparation and Filing of Financial Statements, Reports and Other I nforrnation.

(a) Each Obi igated Group Member cCNenants that itwi 11 keep adequate records and books of accounts in which corrplete and correct entries shall be m1de (said books shall be subject to the inspection 0y the Master Trustee during regular business hours after reasonable notice).

(b) The Obligated Group Representative cCNenants that it will furnish to the Master Trustee and any Related Bond lssuerthat shall request the same in writing:

(1) As soon as practicable, but in no event more than 5 months after the last day of each Fiscal Year, beginning with the Fiscal Year ending August 31, 2007, one or more financial statements which, in the aggregate, shal I include the Obi i gated G roup Members. Such financial statements:

(A) may consist of (i) consolidated or combined financial results including one or more Members of the Obligated Group and one or more other Persons required to be consolidated or combined with such Member(s) of the Obligated Group under generally accepted accounting principles or (ii) special purpose financial statements including only Members of the Obligated Group;

(B) shall be audited 0y an Accountant selected 0y the Obligated Group Representative and shall be prepared in accordance with generally accepted accounting principles (except, in the case of special purpose financial statements, for required consolidations);

( C) shall include a combined balance sheet, statement of operations and changes in net assets; and

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(D) if financial statements delivered to the Master Trustee, pursuant to the pr01isions of the Master Indenture described herein, include financial inform1tion with respect to any Person who is not an Obligated Group Member or do not include financial inform1tion with respect to all Obligated Group Members, then the financial statements shall contain a consolidated or combined schedule for all Obligated Group Members that reflects combining entries that eliminate m1terial i nter-mmpany balances and transactions.

(2) At the time of the delivery of the Obligated Group financial statements, a certificate of the chief financial officer of the Obligated Group Representative stating that (i) the Obligated Group financial statements were prepared in accordance with generally accepted accounting principles; and (ii), subject to clause (4) belo.v, the Obligated Group financial statements reflect the results of the operations of only Obi igated Group Members.

(3) At the time of the delivery of the Obligated Group financial statements, a certificate of the chief financial officer of the Obligated Group Representative, stating that the Obligated Group Representative has m1de a ra,ie.v of the activities of the Obligated Group Members during the preceding Fiscal Year for the purpose of deterrrining whether or not the Obligated Group Members have complied with all of the terms, prCNisions and conditions of the Master Indenture and that each Obligated Group Member has kept, observed, performed and fulfilled each and a,ery cCNenant, prCNision and condition of the Master Indenture on its part to be performed and none of such Obligated Group Members is in default in the perform1nce or observance of any of the terms, cCNenants, prCNisions or conditions, or if any Obligated Group Member shall be in default such certificate shall specify all such defaults and the nature thereof.

(4) Notwithstanding the foregoing, the results of operation and financial position of I mm1terial Affiliates need not be excluded from financial statements delivered to the Master Trustee pursuant to the prCNisions of the Master Indenture described herein, and such results of operation and financial position m1y be considered as if they were a portion of the results of operation and financial position of the Obligated Group Members for all purposes of the Master Indenture notwithstanding the inclusion of the results of operation and financial position of such I mm1terial Affiliates.

(c) Whena,er financial inform1tion is required under the Master Indenture for the computation of ratios, debt service cCNerage, additional indebtedness or otherwise, the Obligated Group Representative shall prCNide that inform1tion as of the last Fiscal Year for which combined audited financial statements of the Obligated Group is available.

Insurance. Each Obligated Group Member agrees that it will keep the Property, Plant and Equipment and all of its operations adequately insured at all times and carry and m1intain such insurance in amounts which are custom1ri ly carried, subject to custom1ry deductibles and alternative risk m1nagement programs and self-insurance, and against such risks as are custom1rily insured against 0y other health care institutions in connection with the o.vnership and operation of health faci Ii ties of si rri lar character and size in the State of California.

The Obligated Group Representative shall empl0y an Insurance Consultant at least once every 2 years to ra,ie.v the insurance requirements (including alternative risk m1nagement programs and self-insurance) of the Members. If the Insurance Consultant m1kes recommendations for a change in the insurance cCNerage, the Obligated G roup Members shal I change such cCNerage in accordance with such recommendations, subject to a good faith determination of the gCNerning body of the Obligated Group Representative that such recommendations, in whole or in part, are not in the best interests of the Obligated Group Members orthat such cCNerage is not obtainable at commercially reasonable costs. In lieu of m1intaining insurance cCNerage which the GCNerning Body of the Obligated Group Representative deems necessary, the Obligated Group Members shall have the right to adopt alternative risk m1nagement programs which the gCNerni ng body of the Obi i gated G roup Representative determines to be reasonable and which shall not have a m1terial adverse impact on reimbursement from third-party payers, including, without I irritation, to self-insure in whole or in part individually or in connection with other institutions, to participate in programs of captive insurance companies, to participate with other health care institutions in mutual or other cooperative insurance or other risk m1nagement programs, to participate in state or federal insurance programs, to take advantage of state or federal laws no.v or hereafter in existence lirriting medical and m1lpractice

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liability, or to establish or participate in other alternative risk management programs; all as shall be apprCNed, in writing, as reasonable and appropriate risk management 0y the I nsurance Consultant.

The Obligated Group Merrliers shall have the right, without giving rise to an Event of Default under the Master Indenture solely on such account, (1) to maintain insurance cCNerage belo.v that required pursuant to the prCNisions of the Master Indenture described in the first paragraph under this caption if the Obligated Group Representative furnishes to the Master Trustee a certificate of the Insurance Consultant that the insurance so prCNided accords the greatest amount of cO/erage available for the risk being insured against at rates which in the judgment of the Insurance Consultant are reasonable in connection with reasonable and appropriate risk management, or (2) to adopt alternative risk management and self-insurance programs in accordance with the pr01isions of the Master Indenture described abOle.

Gross Ra,enue Fund. (a) Each Obligated Group Merrlier cCNenants and agrees that, so long as any of the Obligations remain Outstanding, all of the Gross Ra,enues of the Obligated Group shall be deposited as soon as practicable upon receipt in a fund designated as the "Gross Ra,enue Fund" which the Obligated Group Merrliers shall establish and maintain, subject to the prCNisions of subsection (b) belo.v, in one or more accounts at such banking institution or institutions as the Merrliers of the Obligated Group shall frorn time to time designate in writing to the Master Trustee for such purpose (the "Depository Bank(s)"). To secure the payment of Required Payments and the performance 0y the Obligated Group Merrliers of their other obligations under the Master Indenture, each Obligated Group Member pledges and assigns to the Master Trustee, and grants to the Master Trustee a security interest in, all of its right, title, and interest, whether no.v o.vned or hereafter acquired, in and to the Gross Ra,enues of that Obligated Group Member and the Gross Ra,enue Fund and the proceeds thereof (collectively, the "Collateral"). Each Obligated Group Member shall execute a deposit account control agreement with respect to the Gross Ra,enue Fund in forrn and substance satisfactory to the Master Trustee, shall execute and cause to be filed Uniform Commercial Code financing statements, and shall execute and deliver such other documents (including, but not lirrited to, continuation statements and amendments to such Uniform Commercial Code financing statements) as may be necessary or reasonably requested 0y the Master Trustee in orderto perfect or maintain the perfection of such security interest. Each Obligated Group Merrlier irra,ocably authorizes the Master Trustee to execute and file any financing statements and amendments thereto as may be required to perfect or to continue the perfection of the security interest in the Collateral, including, without !irritation, financing statements that describe the collateral as being of an equal, greater or lesser scope, or with greater or lesser detail, than as set forth in the definition of Collateral. Each Obligated Group Merrlier also ratifies its authorization for the Master Trustee to have filed in any jurisdiction any like financing statements or amendments thereto if filed prior to the date of execution and delivery of the Master Indenture. Each Obligated Group Merrlier cCNenants that it will not change its name or its type or jurisdiction of organization unless (i) it gives 30 days' notice of such change to the Master Trustee and (ii) before such change occurs it takes all actions as are necessary or advisable to maintain and continue the first priority perfected security interest of the Master Trustee in the Col lateral.

(b) Amounts in the Gross Ra,enue Fund may be used and withdrawn 0y any Obligated Group Merrlier at any time for any lawful purpose, except as otherwise prCNided pursuant to the prCNisions of the Master Indenture described underthis caption. In the event that any Obligated Group Member is delinquent for more than one ( 1) Business Day in the payment of any Required Payment, the Master Trustee, upon notice frorn the Obligated G roup Representative or actual kno.vledge of such delinquency, shal I notify the Obi i gated G roup Representative and the Depository Bank(s) of such delinquency, and, unless such Required Payment is paid, or pr01ision for payment is duly made, in a manner satisfactory to the Master Trustee, within one (1) day after receipt of such notice, the Obi i gated G roup Representative orthe appropriate Obi i gated G roup M errlier shal I cause the Depository Bank( s) to transfer the Gross Ra,enue Fund to the name and credit of the Master Trustee. The Gross Ra,enue Fund shall continue to be held in the name and to the credit of the Master Trustee until 6 months afterthe amounts on deposit in said fund are sufficient to pay in full, or have been used to pay in full, all Required Payments in default and all other Events of Default kno.vn to the Master Trustee shall have been made good or cured to the satisfaction of the Master Trustee or prCNision deemed 0y the Master Trustee to be adequate shall have been made therefor, whereupon the Gross Ra,enue Fund ( except for the Gross Ra,enues required to make such payments or cure such defaults) shal I be returned to the name and credit of the appropriate Obligated Group Merrliers. During any period that the Gross Ra,enue Fund is held in the name and to the credit of the Master Trustee, the Master Trustee shall use and withdraw amounts in the Gross Ra,enue Fund frorn time to time (1) first, to make Required Payments as such payments become due (whether 0y maturity, redemption, acceleration or otherwise), and, if such amounts shall not be

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sufficient to pay in full all such payments due on any date, then as prCNided in the Master Indenture, and (2) second, to such other payments in the order which the Master Trustee, in its discretion, shall deterrrine to be in the best interests of the Holders of Obligations without discrimination or preference. During any period that the Gross Ra,enue Fund is held in the name and to the credit of the Master Trustee, the Obligated Group Members shall not be entitled to use or withdraw any of the Gross Ra,enues unless and to the extent that the Master Trustee at its sole discretion so directs for the payment of current or past due operating expenses of the Obligated Group Members; prCNided, ho.vever, that the Obi igated G roup Members shall be entitled to use or withdraw any amounts in the G ross Ra,enue Fund which do not constitute Gross Ra,enues. Each Obligated Group Member agrees to execute and deliver all instruments as m1y be required to implement the prCNisions of the Master Indenture described herein. Each Obligated Group Member further agrees that a failure to comply with the pr01isions of the Master Indenture described herein shall cause irreparable harm to the Holders and shall entitle the Master Trustee, with or without notice, to take immediate action to compel the specific perform1nce of the obligations of the Obligated Group Members as prCNided pursuant to the pr01i sions of the Master I ndenture described herein.

Events of Default and Remedies

Events of Default. Event of Default under the Master Indenture include:

(a) Failure on the part of the Obligated Group Members to m1ke due and punctual payment of the principal of, redemption premium, if any, interest on or any other Required Payment on any Obligation.

(b) Any Obligated Group Member shall fail to observe or perform any other cCNenant or agreement underthe Master Indenture (including cCNenants or agreements contained in any Related Supplement or Obligation) for a period of 60 days after the date on which written notice of such failure, requiring the failure to be remedied, shall have been given to the Obligated Group Representative 0y the Master Trustee or to the Obligated Group Representative and the Master Trustee 0y the Holders of 25% in aggregate principal amount of Outstanding Obligations (prCNided that if such failure can be remedied but not within such 60 day period, such failure shall not become an Event of Default for so long as the Obligated Group Representative shall diligently proceed to remedy the failure in accordance with and sul:Jjectto any directions or I irritations of time established 0y the Master Trustee).

(c) Any Obligated Group Member: (i) shall default in the payment of Indebtedness (other than Subordinated Indebtedness, Nonrecourse Indebtedness, and Indebtedness secured 0y an Obligation, which shall be gCNerned 0y clause (a) abCNe) in an aggregate outstanding principal amount equal to the greater of $1,000,000,000 or 1% of the aggregate principal amount of all Long-Term Indebtedness of the Obligated Group then Outstanding, and any grace period for such payment shall have expired; or (ii) an a,ent of default as defined in any mortgage, indenture or instrument under which any Indebtedness is secured or evidenced, shall occur; prCNided, ho.vever, that such default shall not constitute an Event of Default under the Master Indenture if within 60 days, or if any proceeding to enforce payment of the Indebtedness is commenced, within the time allo.ved for service of a responsive pleading, (i) any Obligated Group Member in good faith commences proceedings to contest the existence or payment of such Indebtedness and (ii) sufficient moneys are deposited in escro.v with a bank or trust company or a bond acceptable to the Master Trustee is posted for the payment of such Indebtedness.

(d) A court having jurisdiction shall enter a decree or order for relief in respect of any Obligated Group Member in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of any Obligated Group Member or for any substantial part of the Property of any Obligated Group Member, or ordering the winding up or I iquidation of its affairs, and such decree or order shal I rem1i n unstayed and in effect for a period of 60 consecutive days.

(e) Any Obligated Group Member shall commence a voluntary case under any applicable federal or state bankruptcy, insolvency or other sirrilar law, or shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession 0y a receiver, liquidator, assignee, trustee, custodian, sequestrator (or si rri lar official) of any Obi igated Group Member or for any substantial part of its Property, or shall m1ke any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due or shall take any corporate action in furtherance of the foregoing.

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(f)

(g) O bl i gati ons.

An event of default shall exist under any Related Bond Indenture.

An a,ent of default shall exist under any agreement with the insurer of any Related Bonds or

The Obligated Group Representative agrees that, as soon as practicable, and in any event within 10 days after such event, the Obligated Group Representative shall notify the Master Trustee of any a,entwhich is an Event of Default under the Master Indenture which has occurred and is continuing, which notice shall state the nature of such a,ent and the action which the Obi igated Group M errliers propose to take with respect thereto.

Acceleration; Annulment of Acceleration. (a) Upon the occurrence and during the continuation of an Event of Default, the Master Trustee m1y, and upon the written request of the Holders ofnot less than a m1jority in aggregate principal amount of Outstanding Obligations shall, 0y notice to the Obligated Group Representative, declare all Outstanding Obligations immediately due and payable. Upon such declaration of acceleration, all Outstanding Obligations shall be immediately due and payable. If the terms of any Related Supplement give a Person the right to consent to acceleration of the Obligations issued pursuant to such Related Supplement, the Obligations issued pursuant to such Related Supplement m1y not be accelerated 0y the Master Trustee unless such consent is properly obtained pursuant to the terms of such Related Supplement. In the a,ent of acceleration, an amount equal to the aggregate principal amount of all Outstanding Obligations, plus all interest accrued thereon and, to the extent perrritted 0y applicable law, interest that accrues on such principal and interest to the date of payment, shall be due and payable on the Obligations. Notwithstanding the foregoing, no Obligation shall be accelerated if the Event of Default is the result of the nonpayment of a Subordinate Financial Products Payment.

(b) At any time after the Obligations have been declared to be due and payable, and before the entry of a final judgment or decree in any proceeding instituted with respect to the Event of Default that resulted in the declaration of acceleration, the Master Trustee m1y annul such declaration and its consequences if: (1) the Obligated Group Members have paid (or caused to be paid or deposited with the Master Trustee moneys sufficient to pay) all payments then due on all Outstanding Obligations (other than payments then due only because of such declaration); and (2) the Obligated Group Merrliers have paid (or caused to be paid or deposited with the Master Trustee moneys sufficient to pay) all fees and expenses of the Master Trustee then due; and (3) the Obligated Group Merrliers have paid (or caused to be paid or deposited with the Master Trustee moneys sufficient to pay) all other amounts then payable 0y the Obligated Group under the Master Indenture; and (4) a,ery Event of Default (other than a default in the payment of the principal or other payments of such Obligations then due only because of such declaration) has been remedied. No such annulment shall extend to or affect any subsequent Event of Default or impair any right with respect to any subsequent Event of Default.

Additional Remedies and Enforcement of Remedies. (a) Upon the occurrence and continuance of any Event of Default, the Master Trustee m1y, and upon the written request of the Holders ofnot less than a m1jority in aggregate principal amount of the Outstanding Obligations (and upon indemnification of the Master Trustee to its satisfaction 0y the Obligated Group for any such request), shall, proceed to protect and enforce its rights and the rights of the Holders under the Master Indenture 0y such proceedings as the Master Trustee m1y deem expedient, including but not Ii rrited to:

(1) Enforcement of the right of the Holders to collect amounts due or becorring due under the Obligations;

(2) Civil action upon all or any part of the Obligations;

(3) Civil action to require any Person holding moneys, documents or other property pledged to secure payment of amounts due or to become due on the Obligations to account as if it were the trustee of an express trust forthe Holders of Obligations;

(4) Civil action to enjoin any acts, which m1y be unlawful or in violation of the rights of the Holders of Obligations; and

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( 5) Master I ndenture.

Enforcement of any other right or remedy of the Holders conferred 0y law or 0y the

(b) Regardless of the occurrence of an Event of Default, if requested in writing 0y the Holders of not less than a majority in aggregate princiJRI amount of the Outstanding Obligations (and upon indemnification of the Master Trustee to its satisfaction for such request), the Master Trustee shall, institute and maintain such proceedings as it may be advised shall be necessary or expedient (1) to prevent any irrpairment of the security given under the Master Indenture 0y any acts which may be unlawful or in violation of the Master Indenture, or (2) to preserve or protect the interests of the Holders. Ho.va,er, the Master Trustee shall not comply with any such request or institute and maintain any such proceeding that is in conflict with any applicable law or the prCNisions of the Master Indenture or (in the sole judgment of the Master Trustee) is unduly prejudicial to the interests of the Holders not making such request.

Master Trustee to Represent Holders. The Master Trustee is irra,ocably appointed as trustee and attorney in fact for the Holders for the purpose of exercising on their behalf the rights and remedies avai I able to the Holders under the prCNisions of the Master Indenture, the Obligations, any Related Supplement and applicable pr01isions of law, in each case subject to the prCNisions of the Master Indenture. The Holders, 0y taking and holding the Obi igati ons, shal I be cone I usively deemed to have so appointed the Master Trustee.

Holders' Control of Proceedings. If an Event of Default has occurred and is continuing, the Holders of at least a majority in aggregate princiJRI amount of Outstanding Obligations shall have the right (upon the indemnification of the Master Trustee to its satisfaction) to direct the method and/or place of conducting any proceeding to be taken in connection with the enforcement of the terms of the Master Indenture. Such direction rnust be in writing, signed 0y such Holders and delivered to the Master Trustee. Ho.vever, the Master Trustee shall not follo.v any such direction that is in conflict with any applicable law or the prCNisions of the Master Indenture or (in the sole judgment of the Master Trustee) is unduly prejudicial to the interests of the Holders notjoining in such direction. Nothing in the prCNisions of the Master Indenture described under this caption shall irnJRir the right of the Master Trustee to take any other action authorized 0y the Master Indenture which it may deern proper and which is not inconsistent with such direction 0y Holders.

Waiver of Event of Default. No delay or omission of the Master Trustee or of any Holder to exercise any right with respect to any Event of Default shall irnJRir such right or shall be construed to be a waiver of or acquiescence to such Event of Default The Master Trustee may waive any Event of Default that has been remedied before the entry of a final judgment or decree in any proceeding instituted 0y it or before the completion of the enforcement of any other remedy under the Master Indenture. Upon the written request of the Holders of at least a majority in aggregate princiJRI amount of Outstanding Obligations, the Master Trustee shall waive any Event of Default under the Master Indenture and its consequences; prCNided, ho.va,er, that, except under the circumstances described in the immediately preceding sentence, the failure to JRY the princiJRI of, prerriurn, if any, or interest on any Obligation when due may not be waived without the written consent of the Holders of all Outstanding O bl i gati ons.

S upplernents and Arnendrnents

S upplernents Not Requiring Consent of Holders. The Obligated Group Representative (acting for itself and as agent of each Obligated Group Member) and the Master Trustee may, without the consent of or notice to any of the Obligation Holders, enter into one or more Related Supplements for any of the follo.ving purposes: (1) to correct any ambiguity or formal defect or orrission in the Master Indenture which does not materially and adversely affect the interests of the Holders; (2) to correct or supplement any prCNision that may be inconsistent with any other pr01ision or to make any other prCNision with respect to matters or questions arising under the Master Indenture, which, in either case, does not materially and adversely affect the interests of the Holders; (3) to grant or confer ratably upon all of the Holders any additional rights, remedies, po.vers or authority, or to add to the cO/enants of and restrictions on the Obligated Group Members; (4) to qualify the Master Indenture under the Trust Indenture Act of 1939, as amended; (5) to create and prCNide for the issuance of an Obligation or Series of Obligations as perrritted under the Master Indenture; or (6) to obligate a successor to any Obligated Group Member of the Obligated Group; or (7) to add a ne.v Obligated Group Member.

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Supplements Requiring Consent of Holders. (a) Other than Related Supplements referred to in the immediately preceding paragraph, the Holders of not less than a majority in aggregate principal amount of the Outstanding Obligations shall have the right to consent to and appr01e the execution 0y the Obligated Group Representative (acting for itself and as agent for each Obligated Group Member) and the Master Trustee of such Related Supplements as shall be deemed necessary or desirable for the purpose of modifying, altering, amending, adding to or rescinding, any of the terms contained in the Master Indenture. No Related Supplement shall be perrritted which would: (i) extend the stated maturity of, or time for paying interest on, any Obligation or reduce the principal amount of or the rederrption prerrium or rate of interest or change the method of calculating interest payable on, or reduce any other Required Payment on any Obligation without the consent of the Holder of such Obligation; (ii) modify, alter, amend, add to or rescind any of the terms or prCNisions contained in the Master Indenture so as to affect the right of the Holders of any Obligations in default to compel the Master Trustee to declare the principal of all Obligations to be due and payable, without the consent of the Holders of all Obligations then Outstanding; or (iii) reduce the aggregate principal amount of Obligations then Outstanding the consent of the Holders of which is required to authorize such Related Supplement, without the consent of the Holders of all Obligations then Outstanding.

(b) The Master Trustee may execute a Related Supplement (in substantially the form delivered to it as described belo.v) without liability or responsibility to any Holder (whether or not such Holder has consented to the execution of such Related Supplement) if the Master Trustee receives: (i) a Request of the Obligated Group Representative to enter into such Related Supplement; (ii) a certified cor,, of the resolution of the GCNerning Body of the Obligated Group Representative apprCNing the execution of such Related Supplement; (iii) the proposed Related Supplement; and (iv) an instrument or instruments executed 0y the Holders of not less than the aggregate principal amount or number of Obligations specified in clause (a) abOle for the Related Supplement in question which instrument or instruments shal I ref erto the proposed Related Supplement and shal I specifically consent to and apprCNe the execution thereof in substantially the form of the cor,, thereof as on file with the Master Trustee.

(c) Any such consent shall be binding upon the Holder of the Obligation giving such consent and upon any subsequent Holder of such Obligation and of any Obligation issued in exchange therefor (whether or not such subsequent Holder thereof has notice thereof), unless such consent is revoked in writing 0y the Holder of such Obligation giving such consent or 0y a subsequent Holder thereof 0y filing with the Master Trustee, prior to the execution 0y the Master Trustee of such Related Supplement, such ra,ocation and, if such Obligation or Obligations are transferable 0y delivery, proof that such Obligations are held 0y the signer of such revocation. At any time after the Holders of the required principal amount or number of Obligations shall have filed their consents to the Related Supplement, the Master Trustee shall file a written statement to that effect with the Obligated Group Representative. Such written statement shal I be conclusive evidence that such consents have been so filed.

(d) If the Holders of the required principal amount or number of the Outstanding Obligations have consented to the execution of such Related Supplement, no Holder shall have any right to object to the execution thereof, to object to any of the terms and prCNisions contained therein or the operation thereof, to question the propriety of the execution thereof or to enjoin or restrain the Master Trustee or the Obligated Group Representative from executing such Related S uppl ement or from taking any action pursuant to the prCNi si ons thereof.

Satisfaction and Discharge of Master Indenture

The Master Indenture shall cease to be of further effect if: (a) all Obligations previously authenticated (other than any Obligations which have been mutilated, destr0yed, lost or stolen and which have been replaced or paid as prCNided in any Related Supplement) and not cancelled are delivered to the Master Trustee for cancellation; or (b) all Obligations not pra,iously cancelled or delivered to the Master Trustee for cancellation are paid; or (c) a deposit is made in trust with the Master Trustee (or with a bank or trust company acceptable to the Master Trustee pursuant to an agreement between an Obligated Group Member and such bank or trust company in form acceptable to the Master Trustee) in cash or GO/ernmental Obligations or both, sufficient to pay at maturity or upon rederrption all Obligations not pra,iously cancelled or delivered to the Master Trustee for cancellation, including principal and interest or other payment (including Financial Product Payments and Financial Product Extraordinary Payments) due or to become due to such date of maturity, redemption date or payment date, as the case may be; and all other sums payable underthe Master Indenture 0y the Obligated Group Members are also paid. The Master Trustee, on demand of the Obi igated Group Representative and at the cost and expense of the Obi igated Group Members, shal I

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execute proper instruments ackno.vledging satisfaction of and discharging the Master Indenture. The Obligated Group Representative shall cause a report to be prepared 0y a firm nationally recognized for prCNiding verification services regarding the sufficiency of funds for such discharge and satisfaction pr01ided pursuant to (c) abCNe, upon which report the Master Trustee may rely. The Obligated Group Members shall pay and indemnify the Master Trustee against any tax, fee or other charge imposed on or assessed against the GCNernment Obligations deposited pursuant to the pr01isions of the Master Indenture described under this caption orthe principal and interest received in respect thereof other than any such tax, fee or other charge which 0y law is for the account of the Holders of Outstanding Obi i gati ons.

Credit Enhancer Deemed Holder of Obligation.

Except to the extent a Related Supplement or an Obligation pr01ides otherwise, any credit enhancer of Related Bonds shall be deemed the Holder of the related Obligation for purposes of the Master Indenture for so long as the credit enhancement is in effect and the credit enhancer is not in default thereunder.

General

SUPPLEMENTAL MASTER INDENTURE OF TRUST FOR OBLIGATION NO. 1

Supplement No. 1 prCNides for the issuance of Obligation No. 1 pursuant to the Master Indenture and pr01ides the terms and form thereof. Obligation No. 1 secures the obligation of the Corporation and the other members of the Obi i gated G roup arising under and pursuant to the Sale Agreement.

Payments on Obligation No. 1; Credits

Payment of principal of, prerrium, if any, and interest on Obligation No. 1 shall be made to the Trustee at the times and in the amounts specified in Obligation No. 1. The Obligated Group shall receive credit for payment on Obi i gation No. 1 , in addition to any credits resulting from payment of prepayment from other sources, as fol lo.vs:

(a) On installments of interest on Obligation No. 1 in an amount equal to all amounts deposited in the Interest Fund created under the Trust Agreement to the extent such amounts have not pra,iously been credited against payments on Obligation No. 1;

(b) On installments of principal of Obligation No. 1 in an amount equal to all amounts deposited in the Principal Fund created under the Trust Agreement to the extent such amounts have not been previously credited against payments on Obligation No. 1;

(c) On installments of principal and interest, respectively, on Obligation No. 1 in an amount equal to principal of the amount specified in the Statement of the Health Institutions filed with the Trustee pursuant to the prCNisions of the Sale Agreement, and delivered to the Trustee for deposit in the Prepayment Fund in connection with a prepayment of Purchase Payments.

Prepayment of Obligation No. 1

(a) So long as all amounts which have become due under Obligation No. 1 have been paid, the Obligated Group shall have the right, at any time and from time to time, to pay in advance and in any order of due dates all or part of the amount to become due under Obligation No. 1. Prepayments may be made 0y payments of cash, Investment Securities or surrender of Certificates.

(b) Prepayments made under Supplement No. 1 shall be credited against amounts to become due on Obligation No. 1 as prCNided in Supplement No. 1 and in the Sale Agreement

(c) The Obligated Group may also prepay all of its indebtedness under Obligation No. 1 0y prCNiding for prepayment of the Certificates in accordance with Article X of the Trust Agreement

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Registration, Number, Negotiability and Transfer of Obligations

So long as any Certificates rem1in Outstanding, Obligation No. 1 shall consist of a single Obligation without coupons registered as to principal and interest in the name of the Trustee and no transfer of Obligation No. 1 shall be registered under the Master Indenture except for transfers to a successor Trustee and except as described in the paragraph immediately follo.ving this paragraph.

Upon the principal of all Obligations Outstanding being declared immediately due and payable upon and during the continuance of an Event of Default, Obligation No. 1 m1y be transferred if and to the extent the Trustee requests that the restrictions described in the preceding paragraph on transfers be terminated.

Right to Redeem

Obligation No. 1 shall be subject to redemption, in whole or in part, priorto the m1turity at the times and in the amounts applicable to prepayment of the Certificates as specified in the Trust Agreement; prCNided that in no event shall Obligation No. 1 be redeemed unless a corresponding amount of Certificates is also prepaid.

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APPENDIX D

PROPOSED FORM OF OPINION OF SPECIAL COUNSEL

[Date of Delivery]

California Municipal Finance Authority Carlsbad, California

$320,615,000 Certificates of Participation

Evidencing Undivided Ownership Interests of the Holders Thereof in Installment Payments to be Paid 0y the California Municipal Finance Authority

in accordance with the Installment Purchase Agreement with Fresno Community Hospital and Medical Center,

Community Hospitals of Central California, Fresno Heart Hospital, LLC and Sierra Hospital Foundation

(Final Opinion)

Ladies and Gentlemen:

We have acted as special counsel to the California Municipal Finance Authority (the "Authority") in connection with the execution and delivery of $320,615,000 aggregate principal amount of certificates of participation (the "Certificates"), each a,idencing undivided o.vnership interests of the registered holders thereof in the rights to receive certain i nstal I ment payments (the "Installment Payments") made 0y the Authority pursuant to an Installment Purchase Agreement, dated as of May 1, 2007 (the "Purchase Agreement"), among the Authority, Fresno Cornrnunity Hospital and Medical Center, Community Hospitals of Central California, Fresno Heart Hospital, LLC, and Sierra Hospital Foundation (hereinafter collectively referred to as the "Health Institutions"), such rights to receive Installment Payments having been assigned 0y the Health Institutions to The Bank of Ne.v York Trust Company, N. A., as trustee (the "Trustee"). The Certificates have been executed 0y the Trustee pursuant to the terms of a Trust Agreement, dated as of May 1, 2007 (the "Trust Agreement"), among the Authority, the Health Institutions and the Trustee. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Installment Sale Agreement, dated as of May 1, 2007 (the "Sale Agreement"), among the Authority and the Health Institutions.

In such connection, we have ra,ie.ved the Purchase Agreement, the Trust Agreement, the Sale Agreement, the Tax Certificate and Agreement, dated the date hereof (the "Tax Agreement"), among the Authority and the Health Institutions, opinions of counsel to the Authority, the Health Institutions and the Trustee, certificates of the Authority, the Health Institutions, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

We have relied on the opinion of Musick, Peeler& Garrett LLP, special counsel to the Health Institutions, regarding, among other matters, the current qualification of each of the Health Institutions as an organization described in Section 501(c)(3) of the Internal Ra,enue Code of 1986 (the "Code"). We note that such opinion is subject to a number of qualifications and I irritations. We have also relied upon representations of each of the Health Institutions regarding the use of the facilities financed or refinanced with the proceeds of the Certificates in activities that are not considered unrelated trade or business activities of the Health Institutions within the meaning of Section 513 of the Code. We note that the opinion of special counsel to the Health Institutions does not address Section 513 of the Code. Failure of any of the Health Institutions to be organized and operated in accordance with the Internal Ra,enue 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 certificate-financed or refinanced facilities in activities that are considered unrelated trade or business activities of any of the Health Institutions within the meaning of Section 513 of the Code, may result in the interest component of the Installment Payments being included in gross income for federal income tax purposes, possibly frornthe date of execution and delivery of the Certificates.

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The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and co;er certain m1tters not directly addressed 0y such authorities. S uch opinions m1y be affected 0y actions taken or orritted or a,ents 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 a,ents do occur or any other m1tters come to our attention after the date hereof. Accordingly, this opinion is not intended to, and m1y not be relied upon in connection with any such action, a,ents or m1tters. With delivery of this opinion, our engagement with respect to the Purchase Agreement, the Sale Agreement, the Trust Agreement and the Certificates has concluded, 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 o,, and validity against, any parties other than the Authority. We have assumed, without undertaking to verify, the accuracy of the factual m1tters represented, warranted or certified in the documents, and of the I egal conclusions contained in the opinions, referred to in the second and third paragraphs hereof. Furthermore, we have assumed compliance with all co;enants and agreements contained in the Purchase Agreement, the Sale Agreement, the Trust Agreement and the Tax Agreement, including (without Ii rritati on) co;enants and agreements cornpl iance with which is necessary to assure that future actions, orrissions or events will not cause the interest component of the Installment Payments to be included in gross income for federal income tax purposes. In addition, we have assumed that actions of the Health Institutions and other persons will not cause any of the Certificates to exceed the $150,000,000 limitation on qualified 501 (c)(3) bonds that do not finance hospital facilities set forth in Section 145(b) of the Code.

We call attention to the fact that the rights and obligations under the Certificates, the Purchase Agreement, the Sale Agreement, the Trust Agreement and the Tax Agreement and their enforceability m1y be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against authorities in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver or sa,erability pro;isions 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 Purchase Agreement, the Sale Agreement or the Trust Agreement or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such property. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering m1terial relating to the Certificates and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the follo.ving opinions:

1. The Purchase Agreement, the Sale Agreement and the Trust Agreement have been duly executed and delivered o,, and constitute valid and binding obi igati ons of, the Authority.

2. The obligation of the Authority to m1ke the Installment Payments during the term of the Purchase Agreement constitutes a valid and binding obligation of the Authority, payable solely from the funds received 0y the Authority from the Health Institutions pursuant to the Sale Agreement. The obligation of the Authority to m1ke the Installment Payments does not constitute a debt of the Authority or of the State of California or any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction and does not constitute an obligation for which the Authority or the State of California or any political subdivision thereof is obligated to levy or pledge any form of taxation or for which the Authority or the State of California or any political subdivision thereof has la,ied or pledged any form of taxation.

3. The Trust Agreement creates a valid pledge, to secure the payment of the principal and interest components of the Installment Payments, of the Purchase Payments and any other amounts (including proceeds of the sale of the Certificates) held 0y the Trustee in any fund or account established pursuant to the Trust Agreement, except the Rebate Fund, subject to the pro;isions of the Trust Agreement perrritting the application thereof for the purposes and on the terms and conditions set forth in the Trust Agreement. Assurring due authorization, execution and delivery 0y the Trustee, the Certificates are entitled to the benefits of the Trust Agreement.

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4. The interest component of the Installment Payments rrade 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates is excluded from gross income for federal income tax purposes under Section 103 of the Code and is exerrpt from State of California personal income taxes. The interest component of the Installment Payments rrade 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates is not a specific preference item for purposes of the federal individual or corporate alternative rri ni mum taxes, although we observe that the interest component of the I nstal I ment Payments rrade 0y the Authority under the Purchase Agreement and received 0y the Holders of the Certificates is included in adjusted current earnings when calculating corporate alternative mini mum taxable income. We express no opinion regarding other tax consequences related to the o.vnershi p or disposition of the Certificates or the accrual or receipt of the interest component of the I nstall ment Payments rrade 0y the Authority under the Purchase Agreement.

Faithfully yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP

per

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APPENDIX E

FORM OF CONTINUING DISCLOSURE AGREEMENT

The Continuing Disclosure Agreement (the "Disclosure Agreement"), is executed and delivered 0y Community Hospitals of Central California, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California (the "Corporation"), Fresno Community Hospital and Medical Center, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California ("FCH"), Fresno Heart Hospital, LLC, a lirrited liability company duly organized and existing under the laws of the State of California ("FHH"), whose sole member is FCH, Sierra Hospital Foundation, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California ("S HF"), and The Bank of NEW York Trust Company, N. A., a national banking association duly organized and existing underthe laws of the United States of America, as trustee (the "Trustee") and as disserrination agent (the "Dissemination Agent") in connection with the execution and delivery of $320,615,000 in aggregate principal amount of certain certificates of participation (the "Certificates"), which are being executed and delivered pursuant to a Trust Agreement, dated as of May 1, 2007 (the "Trust Agreement"), among the California Municipal Finance Authority (the "Authority"), the Corporation, FCH, FHH and S HF (hereinafter collectively referred to as the "Health Institutions") and the Trustee. In connection with the execution and delivery of the Certificates, the Authority and the Health Institutions have entered into an Installment Sale Agreement, dated as of May 1, 2007 (the "Sale Agreement"). In accordance with Section 6.07 of the Trust Agreement and Section 6.1 of the Sale Agreement, each of the Health Institutions, the Trustee and the Dissemination Agent cCNenant and agree as folio.vs:

SECTION 1. Purpose of the Disclosure Agreement. The Disclosure Agreement is being executed and delivered 0y each of the Health Institutions and the Trustee and Disserrination Agent for the benefit of the Holders and Beneficial Owners of the Certificates (as such terms are defined in the Sale Agreement) and in order to assist the Participating Underwriter (as hereinafter defined) in complying with the Rule (as hereinafter defined). The Health I nstituti ons, the Trustee and the Di sserri nation Agent ackno.vledge that the Authority has undertaken no responsibility with respect to any reports, notices or disclosures prCNided or required under the Disclosure Agreement, and has no liability to any person, including any Holder or Beneficial Owner of the Certificates, with respect to any such reports, notices or disclosures.

SECTION 2. Definitions. In addition to the definitions set forth in the Sale Agreement, which apply to any capitalized term used in the Disclosure Agreement unless otherwise defined in this Section of the Disclosure Agreement, the follo.ving capitalized terms shall havethefollo.ving meanings:

Annual Report shall mean any Annual Report prCNided 0y the Health Institutions pursuant to, and as described in, Section 3 and Section 4 of the Disclosure Agreement.

Authorized Representative of the Health Institutions shall mean the chief executive officer or the chief financial officer of the Corporation or such other person as either shall designate in writing to the Trustee and Dissemination Agent from ti me to ti me.

Central Post Office means any website, organization or method apprCNed 0y the staff or members of the SEC as an intermediary through which filings required 0y the Disclosure Agreement rray be rrade in compliance with the Rule. As of the date of the Disclosure Agreement, the Central Post Office that has been so recognized 0y the SEC is DisclosureUSA.org, P.O. Box 684667, Austin, Texas 78768-4667, Fax: (512) 476-6403, http:/iWWW.disclosureUSA.org.

Disclosure Representative shall mean the Authorized Representative of the Health Institutions or his or her designee, or such other person as the Health Institutions shall designate in writing to the Trustee and the D isserri nation Agent from ti me to ti me.

Dissemination Agent shall mean The Bank of NEW York Trust Company, N. A., acting in its capacity as Disserrination Agent hereunder, or any successor Disserrination Agent designated in writing 0y the

Authorized Representative of the Health Institutions and which has filed with the Trustee a written acceptance of such designation.

Listed Events shall mean any of the a,ents identified as such and listed in Section 5(A) of the Disclosure Agreement.

National Repository shall mean any Nationally Recognized Municipal Securities lnform1tion Repository for purposes of the Rule. The National Repositories currently apprCNed 0y the SEC are listed at http: /jwww.sec.gCN /1 nfo/mmici pal fr]rrnsir.htm

Participating Underwriter shall mean the original underwriter of the Certificates required to comply with the Rule in connection with offering of the Certificates or any successor in interest thereto.

Quarterly Report shall mean any Quarterly Report prCNided 0y the Health Institutions pursuant to, and meeting the requirements of, Section 3(E) of the Disclosure Agreement.

Repository shall mean each National Repository and each State Repository.

Rule shall mean Rule 15c2-12(b)(5) adopted 0y the SEC under the Securities Exchange Act of 1934, as the same m1y be amended from ti me to ti me.

S EC shall mean the Securities and Exchange Commission or any successor agency thereto.

State shall mean the State of California.

State Repository shall mean any public or private repository or entity designated 0y the State as a state repository for the purpose of the Rule and recognized as such 0y the SEC. As of the date of execution and delivery of the Disclosure Agreement, there is no State Repository.

SECTION 3. PrCNision of Annual Reports and Quarterly Reports.

(A) The Health Institutions shall, or shall cause the Disserrination Agent to, not later than five (5) months after the end of the fiscal year of the Health Institutions, commencing with the Annual Report for the fiscal year of the Health Institutions ending August 31, 2007, prCNide to each Repository an Annual Report which is consistent with the requirements of Section 4 of the Disclosure Agreement. The Annual Report m1y be subrritted as a single document or as separate documents comprising a package, and m1y include 0y reference other inform1tion as prCNided in Section 4 of the Disclosure Agreement; prCNided that the audited consolidated financial statements (and supplementary consolidating statements) referred to in Section 4(A) m1y be subrritted separately from the balance of the Annual Report and later than the date required abCNe for the filing of the Annual Report if such audited consolidated financial statements (and supplementary consolidating statements) are not available 0y that date. If the fiscal year of the Health Institutions changes, the Authorized Representative of the Health Institutions shall give notice of such change in the same m1nner as for a Listed Event under Section 5(F).

(B) Not later than fifteen (15) Business Days priorto the date specified in subsection (A) for prCNiding the Annual Report to the Repositories, the Authorized Representative of the Health Institutions shall prCNide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Disserrination Agent). If 0y fifteen (15) Business Days prior to such date, the Trustee has not received a cor,, of the Annual Report, the Trustee shall contact the Authorized Representative of the Health Institutions and the Disserrination Agent to deterrrine if the Health Institutions are in compliance with subsection (A).

(C) If the Trustee is unable to verify that an Annual Report has been prCNided to the Repositories 0y the date required in subsection (A), the Trustee shall send a notice to each Repository, such notice to be in substantially the form attached as Exhibit A to the Disclosure Agreement.

E-2

(D) The Authorized Representative of the Health Institutions may prCNide the Annual Report directly to each Repository, in which case the Authorized Representative of the Health Institutions shall: (i) deterrrine prior to the date for prCNiding the Annual Report for such year the name and address of each National Repository and each State Repository, if any; (ii) inform the Dissemination Agent in writing on or before the date specified in subsection (B) abCNe that the Authorized Representative of the Health Institutions intends to prCNide the Annual Report to the Repositories; and (iii) file a report with the Authority, the Dissemination Agent and (if the Disserrination Agent is not the Trustee) the Trustee certifying that the Annual Report has been prCNided pursuant to the Disclosure Agreement, stating the date it was prCNided and listing all the Repositories to which it was prCNided. Unless the Dissemination Agent has received the written verification from the Authorized Representative of the Health Institutions described in the immediately preceding sentence, the Disserrination Agent shall: (i) deterrrine each year prior to the date for prCNiding the Annual Report the name and address of each National Repository and each State Repository, if any; and (ii) file a report with the Authorized Representative of the Health Institutions, the Authority and (if the Disserrination Agent is not the Trustee) the Trustee certifying that the Annual Report has been prCNided pursuant to the Disclosure Agreement, stating the date it was prCNided, and listing all the Repositories to which it was prCNided.

(E) In addition to prCNiding the Annual Report required to be filed pursuant to subsection (A), the Health Institutions shall, or shall cause the Disserrination Agent to, prCNideyear to date unaudited financial information on a quarterly basis, such unaudited financial information to consist of a consolidated balance sheet, a statement of operations and a statement of cash flo.vs of the Health Institutions and other affiliates of the Corporation (such unaudited financial information being hereinafter referred to as a "Quarterly Report," each Quarterly Report to be pr01ided to each Repository. Commencing with the Quarterly Report for the fiscal quarter of the Health Institutions ending May 31, 2007, not later than forty-five (45) days after the end of the first fiscal quarter, the second fiscal quarter and the third fiscal quarter of each fiscal year of the Health Institutions, the Health Institutions shall, or shall cause the Disserrination Agent to, prCNide a Quarterly Report to each Repository.

(F) The Health Institutions reserve the right to make any filing required to be made with a Repository pursuant to the Disclosure Agreement 0y submitting such filing information, or causing such filing information to be submitted, to the Central Post Office.

SECTION 4. Content of Annual Reports. The Annual Report of the Health Institutions shall contain or include 0y reference the follo.ving:

(A) The audited consolidated financial statements (and supplementary consolidating statements) of the Health Institutions and certain other affiliates of the Corporation for the prior fiscal year, prepared in accordance with generally accepted accounting principles as promulgated from time to time. If the audited consolidated financial statements (and supplementary consolidating statements) are not available 0y the time the Annual Report is required to be filed pursuant to Section 3(A), the Annual Report shall contain unaudited consolidated financial statements (and supplementary consolidating statements) in a format similar to the audited consolidated financial statements (and supplementary consolidating statements) contained in the final Official Statement and the audited consolidated financial statements (and supplementary consolidating statements) shall be filed in the same manner as the Annual Report when such audited consolidated financial statements (and supplementary consolidating statements) become available.

(B) An update of the follo.ving information set forth inAppendixA of the Official Statement, including, in the case of each table identified herein, all relevant footnotes: (i) the tables entitled "Summary of Ra,enues, Expenses and Excess of Ra,enues Over Expenses of CMC," "Sources of Net Patient Service Ra,enue 0y Percentage," "Capitalization" and "Maximum Annual Debt Service CCNerage," each set forth under the caption "Summary of Financial Information," such update to include data as of the most recently ended fiscal year of the Health Institutions; (ii) the table entitled "Liquidity Position" set forth under the caption "Management's Discussion and Analysis of Financial Performance-Liquidity and Capital Resources," such update to include data as of the most recently ended fiscal year of the Health Institutions; and (iii) the data concerning the medical staff of the Health Institutions set forth in the second paragraph under the caption "Medical Staff and Empl0yees-Medical Staff," such update to include data as of the most recently ended fiscal year of the Health Institutions.

E-3

Any or all of the items listed alxNe may be included 0y specific reference to other documents, including official statements of debt issues with respect to which any Health Institution is an "obligated person" (as such term is defined in the Rule), which have been submitted to each of the Repositories or the SEC. If the document included 0y reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Authorized Representative of the Health Institutions shall clearly identify each such other document so included 0y reference.

SECTION 5. Reporting of Significant Events.

(A) Pursuant to the prCNisions of Section 5 of the Disclosure Agreement, the Authorized Representative of the Health Institutions shall give, or cause to be given, notice of the occurrence of any of the follo.ving a,ents with respect to the Certificates (each, a "Listed Event"), if material:

1. Principal and interest payment delinquencies;

2. Non-payment related defaults;

3. Modifications to the rights of Holders;

4. Optional, contingent or unscheduled Certificate calls;

5. Defeasances;

6. Rating changes;

7. Awerse tax opinions or a,ents adversely affecting the tax-exerrpt status of the Installment Payments evidenced 0y the Certificates;

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

9. Unscheduled draws on the credit enhancements reflecting financial difficulties;

10. Substitution of the credit or liquidity prCNiders or any failure 0y such credit or liquidity prCNiders to perforlT\ and

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

In addition to the giving of notice of the occurrence of any of the awe-identified a,ents, if material, the Authorized Representative of the Health Institutions shall give, or cause to be given, notice of the occurrence of any other events with respect to the Certificates, if material under the Rule.

(B) The Trustee shall, within one (1) Business Day, or as soon thereafter as practicable, of obtaining actual kno.vledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the a,ent, and request that the Authorized Representative of the Health Institutions prorrptly direct the Disserrination Agent in writing whether or not to report such a,ent pursuant to subsection (F). For purposes of the Disclosure Agreement, "actual kno.vledge" of the occurrence of such Listed Events shall mean actual kno.vledge 0y the officer at the Corporate Trust Office with regular responsibility for the adrrinistration of matters related to the Trust Agreement

(C) Whena,er the Authorized Representative of the Health Institutions obtains kno.vledge of the occurrence of a Listed Event, whether because of a notice from the Trustee pursuant to subsection (B) or otherwise, the Authorized Representative of the Health Institutions shall as soon as possible deterrrine if such a,ent would be material under applicable federal securities laws. Neither the Trustee nor the Disserrination Agent shall have any duty to deterrrine if any Listed Event is material.

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(D) If the Authorized Representative of the Health Institutions has deterrrined that kno.vledge of the occurrence of a Listed Event would be m1terial under applicable federal securities laws, the Authorized Representative of the Health Institutions shall prorrptly notify the DisserrinationAgent in writing. Such notice shall instruct the Di sserri nation Agent to report the occurrence pursuant to subsection ( F).

(E) If in response to a request under subsection (B), the Authorized Representative of the Health Institutions deterrrines that the Listed Event would not be m1terial under applicable federal securities laws, the Authorized Representative of the Health Institutions shall so notify the Disserrination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection ( F).

(F) If the Dissemination Agent has been instructed 0y the Authorized Representative of the Health Institutions to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Repositories and with each Beneficial Owner which has a current Disclosure Request on file with the Authorized Representative of the Health Institutions, with a cor,, to the Authorized Representative of the Health Institutions. Notwithstanding the foregoing, notice of Listed Events described in subsections (A)(4) and (A)(S) need not be given under this subsection any earlier than the notice (if any) of the underlying a,ent is given to the Holders of affected Certificates pursuant to the Trust Agreement.

SECTION 6. Termination of Reporting Obligation. The obligations of the Health I nstituti ons, the Trustee and the Di ssemi nation Agent underthe Di sci osure Agreement shall term nate upon the legal defeasance, prior prepayment or payment in full of all of the Certificates. If such terrrination occurs prior to the final m1turity date of the Certificates, the Authorized Representative of the Health Institutions shall give notice of such terrrination in the same m1nner as for a Listed Event under Section S(F). If the obligations of the Health Institutions under the Sale Agreement are assumed in full 0y some other entity, such person shall be responsible for compliance with the Disclosure Agreement in the same m1nner as if it were the Health Institutions, and the original Health Institutions shall have no further responsibility hereunder.

SECTION 7. Dissemination Agent. The Authorized Representative of the Health Institutions m1y, from time to time, appoint or engage a Disserrination Agent to assist it in carrying out its obligations under the Disclosure Agreement, and m1y discharge any such Disserrination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent m1y resign 0y prCNiding thirty (30) days written notice to the Authorized Representative of the Health Institutions and the Trustee. If at any time there is not any other designated DisserrinationAgent, the Trustee shall be the Dissemination Agent. Neitherthe Dissemination Agent nor the Trustee shall have any duty or obligation to ra,iew any inform1tion prCNided to the Disserrination Agent or Trustee hereunder and shall not be deemed to be acting in any fiduciary capacity under the Disclosure Agreement for the Health Institutions or the Holders.

SECTION 8. Amendment; Waiver. Notwithstanding any other pro11s1on of the Disclosure Agreement, the Health I nstitutions, the Trustee and the Di sserri nation Agent m1y amend the Disclosure Agreement (and the Trustee and the Dissemination Agent shall agree to any amendment so requested 0y the Authorized Representative of the H ea Ith I nstituti ons, prCNided, neitherthe Trustee orthe D isserri nation Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder), and any prCNisi on of the Di sci osure Agreement m1y be waived, prCNi ded that the fol lo.vi ng conditions are satisfied:

(A) If the amendment or waiver relates to the prCNisions of Section 3(A), Section 4, or Section S(A) relating to Listed Events, such amendment or waiver m1y only be m1de 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 Certificates, or the type of business conducted;

(B) The Disclosure Agreement, as amended or taking into account the waiver proposed, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original execution and delivery of the Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

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(C) The amendment or waiver either (i) is apprCNed 0y the Holders of the Certificates in the same manner as prCNided in the Trust Agreement with respect to amendments to the Trust Agreement which require the consent of Holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impairthe interests of the Holders or Beneficial Owners of the Certificates.

I n the a,ent of any amendment or waiver of a prCNi si on of the Disclosure Agreement, the Authorized Representative of the Health Institutions 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 0y the Health Institutions. In addition, if the amendment relates to the accounting principles to be follo.ved in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section S(F), 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 rasis of the ne.v accounting principles and those prepared on the basis of the former accounting principles.

SECTION 9. Additional Information. Nothing in the Disclosure Agreement shall be deemed to prevent the Health Institutions from disseminating any other information, using the means of dissemination set forth in the Disclosure Agreement 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 0y the Disclosure Agreement. If the Health Institutions choose to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required 0y the Disclosure Agreement, the Health Institutions shall have no obligation under the Disclosure Agreement 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 a,ent of a failure of any of the Health Institutions or the Trustee or the Dissemination Agent to comply with any prCNision of the Disclosure Agreement, the Trustee, at the written request of the Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Certificates, shall (but only to the extent funds in an amount satisfactory to the Trustee have been prCNided to the Trustee or the Trustee has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges of the Trustee whatsoever, including, without limitation, fees and expenses of its attorneys), or any Holder or Beneficial Owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance 0y court order, to cause the Health Institutions or the Trustee, as the case may be, to comply with its obligations under the Disclosure Agreement. A default under the Disclosure Agreement shall not be deemed an Event of Default under the Trust Agreement or a Sale Agreement Default, and the sole remedy under the Disclosure Agreement in the a,ent of any failure of any of the Health Institutions or the Trustee or the Disserrination Agent to comply with the Disclosure Agreement shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VI 11 of the Trust Agreement, including, without limitation, Section 8.03 of the Trust Agreement, is hereo, made applicable to the Disclosure Agreement as if the Disclosure Agreement were (solely for this purpose) contained in the Trust Agreement and the Disserrination Agent shall be entitled to the benefits afforded to the Trustee thereunder. The Disserrination Agent and the Trustee shall have only such duties as are specifically set forth in the Disclosure Agreement, and the Health Institutions agree to indemnify and save the Dissemination Agent and the Trustee, their officers, directors, empl0yees and agents, harmess against any loss, expense and liabilities which the Trustee or the Disserrination Agent may incur arising out of or in the exercise or performance of their po.vers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Trustee's or the Disserrination Agent's negligence or willful misconduct. The Disserrination Agent shall be paid compensation 0y the Health Institutions for its services pr01ided hereunder in accordance with its schedule of fees, as amended from time to time, and all expenses, legal fees and advances made or incurred 0y the Dissemination Agent in the performance of its duties hereunder. The obligations of the Health Institutions under this Section of the Disclosure Agreement shall survive resignation or rern01al of the Di sserri nation Agent and payment of the Certificates.

SECTION 12. Beneficiaries. The Disclosure Agreement shall inure solely to the benefit of the Authority, the Corporation, the Health Institutions, the Trustee, the Dissemination Agent, the Participating

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Underwriter, the Holders and the Beneficial Owners from time to time of the Certificates, and shall create no rights in any other person or entity. No person shall have any right to commence any action against the Trustee or the D issemi nation Agent seeking any remedy otherthan to compel specific performance of the Disclosure Agreement.

SECTION 13. Notices. All notices or communications herein required or permitted to be given shall be in writing mailed, sent 0y telecor,, or other direct written electronic means, receipt of which shall be confirmed, or delivered as fol lo.vs:

(i) If to the Health Institutions:

c/oCommunity Medical Centers 2440Tulare Street, Suite 400 Fresno, California 93721 Attention: Senior Vice President and Chief Financial Officer Telephone: ( 559) 459-6439 Telecor,,: (559) 459-6470

(ii) If to the Trustee or Dissemination Agent:

The Bank of New York Trust Company, N. A. 550 Kearny Street, Suite mo San Francisco, California 94108 Attention: Corporate Trust Adm nistrati on Telephone: (415) 263-2445 Telecor,,: (415) 399-1647

(iii) lftotheAuthority:

California Municipal Finance Authority 2111 Palomar Airport Road, Suite 320 Carlsbad, California 92011 Attention: Financial Advisor Telephone: (760) 930-1221 Telecor,,: ( 760) 683-3390

The Health Institutions, the Trustee and the Authority may, 0y written notice hereunder, designate any further or different address to which subsequent notices, certificates or other communications shall be sent.

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SECTION 14. Counterparts. The Disclosure Agreement m1y be executed in sa,eral counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Community Hospitals of Central California

FresnoCommunity Hospital and Medical Center

Sierra Hospital Foundation

By: ~~~~~~~~~~~~~~~~~~~

Senior Vice President and Chief Financial Officer

Fresno Heart Hospital, LLC

By:~~~~~~~~~~~~~~~ Chief Executive Officer

The Bank of Ne.vYork Trust Company, N. A., as Trustee and Di sserri nation Agent

Authorized Representative

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Name of Issuer:

Name of Issue:

EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO Fl LE ANNUAL REPORT

California Municipal Finance Authority (the "Authority")

Certificates of Participation Evidencing Undivided Ownership Interests of the Holders Thereof in Installment Payments to be Paid 0y the California Municipal Finance Authority frorn Purchase Payments to be Received frorn Cornrnunity Hospitals of Central California, FresnoCornrnunity Hospital and Medical Center, Fresno Heart Hospital, LLC and Sierra Hospital Foundation

Names of Health Institutions: Cornrnunity Hospitals of Central California (the "Corporation"), Fresno Cornrnunity Hospital and Medical Center ("FCH"), Fresno Heart Hospital, LLC ("FHH") and Sierra Hospital Foundation ("S HF")

Date of execution and delivery of Certificates:

NOTICE IS HEREBY GIVEN that the Corporation, FCH, FHH and SHF (collectively, the "Health Institutions") have not prCNided an Annual Report with respect to the awe-referenced Certificates of Participation as required 0y Section 6.07 of the Trust Agreement, dated as of May 1, 2007, among the Authority, the Health Institutions and The Bank of Ne.v York Trust Company, N. A., as trustee, and as required 0y Section 6.1 of the Sale Agreement, dated as of May 1, 2007, among the Authority and the Health Institutions. [The Health Institutions anticipate that the Annual Reportwill be filed 0y _____________ .]

Dated: ______________ _

[_ __________________ _] , as trustee and

dissemination agent on behalf of Community Hospitals of Central California, Fresno Community Hospital and Medical Center, Fresno Heart Hospital, LLC and Sierra Hospital Foundation

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APPENDIX F

BOOK-ENTRY ONLY SYSTEM

The information in this Appendix F concerning The Depository Trust Corrpany, New York, New York(" DTC") and DTC's oook--entry system has been obtained from DTC, and the Obligated Group, the Authority, the Trustee and the Underwriter take no responsi bi I ity for the accuracy thereof. The Obi i gated Group, the Authority, the Trustee and the Underwriter cannot and do not give any assurances that DTC, Direct Participants or Indirect Participants will distribute to the Beneficial OWners (all as defined belON): (a) payrrents as to principal of, prenium if any, and interest on (" Debt Service") the Certificates; (b) confirmations of OM1ership interest in the Certificates; or (c) notices sent to DTC or Cede & Co., its noninee, as the registered OM1er of the Certificates, or that they will so do on a timely basis or that DTC, Direct Participants or Indirect Participants will act in the manner described in this Official Statement. The current" Rules" applicable to DTC are on file with the Securities and Exchange Cornnission and the current" Procedures" ofDTC to be follONed in dealing with DTC Participants are on file with DTC.

Neither the Obligated Group, the Authority, the Underwriter, nor the Trustee will have any responsibility or obligations to DTC, the Direct Participants, the Indirect Participants of DTC or the Beneficial OWners with respect to: ( 1) the accuracy of any records maintained by DTC or any Direct Participants or Indirect Participants of DTC; (2) the payrrent by DTC or any Direct Participants or Indirect Participants of DTC of any amount due to any Beneficial OWner in respect of the Debt Service on the Certificates; (3) the delivery by DTC or any Direct Participants or Indirect Participants ofDTC of any notice to any Beneficial OWner that is required or pernitted to be given to OM1ers under the term; of the Trust Agreement; or (4) any consent given or other action taken by DTC as registered OM1er of the Certificates.

1. DTC will act as securities depository for the Certificates (herein, the "Securities"). The Securities will be issued as fully,egistered securities registered in the name of Cede & Co. (OTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Security certificate will be issued for each maturity of the Securities, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

2. DTC, the world's largest depository, is a linited--purpose trust company organized under the New York Banking LiM', 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 pursuanttothe pr0.tisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and pr0.tides asset servicing for cwer 2.2 nil lion issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instrument from 0.ter 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 oook--entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical m0.tement 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--cwned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is cwned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed I ncorne Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LL C, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available

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to others such as both U.S. and non--U.S. securities brokers and dealers, banks, trust corrpanies, 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 Comnission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The o.vnership interest of each actual purchaser of each Security ("Beneficial owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial owners will not receive written confirmation from DTC of their purchase. B enefi ci al owners are, ho.vever, expected to receive written confirmations prcwidi ng detai Is of the transaction, as well as periodic staterrents of their holdings, from the Direct or Indirect Participant through which the Beneficial owner entered into the transaction. Transfers of o.vnership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial owners. Beneficial owners will not receive certificates representing their o.vnership interests in Securities, except in the eventthat use of the book-entry system for the Securities is discontinued.

4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC' s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial o.vnership. DTC has no kno.vledge of the actual Beneficial owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their custorrers.

5. 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 gcwerned by arrangerrents among them, suqject to any statutory or regulatory requirerrents as may be in effect from tirre to tirre. Beneficial owners of Securities may wish to take certain steps to augrrent transnission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed arrendrrents to the security docurrents. For example, Beneficial owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial owners, in the alternative, Beneficial owners may wish to pro.tide their narres and addresses to the registrar and request that copies of the notices be pro.tided directly to them.

6. Prepayrrent notices shall be sent to DTC. If less than all of the Securities within an issue are being redeerred, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeerred.

7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Securities unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Obligated Group as soon as possible after the record date. The Omni bus Proxy assigns Cede & Co.' s consenting or voting rights to those Direct Participants to whose accounts the Securities are credited on the record date (identified in a listing attached to the Omni bus Proxy).

8. Prepayrrent proceeds, distributions, and dividend payrrents on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC.

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http://www.dtcc.com

http://www.dtc.org

DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the Obligated Group or Trustee on payable date in accordance with their respective holdings shewn on DTC's records. Payrrents by Participants to Beneficial owners will be gcwerned by standing instructions and customary practices, as is the case with securities held for the accounts or customers in bearer forrn or registered in "street narre," and will be the responsibility of such Participant and not of DTC nor its noninee, Trustee, or the Obligated Group, suqject to any statutory or regulatory requirerrents as rnay be in effect frorn tirre to tirre. Payrrent of prepayrrent proceeds, distributions, and dividend payrrents to Cede & Co. (or such other noninee as rnay be requested by an authorized representative of DTC) is the responsibility of the Obligated Group or the Trustee, disburserrent of such payrrents to Direct Participants wi 11 be the responsi bi I ity of DTC, and di sburserrent of such payrrents to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

9. DTC rnay discontinue pro.tiding its services as securities depository with respect to the Securities at any tirre by giving reasonable notice to the Obligated Group and Trustee. Under such circum,tances, in the event that a successor securities depository is not obtained, Security certificates are required to be printed and delivered.

10. The Obligated Group rnay decide to discontinue use of the system of oook--entry--only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.

Discontinuation of Book-£ ntry Only System; Payment to Beneficial Owners

In the event that the oook--entry system described abo.te is no longer used with respect to the Certificates, the prc:wisions of the Trust Agreerrent relating to place of payrrent, transfer and exchange of the Certificates, regulations with respect to exchanges and transfers, bond register, Certificates mutilated, destrO{ed or stolen, and evidence of signatures of Certificate Holders and cwnership of Certificates will gc:wern the payrrent, registration, transfer, exchange and replacerrent of the Certificates. Interested persons should contact the Obi i gated G roup for further i nformati on regarding such pro.ti si ons of the Trust A greerrent.

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