County of Montgomery, Ohio

This Preliminary Official Statement has not been approved by the Issuer, and the information herein is subject to completion and amendment without notice. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. A definitive Official Statement will be made available prior to the delivery of these securities. mandatory redemptionpriortotheirrespectivematurities,asdescribedinthisOfficialStatement. Record Date immediately preceding each Interest Payment Date. The Series 2016 Bonds are subject to optionaland for theSeries2016Bondsaremorefullydescribedherein. payment oftheprincipalandanypremiuminterestonSeries2016Bonds.Thesources security the righttohaveexcisesortaxesleviedbyIssuerStateofOhioanypoliticalsubdivisionthereof forthe of theIssuerorStateOhioanypoliticalsubdivisionthereofandholderownerdoes nothave and fromothersourcesdescribedherein.TheSeries2016Bondsarenotageneralobligation,debtorbondedindebtedness Network Obligated Group(as defined herein)(the “ObligatedGroup”),pursuantto theSeries 2016Note described herein, only fromamountstobepaidbytheLessees(asdefinedherein),pursuantSubleases,andKettering Health “ be exemptfromtaxationwithintheStateofOhio,allsubjecttoqualificationsdescribedhereinunderheading Series 2016Bonds,thetransferthereof,andincometherefrom,includinganyprofitmadeonsalewill current earningsforpurposesofcomputingthealternativeminimumtaximposedoncertaincorporations,and(iii) the tax imposedonindividualsandcorporations,however,theinterestSeries2016Bondsisincludedinadjusted the Series2016Bondswillnotbeaspecificitemoftaxpreferenceforpurposesfederalalternativeminimum on will beexcludiblefromgrossincomeoftheholdersthereofforpurposesfederaltaxation,(ii) interest * Preliminary; subjectto change. essential tomakinganinformed investmentdecision. security or terms of this bond issue. Investors are instructed to read this entire Official Statement to obtain information delivery totheUnderwriters viaDTCinNewYork,Yorkonorabout______, 2016. Bingham LLP,Birmingham,Alabama.Itisexpectedthat theSeries2016Bondsindefinitiveformwillbeavailablefor Group by its counsel, TaftStettinius& Hollister LLP, Dayton, Ohio and for theUnderwriters by their counsel, Balch & & Shohl LLP, Columbus, Ohio, Bond Counsel. Certain legal matters will be passed upon for the Lessees and the Obligated withdrawal ormodificationoftheofferwithoutnotice,and totheapprovaloflegalitySeries2016BondsbyDinsmore 2016 Bonds.See“ Co.andshallnotmeanthebeneficialownersofSeries registered ownersoftheSeries2016BondsshallmeanCede & &Co.istheregisteredownerofSeries2016Bonds,referenceshereintoholdersor herein. SolongasCede made totheindividualpurchasersofbeneficialinterestsinSeries2016BondspursuantDTCpolicies,as described 2016 Bonds will be payable by the Bond Trustee to DTC. Subsequent disbursements of such principal and interest will be of theSeries2016Bondswillbemadeinbook-entryonlyform,asdescribedherein.Principalandintereston Series (“DTC”), New York, New York. DTC will act as securities depository for the Series 2016 Bonds, and individual purchases when issued,willberegisteredinthenameofandheldbyCede&Co.,asnomineeforTheDepositoryTrust Company Group Project)(the“Series2016Bonds”orthe“Bonds”),areissuableonlyasfullyregisteredbondswithoutcoupons and, D N T ew ated: ax I E Interest ispayablebytheBondTrustee,asdescribedherein,toregisteredownersthereofofapplicable The Series2016BondsarelimitedobligationsoftheCountyMontgomery,Ohio(the“Issuer”)payablesolely and In theopinionofDinsmore&ShohlLLP,BondCounsel,underexistinglaw,(i) interest ontheSeries2016Bonds This coverpagecontainscertain informationforquickreferenceonly.Itisnotintended tobeasummaryofthe The Series2016Bondsareoffered,when,asandifissued andreceivedbytheUnderwriters,subjecttopriorsale, The purchaseoftheSeries2016Bondsinvolvescertainrisks. See“Bondholders’Risks.” The CountyofMontgomery,OhioHospitalFacilitiesRevenueBonds,Series2016(KetteringHealthNetworkObligated ssue xemption D ate of –B ook .” D Bof E T elivery he ntry S A eries

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MATURITIES, AMOUNTS, RATES AND PRICES

$______Serial Bonds

Maturity Principal Interest (August 1) Amount Rate Yield Price CUSIP*

Term Bonds

$______% Term Bond, Due August 1, ____, Yield: ____%, Price: _____%, Initial CUSIP ______* $______% Term Bond, Due August 1, ____, Yield: ____%, Price: _____%, Initial CUSIP ______*

______

*Copyright 2016, American Bankers Association. CUSIP data herein is provided by Standard & Poor’s CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. The CUSIP numbers are provided for convenience and reference only. Neither the Lessees nor the Issuer is responsible for the selection or use of the CUSIP numbers, nor is any representation made as to their correctness on the Series 2016 Bonds or as indicated above.

REGARDING USE OF THIS OFFICIAL STATEMENT

The information contained herein under the heading “THE ISSUER” has been furnished by the County of Montgomery, Ohio. All other information contained herein has been obtained from the Obligated Group and other sources (other than the Issuer) which are believed to be reliable. Such other information is not guaranteed as to accuracy or completeness by, and is not to be relied upon as or construed as a promise or representation by, the Issuer. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with and as part of their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

No dealer, broker, salesperson or other person has been authorized by the Issuer, the Obligated Group, or the Underwriters to give any information or to make any representations, other than those contained in this Official Statement, and if given or made, such information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2016 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Issuer or the Obligated Group since the date hereof.

______

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TABLE OF CONTENTS

Page

INTRODUCTORY STATEMENT...... 1 Purpose of this Official Statement ...... 1 The Issuer ...... 1 The Obligated Group ...... 1 Plan of Financing ...... 2 Provisions Relating to the Series 2016 Bonds ...... 2 Additional Indebtedness ...... 3 Bondholders’ Risks ...... 4 THE ISSUER ...... 4 THE KETTERING HEALTH NETWORK OBLIGATED GROUP ...... 4 PLAN OF FINANCING ...... 4 ESTIMATED SOURCES AND USES OF FUNDS ...... 5 DEBT SERVICE REQUIREMENTS ...... 6 THE SERIES 2016 BONDS ...... 7 General Description of the Series 2016 Bonds ...... 7 Interest on the Series 2016 Bonds ...... 8 Terms of Redemption of Series 2016 Bonds ...... 8 Selection of Series 2016 Bonds for Redemption ...... 9 Notice of Redemption ...... 10 Partial Redemption of Series 2016 Bonds ...... 11 Effect of Redemption ...... 11 Book-Entry Only System ...... 11 SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2016 BONDS ...... 12 General ...... 12 The Leases and Subleases ...... 12 The Master Indenture ...... 13 The Bond Indenture ...... 14 Enforceability of the Legal Documents ...... 14 BONDHOLDERS’ RISKS ...... 14 General ...... 14 Regulation of the Health Care Industry ...... 15 Economic Developments Affecting the Health Care Industry ...... 15 Health Care Reform ...... 16 Government Reimbursement Programs ...... 18 Antitrust ...... 22 Factors Affecting Private Third Party Payers ...... 23 Other Risk Factors ...... 23 Environmental Matters ...... 27 Charity Care Litigation ...... 28 Fluctuations in the Market Value of Investments ...... 28 Interest Rate Swap Risk ...... 28 Other Factors Affecting Health Care Facilities ...... 29 Charity Care and Tax-Exempt Status of Lessees ...... 30 Tax-Exempt Status of the Series 2016 Bonds ...... 30 Bond Ratings ...... 31 Market for Series 2016 Bonds ...... 31 ELIGIBILITY UNDER OHIO LAW FOR INVESTMENT AND AS SECURITY FOR THE DEPOSIT OF PUBLIC FUNDS ...... 31 ABSENCE OF LITIGATION AFFECTING THE SERIES 2016 BONDS ...... 31 LEGAL MATTERS ...... 31 TAX EXEMPTION ...... 32 PREMIUM ...... 33 ORIGINAL ISSUE DISCOUNT ...... 33

UNDERWRITING ...... 34 RATINGS ...... 35 CONTINUING DISCLOSURE UNDERTAKING ...... 35 FINANCIAL STATEMENTS ...... 36 Other Financial Information ...... 36 MISCELLANEOUS ...... 36

APPENDIX A. KETTERING HEALTH NETWORK OBLIGATED GROUP APPENDIX B. AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION OF THE KETTERING HEALTH NETWORK APPENDIX C. SUMMARY OF CERTAIN BOND DOCUMENTS APPENDIX D. FORM OF OPINION OF BOND COUNSEL APPENDIX E. SUMMARY OF CONTINUING DISCLOSURE UNDERTAKING APPENDIX F. DTC BOOK-ENTRY ONLY SYSTEM

OFFICIAL STATEMENT

$91,175,000* County of Montgomery, Ohio Hospital Facilities Revenue Bonds, Series 2016 (Kettering Health Network Obligated Group Project)

INTRODUCTORY STATEMENT

The following statement is subject in all respects to more complete information contained in this Official Statement. The entire Official Statement including the Appendices attached hereto should be read by any prospective purchaser of the Series 2016 Bonds. No person is authorized to detach this Introductory Statement from this Official Statement or to otherwise use it without this entire Official Statement including the Appendices attached hereto. All statements herein are qualified in their entirety by reference to each document. See APPENDIX C for definitions of certain capitalized words and terms used herein.

Purpose of this Official Statement

The purpose of this Official Statement, including the cover page and the Appendices hereto, is to set forth information in connection with the offering of the $91,175,000* County of Montgomery, Ohio Hospital Facilities Revenue Bonds, Series 2016 (Kettering Health Network Obligated Group Project), to be issued pursuant to the Indenture of Trust (Bond Indenture) (the “Bond Indenture”) dated as of May 1, 2016 between the County of Montgomery, Ohio (the “Issuer”) and The Bank of New York Mellon Trust Company, N.A., as bond trustee (the “Bond Trustee”), a resolution authorizing the issuance of the Series 2016 Bonds adopted by the Issuer.

The Issuer

The Issuer is a county and political subdivision of the State of Ohio. The Issuer has the power, pursuant to Chapter 140 of the Ohio Revised Code (the “Act”), to issue revenue bonds such as the Series 2016 Bonds to provide funds for the financing of costs of “hospital facilities” within the meaning of the Act. THE SERIES 2016 BONDS AND ALL PAYMENTS TO BE MADE THEREON BY THE ISSUER UNDER THE BOND INDENTURE ARE NOT GENERAL OBLIGATIONS OF THE ISSUER BUT ARE LIMITED REVENUE OBLIGATIONS PAYABLE SOLELY FROM THE PAYMENTS ON THE SERIES 2016 NOTE AND AS PROVIDED IN THE BOND INDENTURE AND IN THE SUBLEASES. THE SERIES 2016 BONDS DO NOT CONSTITUTE A GENERAL OBLIGATION, DEBT OR BONDED INDEBTEDNESS OR LIABILITY OF THE ISSUER OR OF THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF UNDER THE CONSTITUTION OF THE STATE OF OHIO OR THE PLEDGE OF THE FAITH AND CREDIT OF THE ISSUER, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF. THE SERIES 2016 BONDS WILL NOT CONSTITUTE OR GIVE RISE TO A GENERAL OBLIGATION OR LIABILITY OF, OR A CHARGE AGAINST, THE GENERAL CREDIT OR TAXING POWERS OF THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF, AND THE HOLDER OR OWNER THEREOF DOES NOT HAVE THE RIGHT TO HAVE TAXES OR EXCISES LEVIED BY THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF FOR THE PAYMENT OF PRINCIPAL OF AND ANY PREMIUM AND INTEREST ON THE SERIES 2016 BONDS.

The Obligated Group

The Kettering Health Network Obligated Group (the “Obligated Group”) consists of Kettering Medical Center, Dayton Osteopathic Hospital d/b/a Grandview Hospital and Medical Center, and Beavercreek Medical Center d/b/a Indu & Raj Soin Medical Center. In 2015, the Obligated Group accounted for approximately 80.3% of the total unrestricted revenue of the Kettering Health Network (the “Kettering Network”, which consists of the three members of the Obligated Group, as well as an extended network of other affiliated healthcare entities throughout Southwest Ohio).

* Preliminary; subject to change

Kettering Medical Center. Kettering Medical Center, an Ohio nonprofit corporation (“Kettering”), is part of the health care mission of the Seventh-day Adventist Church, a worldwide Christian religious denomination. Kettering and its affiliated entities contribute to the provision of quality health care to the people of Dayton and the surrounding communities. Kettering owns and operates as divisions: (1) Charles F. Kettering Memorial Hospital (“KMH”), an acute care hospital registered for 472 short-term beds in Kettering, Ohio; (2) Sycamore Medical Center, an acute care hospital registered for 112 short-term beds in Miamisburg, Ohio which also controls Kettering Behavioral Medicine Center in Miami Township of Montgomery County, Ohio, which has an additional 60 beds (“Sycamore,” and with KMH, the “Kettering Hospitals”); (3) Kettering College of Medical Arts (the “College”), a fully accredited four-year college offering degrees in physician assistance, nursing and several allied health professions in Kettering, Ohio; and (4) Kettering Health Network Homecare, a home health agency.

Grandview Hospital and Medical Center. Dayton Osteopathic Hospital d/b/a Grandview Hospital and Medical Center, an Ohio nonprofit corporation (“Grandview”), consisting of Grandview Medical Center and Southview Medical Center, also contributes to the provision of quality health care to the people of Dayton and surrounding communities. Grandview Medical Center, an osteopathic acute care hospital registered for 293 beds, operates in Dayton, Ohio (“Grandview Hospital”). Southview Medical Center, an osteopathic acute care hospital registered for 128 beds, operates in southern Montgomery County, Ohio (“Southview Hospital”).

Beavercreek Medical Center d/b/a Indu & Raj Soin Medical Center. Beavercreek Medical Center d/b/a Indu & Raj Soin Medical Center (“Soin”), incorporated in July 2009 as an Ohio nonprofit corporation. Soin was formed to build and operate a new acute care hospital named Indu & Raj Soin Medical Center designed to primarily serve the western Greene County area. The hospital opened in February 2012 and is licensed for 127 beds.

AS OF THE DATE OF ISSUANCE OF THE SERIES 2016 BONDS, KETTERING, GRANDVIEW AND SOIN WILL BE THE ONLY MEMBERS OF THE OBLIGATED GROUP (AS SUCH TERMS ARE USED IN THE MASTER INDENTURE, AS HEREINAFTER DEFINED). Kettering Adventist HealthCare d/b/a Kettering Health Network (“Kettering HealthCare”), a nonstock, nonprofit Ohio corporation serves as the sole corporate member of each of Kettering, Grandview and Soin. Kettering HealthCare is not a member of the Obligated Group. Neither the Seventh-day Adventist Church, Kettering HealthCare nor any other person, except Kettering, Grandview and Soin, is legally liable for the commitments of the Obligated Group with respect to the Series 2016 Bonds. Other persons may become members of the Obligated Group in accordance with the procedures set forth in the Master Indenture; however, the Obligated Group has no current plans to add additional members to the Obligated Group. For further information concerning Kettering, Grandview and Soin and their respective history, facilities, services and operations (including certain statistical and financial information) and the corporate organization and financial performance of the Obligated Group, see APPENDIX A – “KETTERING HEALTH NETWORK OBLIGATED GROUP” and APPENDIX B – “AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION OF THE KETTERING HEALTH NETWORK” .

Plan of Financing

The proceeds from the sale of the Series 2016 Bonds will be used, together with other available funds of the Lessees, to (1) finance the cost of certain healthcare facilities for the benefit of Kettering, Grandview and Soin and (2) pay the costs related to the issuance of the Series 2016 Bonds.

Provisions Relating to the Series 2016 Bonds

Interest Rate. The Series 2016 Bonds will bear interest at the rates set forth on the inside cover page of this Official Statement.

Security and Sources of Payment. The Series 2016 Bonds are limited obligations of the Issuer, and are payable solely from (i) payments or prepayments to be made on the Series 2016 Note; (ii) certain payments made under the Sublease dated as of May 1, 2016 (the “Kettering Sublease”) by and between the Issuer and Kettering (other than payments pursuant to certain Unassigned Rights, as defined in the Kettering Sublease); (iii) payments made under the Sublease dated as of May 1, 2016 (the “Grandview Sublease”) by and between the Issuer and Grandview (other than payments pursuant to certain Unassigned Rights, as defined in the Grandview Sublease); (iv) payments made under the Sublease dated as of May 1, 2016 (the “Soin Sublease”) by and between the Issuer

and Soin (other than payments pursuant to certain Unassigned Rights, as defined in the Soin Sublease) (the Kettering Sublease, Grandview Sublease and Soin Sublease are collectively referred to as the “Subleases”, and Kettering, Grandview and Soin are collectively referred to as the “Lessees”); (v) moneys and investments held by the Bond Trustee under the Bond Indenture; and (vi) in certain circumstances, proceeds from certain insurance and condemnation awards. The Issuer will pledge and assign certain of its rights under the Subleases to the Bond Trustee under the Bond Indenture as security for the Series 2016 Bonds. Pursuant to the Master Trust Indenture dated as of May 1, 1996 (the “Master Trust Indenture”) between Kettering and The Bank of New York Mellon Trust Company, N.A., successor to J.P. Morgan Trust Company, National Association, successor to Bank One Trust Company, NA, as Master Trustee (the “Master Trustee”), as previously supplemented and amended and as further supplemented and amended by Supplemental Master Indenture Number Nineteen (the “Master Indenture Supplement”) dated as of May 1, 2016 by and between the Obligated Group and the Master Trustee (the Master Trust Indenture as supplemented or amended from time to time is referenced to herein as the “Master Indenture”), the Obligated Group will issue and deliver to the Bond Trustee a note (the “Series 2016 Note”) in a principal amount equal to the aggregate principal amount of the Series 2016 Bonds and secured by the additional collateral and covenants established under the Master Indenture.

The terms of the Series 2016 Note will require payments by the Obligated Group which, together with other moneys available therefor, will be sufficient to provide for the payment of the principal of, premium, if any, and interest on the Series 2016 Bonds. The Series 2016 Note will entitle the Bond Trustee, as the holder thereof, to the protection of the covenants, restrictions and other obligations imposed upon the current members of the Obligated Group and any future members of the Obligated Group by the Master Indenture.

The current members of the Obligated Group and future members of the Obligated Group will be jointly and severally obligated on all Notes, including the Series 2016 Note, issued pursuant to the Master Indenture. See the information under the caption “BONDHOLDERS’ RISKS—Enforceability of Remedies” herein.

THE SERIES 2016 BONDS AND ALL PAYMENTS TO BE MADE THEREON BY THE ISSUER UNDER THE BOND INDENTURE ARE NOT GENERAL OBLIGATIONS OF THE ISSUER BUT ARE LIMITED REVENUE OBLIGATIONS PAYABLE SOLELY FROM THE PAYMENTS ON THE SERIES 2016 NOTE AND AS PROVIDED IN THE BOND INDENTURE AND IN THE SUBLEASES. THE SERIES 2016 BONDS DO NOT CONSTITUTE A GENERAL OBLIGATION, DEBT OR BONDED INDEBTEDNESS OR LIABILITY OF THE ISSUER OR OF THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF UNDER THE CONSTITUTION OF THE STATE OF OHIO OR THE PLEDGE OF THE FAITH AND CREDIT OF THE ISSUER, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF. THE SERIES 2016 BONDS WILL NOT CONSTITUTE OR GIVE RISE TO A GENERAL OBLIGATION OR LIABILITY OF, OR A CHARGE AGAINST, THE GENERAL CREDIT OR TAXING POWERS OF THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF, AND THE HOLDER OR OWNER THEREOF DOES NOT HAVE THE RIGHT TO HAVE TAXES OR EXCISES LEVIED BY THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF FOR THE PAYMENT OF PRINCIPAL OF AND ANY PREMIUM AND INTEREST ON THE SERIES 2016 BONDS.

Debt Service Coverage Ratio. In the Master Indenture, the Obligated Group has agreed that for so long as the Series 2016 Bonds are outstanding, it will maintain a Debt Service Coverage Ratio of at least 1.10 or it must retain an Independent Consultant and follow its recommendations to the extent feasible. If the Obligated Group retains an Independent Consultant and follows its recommendations to the extent feasible, but the Debt Service Coverage Ratio falls below 1.10 for any subsequent fiscal year, the Master Indenture requirement has been satisfied and will not constitute an event of default under the Master Indenture unless and until the Debt Service Coverage Ratio falls below 1.00. A more detailed description of the covenants of the Obligated Group under the Master Indenture is included in APPENDIX C – “SUMMARY OF CERTAIN BOND DOCUMENTS—Summary of the Master Indenture – Covenants of the Obligated Group” herein.

Additional Indebtedness

The Master Indenture permits the members of the Obligated Group to incur Additional Indebtedness upon compliance with the terms and conditions and for the purposes described under “Limitations on Incurrence of Additional Indebtedness” in APPENDIX C – “SUMMARY OF CERTAIN BOND DOCUMENTS—Summary of the Master Indenture – Covenants of the Obligated Group” herein. Such Additional Indebtedness may be issued as an Obligation under the Master Indenture or as other Indebtedness and may be secured or unsecured.

Bondholders’ Risks

There are risks associated with the purchase of the Series 2016 Bonds. See “BONDHOLDERS’ RISKS” for a discussion of certain of these risks.

THE ISSUER

The Issuer is a county and political subdivision of the State of Ohio. A three-member Board of County Commissioners, elected on a county-wide basis in even numbered years for four-year overlapping terms, is the primary legislative and executive body of the Issuer. The Issuer has the power, pursuant to the Act, to issue revenue bonds such as the Series 2016 Bonds to provide funds for the financing of costs of “hospital facilities” within the meaning of the Act. The Series 2016 Bonds are not a general obligation, debt or bonded indebtedness of the Issuer or of the State of Ohio or any political subdivision thereof and the holder or owner thereof does not have the right to have excises or taxes levied by the Issuer or by the State of Ohio or any political subdivision thereof for the payment of the principal of and any premium and interest on the Series 2016 Bonds.

THE KETTERING HEALTH NETWORK OBLIGATED GROUP

The Kettering Health Network Obligated Group consists of Kettering, Grandview and Soin. The Obligated Group operates as an integrated health care delivery system based in its primary service area of Montgomery County and the surrounding vicinity, including Greene County, immediately east of Dayton in which the Soin hospital is located.

Kettering, Grandview and Soin are presently the only members of the Obligated Group; however, subject to the terms and conditions of the Master Indenture, other persons may become members of the Obligated Group, and Obligated Group members may cease to be part of the Obligated Group. See APPENDIX A – “KETTERING HEALTH NETWORK OBLIGATED GROUP” and APPENDIX C – “SUMMARY OF CERTAIN BOND DOCUMENTS” herein.

PLAN OF FINANCING

The proceeds from the sale of the Series 2016 Bonds will be used, together with other available funds of the Obligated Group, to (1) pay the costs of financing certain health care facilities for Kettering, Grandview and Soin, including a cancer center at Kettering, and (2) pay the costs related to the issuance of the Series 2016 Bonds.

ESTIMATED SOURCES AND USES OF FUNDS

Summarized below are the estimated sources and uses of funds for the Series 2016 Bonds (rounded to the nearest whole dollar).

Sources of Funds: Principal amount of Series 2016 Bonds $91,175,000* Original Issue Premium Total Sources of Funds

Uses of Funds: Deposit to Project Fund For reimbursement for prior capital expenditures For future capital expenditures Costs of Issuance (1) Total Uses of Funds ______

(1) Costs of Issuance includes cost of printing, estimated fees of Obligated Group’s counsel, Bond Counsel, counsel to the Underwriters, rating agency fees, Master Trustee and Bond Trustee fees and expenses and other costs.

* Preliminary; subject to change.

DEBT SERVICE REQUIREMENTS

The Obligated Group has several issues of outstanding bonds that will remain outstanding after the issuance of the Series 2016 Bonds, including the following (collectively, the “Prior Bonds”): (i) County of Montgomery, Ohio Hospital Facilities Revenue Refunding Bonds, Series 1996 in the outstanding principal amount of $43,277,000 (the “Series 1996 Bonds”), (ii) County of Greene, Ohio Hospital Facilities Revenue Bonds, Series 2009 in the outstanding principal amount of $100,000,000 (the “Series 2009 Bonds”), (iii) County of Butler, Ohio Hospital Facilities Revenue Bonds, Series 2011 in the aggregate outstanding principal amount of $155,430,000, (iv) County of Montgomery, Ohio Adjustable Rate Hospital Facilities Revenue Refunding Bonds (Series 2011) (Kettering Health Network Obligated Group Project) in the aggregate outstanding principal amount of $147,350,000 and (v) County of Montgomery, Ohio Hospital Facilities Revenue Refunding Bonds (Series 2012) (Kettering Health Network Obligated Group Project) in the aggregate outstanding principal amount of $93,340,000 (the “Series 2012 Bonds”).

The Master Trust Indenture provides various assumptions with respect to the calculation of the Obligated Group’s debt service requirements for purposes of covenant compliance. See APPENDIX C for a summary of these covenants and assumptions.

The following table sets forth estimated debt service requirements on the Series 2016 Bonds and all other long-term indebtedness of the Kettering Network after the issuance of the Series 2016 Bonds.

Fiscal Year Other Long- Ending Series 2016 Bonds(1) Term Debt Total Debt December 31 Principal Interest Total Service (2) Service

2016 - $1,029,198 $1,029,198 $36,489,201 $37,518,399 2017 - 4,258,750 4,258,750 36,552,717 40,811,467 2018 - 4,258,750 4,258,750 36,538,649 40,797,399 2019 - 4,258,750 4,258,750 36,529,788 40,788,538 2020 - 4,258,750 4,258,750 37,015,556 41,274,306 2021 - 4,258,750 4,258,750 37,555,552 41,814,302 2022 - 4,258,750 4,258,750 37,583,388 41,842,138 2023 - 4,258,750 4,258,750 35,628,338 39,887,088 2024 - 4,258,750 4,258,750 35,418,700 39,677,450 2025 - 4,258,750 4,258,750 35,443,121 39,701,871 2026 - 4,258,750 4,258,750 35,498,630 39,757,380 2027 - 4,258,750 4,258,750 35,526,330 39,785,080 2028 - 4,258,750 4,258,750 35,517,162 39,775,912 2029 - 4,258,750 4,258,750 35,493,111 39,751,861 2030 - 4,258,750 4,258,750 35,484,310 39,743,060 2031 - 4,258,750 4,258,750 35,468,396 39,727,146 2032 - 4,258,750 4,258,750 35,455,619 39,714,369 2033 - 4,258,750 4,258,750 35,435,222 39,693,972 2034 - 4,258,750 4,258,750 35,421,675 39,680,425 2035 - 4,258,750 4,258,750 35,413,799 39,672,549 2036 - 4,258,750 4,258,750 35,406,525 39,665,275 2037 - 4,258,750 4,258,750 35,399,857 39,658,607 2038 - 4,258,750 4,258,750 35,384,134 39,642,884 2039 - 4,258,750 4,258,750 35,369,174 39,627,924 2040 - 4,258,750 4,258,750 35,365,821 39,624,571 2041 - 4,258,750 4,258,750 35,349,746 39,608,496 2042 $13,245,000 4,258,750 17,503,750 13,824,874 31,328,624 2043 13,815,000 3,640,900 17,455,900 13,851,955 31,307,855 2044 14,415,000 2,996,150 17,411,150 13,890,981 31,302,131 2045 15,035,000 2,323,100 17,358,100 13,941,117 31,299,217 2046 16,965,000 1,620,850 18,585,850 12,701,556 31,287,406 2047 17,700,000 827,800 18,527,800 12,750,519 31,278,319

Total $91,175,000 $123,165,498 $214,340,498 $1,012,705,518 $1,227,046,016

______

(1) Preliminary; subject to change. (2) Includes outstanding principal and interest on the Prior Bonds and other long-term indebtedness of the Kettering Network. Includes a 2015 bank loan, which the Obligated Group anticipates will be retired in the current fiscal year with other funds of the Kettering Network. See Note 5 to the financial statements of the Kettering Network included in APPENDIX B for a discussion of debt of the Kettering Network. Interest on certain Prior Bonds with respect to which there are existing interest rate swap agreements is based on the interest rate in the swap agreement. If the rate were calculated pursuant to the Master Indenture, it would be a lower rate.

THE SERIES 2016 BONDS

General Description of the Series 2016 Bonds

The Series 2016 Bonds will be delivered in fully registered form only and, when delivered, will be registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository for the Series 2016

Bonds. Ownership interests in the Series 2016 Bonds may be purchased in book-entry form only. See “Book-Entry Only System” below. Ownership interests in the Series 2016 Bonds will be in denominations of $5,000 or any integral multiple thereof not in excess of any single maturity.

Interest on the Series 2016 Bonds

The Series 2016 Bonds will bear interest at the rates set forth on the inside cover page of this Official Statement, payable on each August 1 and February 1, commencing August 1, 2016 (the “Interest Payment Dates”), and will mature on August 1 in the years and in the principal amounts set forth on the inside cover page of this Official Statement.

As long as the Series 2016 Bonds are registered in the name of Cede & Co., as nominee of DTC, such payments will be made directly to DTC. See “Book-Entry Only System” below.

Terms of Redemption of Series 2016 Bonds

Optional Redemption of Series 2016 Bonds. The Series 2016 Bonds are subject to redemption (from funds other than those deposited in accordance with the mandatory sinking fund requirements) prior to maturity on or after ______1, ____ in whole or in part at any time, at the option of the Issuer (at the direction of Kettering), at a redemption price of 100% of the principal amount redeemed plus interest accrued to the redemption date.

Extraordinary Optional Redemption. The Series 2016 Bonds are subject to redemption by the Issuer (at the direction of Kettering), at a redemption price of 100% of the principal amount redeemed plus interest accrued to the redemption date, if the Lessees exercise their right to prepay Basic Rent under the Subleases upon the occurrence of damage, destruction or condemnation of Existing Facilities, in whole or in part, at any time as provided in the Subleases.

Mandatory Sinking Fund Redemption. The Series 2016 Bonds maturing on August 1, ____ are subject to mandatory redemption pursuant to mandatory sinking fund requirements, at a redemption price of 100% of the principal amount redeemed plus interest accrued to the redemption date, on August 1, in the following principal amounts in the years specified:

Date of Principal Principal Amount Redemption to be Redeemed

______

*Final maturity

The Series 2016 Bonds maturing on August 1, ____ are subject to mandatory redemption pursuant to mandatory sinking fund requirements, at a redemption price of 100% of the principal amount redeemed plus interest accrued to the redemption date, on August 1, in the following principal amounts in the years specified:

Date of Principal Principal Amount Redemption to be Redeemed

______

*Final maturity

The Lessees, on behalf of the Issuer, have the option to deliver to the Bond Trustee, for cancellation, Series 2016 Bonds of the above-referenced maturities in any aggregate principal amount and to receive a credit against the then current mandatory sinking fund requirement (and corresponding mandatory redemption obligation) of the Issuer as set forth in the tables above. The Lessees, on behalf of the Issuer, must exercise that option on or before the 45th day preceding the applicable mandatory sinking fund redemption date, by notice to the Bond Trustee setting forth the extent of the credit to be applied with respect to the then current mandatory sinking fund requirement and the Series 2016 Bonds to be so credited. If the notice and the Series 2016 Bonds to be credited are not timely furnished to the Bond Trustee, the mandatory sinking fund requirement (and corresponding mandatory redemption obligation) shall not be reduced. A credit against the then current mandatory sinking fund requirement (and corresponding mandatory redemption obligation) also shall be received by the Issuer for any Series 2016 Bonds of the above-referenced maturities which prior thereto have been redeemed (other than through the operation of the mandatory sinking fund requirements) or purchased by the Bond Trustee, to the extent not applied theretofore as a credit against any redemption obligation.

Purchase in Lieu of Redemption. In lieu of redeeming Series 2016 Bonds pursuant to the terms of redemption set forth above, the Bond Trustee may, at the request of the Lessees, use such funds otherwise available under the Bond Indenture for redemption of Series 2016 Bonds to purchase such Series 2016 Bonds identified by the Obligated Group in the open market at a price specified by the Lessees not exceeding the then-applicable redemption price. In the case of any optional or extraordinary optional redemption or any purchase of Series 2016 Term Bonds, the Bond Trustee shall apply as a credit against the mandatory sinking fund requirement (and corresponding mandatory redemption obligation) with respect to such Series 2016 Term Bonds the amount of such Series 2016 Term Bonds in such order as the Lessees elect in writing prior to such optional or extraordinary optional redemption or purchase or, if no election is made, in the inverse order thereof. No purchase of any Series 2016 Bond in lieu of redemption will operate to extinguish the indebtedness of the Lessees evidenced by such Series 2016 Bond.

Selection of Series 2016 Bonds for Redemption

If less than all of the Series 2016 Bonds are to be redeemed, or if less than all the Series 2016 Bonds of a single maturity are to be redeemed, the selection of Series 2016 Bonds (and the sinking fund payments), or of Series 2016 Bonds of that maturity (and the sinking fund payments within a maturity), to be redeemed, or portions thereof in amounts of $5,000 or any integral multiple thereof, shall be made by the Obligated Group, with less than all of a single maturity or sinking fund payment of Series 2016 Bonds to be selected by lot or in such manner as the Bond Trustee shall deem fair and appropriate. In the case of a partial redemption of Series 2016 Bonds by lot when Series 2016 Bonds of denominations greater than $5,000 are then outstanding, each $5,000 unit of face value of principal thereof shall be treated as though it were a separate Series 2016 Bond of the denomination of $5,000.

So long as DTC is the sole registered Bondholder of the Series 2016 Bonds, if less than all of the Series 2016 Bonds are called for redemption, after notice to DTC by the Bond Trustee of such redemption, the selection of

the beneficial interests in the Series 2016 Bonds to be redeemed will be in the sole discretion of DTC and the DTC Participants.

Notice of Redemption

Unless waived by any holder of Series 2016 Bonds to be redeemed, official notice of redemption shall be given by the Bond Trustee by mailing a copy of an official redemption notice by first class mail to the holder of each Series 2016 Bond to be redeemed, at the address of such holder shown on the registration books maintained by the Bond Trustee, not less than 30 days nor more than 60 days prior to the date fixed for redemption. Notice of optional redemption, extraordinary redemption or purchase in lieu of redemption may be given only if sufficient funds have been deposited with the Bond Trustee to pay the redemption price of the Series 2016 Bonds to be redeemed or if such notice states that redemption is expressly conditioned upon the deposit of such money on or before the redemption date.

All official notices of redemption shall be dated and shall state:

(1) the redemption date,

(2) the redemption price,

(3) if less than all outstanding Series 2016 Bonds are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Series 2016 Bonds to be redeemed,

(4) that on the redemption date the redemption price will become due and payable upon each such Series 2016 Bond or portion thereof called for redemption, and that interest thereon shall cease to accrue from and after said date, and

(5) the place where such Series 2016 Bonds are to be surrendered for payment of the redemption price, which place of payment shall be in the designated office of the Bond Trustee.

In addition to the foregoing official notice, further notice shall be given by the Bond Trustee as set out below, but no defect in such further notice nor any delay in giving such notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for redemption if the official notice thereof is given as above prescribed.

1. Each further notice of redemption given shall contain the information required above for an official notice of redemption plus (i) the CUSIP numbers of all Series 2016 Bonds being redeemed; (ii) the date of issue of the Series 2016 Bonds as originally issued; (iii) the rate of interest borne by each Series 2016 Bond being redeemed; (iv) the maturity date of each Series 2016 Bond being redeemed; and (v) any other descriptive information deemed necessary by the Bond Trustee to identify accurately the Series 2016 Bonds being redeemed.

2. Each further notice of redemption shall be sent at least 30 days before the redemption date by registered or certified mail or overnight delivery service to all registered securities depositories then in the business of holding substantial amounts of obligations of types comprising the Series 2016 Bonds (such depositories now being Depository Trust Company of New York, New York, Midwest Securities Trust Company of Chicago, Illinois and Philadelphia Depository Trust Company of Philadelphia, Pennsylvania) and to one or more national information services that disseminate notices of redemption of obligations such as the Series 2016 Bonds.

3. Upon the payment of the redemption price of Series 2016 Bonds being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Series 2016 Bonds being redeemed with the proceeds of such check or other transfer.

In the event of any optional or extraordinary optional redemption of Series 2016 Bonds, an amount of money sufficient to pay the redemption price of all Series 2016 Bonds or portions of Series 2016 Bonds which are to be so redeemed is required to be on deposit with the Bond Trustee.

Failure to duly give official notice of redemption by mail or any defect therein shall not affect the validity of the proceedings for the redemption of any Series 2016 Bond with respect to which no such failure or defect has occurred.

Partial Redemption of Series 2016 Bonds

Upon surrender of any Series 2016 Bond to be redeemed in part only, the Bond Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Obligated Group, a new Series 2016 Bond or Series 2016 Bonds of authorized denominations of the same maturity equal in aggregate principal amount to the unredeemed portion of the Series 2016 Bond surrendered.

Effect of Redemption

On the date fixed for redemption, (1) the Series 2016 Bonds (or portions thereof) so called for redemption shall become due and payable at the redemption price specified in the notice of redemption plus interest accrued thereon to the date fixed for redemption, (2) interest on the Series 2016 Bonds so called for redemption shall cease to accrue, (3) the Series 2016 Bonds (or portions thereof) called for redemption shall cease to be entitled to any benefit or security under the Bond Indenture, and (4) the Holders of said Series 2016 Bonds shall have no rights in respect thereof except to receive payment of the applicable redemption price and accrued interest.

Book-Entry Only System

General. The Series 2016 Bonds will be issued initially in book-entry-only form. See APPENDIX F - “DTC BOOK-ENTRY ONLY SYSTEM”.

In the event that the book-entry only system for the Series 2016 Bonds is discontinued, the following provisions under “Delivery of Certificates; Registered Owners” and “Transfers and Exchanges” would apply, subject in each case to the further conditions set forth in the Bond Indenture.

Delivery of Certificates; Registered Owners. Bond certificates in fully registered form will be delivered to, and registered in the names of, the DTC Participants or such other persons as such DTC Participants may specify (which may be the Indirect Participants or Beneficial Owners), in appropriate amounts. The ownership of the Series 2016 Bonds so delivered (and any Bonds thereafter delivered upon a transfer or exchange described below) shall be registered in registration books to be kept by the Bond Trustee, or a successor Bond Trustee for the Series 2016 Bonds and the Issuer, and the Bond Trustee shall be entitled to treat the registered owners of such Bonds, as their names appear in such registration books as of the appropriate dates, as the owners thereof for all purposes described herein and in the Bond Indenture.

Transfers and Exchanges. Any Series 2016 Bond may be transferred by the person in whose name it is registered upon surrender of such Series 2016 Bond for cancellation accompanied by delivery of a written instrument of transfer. Whenever any Series 2016 Bond or Bonds are delivered for transfer, the Issuer shall execute and the Bond Trustee shall authenticate and deliver a new Series 2016 Bond or Bonds for a like aggregate principal amount of the same maturity. Series 2016 Bonds may be exchanged for a like aggregate principal amount of Series 2016 Bonds of the same maturity of other authorized denominations.

The Bond Trustee shall not be required to transfer or exchange any Series 2016 Bond during the 15 days immediately preceding (1) the date on which notice of redemption of Series 2016 Bonds is given or (2) the date on which Series 2016 Bonds will be selected for redemption.

SECURITY AND SOURCE OF PAYMENT FOR THE SERIES 2016 BONDS

General

The Series 2016 Bonds are special obligations of the Issuer and are payable solely out of the Trust Estate established under the Bond Indenture, which includes (i) all revenues derived by the Issuer from the Existing Facilities, including the Basic Rent payments by the Lessees under the Subleases, (ii) the rights of the Issuer under the Subleases (other than certain Unassigned Rights), (iii) the Series 2016 Note issued under the Master Indenture, and (iv) money and investments on deposit in the special funds and accounts established under the Bond Indenture. Pursuant to the Bond Indenture the Issuer will assign and pledge its interest in the Trust Estate to the Bond Trustee as security for the payment of the Series 2016 Bonds.

The Subleases will require payments by the Lessees, and the Series 2016 Note will require payments by the Obligated Group, of amounts which will be sufficient to provide for the timely payment of the principal of, premium, if any, and interest on the Series 2016 Bonds. The obligation of the Obligated Group to make payments on the Series 2016 Note will be secured by the Master Indenture on a parity with all other Master Indenture Notes. The security provided by the Master Indenture includes a pledge of and security interest in the Gross Receipts of the Obligated Group. The security provided by the Master Indenture also presently includes a mortgage of certain real property and fixtures of Soin, including the acute care hospital and the underlying property (collectively, the “Mortgaged Property”); however, such mortgage will be released, without consent of the holders of the Series 2016 Bonds, either (i) upon retirement or defeasance of the Series 2009 Bonds, Series 2011 Bonds and Series 2012 Bonds or (ii) earlier if the Obligated Group obtains consent from the holders of the majority amount outstanding of each of the following series of Bonds: the Series 2009 Bonds, Series 2011 Bonds and Series 2012 Bonds. No other assets of any member of the Obligated Group are pledged or mortgaged as security under the Master Indenture. See “The Master Indenture” below.

NOTHING IN THE SERIES 2016 BONDS, THE BOND INDENTURE AND ANY OTHER DOCUMENT DELIVERED IN CONNECTION WITH THE SERIES 2016 BONDS WILL REPRESENT OR CONSTITUTE A GENERAL OBLIGATION, DEBT OR BONDED INDEBTEDNESS OF THE ISSUER, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF, AND THE HOLDERS OR OWNERS OF THE SERIES 2016 BONDS WILL NOT BE GIVEN THE RIGHT, AND HAVE NO RIGHT, TO HAVE EXCISE TAXES, AD VALOREM TAXES OR OTHER TAXES LEVIED BY THE ISSUER OR BY THE STATE OF OHIO OR THE TAXING AUTHORITY OF ANY OTHER POLITICAL SUBDIVISION FOR THE PAYMENT OF THE PRINCIPAL OF OR INTEREST OR ANY PREMIUM ON THE SERIES 2016 BONDS. NEITHER THE GENERAL CREDIT, FAITH NOR RESOURCES OF THE ISSUER OR THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF ARE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST OR ANY PREMIUM ON THE SERIES 2016 BONDS.

The Leases and Subleases

The Issuer (a) will lease from Kettering certain real estate as set forth in an Agreement of Lease, dated as of May 1, 2016, between Kettering and the Issuer, (b) will lease from Grandview certain real estate as set forth in an Agreement of Lease, dated as of May 1, 2016, between Grandview and the Issuer and (c) will lease from Soin certain real estate as set forth in an Agreement of Lease, dated as of May 1, 2016, between Soin and the Issuer (collectively, the “Leases”) and all Hospital Facilities (as defined in the Act) acquired, constructed and installed on such real estate (the “Existing Facilities”). The Issuer will lease the Existing Facilities back to (i) Kettering pursuant to the Kettering Sublease, (ii) Grandview pursuant to the Grandview Sublease and (iii) Soin pursuant to the Soin Sublease (collectively, the “Subleases”). The obligations of Kettering, Grandview and Soin to pay Basic Rent with respect to the Series 2016 Bonds under the Subleases will be evidenced and secured by the Obligated Group’s Series 2016 Note issued pursuant to the terms of the Master Indenture.

So long as the Series 2016 Bonds remain outstanding, the obligation of Kettering, Grandview and Soin to pay the Basic Rent with respect to the Series 2016 Bonds under the Subleases will be absolute and unconditional.

Each of the three Lessees is liable under its respective Sublease for an allocable portion of debt service on the Series 2016 Bonds. The Kettering Sublease, the Grandview Sublease and the Soin Sublease provide that each of Kettering, Grandview and Soin, respectively, is only liable for a portion of the debt service on the Series 2016

Bonds. By virtue of the Series 2016 Note, however, each of the members of the Obligated Group (Kettering, Grandview and Soin) is jointly and severally liable for all debt service on the Series 2016 Bonds.

The Master Indenture

The Obligated Group. Upon issuance of the Series 2016 Bonds, Kettering, Grandview and Soin constitute the only members of the Obligated Group. Other persons may join the Obligated Group upon satisfaction of the conditions set forth in the Master Indenture; however, the Obligated Group has no current plans to add additional members to the Obligated Group, except as noted below with respect to The Fort Hamilton Hospital, a nonprofit corporation incorporated under the laws of the State of Ohio (“Fort Hamilton”). Members of the Obligated Group may withdraw from the Obligated Group upon the satisfaction of certain financial and other conditions contained in the Master Indenture. See APPENDIX C – “SUMMARY OF CERTAIN DOCUMENTS—Summary of the Master Indenture – Withdrawal from the Obligated Group” herein.

Fort Hamilton is not presently a member of the Obligated Group. In July 2010 Fort Hamilton became affiliated with Kettering HealthCare. While the Affiliation Agreement between the Obligated Group and Fort Hamilton states that Fort Hamilton may eventually be added to the Obligated Group, the timing of such event is not presently known.

Gross Receipts Pledge. For so long as the Series 2016 Note is Outstanding, each member of the Obligated Group will assign and grant to the Master Trustee an assignment of and a security interest in all present or future Gross Receipts of that member to secure the prompt payment of the principal of and interest and any premium on the Note and the observance and performance by each member of the Obligated Group of all of its covenants, agreements and obligations under the Master Indenture. Such assignment constitutes an absolute and unconditional present assignment of the Gross Receipts, subject however to the conditional permission given thereby to each member of the Obligated Group to collect and use Gross Receipts during a period while no Event of Default under the Master Indenture shall have occurred and be continuing, upon which delinquency or Event of Default that permission will automatically terminate, and the Gross Receipts shall be deposited immediately with the Master Trustee.

Negative Pledge. No member of the Obligated Group shall permit any of its property, other than Excluded Property, to become subject to any Lien not constituting a Permitted Encumbrance (see APPENDIX A – “SUMMARY OF CERTAIN BOND DOCUMENTS—Definitions of Certain Terms” herein) and not otherwise permitted under the terms of the Master Indenture, unless prior to or contemporaneously with the attachment thereof, such member of the Obligated Group shall have entered into a Lien with the Master Trustee granting it a security interest prior to, or on a parity with, such other Lien and shall have taken all action necessary to perfect the security interest granted to the Master Trustee.

The Series 2016 Note. The obligation of Kettering, Grandview and Soin to pay Basic Rent with respect to the Series 2016 Bonds under the Subleases will be secured by the Series 2016 Note that will be issued to the Bond Trustee by the Obligated Group pursuant to Master Indenture Supplement. The Bond Trustee will agree not to assign or transfer the Series 2016 Note other than to a successor Bond Trustee.

The Series 2016 Note will be the joint and several obligation of the Obligated Group under the Master Indenture. The Series 2016 Note will be secured by a security interest in the Gross Receipts of the Obligated Group and by a mortgage of the Mortgaged Property. See APPENDIX C – “SUMMARY OF CERTAIN BOND DOCUMENTS— Summary of the Master Indenture” herein.

Mortgage Lien. As security for the obligations of the Obligated Group under the Master Indenture, Soin has granted to the Master Trustee, pursuant to the Master Indenture, for the benefit of the holders of all Notes issued under the Master Indenture, a first priority mortgage lien on the Mortgaged Property. Such mortgage will be released, without consent of the holders of the Series 2016 Bonds, either (i) upon retirement or defeasance of the Series 2009 Bonds, Series 2011 Bonds and Series 2012 Bonds or (ii) earlier if the Obligated Group obtains consent from the holders of the majority amount outstanding of each of the following series of Bonds: the Series 2009 Bonds, Series 2011 Bonds and Series 2012 Bonds. The facilities of Kettering and Grandview are not subject to a mortgage. The Master Indenture contains provisions prohibiting the creation of liens and encumbrances with

respect to the Existing Facilities with certain exceptions. See APPENDIX C – “SUMMARY OF CERTAIN BOND DOCUMENTS—Summary of the Master Indenture” and “– Summary of Supplemental Master Indenture Number Nineteen.”

Additional Notes. The Master Indenture permits the Obligated Group to issue Additional Notes in accordance with the Master Indenture. Additional Notes may be issued to secure Additional Bonds or to evidence or secure other additional indebtedness. All members of the Obligated Group will be jointly and severally liable for payment of all indebtedness evidenced by any Notes issued under the Master Indenture. See APPENDIX C – “SUMMARY OF CERTAIN BOND DOCUMENTS—Summary of the Master Indenture – Covenants of the Obligated Group – Restrictions as to Incurrence of Indebtedness” herein.

The Bond Indenture

Assignment to Bond Trustee. Pursuant to the Bond Indenture, the Issuer will assign to the Bond Trustee, as security for the payment of the Series 2016 Bonds, substantially all the Issuer’s rights (other than certain Unassigned Rights) under the Leases and the Subleases, and the Issuer’s rights and interests in the Basic Rent with respect to the Series 2016 Bonds payable under the Subleases and the moneys and investments held in certain funds established under the Bond Indenture.

Enforceability of the Legal Documents

The rights and remedies of the Master Trustee under the Master Indenture, of the Issuer under the Subleases (as assigned to the Bond Trustee), of the Bond Trustee under the Series 2016 Note and the Bond Indenture and of the bondholders under the Bond Indenture and the Series 2016 Bonds are subject to and may be limited by the application of general principles of equity, and by the laws of the states and of the United States of America, with respect to bankruptcy, insolvency, fraudulent conveyance and creditors’ rights generally, now existing or hereafter enacted, and by the exercise of judicial discretion. See the information under the caption “BONDHOLDERS’ RISKS—Enforceability of Remedies” herein for certain situations in which the ability of the Master Trustee or the Bond Trustee to obtain an adequate remedy at law or in equity on behalf of the holders of the Series 2016 Bonds upon the occurrence of an Event of Default may be uncertain.

BONDHOLDERS’ RISKS

This discussion of risk factors is not, is not intended to be and cannot be exhaustive. The occurrence of one or more of the following events, or the occurrence of other unanticipated events, could adversely affect the Kettering Network’s financial performance.

General

The Series 2016 Bonds are special obligations of the Issuer payable solely from moneys to be paid by the Lessees under the Subleases and by the Obligated Group under the Series 2016 Note. Such payments will be made from the revenues derived by the Lessees from their operations and from other nonoperating revenues received by them, or under certain circumstances, from proceeds of casualty insurance or condemnation awards. No representation or assurance is given or can be made that revenues will be realized by the Lessees in amounts sufficient to pay debt service on the Series 2016 Bonds when due and other payments necessary to meet the obligations of the Lessees.

Purchasers of the Series 2016 Bonds should bear in mind that the occurrence of any number of events, some of which are specified in more detail below, could adversely affect the Lessees’ ability to make payments. Demand for health care and hospital services, the ability of the Lessees to provide the services required by patients, physicians’ confidence in the Lessees’ health care facilities, levels and methods of federal and State reimbursement under the Medicare and Medicaid programs, the enactment of health care reform legislation, reimbursement from third party payers, changes in demand for health care services, increased competition from other health care providers, economic developments in the Lessees’ service area, demographic changes, care provided to indigent or uninsured patients who do not pay the Lessees’ charges, malpractice claims, overpayment claims and other litigation

could adversely affect the revenues and expenses of the Lessees, and consequently the Lessees’ ability to make payments on the Series 2016 Bonds.

Regulation of the Health Care Industry

At the present time, the Certificate of Need (“CON”) laws in Ohio regulate the activities and expenditures of certain types of providers, including skilled nursing and long-term care facilities. Regulation by the CON laws of certain other activities of the Lessees ceased as of May 1, 1997, or within one year thereafter. However, certain types of facilities or activities previously regulated by the CON laws, such as ambulatory surgery centers and cardiac catheterization services, are now subject to quality standards established by the Ohio Department of Health. Regulation of the activities and expenditures of skilled nursing and long-term care facilities continues to be subject to CON review and approval, and will be subject to the CON laws for the foreseeable future. At this time there is no way to determine if there will be further reforms of Ohio’s CON system or the effect of any such reforms on the Kettering Network.

Entities within the Kettering Network are subject to regulatory actions and policies of a variety of governmental and non-governmental entities, including the Centers for Medicare and Medicaid Services, which administers the Medicare program (“CMS”, formerly HCFA), the Ohio Department of Job and Family Services (“ODJFS”, formerly the Ohio Department of Human Services), which administers the Ohio Medicaid program, the Ohio Department of Health, The Joint Commission, The American Osteopathic Association, the Internal Revenue Service, and other federal, state and local government agencies. Management of the Kettering Network anticipates no difficulty in renewing or maintaining currently held licenses, certificates, registrations and accreditations. Nevertheless, actions by any of these or other entities (including the adoption of new policies or changes in existing policies) could affect the ability of the Lessees to operate all or a portion of their facilities, which could impact the utilization of the facilities and/or revenues of the Lessees, and consequently, could adversely affect the ability of the Lessees to make payments on the Series 2016 Bonds.

Economic Developments Affecting the Health Care Industry

The disruption of the credit and financial markets in the last several years resulted in volatility in the securities markets, significant losses in investment portfolios, increased business failures and consumer and business bankruptcies. In response to this disruption of the credit and financial markets, federal legislation has been enacted, including the Dodd-Frank Act (as defined below).

The healthcare sector has been materially adversely affected by this market turmoil. Patient service revenues and inpatient volumes have not increased as historic trends would otherwise indicate. Current economic factors are also increasing stresses on the Ohio budget, where the Obligated Group’s facilities are located, potentially resulting in reductions in Medicaid payment rates or Medicaid eligibility standards, and delays of payment of amounts due under Medicaid and other state or local payment programs. For a discussion of the effects of these factors on the Kettering Network, see APPENDIX A – “MANAGEMENT’S DISCUSSION AND ANALYSIS.”

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Financial Reform Act”) was enacted and includes broad changes to the existing financial regulatory structure, including the creation of new federal agencies to identify and respond to risks to the financial stability of the United States. Additional legislation is under consideration by Congress and regulatory action is being considered by various Federal agencies and the Federal Reserve Board and foreign governments. Such legislation and regulation is intended to increase the regulation of domestic and global credit markets. The effects of the Financial Reform Act and of these legislative, regulatory and other governmental actions, if implemented, are unclear.

Capital Needs versus Capital Capacity. Hospital operations are capital intensive. Regulation, technology advances and physician/patient expectations require constant and often significant capital investment. Total capital needs may be greater than the availability of funds to provide capital investment. Conditions in credit markets may also limit the Obligated Group’s ability to borrow to fund capital expenditures or increase the expenses associated with any such borrowing.

Technical and Clinical Developments. New clinical techniques and technology, as well as new pharmaceutical and genetic developments and products, may alter the course of medical diagnosis and treatment in ways that are currently unanticipated, and that may dramatically change medical care. These could result in higher costs, reductions in patient populations and/or new sources of competition for hospitals and other healthcare providers.

Costs and Restrictions from Governmental Regulation. Nearly every aspect of healthcare operations is regulated, in some cases by multiple agencies of government. The level and complexity of regulation appears to be increasing, bringing with it operational limitations, enforcement and liability risks, and significant and sometimes unanticipated cost impacts.

Health Care Reform

On March 23, 2010, Congress enacted the Patient Protection and Affordable Care Act (“ACA”). Some of the provisions of ACA took effect immediately, while others have been and will continue to be phased in over time, ranging from one year to ten years.

The ACA, including its insurance mandate requiring individuals to obtain coverage, has been challenged on constitutional grounds. A recent decision of the U.S. Supreme Court generally upheld the ACA, although the Court also ruled that states must be allowed to decline participation in the expanded Medicaid program under ACA without losing their eligibility under the existing Medicaid program. Ohio has elected to participate in expanded Medicaid for low-income adults.

One of the primary objectives of ACA is to provide or make available, or subsidize the premium costs of, healthcare insurance for some of the millions of currently uninsured (or underinsured) people who fall below certain income levels. ACA proposes to accomplish that objective through various provisions, including (i) creation of active markets (referred to as exchanges) in which individuals and small employers can purchase healthcare insurance for themselves and their families or their employees and dependents, (ii) provision of subsidies for premium costs to individuals and families based upon their income relative to federal poverty levels, (iii) a mandate that individual consumers obtain and certain employers provide a minimum level of healthcare insurance and provision for penalties or taxes on consumers and employers that do not comply with these mandates, (iv) establishment of insurance reforms that expand coverage generally through such provisions as prohibitions on denials of coverage for pre-existing conditions and elimination of lifetime or annual cost caps, and (v) expansion of existing public programs, including Medicaid for individuals and families. To the extent these provisions produce the intended result, the amount of uncompensated care provided by the Obligated Group’s facilities should decrease, but it is uncertain how the level of compensation for services will compare to the cost of providing those services.

Some of the specific provisions of the ACA that have affected or may affect the hospital operations of the Obligated Group, its financial performance or its financial condition are described below. This listing is not intended to be, nor should it be considered by the reader as comprehensive. The ACA is complex and comprehensive, and includes a myriad of new programs and initiatives and changes to existing programs, policies, practices and laws.

• The creation of active markets (referred to as health insurance exchanges) in which individuals and employers can purchase health insurance for themselves and their families or their employees and dependents. Ohio did not set up a health insurance exchange. Accordingly, the federal government established one for Ohio’s citizens.

• As discussed in more detail below, with varying effective dates, the annual Medicare market basket updates for many providers, including hospitals, has been and will continue to be reduced, and adjustments to payment for expected productivity gains will be implemented.

• Commencing in federal fiscal year 2014, the Medicare disproportionate share hospital (DSH) payments are being phased-out to account for reductions in the national rate of consumers who do not have healthcare insurance and are provided uncompensated care. As part of the ACA’s phase-out, commencing in federal fiscal year 2014, a state’s Medicaid DSH allotment from federal funds will be reduced in accordance with the health reform methodology set forth in the ACA.

• Effective in 2014, Medicaid programs are being expanded to a broader population with incomes up to 133% of federal poverty levels. To fund this expansion, the ACA provides that the federal government will fund 100% of the costs of this expansion from 2014 to 2016, decreasing to 90% of the costs of this expansion in 2020 and thereafter.

• In federal fiscal year 2013, Medicare payments that otherwise would have been made to hospitals were reduced by specified percentages to account for excess and “preventable” hospital readmissions.

• Commencing in federal fiscal year 2015, Medicare payments to certain hospitals for hospital-acquired conditions were reduced by 1%. In federal fiscal year 2011, federal payments to states for Medicaid services related to healthcare-acquired conditions were prohibited.

• Commencing in federal fiscal year 2013, a value-based purchasing program was established under the Medicare program designed to pay hospitals based on performance on quality measures related to common and high cost conditions. The program is funded through the reduction of hospital inpatient care payments by 1% progressing to 2% by federal fiscal year 2017. This reduction may be offset by incentive payments that commenced in federal fiscal year 2013 for hospitals that meet or exceed certain quality standards.

• With varying effective dates, the ACA mandates a reduction of waste, fraud and abuse in public programs by allowing provider enrollment screening, enhanced oversight period for new providers and suppliers, and enrollment moratoria in areas identified as being at elevated risk of fraud in all public programs, and by requiring all Medicare and Medicaid program providers and suppliers to establish compliance programs. A database will capture and share healthcare provider data across federal healthcare programs. There are increased penalties for fraud and abuse violations, significant amendments to existing criminal, civil and administrative anti-fraud and abuse statutes, the imposition of many program integrity provisions that will compel updates and enhancements to business operations and compliance policies, and increased funding for anti-fraud activities. The enforcement provisions could greatly increase potential legal exposure of providers, including the Obligated Group.

• The ACA also contains new requirements for tax-exempt hospitals. Under the ACA, each tax-exempt hospital facility is required to (i) conduct a community health needs assessment at least every three years and adopt an implementation strategy to meet the identified community needs, (ii) adopt, implement and widely publicize a written financial assistance policy and a policy to provide emergency medical treatment without discrimination, (iii) limit charges to individuals who qualify for financial assistance under such tax- exempt hospital’s financial assistance policy to no more than the amounts generally billed to individuals who have insurance covering such care and refrain from using “gross charges” when billing such individuals, and (iv) refrain from taking extraordinary collection actions without first making reasonable efforts to determine whether the individual is eligible for assistance under such tax-exempt hospital’s financial assistance policy. In addition, the Treasury Department is required to review information regarding each tax-exempt hospital’s community benefit activities at least once every three years, as well as to submit an annual report to Congress with information regarding the levels of charity care, bad debt expenses, unreimbursed costs of government programs, and costs incurred by tax-exempt hospitals for community benefit activities. The periodic reviews and reports to Congress regarding the community benefits provided by tax-exempt hospitals may increase the likelihood that Congress will require such hospitals to provide a minimum level of charity care in order to retain their tax-exempt status and may increase IRS scrutiny of particular tax-exempt hospital organizations. Failure to satisfy all of these conditions may result in the imposition of fines and could threaten the tax-exempt status of such hospitals.

• The ACA calls for the establishment of an Independent Payment Advisory Board to develop proposals commencing in 2015 to improve the quality of care and limit the rate of growth in spending on the Medicare program. Those proposals will be automatically implemented if Congress does not act to invalidate them.

• The ACA also prohibits new or expanded physician ownership of hospitals.

• The ACA provides for the implementation of various demonstration programs and pilot projects under both the Medicare and Medicaid programs to test, evaluate, encourage and expand new payment structures and methodologies to reduce healthcare expenditures while maintaining or improving quality of care, including bundled payments under Medicare and Medicaid, and comparative effectiveness research programs that compare the clinical effectiveness of medical treatments and develop recommendations concerning practice guidelines and coverage determinations. The demonstration projects include an initiative to develop alternatives to current tort litigations for resolving disputes over injuries caused by healthcare providers or healthcare organizations.

Management of the Obligated Group will continue to analyze ACA in order to assess the effects of the legislation on current and projected operations, financial performance and financial condition. However, management cannot predict with any reasonable degree of certainty or reliability any interim or ultimate effects of the legislation. There are numerous factors that contribute to the uncertainty of ACA’s effects, including the actual content of extensive implementing regulations that must be developed by the federal and state governments, the decision by individuals whether to comply with the insurance mandate and the results and scope of various cost control initiatives mandated by ACA.

Government Reimbursement Programs

The revenues of the Kettering Network are heavily dependent on payments made for health care services under the Medicare and Medicaid programs, the two principal government-funded payment programs. See APPENDIX A – “KETTERING HEALTH NETWORK OBLIGATED GROUP—Sources of Revenue” herein.

The Medicare Program. Medicare provides certain health care benefits to beneficiaries who are 65 years of age or older, disabled or who qualify for the end stage renal disease program. Medicare is an exclusively federal program. Medicare Part A covers inpatient hospital services, skilled nursing services and some home health care services, while Medicare Part B covers other types of medical services, such as physician and outpatient services.

The trend of recent federal Medicare legislation and regulations is to replace cost-based, provider-specific reimbursement with prospectively determined, regionally-adjusted national payment rates that are periodically adjusted to reflect inflation estimates. In recent years, the inflation adjustments have been below the general inflation rate for medical services and products. If this trend continues, the net effect on the revenues of the Kettering Network cannot be determined at this time, but could result in lower revenues which would negatively affect the Kettering Network. Future legislation may reduce benefits to providers in an effort to improve the financial position of Medicare.

Inpatient Operating Costs. Federal Medicare payments for hospital services rendered to Medicare beneficiaries on or after October 1, 1983 have been governed by a series of amendments to the Social Security Act which provided for a transition to prospectively established rates for inpatient hospital services. These rates are based on the projected costs per discharge of performing or treating various diagnoses and procedures that have been grouped in “diagnosis related groups” (“DRGs”). The DRG system provides for payment of an established amount to a hospital, per diagnosis or procedure, regardless of the actual costs that may have been incurred by that hospital or that hospital’s usual and customary charges for the services. For a small number of patients with very high costs, Medicare may make an additional “outlier” payment in order to allow a hospital to recover costs for certain atypical cases. However, there is no guarantee that any of these payments will be sufficient to cover the Kettering Network’s actual costs applicable to a particular Medicare beneficiary.

DRG payments are increased annually based upon the hospital “market basket” index, which generally measures changes in the cost of providing health care services. For every year since 1983, Congress has modified the increases and given substantially less than the increase in the “market basket” index. The 2003 Act enacted major payment and policy changes for acute care hospitals. Beginning in federal FY 2005, hospitals reporting specific quality data to CMS receive an inflation update equal to hospital market percentage increase. There is no assurance that future increases in the DRG payments will keep pace with the increases in the cost of providing inpatient hospital services.

Outpatient Costs. Effective August 1, 2000 CMS implemented a prospective payment system for outpatient services (“OPPS”). All services paid under OPPS are classified into groups called Ambulatory Payment Classes or APCs. Services in each APC are similar clinically and in terms of the resources they require. A payment rate is established for each APC. Such a system will cause a hospital with Medicare patient costs above the Medicare prospective payment rate to incur losses on such Medicare services.

Physician Payment. Medicare reimburses physicians 80% of the lower of the Medicare fee schedule amount or the physician’s actual charge. The fee schedule for physician services is based on a federally determined resource-based relative value scale which calculates the weighted values of the physician’s work, practice expenses, and the cost of malpractice insurance associated with each reimbursable procedure performed by the physician. The federally determined relative values are adjusted for geographic locale and then are converted into the reimbursement amount payable for the particular procedure. Payment provided under the fee schedule covers a physician’s professional services; supplies and services furnished incident to the physician’s services; physical, occupational and speech therapy; diagnostic tests other than clinical lab tests (which have their own fee schedule); and x-ray, radium and radioactive isotope therapy services.

The amounts paid under the physician fee schedule are limited each year by the Medicare Volume Performance Standard, which sets a targeted rate of increase for total physician payments for that year. If Medicare payments to physicians in one year increase by more than the targeted amount, then future payments will be reduced by the amount that the target was exceeded. Similarly, if physician payments are less than the targeted amount, then future payments will correspondingly increase.

The Medicare fee schedule physician payment system may affect the Kettering Network. For instance, physical, occupational and speech therapy services furnished by the Kettering Network are paid under the physicians’ fee schedule. Likewise, the fee schedule may prevent the Kettering Network from recouping certain compensation paid to hospital-based physicians. It could also cause the mix of the hospital-based physician services to shift. Physicians whose Medicare professional fees decline can be expected to seek additional compensation from the Kettering Network for administrative services or for services that they previously performed without compensation for the Kettering Network. The net effect in future years of the physician fee schedule on the Kettering Network cannot be determined at this time.

Home Health Care. CMS has developed a prospective payment system for home health services. Such payments are increased annually, but it is likely that the increases of such payments will not keep pace with the increases in the cost of providing home health services. Any such failure to increase adequately such payments will have an adverse effect on home health providers whose costs exceed the level of prospective reimbursement. The actual financial effect on the Kettering Network from such a system cannot be determined at this time.

EMTALA. In 1986 Congress enacted the Emergency Medical Treatment and Active Labor Act (“EMTALA”) in response to allegations of inappropriate hospital transfers of indigent and uninsured emergency patients. EMTALA imposes strict requirements on hospitals in the treatment and transfer of patients with emergency medical conditions.

EMTALA requires hospitals to provide a medical screening examination to any individual who comes to the hospital’s dedicated emergency department (“DED”) for treatment, without regard to ability to pay, to determine whether the individual suffers from an emergency medical condition within the meaning of the statute. A DED is licensed by the state in which it is located as an emergency room or department, or the DED is held out to the public as a place providing care for emergency medical conditions without requiring an appointment or during the immediately preceding calendar year, the DED provided treatment of emergency medical conditions without requiring an appointment for at least one-third of all of its out-patient visits. A participating hospital may not delay provision of a medical screening examination in order to inquire about method of payment or insurance status. If an emergency medical condition is present, the hospital must provide such additional medical examination and treatment as may be required to stabilize the emergency medical condition. If the hospital deems it in the best interest of the individual to transfer the individual to another medical facility, the treating physician must execute a transfer certificate complying with the standards of the EMTALA and must provide a medically appropriate transfer.

EMTALA imposes significant costs on hospitals, including the costs of treatment of individuals who may not be able to pay for such services, costs of development and implementation of protocols concerning medical screening examinations and stabilization and appropriate transfers and, in some cases, costs associated with assuring on-call availability of special physicians.

If a hospital with 100 beds or more violates EMTALA, whether knowingly and willfully or negligently, it is subject to a civil money penalty of up to $50,000 per violation. Failure to satisfy the requirements of EMTALA may also result in termination of the hospital’s provider agreement. In addition, EMTALA creates a private cause of action for individuals who suffer personal harm as a result of an EMTALA violation, and for any hospital that suffers financial loss as a result of another hospital’s violation of EMTALA. The statute of limitations for filing such a civil action is two years.

Audits, Exclusions, Fines and Enforcement Actions. Health care providers that participate in the Medicare program are subject to audits by the Medicare fiscal intermediary and/or carrier. Based on an audit, the fiscal intermediary/carrier may conclude, among other things, that certain costs claimed by the provider are not allowable, that a service has been paid under an incorrect DRG or should not have been paid as an inpatient, or that certain services were not medically necessary. As a consequence, certain payments may be retroactively disallowed. Under certain circumstances, claims for reimbursement by the provider may be determined to have been improper, and therefore, subject to the penalties of the False Claims Act or other federal statutes, subjecting the provider to civil and criminal sanctions. Such adjustments may be substantial. Medicare regulations also provide for withholding or offsetting Medicare payments in certain circumstances, and such withholdings or offsets could have a substantial adverse impact on the financial condition of the Kettering Network.

Management of the Kettering Network is not aware of any situation in which reserves are inadequate or a material amount of Medicare payments is being withheld. The Kettering Network utilizes internal and external resources to review and audit compliance with the policies, procedures, laws and regulations applicable to the Medicare program. Whenever such reviews identify practice deviations, management of the Kettering Network assesses the deviation and develops time frames and action plans to correct the deficiency. Such reviews and audits, which are currently in process as part of the Kettering Network’s continuous improvement processes, have not identified deviations or deficiencies that may have a material adverse effect on the results of operations or the financial condition of the Kettering Network.

Factors Affecting Medicaid and Indigent Care Reimbursement. The hospitals in the Kettering Network are participating providers in the Medicaid program, which provides certain reimbursement for medical care to eligible indigent individuals. Medicaid is a combined federal and state program, administered in Ohio by ODJFS. As with the Medicare program, Medicaid limits the amount of reimbursement to providers of health services, by reimbursing most inpatient hospital services under a DRG system and most outpatient hospital services under a fee schedule.

Payments made to the hospitals in the Kettering Network under the Medicaid program are subject to change as a result of federal or state legislative and administrative actions, including changes in the methods for calculating payments, the amount of payments that will be made for covered services and the types of services that will be covered under the program. Such changes have occurred in the past and are expected to occur in the future, particularly in response to federal and state budgetary constraints. In addition, Ohio’s interest in decreasing the costs of its Medicaid programs, whether through the implementation of managed care models or through other means, may result in decreased payments to health care providers, including the Kettering Network. Future changes to the Medicaid program could adversely affect the financial condition of the Kettering Network. At this time the nature and effect of any such changes cannot be determined.

Restrictions on Certain Referral Practices. Section 1128B(b) of the Social Security Act provides for criminal penalties for individuals or entities that knowingly and willfully offer, payment, solicitation, or receive remuneration: (i) in return for the referral of federal health care program beneficiaries; or (ii) in return for the recommendation, arrangement, purchase, lease, or order of items or services that are reimbursable by federal health care programs. This statute is commonly referred to as the “Anti-Kickback Statute”. For purposes of the Anti- Kickback Statute, federal health care programs include any plan or program (including Medicare and Medicaid) that provides health benefits which is funded by the U.S. government (other than the Federal Employees Health Benefit

program) and state health care programs. The Anti-Kickback Statute is broad in scope and has been broadly interpreted by courts in many jurisdictions, potentially subjecting arrangements to lengthy, expensive investigations and prosecutions initiated by federal and state governmental officials. Violation of the Anti-Kickback Statute is a felony, punishable by fines of up to $25,000 per violation and imprisonment for up to five years. In addition, the Department of Health and Human Services Office of Inspector General may exclude violators from participation in the federal health care programs and impose civil money penalties equal to three times the amount of the illegal remuneration plus $50,000 per violation. Moreover, a violation of the Anti-Kickback Statute may constitute a default under third party payer contracts. Such violations could have a material adverse impact on the Kettering Network.

Due to the breadth of the Anti-Kickback Statute, the Office of Inspector General (“OIG”) of the Department of Health and Human Services issued regulations which define those practices which will not violate the Anti-Kickback Statute (the “Safe Harbor Regulations”). The Safe Harbor Regulations create safe harbors for narrow types of transactions, such as certain leases, certain sales of physician practices, personal services and management contracts, use of referral services, and other narrowly specified physician/hospital arrangements. The Safe Harbor Regulations fail to offer protection to many otherwise generally accepted financial arrangements. In the comments to the Safe Harbor Regulations, the OIG recognized the narrowness of the regulations and specifically stated that the failure of a referral arrangement to meet the elements of a safe harbor is not, in and of itself, a per se violation of the Anti-Kickback Statute. Instead, each arrangement must be individually analyzed to determine whether the intent of the arrangement is to induce the referral or arrangement of Medicare or Medicaid business.

Ohio has various statutes prohibiting payment for certain referrals or that otherwise criminalize fraudulent activities involving the Medicaid program. Such restrictions are equally vague with respect to their coverage and effect. Generally, Ohio’s anti-kickback and false claims laws involve onerous penalties. In Ohio, one notable difference is that the anti-kickback and self-referral laws apply to private payers and governmental programs in addition to Medicare and Medicaid.

The Kettering Network has entered into contracts and relationships with other health care providers, some of which do not meet all of the requirements of the Safe Harbor regulations. Kettering Network management does not believe that its operations violate the federal or Ohio Anti-Kickback Statutes. However, because of the narrowness of the Safe Harbor Regulations, the breadth of the Anti-Kickback Statute and Ohio’s anti-kickback law, and the scarcity of case law interpreting these laws, there can be no assurance that federal or state enforcement authorities will not take a differing view of the Kettering Network’s contracts and relationships, and in that event, there can be no assurance that the resulting sanctions will not have an adverse effect on the financial condition of the Kettering Network.

In addition, Section 1877 of the Social Security Act (42 U.S.C. § 1395nn), commonly referred to as the Stark Law, was amended in 1993 to extend the federal ban on physicians referring Medicare patients for designated health services to entities with which they have a financial relationship. The designated health services covered are clinical laboratory services; physical therapy services; occupational therapy services; radiology and certain other imaging services (including diagnostic and therapeutic nuclear medicine services and supplies); radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. The Stark Law includes certain limited exceptions for relationships with physicians that will be deemed not to violate this statute. Unlike the Anti-Kickback Statute, a physician’s financial relationship with the entity providing designated health services must fit within an exception. If it does not, the entity may not bill for any designated health services provided pursuant to a referral from the physician. The penalties for violating the Stark Law include a prohibition on Medicaid and Medicare reimbursement and civil money penalties of as much as $15,000 for each violative referral and $100,000 for participation in a “circumvention scheme” and exclusion from the Medicare and Medicaid programs.

The Stark Law, its implementing regulations, and CMS’s interpretation of the statute are extremely complex. However, Kettering Network management believes that it is in compliance with the statute as to its various relationships with physicians. Due to the complexity of this statute, there can be no assurances that entities within the Kettering Network will not be found to be in violation of it, and if so, the possible sanctions could have a material adverse impact on the Kettering Network.

False Claims. There are many complex rules that a health care provider must follow with respect to the submission of claims to the Medicare and Medicaid programs. The failure to follow these rules may be found in the admitting process, the care delivery process, the coding process or the billing process. The civil False Claims Act (“FCA”) allows the United States government to recover significant damages from persons or entities that knowingly or recklessly submit fraudulent claims for payment to any federal agency. It also permits individuals to initiate actions on behalf of the government whereby plaintiffs, or “whistleblowers,” can receive a significant share of the damages recovered by the government. The government, through the United States Attorney’s Office or the Department of Justice, may also file a civil FCA action. Under the FCA, health care providers may be liable if they obtain improper payments from the government by submitting false claims. If a health care provider is found to have violated the FCA, the potential liability is substantial. The violator can be held liable for up to triple the actual damages incurred by the government, and it can also be fined for each claim submitted in violation of the FCA.

The federal Civil Monetary Penalty Law (“CMPL”) provides for administrative sanctions against health care providers for a broad range of billing and other abuses. A health care provider is liable under the CMPL if it knowingly presents, or causes to be presented, improper claims for reimbursement, including for example, unbundling of hospital outpatient services, under Medicare and Medicaid. The CMPL authorizes imposition of a civil money penalty (“CMP”) for each item or service improperly claimed.

HIPAA. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) established a program administered jointly by the Secretary of DHHS and the United States Attorney General designed to coordinate federal, state and local law enforcement programs to control fraud and abuse in connection with the federal health care programs. HIPAA also added new provisions that outlaw certain types of manipulative Medicare billing practices. These include improperly coding (for billing purposes) services rendered in order to claim a higher level of reimbursement and prohibiting billing for the provision of services or items that were not medically necessary. In addition, in HIPAA, Congress greatly increased funding for health care fraud enforcement activity enabling the Office of the Inspector General of DHHS (“OIG”) to substantially expand its investigative staff and the Federal Bureau of Investigation to plan to quadruple the number of agents assigned to health care fraud. The result has been a dramatic increase in the number of civil, criminal and administrative prosecutions for alleged violations of the laws relating to payment under the federal health care programs, including the Anti-Kickback Law and the FCA. This expanded enforcement activity, together with the whistleblower provisions of the FCA, have significantly increased the likelihood that all health care providers could face inquiries or investigations concerning compliance with the many laws governing claims for payment and cost reporting under the federal health care programs.

DHHS has issued privacy regulations for electronic health information pursuant to the requirements of HIPAA. The final privacy regulations went into effect in April 2003 and regulations on security standards applicable to hospitals went into effect in April 2005. These regulations in the aggregate are intended to give consumers control over their health information, set boundaries on medical record use and release, ensure the security of personal health information, and establish accountability for medical record use and release. Health care providers and plans are required to establish privacy-conscious business practices. Violators who unintentionally disclose protected health information will face civil fines of $100 per violation, up to a total of $25,000 per year. Violators who intentionally release protected health information for personal gain face criminal sanctions punishable by up to $250,000 and 10 years in prison. The ongoing financial costs of compliance with HIPAA can be substantial.

Antitrust

Enforcement of the antitrust laws against health care providers is becoming more common, and antitrust liability may arise in a wide variety of circumstances, including medical staff privilege disputes, third party contracting, physician relations and joint venture, merger, affiliation and acquisition activities. In some respects, the application of the federal and state antitrust laws to health care is still evolving, and enforcement activity by federal and state agencies appears to be increasing. At various times, health care providers may be subject to an investigation by a governmental agency charged with the enforcement of the antitrust laws, or may be subject to administrative or judicial action by a federal or state agency or a private party. The antitrust laws are enforced by federal and state agencies, as well as by private litigants.

Hospitals, including the hospitals in the Kettering Network, regularly have disputes regarding credentialing and peer review, and may be subject to liability in this area. In addition, hospitals occasionally indemnify medical staff members who are involved in such credentialing or peer review activities, and may also be liable with respect to such indemnity.

Court decisions have also established private causes of action against hospitals which use their local market power to promote ancillary health care businesses in which they have an interest. Such activities may result in monetary liability for the participating hospitals under certain circumstances where a competitor suffers business damage.

From time to time, the hospitals in the Kettering Network are or will be involved in a variety of activities which could receive scrutiny under the antitrust laws, and it cannot be predicted when or to what extent liability may arise. With respect to payer contracting, such hospitals may, from time to time, be involved in joint contracting activity with other hospitals or providers. The precise degree to which this or similar joint contracting activities may expose the participants to antitrust risk from governmental or private sources is dependent on a myriad of factual matters which may change from time to time.

Factors Affecting Private Third Party Payers

There is a large market for managed health care, such as Health Maintenance Organizations (“HMOs”), Health Insuring Corporations (“HICs”), third-party administered self-insured plans and Preferred Provider Organizations (“PPOs”), generally referred to as Managed Care Organizations or “MCOs”. These entities negotiate directly with the hospitals for discounted rates or rates based on anticipated utilization of hospital services.

Many third party payer plans are using various forms of utilization controls, such as pre-admission and pre- procedure authorization, reauthorizations of hospital stays, length of stay approval and second opinions. Additionally, some employers are contracting directly with providers for certain services, such as inpatient hospital care.

Increased patient participation in managed care programs can have a negative impact on hospitals in several ways. First, a hospital generally will not be able to serve the patients enrolled in managed care programs with which it does not contract. Second, a hospital may be required to substantially reduce its charges to obtain a contract to service managed care program patients. Third, the managed care program market is becoming increasingly competitive, and many of the managed care programs may not survive. Fourth, a hospital that has a contract with a managed care program in poor financial condition may render services for which the hospital is not ultimately compensated. Fifth, the effect of such contracts on the Kettering Network’s financial statements may be different in the future from what is reflected in the financial statements for the current period. For example, some MCOs are now offering or mandating a “capitation” payment method under which hospitals are paid a predetermined periodic rate for each enrollee in the MCO who is “assigned” to, or otherwise directed to receive care at, a particular hospital. In a capitation payment system, the hospital assumes an insurance risk for the cost and scope of care given to such MCO’s enrollees. If payment under a MCO contract is insufficient to meet the hospital’s costs of care, the financial condition of the hospital may erode rapidly and significantly. Often, MCO contracts are enforceable for a stated term, regardless of provider losses.

The Kettering Network’s ability to develop and expand its services and, therefore, its profitability, is dependent upon the Kettering Network’s ability to enter into contracts with MCOs at competitive rates. There can be no assurance that the Kettering Network will be able to attract third-party payers, and where it does, no assurance that it will be able to contract with such payers on advantageous terms. The inability of the Kettering Network to contract with a sufficient number of such payers on advantageous terms might have a material adverse effect on the Kettering Network’s operations and financial results.

Other Risk Factors

Competition and Factors Decreasing Utilization; Population Changes. Competition from other health care providers now or hereafter located in the Kettering Network service area could adversely affect its operations.

In addition, development of health maintenance organizations, establishment of specialty hospitals, ambulatory surgery centers and private laboratories, future medical and other scientific advances resulting in decreased usage of facilities such as those operated by the Kettering Network, and efforts by insurers, employer-purchasers of health care insurance and governmental agencies to reduce utilization of health care facilities by such means as preventive medicine, improved occupational health and safety standards, home health care and more extensive utilization of outpatient care could adversely affect the operations of the Kettering Network. The Kettering Network could also be adversely affected by economic trends in and changes in the demographics of its service area.

Labor Relations. Although at the present time none of the employees of the Kettering Network are represented by a labor organization, unionization of employees or a shortage of qualified professional personnel could cause an increase in payroll costs. The Kettering Network cannot control the prevailing wage rates in its service areas, and any increase in such rates will directly affect its costs of operation.

The U.S. Supreme Court has upheld the authority of the National Labor Relations Board (“NLRB”) to issue new rules which establish, with narrow exceptions, eight separate bargaining units in the health care industry, including a separate bargaining unit for registered nurses. These rules may lead to increased organizational activity in the health care industry.

Malpractice Insurance and Other Insurance Costs. In recent years the number of malpractice suits and the dollar amount of patient damages has been increasing nationwide, resulting in substantial increases in malpractice insurance premiums. The ability of, and the cost to, the Kettering Network to insure or otherwise protect itself against malpractice, fire, automobile and general comprehensive liability claims may affect the operations of the Kettering Network. See APPENDIX A – “KETTERING HEALTH NETWORK OBLIGATED GROUP—Insurance” for a discussion of the Obligated Group’s current insurance coverage. While the Kettering Network considers its current insurance coverage to be adequate, a claim in excess of the limits of the policies could have an adverse effect on the Kettering Network. In addition, no assurance can be given that the Kettering Network will always be able to procure or maintain such levels of insurance in the future. The inability to insure against punitive damage awards is also a risk.

Accreditation. Kettering Network hospitals are fully accredited by The Joint Commission or The American Osteopathic Association, as applicable. Although Kettering Network management presently anticipates no difficulty in renewing the various hospitals’ accreditation, loss of accreditation could, in the future, result in the loss of moneys received pursuant to the Medicare and Medicaid programs and adversely affect the Lessees’ ability to make payments on the Series 2016 Bonds.

Competition. The costs and revenues of the Kettering Network could be substantially affected by future changes in the number and mix of both patients and services brought about by increased competition among health care providers and insurers. This competition could take several different forms, including:

(a) competition among providers to sell their services at lower prices to third-party payors;

(b) competition from other providers which draw patients from the Kettering Network service area to offer new services or expand existing services or to reduce charges or to increase their market share;

(c) competition from physician-owned specialty hospitals, home health agencies, ambulatory care facilities, surgical centers, rehabilitation and therapy centers, increasingly sophisticated physician group practices, and other non-hospital providers for many services for which patients currently rely on the Kettering Network;

(d) competition for patients between physicians, who generally use the Kettering Network’s facilities, and non-physician practitioners such as nurse-midwives, nurse practitioners, chiropractors, physical and occupational therapists and others, who may not generally use the Kettering Network’s facilities;

(e) competition for enrollees between traditional insurers, whose patients generally have a free choice of hospitals and other providers, and health maintenance organizations or other prepaid plans, who usually substantially restrict the providers from whom their enrollees can receive services;

(f) competition from proprietary providers of health care, the operations of which providers are not subject to the restrictions which are imposed on nonprofit hospitals by state nonprofit, tax- exemption and other laws, and which proprietary providers may have access to equity capital markets to obtain funds with which to compete under financing instruments which generally do not restrict the operational flexibility of such providers to the degree that the tax-exempt capital market restricts the operations of nonprofit hospital borrowers; and

(g) competition from other providers who, because of the lifting of certain restrictions formerly imposed by Ohio’s Certificate of Need laws, may begin providing services for which patients currently rely on the Kettering Network.

Equipment. Technology advances in recent years have accelerated the use of sophisticated diagnostic and treatment equipment by the Kettering Network. The availability of certain equipment may be a significant factor in utilization of the Kettering Network’s facilities, but purchase of such equipment may be subject to health planning agency approval, and the ability of the Kettering Network to finance such purchases and the use of such equipment may not be adequately reimbursed by third party payers.

Tax-Exempt Status. Each of the Lessees is exempt from federal income tax as a charitable organization under Section 501(c)(3) of the Code. The exemption from tax of interest on the Series 2016 Bonds is dependent upon the tax exempt status of each Lessee. Loss of tax-exempt status by a Lessee could potentially result in loss of tax exemption of the Series 2016 Bonds and of other tax-exempt debt of the Lessees, and defaults in covenants regarding the Series 2016 Bonds and other related tax-exempt debt would likely be triggered. Loss of tax-exempt status could also result in substantial tax liabilities on income of the Lessees. For these reasons, loss of tax-exempt status of the Lessees could have a material adverse effect on the financial condition of the Kettering Network, taken as a whole.

In order to maintain its tax-exemption, a 501(c)(3) organization: may not permit inurement of its earnings to any private person; may not provide benefits to any private person other than as a necessary consequence of accomplishing the activities giving rise to its exemption; may engage in lobbying activities to only a limited extent; and may not engage at all in political activities. Health care providers which are 501(c)(3) organizations are subject to the additional requirements that they comply with the federal Medicare and Medicaid fraud and abuse laws and provide a sufficient amount of “community benefit” to the persons they serve. Typical examples of community benefit rendered by health care providers include care of the indigent, treatment of Medicare and Medicaid patients and providing access to facilities and services to all patients on a non-discriminatory basis.

In recent years, the Internal Revenue Service (“IRS”) has devoted significant resources to the auditing of large, tax-exempt health care systems to determine whether the 501(c)(3) organizations of such systems meet the general criteria for tax-exempt status. These audits focus on the relationship between tax-exempt health care providers and private individuals, particularly physicians; the amount of charity care and community benefits provided; compliance with applicable laws, especially the Medicare and Medicaid fraud and abuse laws; political activity by 501(c)(3) organizations; and possible violations of the prohibitions against private inurement and/or private benefit.

The significant amount of scrutiny being brought to bear on 501(c)(3) organizations by the IRS presents a heightened risk that a 501(c)(3) organization’s exemption might be called into question. Although management of the Lessees believes that their activities are in compliance with federal tax laws and IRS standards applicable to 501(c)(3) organizations, no assurance can be given that the IRS will not assert that the Lessees have entered into transactions which violate one or more of these rules or requirements. Such a violation would jeopardize the Lessees’ tax-exempt status, as well as the exemption from federal tax of interest on the Series 2016 Bonds.

The sanctions available to the IRS if a 501(c)(3) organization violates the private inurement or private benefit rules are not only revocation of tax-exempt status, but also monetary penalties on the 501(c)(3) organization

and/or interested individuals. It is impossible to predict what additional legislation or IRS guidelines or standards might be promulgated with respect to the maintenance of tax-exempt status by 501(c)(3) organizations. Some commentators have suggested that if universal health care or a similar reform measure is enacted into law, this might lead to elimination of 501(c)(3) organization status for health care providers since there could no longer be medically underinsured or uninsured individuals to whom charity or indigent care would be provided.

Recent years have also seen increased efforts by local governments to tax real property owned by 501(c)(3) organizations. Such challenges have been prevalent to a particular extent in Pennsylvania, and, recently, in Illinois. In other cases, such challenges have resulted in settlements whereby 501(c)(3) organizations have agreed to make payments to local taxing authorities in lieu of taxes. Efforts on the part of state and local government officials to increase tax revenues could lead to review of tax exemptions currently afforded in Ohio to the real property of 501(c)(3) organizations such as the Lessees. If these efforts result in taxation of the real property of 501(c)(3) organizations, this could result in increased costs to the Kettering Network.

Indigent and Non-Paying Patients. The amount of services which the hospitals serving the Kettering Network primary and secondary service area render to indigent patients or patients who are uninsured and do not or cannot pay for the services rendered is increasing. The financial impact that this increase will have on the Kettering Network cannot be predicted.

Enforceability of Remedies. Enforcement of remedies under the Master Indenture, the Bond Indenture and the Subleases may be limited or restricted by fraudulent conveyance laws, laws relating to bankruptcy and rights of creditors and by application of general principles of equity.

Under the Subleases, the Issuer is entitled to payments of Basic Rent and certain other amounts. The Issuer will assign the right to receive Basic Rent to the Bond Trustee under the Bond Indenture for the payment of the Series 2016 Bonds. Unless Basic Rent payments constitute a preference in bankruptcy proceedings, the Bond Trustee has a valid and binding first lien on those payments once they are in the possession of the Bond Trustee.

The practical realization of any rights upon any default will depend on the exercise of various remedies specified in the Master Indenture, the Bond Indenture and the Subleases. These remedies, in certain respects, may require judicial action which is often subject to discretion and delay. Under existing law, certain of the remedies specified in these documents may not be readily available or may be limited. A court may decide not to order the specific performance of the covenants contained in these documents.

The various legal opinions to be delivered concurrently with the issuance of the Series 2016 Bonds will be qualified as to the enforceability of the various legal documents by limitations imposed by bankruptcy, reorganization, insolvency, fraudulent conveyance or other similar laws affecting the rights of creditors generally and by general principles of equity and certain public policy considerations. If any of such limitations are imposed, they may adversely affect the ability of the Master Trustee, the Bond Trustee and the holders of the Series 2016 Bonds to enforce their claims and assert their rights.

In a bankruptcy proceeding, a Lessee could file a plan for the adjustment of its debts that modifies the rights of creditors generally, or the rights of any class of creditors, secured or unsecured. The plan, when confirmed by the court, would bind all creditors who had notice or knowledge of the plan and discharge all claims against the debtor provided for in the plan. No plan may be confirmed unless, among other conditions, the plan is in the best interests of creditors, is feasible and has been accepted by each class of claims impaired thereunder. Each class of claims has accepted the plan if at least two-thirds in dollar amount and more than one-half in number of the allowed claims of the class that are voted with respect to the plan are cast in its favor. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly.

In addition, a member of the Obligated Group may not be required to make a payment or use its assets to make a payment in order to provide for the payment of an obligation (including the Series 2016 Note), or portions thereof, the proceeds of which were not lent or otherwise disbursed to such member, to the extent that such payment or use would render such member insolvent or would conflict with, not be permitted by or which is subject to recovery for the benefit of other creditors of such member of the Obligated Group because such payment is

considered a fraudulent conveyance under the United States Bankruptcy Code or Ohio fraudulent conveyance statutes. There is no clear precedent as to whether such a payment under those circumstances would be considered a fraudulent conveyance.

The Master Indenture provides that the members of the Obligated Group will make payments to the Bond Trustee sufficient to pay the Series 2016 Bonds and the interest thereon as the same become due. The obligation of the members of the Obligated Group to make such payments is secured by, in addition to a mortgage of the Mortgaged Property for such time as it is in effect, a lien granted to the Master Trustee by the Obligated Group, pursuant to the Master Indenture, on the Gross Receipts of the members of the Obligated Group. This lien may become subordinate to certain Permitted Encumbrances under the Master Indenture. Gross Receipts sold by the members of the Obligated Group to other parties under conditions permitted by the Master Indenture will no longer be subject to the lien of the Master Indenture and might therefore be unavailable to the Master Trustee. Further, enforcement of any right to receive payments under the Medicare and Medicaid programs may be subject to restrictions under federal and state statutes and regulations concerning the assignability of such payments. In the event of bankruptcy of the members of the Obligated Group, pursuant to the Bankruptcy Code, any receivable coming into existence and any Gross Receipts received on or after the date which is 90 days (or, in some circumstances, one year) prior to the commencement of the case in bankruptcy court might not be subject to the lien of the Master Indenture, and under certain circumstances a bankruptcy court or a court of equity may have power to direct the use of Gross Receipts to meet expenses of the members of the Obligated Group before paying debt service. With respect to receivables and Gross Receipts not subject to the lien, the Issuer would occupy the position of an unsecured creditor. The value of the security interest in Gross Receipts would also be diluted by the issuance of additional Obligations.

The security interest in Gross Receipts granted by the Obligated Group to the Master Trustee under the Master Indenture is intended to be a perfected first priority security interest under the Uniform Commercial Code to the extent that such security interest may be perfected by filing. However, the enforceability of that security interest may be subordinated by operation of law to the interests and claims of other creditors in certain circumstances. Among certain claims and interest that may defeat the security interest are: (a) federal statutory and regulatory provisions limiting assignment of amounts due to health care providers from Medicaid and Medicare programs to persons other than the providers; (b) the absence of an express provision permitting assignment of receivables due under the contracts with third party payors, and present and future prohibitions against assignment contained in applicable statutes or regulations; (c) certain judicial decisions that cast doubt upon the right of the Master Trustee, in the event of the bankruptcy of a member of the Obligated Group, to collect and retain accounts receivable of such member of the Obligated Group from Medicare, Medicaid and other governmental programs; (d) commingling of the proceeds of accounts with other moneys not so pledged; (e) statutory liens; (f) rights arising in favor of the United States or any agency thereof; (g) constructive trusts, equitable or other rights impressed or conferred by a Federal or state court in the exercise of its equitable jurisdiction; (h) Federal bankruptcy laws that may affect the security interest in accounts that are earned within 90 days (in certain cases, one year) preceding and after any effectual commencement of bankruptcy proceedings; (i) rights of third parties in accounts converted to cash and not in the possession of the Master Trustee; and (j) claims that might arise if appropriate financing or continuation statements are not filed in accordance with the Uniform Commercial Code as from time to time in effect.

Environmental Matters

Health care providers are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations which address, among other things, provider operations or facilities and properties owned or operated by providers. The types of regulatory requirements faced by health care providers include, but are not limited to: air and water quality control requirements; waste management requirements; regulatory requirements applicable to asbestos, polychlorinated biphenyls and radioactive substances; requirements for providing notice to employees and members of the public about hazardous materials handled by or located at facilities of health care providers and requirements for training employees in the proper handling and management of hazardous materials and wastes.

In their role as owners and/or operators of properties or facilities, health care providers may be subject to liability for investigating and remedying any hazardous substances which have come to be located on the property, as well as for any such substances that may have migrated off of the property. Typical health care provider

operations include, but are not limited to, in various combinations, the handling, use, storage, transportation, disposal and/or discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants or contaminants. As such, health care provider operations are particularly susceptible to the practical, financial and legal risks associated with compliance with such laws and regulations. Such risks may result in damage to individuals, property or the environment; may interrupt operations and/or increase their costs; may result in legal liability which could in turn result in significant damages, injunctions or fines and may result in investigations, administrative proceedings, penalties or other governmental agency actions.

Charity Care Litigation

A number of lawsuits have been filed and are currently pending against hospitals and health care systems located throughout the United States with respect to their billing and collection practices for uninsured patients. The American Hospital Association has also been named as a defendant in some of these suits. Generally, these suits, which seek class action status, allege that the defendant hospitals and health care systems failed to provide charity care to uninsured patients as allegedly required as a condition to their federal income tax exemption, and improperly billed and sought to collect payments from uninsured patients using excessively aggressive collection techniques. Furthermore, these suits allege a variety of other specific claims, including that the defendants violated certain obligations to the plaintiff class by charging the uninsured rates far in excess of the rates charged to third-party payors such as Medicare and certain insurers. The suits also allege, among other claims, violation of the federal Emergency Medical Treatment and Active Labor Act, deceptive trade practices under certain state consumer fraud statutes, inappropriate transactions with certain insiders and other similar issues. No entity in the Kettering Network has been named as a defendant in any of these lawsuits or as a specific subject of any of these inquires or investigations at the present time.

Fluctuations in the Market Value of Investments

Earnings on investments have historically provided the Kettering Network an important source of cash flow and capital appreciation to support its programs and services, to finance its capital expenditures and to build cash reserves. Historically the value of portfolio securities has fluctuated, and in some instances, the fluctuations have been significant. No assurance can be given that the market value of the Kettering Network’s investments will grow, or even remain at its current level, and there is risk that such value may actually decline at some point in the future.

Interest Rate Swap Risk

Kettering is a party to certain interest rate swap agreements with respect to its outstanding bonds. If the agreements terminate early as a result of default or early termination during a negative value situation, Kettering may be subject to a termination payment to its counterparty, and such payment may be substantial. While such swaps are effective, if the mark-to-market valuation exceeds the limitations in the interest rate swap agreements, Kettering will be subject to the collateral provisions in the agreements.

The variable rate to be received by Kettering under certain of its interest rate swaps includes a risk commonly referred to as “basis risk”, which means that the variable rate received might be lower than the variable rate on debt of the Obligated Group. In that event, the Obligated Group’s aggregate obligation for financing costs will include both the fixed interest rate payable by it under the interest rate swap agreements and the difference between the variable rate payable on its debt and the variable rate received under the interest rate swap agreements.

The ability of the Obligated Group to achieve its economic objectives through the use of interest rate swaps is dependent in part upon the ability of its counterparty to make any payments owed to Kettering under the swaps.

From time to time the Obligated Group evaluates various strategies with respect to the use of derivative hedging products and may evaluate additional derivatives in connection with its debt and assets.

Other Factors Affecting Health Care Facilities

In the future, the following factors, among others, may affect the operations and financial performance of health care facilities, including those operated by the Kettering Network, to an extent that cannot be determined at this time:

(a) Future medical and scientific advances, changes in third-party reimbursement programs, the development of and the requirement of the option for managed care organizations in labor contracts, preventive medicine, improved occupational health and safety and improved outpatient care, all of which could result in decreased usage of the facilities of the Kettering Network.

(b) Possible introduction and adoption in the Ohio legislation or other requirements (private or governmental) which would establish a rate-setting agency with statutory control over hospitals and hospital costs and rates or which would require the hospitals to justify the appropriateness of existing medical services on the basis of national or State criteria.

(c) An inflationary economy and difficulties in increasing room charges and other fees, while at the same time maintaining the amount and quality of health services, may affect the ability of the Kettering Network to maintain sufficient operating margins.

(d) Imposition of wage and price controls for the health care industry could affect the ability of the Kettering Network to maintain sufficient operating margins.

(e) Demand for the services of the facilities operated by the Kettering Network might be reduced if the population residing in the service area of the Kettering Network should decline.

(f) Increased unemployment or other adverse economic conditions in the Kettering Network service area could increase the proportion of patients who are unable to pay fully for the cost of their care. In addition, increased unemployment caused by a general downturn in the economy of the service area or the State or by the closing of operations of one or more major employers in the area may result in a loss of health insurance benefits for a portion of the patients of the Kettering Network.

(g) Any increase in the quantity of indigent care provided by the Kettering Network could affect its ability to maintain sufficient operating margins.

(h) Unionization of some or all of the employees of the Kettering Network could increase operating expenses.

(i) Employee strikes and other adverse labor actions could result in a substantial reduction in revenues without corresponding decreases in costs.

(j) The possible inability to obtain future governmental approvals to undertake projects that the Kettering Network deems necessary to remain competitive as to rates and charges and the quality and scope of care.

(k) Cost and availability of professional medical malpractice liability insurance to hospitals and physicians in the State could increase operating expenses and could result in increased exposure to liability.

(l) Increased costs of attracting and retaining, or decreased availability of, a sufficient number of physicians, registered nurses and other health care workers may impact the amount and quality of services of the Kettering Network.

(m) The number of nurses and other qualified health care technicians and personnel available may not be sufficient to support the Kettering Network’s operations. In addition, shortages in nursing

personnel or other health care professionals may result in the need for increased compensation expenses to obtain or retain such personnel.

Charity Care and Tax-Exempt Status of Lessees

Hospitals are permitted to obtain tax-exempt status under the Code because the provision of health care historically has been treated as a “charitable” enterprise. This treatment arose before most Americans had health insurance, when charitable donations were required to fund the health care provided to the sick and disabled. Some commentators and others have taken the position that, with the onset of employer health insurance and governmental reimbursement programs, there is no longer any justification for special tax treatment for the health care industry, and the availability of tax-exempt status should be eliminated. Federal and state tax authorities are beginning to demand that tax-exempt hospitals justify their tax-exempt status by documenting their charitable care and other community benefits.

As described above under the caption, “Health Care Reform,” the Health Care Reform Act imposes additional requirements for tax-exemption upon tax-exempt hospitals, including obligations to adopt and publicize a financial assistance policy, limit charges to patients who qualify for financial assistance to the amounts generally billed to insured patients, and control the billing and collection processes. Additionally, tax-exempt hospitals must conduct a community needs assessment and adopt an implementation strategy to meet those identified needs.

Failure to complete a community health needs assessment in any applicable three-year period can result in a penalty on the organization of up to $50,000, in addition to possible revocation of status as a section 501(c)(3) organization.

The Health Care Reform Act also imposes new reporting and disclosure requirements on hospital organizations. The IRS is required to review information about a hospital’s community benefit activities at least once every three years. The Health Care Reform Act requires the Secretary of the Treasury, in consultation with the Secretary of HHS, to submit annually a report to Congress with information regarding the levels of charity care, bad debt expenses, unreimbursed costs of government programs and costs incurred by tax-exempt hospitals for community benefit activities. The Secretary of the Treasury, in consultation with the Secretary of HHS, must conduct a study of the trends in these amounts, and subject a report on such study to Congress not later than five years after the date of enactment of the Health Care Reform Act. These statutorily mandated requirements for periodic review and submission of reports relating to community benefit provided by section 501(c)(3) hospital organizations may increase the likelihood that Congress will consider additional requirements for section 501(c)(3) hospital organizations in the future and may increase IRS scrutiny of particular 501(c)(3) hospital organizations.

Tax-Exempt Status of the Series 2016 Bonds

There can be no assurance that the following events will not adversely impact the tax-exempt status of the Series 2016 Bonds or their future marketability: (i) any pending or future legislation, future interpretation or clarification of existing law, or any other change in the laws presently applicable to the Series 2016 Bonds; (ii) the failure by the Lessees to maintain their tax-exempt status; or (iii) the failure of the Issuer or the Lessees to comply with certain covenants relating generally to restrictions on use of the Lessees’ facilities, arbitrage limitations, rebate of certain excess investment earnings to the federal government and restrictions on the amount of issuance costs financed with the proceeds of the Series 2016 Bonds. Changes in current law, the failure of the Lessees to maintain their tax-exempt status, or the failure to comply with the aforementioned covenants could cause interest on the Series 2016 Bonds to become subject to federal or state income taxation, including in some instances retroactive to the date of issuance of the Series 2016 Bonds.

Tax legislation, administrative actions taken by tax authorities and court decisions, whether at the federal or state level, may adversely affect the tax-exempt status of interest on the Series 2016 Bonds under federal or state law and could affect the market price for, or the marketability of, the Series 2016 Bonds.

The Series 2016 Bonds are not subject to redemption solely as a consequence of the loss of their tax- exempt status and no additional interest or penalty is payable as a result thereof; although the same may result in an event of default permitting acceleration of the principal of the Series 2016 Bonds.

Bond Ratings

There is no assurance that the ratings assigned to the Series 2016 Bonds at the time of issuance will not be lowered or withdrawn at any time, the effect of which could adversely affect the market price for and marketability of the Series 2016 Bonds. See also “RATINGS” herein.

Market for Series 2016 Bonds

Subject to prevailing market conditions, the Underwriters intend, but are not obligated, to make a market in the Series 2016 Bonds. There is presently no secondary market for the Series 2016 Bonds and no assurance that a secondary market will develop. Consequently, investors may not be able to resell the Series 2016 Bonds they have purchased should they need or wish to do so for emergency or other purposes.

ELIGIBILITY UNDER OHIO LAW FOR INVESTMENT AND AS SECURITY FOR THE DEPOSIT OF PUBLIC FUNDS

To the extent investments of the following are governed by Ohio law, and subject to applicable limitations under other provisions of Ohio law, the Series 2016 Bonds, under the present provisions of Section 140.07 of the Ohio Revised Code, are lawful investments for banks, savings and loan associations, credit union share guaranty corporations, trust companies, trustees, fiduciaries, insurance companies, including domestic for life and domestic not for life, trustees or other officers having charge of sinking and bond retirement or other funds of the State or subdivisions or taxing districts of the State, the commissioners of the sinking fund of the State, the administrator of workers’ compensation, the state teachers, public employees and school employees retirement systems, and the police and fire pension fund of the State, and are also acceptable as security for the repayment of the deposit of public moneys in the State.

ABSENCE OF LITIGATION AFFECTING THE SERIES 2016 BONDS

There is not now pending, or to the knowledge of the Issuer threatened, any litigation which seeks to enjoin the issuance or delivery of the Series 2016 Bonds or questions or affects the validity of the Series 2016 Bonds or the proceedings and authority under which they are to be issued. Neither the creation, organization or existence, nor the title of the present members or other officers of the Issuer to their respective offices is being challenged or questioned. There is not now pending, or to the knowledge of the Issuer threatened, any litigation which in any manner questions the right of the Issuer to enter into the Bond Indenture with the Bond Trustee, or the Leases or Subleases, or to secure the Series 2016 Bonds in the manner provided in the Bond Indenture.

For a discussion of certain litigation pending or threatened against the Obligated Group, see APPENDIX A – “KETTERING HEALTH NETWORK OBLIGATED GROUP—Litigation” herein.

LEGAL MATTERS

Certain legal matters incident to the authorization and issuance of the Series 2016 Bonds are subject to the approval of Dinsmore & Shohl LLP, Bond Counsel for the Series 2016 Bonds. Certain legal matters will be passed upon for the Obligated Group by its counsel, Taft Stettinius & Hollister LLP, Dayton, Ohio, and for the Underwriters by their counsel, Balch & Bingham LLP, Birmingham, Alabama.

TAX EXEMPTION

In the opinion of Dinsmore & Shohl LLP, Bond Counsel for the Series 2016 Bonds, based upon an analysis of existing laws, regulations, rulings and court decisions, interest on the Series 2016 Bonds will be excludible from gross income for Federal income tax purposes. Bond Counsel for the Series 2016 Bonds is also of the opinion that interest on the Series 2016 Bonds will not be a specific item of tax preference under Section 57 of the Internal Revenue Code of 1986 (the “Code”) for purposes of the Federal individual or corporate alternative minimum taxes. The interest on the Series 2016 Bonds is included in adjusted current earnings for purposes of computing the alternative minimum tax imposed on certain corporations. Furthermore, Bond Counsel for the Series 2016 Bonds is of the opinion that the Series 2016 Bonds, the transfer thereof, and the income therefrom, including any profit made on the sale thereof, are exempt from taxation within the State of Ohio.

A copy of the opinion of Bond Counsel for the Series 2016 Bonds is set forth in APPENDIX D, attached hereto.

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 Series 2016 Bonds. The Issuer and the Lessees have covenanted to comply with certain restrictions designed to ensure that interest on the Series 2016 Bonds will not be includible in gross income for Federal income tax purposes. Failure to comply with these covenants could result in interest on the Series 2016 Bonds being includible in income for Federal income tax purposes and such inclusion could be required retroactively to the date of issuance of the Series 2016 Bonds. The opinion of Bond Counsel assumes compliance with these covenants. However, Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Series 2016 Bonds may adversely affect the tax status of the interest on the Series 2016 Bonds.

Certain requirements and procedures contained or referred to in the Bond Indenture, the Tax Regulatory Agreement and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Series 2016 Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any Series 2016 Bonds or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of bond counsel other than Dinsmore & Shohl LLP.

Although Bond Counsel for the Series 2016 Bonds is of the opinion that interest on the Series 2016 Bonds will be excludible from gross income for Federal income tax purposes and the Series 2016 Bonds will be exempt from taxation within the State of Ohio, as described above, the ownership or disposition of, or the accrual or receipt of interest on, the Series 2016 Bonds may otherwise affect a Bondholder’s Federal, state or local tax liabilities. The nature and extent of these other tax consequences may depend upon the particular tax status of the Bondholder or the Bondholder’s other items of income or deduction. Bond Counsel expresses no opinions regarding any tax consequences other than those set forth in its opinion and each Bondholder or potential Bondholder is urged to consult with tax counsel with respect to the effects of purchasing, holding or disposing of the Series 2016 Bonds on the tax liabilities of the individual or entity.

For example, although Bond Counsel for the Series 2016 Bonds is of the opinion that interest on the Series 2016 Bonds is not a specific item of tax preference for the federal alternative minimum tax, corporations are required to include all tax-exempt interest in determining “adjusted current earnings” under Section 56(c) of the Code, which may increase the amount of any alternative minimum tax owed. Receipt of tax-exempt interest, ownership or disposition of the Series 2016 Bonds may result in other collateral Federal, state or local tax consequence for certain taxpayers. Such effects may include, without limitation, increasing the federal tax liability of certain foreign corporations subject to the branch profits tax imposed by Section 884 of the Code, increasing the federal tax liability of certain insurance companies under Section 832 of the Code, increasing the federal tax liability and affecting the status of certain S Corporations subject to Sections 1362 and 1375 of the Code, increasing the federal tax liability of certain individual recipients of Social Security or Railroad Retirement benefits under Section 86 of the Code and limiting the use of the Earned Income Credit under Section 32 of the Code that might otherwise be available. Ownership of any Series 2016 Bonds may also result in the limitation of interest and certain other deductions for financial institutions and certain other taxpayers, pursuant to Section 265 of the Code. Finally,

residence of the holder of Series 2016 Bonds in a state other than Ohio or being subject to tax in a state other than Ohio, may result in income or other tax liabilities being imposed by such states or their political subdivisions based on the interest or other income from the Series 2016 Bonds.

PREMIUM

“Acquisition Premium” is the excess of the cost of a bond over the stated redemption price of such bond. The Series 2016 Bonds that mature on August 1, ____ (the “Premium Bonds”) are being initially offered and sold with Acquisition Premium. For federal income tax purposes, the amount of Acquisition Premium on the Premium Bonds must be amortized and will reduce the bondholder’s adjusted basis in that bond. However, no amount of amortized Acquisition Premium on the Premium Bonds may be deducted in determining bondholder’s taxable income for federal income tax purposes. The amount of any Acquisition Premium paid on the Premium Bonds that must be amortized during any period will be based on the “constant yield” method, using the original bondholder’s basis in such Premium Bonds and compounding semiannually. This amount is amortized ratably over that semiannual period on a daily basis.

Please note that because the Premium Bonds that mature on ______(the “Callable Premium Bonds) are callable prior to their stated maturity, the required amortization period for the Acquisition Premium will depend on which call dates produces the greatest diminution in the yield to the holder. The Premium Bonds that mature on ______(the “Non-Callable Premium Bonds”) are not callable prior to their stated maturity date, which will determine the amortization period.

Holders of any Premium Bonds, both original purchasers and any subsequent purchasers, should consult their own tax advisors as to the actual effect of such Acquisition Premium with respect to their own tax situation and as to the treatment of the Acquisition Premium for state tax purposes.

ORIGINAL ISSUE DISCOUNT

The Series 2016 Bonds that mature on August 1, ____ (the “Discount Bonds”) are being initially offered and sold at a discount (“OID”) from the amounts payable at maturity thereon. OID is the excess of the stated redemption price of a bond at maturity (the face amount) over the “issue price” of such bond. The issue price is the initial offering price to the public (other than to bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers) at which a substantial amount of bonds of the same maturity are sold pursuant to that initial offering. For federal income tax purposes, OID on each bond will accrue over the term of the bond. The amount accrued will be based on a single rate of interest, compounded semiannually (the “yield to maturity”) and, during each semi-annual period, the amount will accrue ratably on a daily basis. The OID accrued during the period that an initial purchaser of a Series 2016 Bond at its issue price owns it is added to the purchaser’s tax basis for purposes of determining gain or loss at the maturity, redemption, sale or other disposition of that Series 2016 Bond. In practical effect, accrued OID is treated as stated interest is treated, that is, as excludible from gross income for federal income tax purposes.

In addition, OID that accrues in each year to an owner of a Discount Bond is included in the calculation of the distribution requirements of certain regulated investment companies and may result in some of the collateral federal income tax consequences discussed above. Consequently, owners of Discount Bonds should be aware that the accrual of OID in each year may result in an alternative minimum tax liability, additional distribution requirements or other collateral federal income tax consequences although the owner of such Discount Bonds has not received cash attributable to such OID in such year.

Holders of Series 2016 Bonds should consult their own tax advisors as to the treatment of OID and the tax consequences of the purchase of such Series 2016 Bonds other than at the issue price and as to the treatment of OID for state tax purposes.

UNDERWRITING

The Series 2016 Bonds are being purchased for reoffering by Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities (the “Underwriters”) pursuant to a Bond Purchase Agreement (the “Bond Purchase Agreement”) between the Issuer, Kettering and the Underwriters. The Series 2016 Bonds are being purchased at an aggregate purchase price of $______(representing the original principal amount of the Series 2016 Bonds less $______of Underwriter’s discount, plus $______of net original issue premium). The Bond Purchase Agreement requires the Underwriters to purchase all of the Series 2016 Bonds if any are purchased. The Bond Purchase Agreement requires Kettering to indemnify the Underwriters against losses, claims, damages and liabilities to third parties arising out of certain materially incorrect or incomplete statements or information contained in this Official Statement.

The Underwriters intend to offer the Series 2016 Bonds to the public initially at the prices set forth on the inside cover page of this Official Statement, which may subsequently change without any requirement of prior notice. The Underwriters reserve the right to join with dealers and other underwriters in offering the Series 2016 Bonds to the public. The Underwriters may offer and sell the Series 2016 Bonds to certain dealers at prices lower than the public offering prices. In connection with this offering, the Underwriters may over allot or effect transactions which stabilize or maintain the market price of the Series 2016 Bonds offered hereby at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.

The Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage services. The Underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the Issuer, Kettering or the Obligated Group, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the Underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities, which may include credit default swaps) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the Issuer or the Obligated Group.

The Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

Wells Fargo Securities Trade Name Disclosure. Wells Fargo Securities is the trade name for certain securities-related capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association, acting through its Municipal Products Group.

Distribution Disclosure. Wells Fargo Bank, National Association, acting through its Municipal Products Group (“WFBNA MPG”) one of the underwriters of the Series 2016 Bonds, has entered into an agreement (the "Distribution Agreement") with its affiliate, Wells Fargo Advisors, LLC (“WFA”), for the distribution of certain municipal securities offerings, including the Series 2016 Bonds. Pursuant to the Distribution Agreement, WFBNA MPG will share a portion of its underwriting or remarketing agent compensation, as applicable, with respect to the Series 2016 Bonds with WFA. WFBNA MPG also utilizes the distribution capabilities of its affiliate Wells Fargo Securities, LLC (“WFSLLC”), for the distribution of municipal securities offerings, including the Series 2016 Bonds. In connection with utilizing the distribution capabilities of WFSLLC, WFBNA MPG pays a portion of WFSLLC’s expenses based on its municipal securities transactions. WFBNA MPG, WFSLLC, and WFA are each wholly-owned subsidiaries of Wells Fargo & Company

RATINGS

The Obligated Group expects that Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Group (“S&P”) will assign the Series 2016 Bonds their long-term municipal bond ratings of “A2” with a stable outlook and A+” with a stable outlook, respectively. Once ratings are obtained, an explanation of the significance of such ratings should be obtained only from the rating agency furnishing the same. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by Moody’s or S&P, if, in the judgment of Moody’s or S&P, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Series 2016 Bonds.

CONTINUING DISCLOSURE UNDERTAKING

The members of the Obligated Group, together with KAHS (together, the “Obligors”), have covenanted, pursuant to an Amended and Restated Continuing Disclosure Agreement, as amended by an Amendment No. 3 to Continuing Disclosure Agreement to be executed and delivered by the current members of the Obligated Group and KAHS in connection with the issuance of the Series 2016 Bonds (the “Disclosure Agreement”), for the benefit of the Bondholders and the Beneficial Owners pursuant to the requirements of Rule 15c2-12 (“Rule 15c2-12”) adopted by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended, to provide certain information annually and quarterly and to file notice of the occurrence of certain events. A summary of the Disclosure Agreement is included in APPENDIX E.

Kettering HealthCare serves as the parent organization for affiliated entities, including the Obligors. The audited consolidated financial statements of the Parent included in APPENDIX B provide financial information with respect to Kettering HealthCare and its affiliates, including the Obligors, as described in the financial statement footnotes. The consolidating statements included as supplementary information in the audited consolidated financial statements include separate financial information with respect to various affiliates, including the Obligors. These consolidating statements are presented for purposes of additional analysis of the basic consolidated financial statements rather than to present the financial position, results of operations and changes in net assets of the individual entities. The Obligors do not have audited financial statements prepared for the Obligors alone. The Obligors intend to comply with their obligations under the Disclosure Agreement by continuing to provide audited annual consolidated financial statements, together with consolidating statements as supplementary information, substantially in the form presented in APPENDIX B.

A failure by the Obligors to comply with the Disclosure Agreement will not constitute an event of default under the Bond Indenture or the Subleases. Beneficial owners of the Series 2016 Bonds are limited to the remedies described in the Disclosure Agreement. A failure by the Obligors to comply with the Disclosure Agreement must be reported in accordance with Rule 15c2-12 and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Series 2016 Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2016 Bonds and their market price.

Compliance with Prior Undertakings. The Obligors made late filings with the MSRB’s Electronic Municipal Market Access (“EMMA”) system of the required annual financial information for fiscal year 2012, which was required to be filed by May 30, 2013 but not filed until August 9, 2013. The Obligors also made late filings with EMMA of quarterly information for the first quarter of fiscal 2013, which was required to be filed by May 30, 2013 but not filed until August 9, 2013, and for the second quarter of fiscal 2014, which was required to be filed by August 29, 2014 but not filed until September 11, 2014. Over the past five years annual filings by the Obligors have also failed to include required updates of operating data (utilization and sources of revenue). The Obligors did not file notice of the failure to file such annual and quarterly financial information when due. In addition, the Obligors failed to file notice of an upgrade from Moody’s in July 2015. Finally, not all filings were linked to all outstanding Obligor securities via EMMA. Management of the Obligors has given assurances that future filings with EMMA will be timely and complete.

FINANCIAL STATEMENTS

The consolidated financial statements of Kettering HealthCare (including the affiliates having no obligation with respect to the Series 2016 Bonds), as of December 31, 2015 and 2014 and the years then ended, included in APPENDIX B to this Official Statement, have been audited by Ernst & Young LLP, independent auditors, as stated in their report appearing therein.

Other Financial Information

Management of the Obligated Group prepared schedules of consolidating details related to the Obligated Group as of December 31, 2015, which are included in APPENDIX B to this Official Statement.

MISCELLANEOUS

Any statements in this Official Statement, including the Appendices hereto, involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. The attached Appendices A, B, C, D, E and F are integral parts of this Official Statement and must be read together with all of the foregoing statements.

The summaries or descriptions of provisions of the Series 2016 Bonds, the Bond Indenture, the Leases, the Subleases and the Master Indenture and all references to other materials not purporting to be quoted in full, are only brief outlines of certain provisions thereof and do not purport to summarize or describe all the provisions thereof. Reference is hereby made to such instruments, documents and other materials for the complete provisions thereof.

The Issuer has furnished the information contained herein which relates to them. Except for the information concerning the Issuer under the captions “THE ISSUER” and “ABSENCE OF LITIGATION AFFECTING THE SERIES 2016 BONDS,” none of the information in this Official Statement has been supplied or verified by the Issuer, and no representation or warranty is made by or on behalf of the Issuer, express or implied, as to the accuracy or completeness of such information. Each of the current members of the Obligated Group has reviewed the information contained herein which relates to it and to the Obligated Group and has approved all such information for use within this Official Statement.

The execution and delivery of this Official Statement has been duly authorized by the Issuer.

COUNTY OF MONTGOMERY, OHIO

By: County Commissioner

This Official Statement is Approved:

KETTERING MEDICAL CENTER

By: Duly Authorized Representative

DAYTON OSTEOPATHIC HOSPITAL, d/b/a GRANDVIEW HOSPITAL AND MEDICAL CENTER

By: Duly Authorized Representative

BEAVERCREEK MEDICAL CENTER, d/b/a INDU & RAJ SOIN MEDICAL CENTER

By: Duly Authorized Representative

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APPENDIX A.

KETTERING HEALTH NETWORK OBLIGATED GROUP

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TABLE OF CONTENTS

Page

KETTERING HEALTH NETWORK ...... A-1 Introduction ...... A-1 Recent Distinctions ...... A-1 KETTERING HEALTH NETWORK OBLIGATED GROUP ...... A-1 Overview and Members of the Obligated Group ...... A-1 FACILITIES AND SERVICES OF THE OBLIGATED GROUP ...... A-3 Kettering Medical Center (“KMC”) ...... A-3 Kettering Medical Center Foundation ...... A-3 Grandview ...... A-3 Indu & Raj Soin Medical Center ...... A-4 Greene Memorial Hospital ...... A-4 Fort Hamilton ...... A-4 Kettering Physician Network ...... A-5 Kettering Affiliated Health Services, Inc...... A-5 STRUCTURE AND GOVERNANCE OF THE OBLIGATED GROUP ...... A-5 Governance Summary ...... A-5 Conflicts of Interest Policy ...... A-5 Kettering HealthCare – The Corporate Member ...... A-5 Board Structure ...... A-6 Management ...... A-8 Mission, Vision and Values ...... A-10 Strategic Direction ...... A-10 Strategic Investments ...... A-10 KETTERING HEALTH NETWORK ...... A-11 Hospital Services ...... A-11 Ambulatory Services ...... A-12 Service Area and Competitive Environment ...... A-14 Accreditation and Affiliation ...... A-15 Medical Staff ...... A-16 Employees ...... A-16 Retirement Plans ...... A-16 Insurance ...... A-16 Utilization ...... A-17 Sources of Patient Service Revenue ...... A-17 Management’s Discussion and Analysis of Recent Financial Performance ...... A-18 Financial Information ...... A-19 Liquidity Table ...... A-20 Debt Structure ...... A-21 Interest Rate Swap Agreements ...... A-21 Effect of Consolidation ...... A-21 Debt Service Coverage ...... A-22 Coverage Tests Under Master Indenture ...... A-22 Future Plans and Capital Projects ...... A-23

Table 1. Principal Entities of the Kettering Health Network and their Primary Operations ...... A-2 Table 2. Members of the Network Board ...... A-7 Table 3. Selected Services by Obligated Group Hospital ...... A-12 Table 4. Map of Kettering Health Network Major Facilities ...... A-13 Table 5. Population Trends ...... A-14 Table 6. Average Wages ...... A-14

Table 7. Top 10 Employers ...... A-14 Table 8. Unemployment ...... A-15 Table 9. Overall Market Share in Primary Market Area ...... A-15 Table 10. Medical Staff by Category ...... A-16 Table 11. Kettering Health Network Obligated Group Utilization Trends ...... A-17 Table 12. Kettering Health Network Gross Patient Revenue by Payment Source ...... A-18 Table 13. Kettering Health Network Summary of Operations ...... A-20 Table 14. Kettering Health Network Liquidity Table ...... A-20 Table 15. Effect of Consolidation ...... A-21 Table 16. Kettering Health Network Debt Service Coverage ...... A-22 Table 17. Obligated Group Debt Service Coverage ...... A-23

KETTERING HEALTH NETWORK

Introduction

Kettering Health Network is the registered trade name for a network of eight hospitals, ten emergency centers and more than 120 outpatient facilities serving the people of southwest Ohio. In 2014, Kettering Health Network celebrated the 50th anniversary of its flagship hospital, Kettering Medical Center, honoring Charles K. Kettering’s vision to utilize innovative technology in caring for patients in a community hospital setting. What established its roots as a community hospital has grown into a network that embodies this vision.

Recent Distinctions

Five Kettering Health Network hospitals were recognized by U.S. News & World Report as best regional hospitals for 2015-2016. In addition, Kettering Medical Center and Sycamore Medical Center have been named as 100 Top Hospitals by Truven Health Analytics and the only hospitals in the Dayton area to be named as Top 100. This distinction has been earned 12 times by Kettering Medical Center and 7 times by Sycamore Medical Center. Truven Health Analytics also named Kettering Medical Center as one of the nation’s 50 Top Cardiovascular Hospitals in 2015 for the sixth consecutive year.

The Kettering Health Network system has been designated #1 in Ohio for Heart Attack Treatment, Orthopedic Care, Stroke Care and Overall Medical Care by CareChex and was ranked as a 2016 CareChex America’s Top Quality Provider for Overall Medical Care and Orthopedic Care. The system also received an A Hospital Safety Score from The Leapfrog Group in 2015.

Network hospitals were also awarded the Women’s Choice Award recognizing hospitals that meet the needs of women. Specific recognitions included Patient Safety, Patient Experience, Heart Care and Cancer Care.

KETTERING HEALTH NETWORK OBLIGATED GROUP

Overview and Members of the Obligated Group

The Kettering Health Network Obligated Group (“Obligated Group”) consists of three organizations, each of which is (a) a nonstock, nonprofit corporation organized under the Nonprofit Corporation Law of Ohio and (b) an organization exempt from taxation under Section 501(a) and as described in Section 501(c)(3) of the Internal Revenue Code of 1986 (the “Code”). The members of the Obligated Group are Kettering Medical Center, based in Kettering, Ohio (“KMC”), Dayton Osteopathic Hospital d/b/a Grandview Hospital and Medical Center, based in Dayton, Ohio (“Grandview”), and Beavercreek Medical Center d/b/a Indu & Raj Soin Medical Center, based in Beavercreek, Ohio (“Soin”). Each member of the Obligated Group operates one or more hospitals and healthcare facilities as more fully described in this document.

Kettering Adventist HealthCare (“Kettering HealthCare”) owns the rights to, and does business under the trade name “Kettering Health Network.” It also is a nonstock, nonprofit Ohio corporation and is an exempt organization under the Code. Kettering HealthCare serves as the sole corporate member of KMC, Grandview and Soin. As such, Kettering HealthCare exercises corporate governance control over the three members of the Obligated Group, as well as over an extended network of other affiliated healthcare entities throughout Southwest Ohio, collectively referred to as “Kettering Health Network” or the “Network”.

The summary organizational chart on the following page illustrates the structural relationships among Kettering HealthCare, the Obligated Group and other principal affiliates within the Network. KMC, Grandview and Soin are the only members of the Obligated Group, and, therefore, these are the only entities legally liable on the Series 2016 Bonds. No other entity affiliated with the Seventh-day Adventist Church, a worldwide religious denomination (the “Church”), Kettering HealthCare, or any member outside of the

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Obligated Group is liable for payment on the Series 2016 Bonds. A description of Kettering HealthCare and each of the members of the Obligated Group is separately provided below, after the summary chart.

Table 1. Principal Entities of the Kettering Health Network and their Primary Operations

Kettering Adventist HealthCare (parent organization for Kettering Health Network) Not a member of the Obligated Group

Obligated Group Members Affiliates Not Part of Obligated Group

Kettering Medical Center Greene Memorial Hospital, Inc. Operates: Operates Greene Memorial Hospital, a 49-bed • Kettering Medical Center, a 472-bed acute care acute care hospital in Xenia, Ohio hospital in Kettering, Ohio, the Network’s flagship facility The Fort Hamilton Hospital • Sycamore Medical Center, a 112-bed acute care Operates Fort Hamilton Hospital, a 246-bed acute hospital in Miamisburg, Ohio care hospital in Hamilton, Ohio • Kettering Behavioral Medical Center, a 60-bed behavioral medicine facility in Miami Township, Kettering Affiliated Health Services, Inc. Ohio Operates senior services and continuing care • Kettering College, an educational facility for facilities, including Sycamore Glen Health Center physician assistants, nurses and allied health and Sycamore Glen Retirement Center, in professionals in Kettering, Ohio Miamisburg, Ohio and Greene Oaks in Xenia, Ohio • Kettering Breast Evaluation Centers, breast cancer diagnosis centers in various locations Huber Heights Health Services, Inc. Operates Huber Health Center, an urgent and Dayton Osteopathic Hospital (dba Grandview ancillary care center in Huber Heights, Ohio Hospital and Medical Center) Operates: Alliance Physicians, Inc. (dba Kettering Physician • Grandview Medical Center, a 293-bed osteopathic Network) acute care hospital in Dayton, Ohio Employs approximately 326 physicians practicing • Southview Medical Center, a 128-bed osteopathic in the Network facilities acute care hospital in Washington Township, Ohio KettCor, Inc. Beavercreek Medical Center (dba Indu & Raj Soin A for-profit company that operates various for- Medical Center) profit health care services and facilities and is a Operates: partner in various joint ventures

• Indu & Raj Soin Medical Center, a 127-bed acute Kettering Medical Center Foundation care hospital in Beavercreek, Ohio A fundraising and support organization

Note: Kettering Adventist HealthCare has various other affiliates that are not members of the Obligated Group.

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FACILITIES AND SERVICES OF THE OBLIGATED GROUP

Kettering Medical Center (“KMC”)

General. KMC operates the following divisions and facilities: (1) Charles F. Kettering Memorial Hospital (“Kettering Hospital”), an acute care hospital registered for 422 short-term beds and 50 nursery beds in Kettering, Ohio; (2) Sycamore Medical Center (“Sycamore”), an acute care hospital registered for 112 short-term beds in Miamisburg, Ohio, including Kettering Behavioral Medicine Center in Miami Township of Montgomery County, Ohio, which has an additional 60 beds; and (3) Kettering College (the “College”), a fully accredited four-year college offering degrees in physician assisting and nursing and associate degrees in several allied health professions in Kettering, Ohio. In 2015, KMC accounted for approximately 46% of the total unrestricted revenue and accounted for approximately $76.2 million of the consolidated excess of unrestricted revenue over expenses before other (loss) income of the Network.

History and Church Affiliation. KMC was formed in 1959 and began serving the greater Dayton area with the opening of Kettering Hospital in 1964. Kettering Hospital was opened as a tribute to Charles F. Kettering, the world-renowned inventor, scientist and humanitarian, on land donated by his family. The Kettering family worked with the community and the Church to develop the facility and its quality healthcare services. In 1978, KMC opened Sycamore to respond to a need for additional healthcare services in the greater Dayton community.

KMC supports and embodies the values of the worldwide Christian healthcare mission of the Church. KMC’s healthcare mission emphasizes healing in all aspects of human life – physical, mental and spiritual. Through this mission, KMC is committed not only to high quality healthcare, but also to education and activities which prevent illness and promote healthful lifestyles. Through its affiliation with the Church, KMC is connected to a worldwide healthcare network.

The College. The College, which opened in 1967, is chartered by the Church and is accredited by various professional accreditation organizations. Each year over 900 students work toward associate, baccalaureate, and master’s degrees in a variety of healthcare-related fields, including nursing, physician assisting, radiological sciences imaging, medical sonography, and respiratory care.

Kettering Medical Center Foundation

Kettering Medical Center Foundation (“KMC Foundation”), an Ohio nonprofit corporation, operates exclusively for the benefit and support of KMC and its divisions. KMC Foundation fulfills that role primarily through philanthropic services and programs that solicit and receive donations for KMC and its divisions. Once funds are raised by KMC Foundation, they are available to KMC at KMC’s discretion, subject to any use restrictions placed upon such funds by their donors. As of December 31, 2015, KMC Foundation had total net assets of $18.8 million. The board of trustees of KMC Foundation is self-perpetuating, and the trustees serve as the corporate members of KMC Foundation. KMC Foundation also provides certain expertise and philanthropic services to other exempt organizations affiliated with the Network. KMC Foundation is not a member of the Obligated Group and has no obligation to make payments on the Series 2016 Bonds.

Grandview

General. Grandview operates the following divisions: (1) Grandview Hospital and Medical Center (“GMC”), an osteopathic acute care hospital with 293 beds in Dayton, Ohio; and (2) Southview Medical Center (“Southview”), an osteopathic acute care hospital registered for approximately 96 beds and 32 nursery beds, in southern Montgomery County, Ohio. GMC also has corporate membership responsibility for Huber Heights Health Services, Inc. (“Huber Heights”), an urgent and ancillary care center in northeast Montgomery County, Ohio. Huber Heights is not a member of the Obligated Group and has no obligation to make payments on the Series 2016 Bonds. In 2015, Grandview accounted for approximately 26% of total unrestricted revenue and $57.1 million of the consolidated excess of unrestricted revenue over expenses before other (loss) income of the Network.

History. The history of Grandview reaches back to 1926. In that year, Dayton Osteopathic Hospital was founded by three osteopathic physicians housing only ten beds.

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Over the next three decades Grandview experienced significant growth which supported a number of expansions. By the mid-1970’s Grandview was a 452 bed hospital. A six-story addition was completed in the spring of 1984. Within this addition, GMC currently houses three patient floors, three intensive care areas, a short- stay unit, state-of-the-art surgical suites and extensive ancillary-service areas.

In 1978, to meet the growing demands for medical care in the communities south of Dayton. Grandview opened the Ambulatory Care Center (the “ACC”) in the Centerville area which was devoted exclusively to comprehensive outpatient care.

A comprehensive study undertaken by Grandview’s management in 1981 revealed that more than half of Grandview’s inpatients came from outside the city of Dayton and that more than one-third came from Warren and Greene counties. These results prompted the decision to move 56 of GMC’s beds to a new inpatient wing at the ACC, at which time the ACC was renamed Southview Hospital and Family Health Center (“Southview”). Southview currently offers a wide variety of medical services, including emergency care, intensive care, surgery, level two maternity care, physical medicine, respiratory care, radiology services and a clinical laboratory.

In 1993, Huber Heights joined Grandview’s healthcare delivery system as an ambulatory care center offering a wide variety of specialty and diagnostic services and an alternative to a hospital emergency room. The WorkMax Program, providing occupational health services, is also available. In 1997 Huber Heights opened a 30,000 square foot expansion that included a regional dialysis center, timeshare physician office suites, home healthcare and a community room for lectures, meetings and special programs.

Grandview Foundation. The Grandview Foundation, an Ohio nonprofit corporation, operates exclusively for the benefit and support of the osteopathic medical education and osteopathic medical research programs of Grandview, KMC, and other organizations throughout Dayton, Ohio and surrounding areas. The Grandview Foundation fulfills that role primarily through philanthropic services and programs that solicit and receive donations. The Grandview Foundation is not a member of the Obligated Group and has no obligation to make payments on the Series 2016 Bonds.

Indu & Raj Soin Medical Center

The Indu & Raj Soin Medical Center opened in 2012 as the Network’s newest hospital. The hospital is convenient to the large and growing population in eastern Montgomery, Greene, western Clark and Miami counties. Soin is licensed for 99 short-term and 28 nursery beds.

In 2015, Soin accounted for approximately 8% of total unrestricted revenue and $1.3 million of the consolidated excess of unrestricted revenue over expenses before other (loss) income of the Network.

Greene Memorial Hospital

Greene Memorial Hospital (“Greene”) opened in 1951 with 79 beds and was the culmination of the collaboration of many individuals and politicians to have a state of the art facility for the whole county. After 20 years of being county owned, the hospital converted to a private non-profit organization in 1971. It enjoyed many expansions and growth over the years and then made a decision to join the Network fully in January 2009.

Today Greene is a full-service community hospital licensed for 49 beds and serving the Greene County community. Greene is not a member of the Obligated Group and has no obligation to make payments on the Series 2016 Bonds.

Fort Hamilton

In 1925 a group of citizens came together to create a new hospital in Hamilton, Ohio. With generous donations from 8,000 residents, they were able to build Fort Hamilton Hospital (“Fort Hamilton”), which began serving patients in May of 1929.

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After being independent for many years, Fort Hamilton joined with 5 other hospitals in 1995 as part of the Health Alliance of Greater Cincinnati (the “Alliance”). Fort Hamilton exited the Alliance in March 2010 and joined the Network on July 1, 2010.

Today Fort Hamilton is a full-service, community hospital licensed for 246 beds and serving the Butler County community. Fort Hamilton is not a member of the Obligated Group and has no obligation to make payments on the Series 2016 Bonds.

Kettering Physician Network

Kettering Physician Network employs more than 400 providers, including physicians and advanced practice providers, throughout the Greater-Dayton and Cincinnati areas. Offering an extensive range of specialties and expertise, the physicians provide comprehensive care at more than 120 locations.

Kettering Affiliated Health Services, Inc.

Kettering Affiliated Health Services, Inc. provides services to the senior community. It is composed of two campuses that include skilled nursing facilities, assisted living apartments, and an independent retirement village. The campuses are located adjacent to Greene Memorial Hospital in Xenia, Ohio and Sycamore Hospital in Miamisburg, Ohio. Kettering Affiliated Health Services, Inc. is not a member of the Obligated Group and has no obligation to make payments on the Series 2016 Bonds.

STRUCTURE AND GOVERNANCE OF THE OBLIGATED GROUP

Governance Summary

Kettering HealthCare serves as the sole corporate member of KMC, Grandview and Soin. KMC, Grandview and Soin, the only members of the Obligated Group, are managed by their respective board of directors, which are appointed by Kettering HealthCare through a nominating process specified in the bylaws of each corporation. As the sole corporate member of KMC, Grandview and Soin, Kettering HealthCare exercises management leadership and oversight of the healthcare mission and business operations of KMC, Grandview and Soin in a manner that is consistent with purposes, policies, procedures and limitations expressed in the articles of incorporation and code of regulations of the respective corporations. Any authority not specifically delegated to the board of KMC, Grandview and Soin by their respective articles of incorporation and codes of regulations is reserved to Kettering HealthCare as the sole corporate member.

Conflicts of Interest Policy

Each of Kettering HealthCare, KMC, Grandview and Soin actively maintains a conflicts of interest policy. The policy requires each person who serves on a board of directors to disclose relevant information on an annual basis and to disclose any actual or potential conflict of interest on the part of any director as the conflict arises. Kettering HealthCare or any entity in the Obligated Group may enter into transactions in which directors of their respective board have an interest, including doing business with firms and companies with which a director may be affiliated. In the event of such a transaction, however, the director is required to disclose the conflict and must refrain from voting on a proposed transaction in which such director has an interest. In practice, the boards of directors and officers of the respective entities require that any such transactions undertaken must be at market rates and terms. Currently, neither the management of Kettering HealthCare nor that of any entity in the Obligated Group is aware of any transaction in which any director of the respective board has a material conflict of interest.

Kettering HealthCare – The Corporate Member

Kettering HealthCare is organized to support allopathic and osteopathic medicine, care and community awareness and medical education in the Southwest Ohio community and is an integral part of the healthcare mission of the Church. The purpose of Kettering HealthCare is to provide governance, management leadership and oversight of the mission and business operations of the healthcare ministry sponsored by the Church in the

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Southwest Ohio community since 1959. Kettering HealthCare is not a member of the Obligated Group and has no obligation to make payments on the Series 2016 Bonds. KMC, Grandview and Soin are the only members of the Obligated Group, and, therefore, the only entities legally liable on the Series 2016 Bonds. No other entity affiliated with the Church, Kettering HealthCare, KMC, Grandview, or Soin is liable for payment on the Series 2016 Bonds.

Board Structure

Kettering HealthCare is governed by its membership (“Membership”) and an eighteen (18) person board of directors (the “Network Board”) under the provisions of the Nonprofit Law of Ohio, the Articles of Incorporation and the Code of Regulations (or bylaws) of the corporation. The Membership is comprised of persons who are members of the Church and either hold positions of leadership within the Church or Kettering HealthCare, or reside within or have an ongoing interest in the Southwest Ohio community. The Membership generally (a) elects the Network Board and certain other boards within the Network according to applicable nominating procedures in the respective bylaws, and (b) safeguards the pursuit of the healthcare ministry and mission of the Church. The bylaws also reserve certain governance authority to the Membership that includes the appointment of the Chief Executive Officer (“CEO”) of Kettering HealthCare, who also serves as CEO of the Network.

The Network Board conducts the management of the business affairs of Kettering HealthCare as provided by Ohio nonprofit corporation law and exercises all governance not otherwise reserved to the Membership. Eleven (11) directors of the Network Board serve by election of the Membership as “Community Directors.” Five (5) of the Community Directors must be members in good standing of the Church who reside within or have an ongoing interest in the Southwest Ohio community, and six (6) of the Community Directors are individuals who do not have to be members of the Church and who are resident within or have an ongoing interest in the Southwest Ohio community. The Community Directors serve staggered three year terms. The remaining seven (7) directors of Kettering HealthCare serve by virtue of, and concurrently with holding, the following offices:

• President, Columbia Union Conference of Seventh-day Adventists (“Columbia Union”); • Three officers of Columbia Union appointed by the President of Columbia Union; • President of the Ohio Conference of Seventh-day Adventists; • Chief Executive Officer of Kettering HealthCare; and • President of Kettering HealthCare.

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The following table lists the persons who serve on the Network Board, their occupations and the year their current term expires.

Table 2. Members of the Network Board

Year Term Name Occupation Expires

Dave Weigley, Chairman President, Columbia Union Conference of Ex Officio Seventh-day Adventists (“SDA”) Robert Vanderman, Secretary, Columbia Union Conference of Ex Officio Vice Chairman SDA Fred Manchur, Secretary Chief Executive Officer, Kettering Health Ex Officio Network Ron Halvorsen, Jr. President, Ohio Conference of SDA Ex Officio Terry Forde President, Adventist Healthcare Ex Officio Seth Bardu Treasurer, Columbia Union Conference of Ex Officio SDA Roy Chew President, Kettering Health Network Ex Officio Phil Parker President & CEO, Dayton Area Chamber of 2016 Commerce Thomas Peebles President, Homes by Tom Peebles, Inc. 2018 Karl Haffner Senior Pastor, Kettering SDA Church 2017 Jon Velasco Vascular Surgeon, Dayton Surgeons 2017 Darren Wilkins Principal, Spring Valley Academy 2017 Adele Riley Judge, Montgomery County 2016 John Sefton, D.O. Providence Medical Group 2018 Sarah Hedrick, M.D. Internist, Wright Patterson AFB 2018 Robert Weigel Weigel Funeral Home 2016 Donald Harting CPA 2018 Open Position N/A N/A

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Management

The senior management (the “Management”) of Kettering HealthCare and the Obligated Group consists of the following individuals:

Fred M. Manchur, age 64, Chief Executive Officer, Kettering Health Network since May 2010. In 2009 Mr. Manchur began to serve as the President for the Network before also taking on the CEO position. Prior to that time, Mr. Manchur served as the President of KMC since 2001. Prior to KMC, he was Vice President of Adventist Health / Southern California from 1999-2000. He started with this health system in 1978 as Vice President of Feather River Hospital, then moving to President of Hanford Community Hospital, and President of San Joaquin Community Hospital. After leadership positions at a hospital level he moved to Adventist Health / Central California as President and CEO from 1996-1998, a five-hospital system. From 1974-1978 Mr. Manchur held several healthcare administrator jobs. He received a B.B.A. from Andrews University and a Masters in Public Health from Loma Linda University. Mr. Manchur is a member of the American College of Healthcare Executives.

Roy G. Chew, Ph.D., age 66, President, Kettering Health Network since December 2015. Prior to the Network position Dr. Chew was President of KMC from 2009-2015. Prior to KMC Dr. Chew was the President of Grandview from 1999-2008. Before this time, Dr. Chew served as Vice President for Professional Services and Post Acute Care for KMC since 1989 and was Vice President for Human Resources for KMC from 1984 to 1989. He has also served as the Director for the Respiratory Therapy Technician Program at KMC and Chairman of the Respiratory Therapy Department at the College. In addition, Dr. Chew has been active in the Ohio Society for Respiratory Therapy, holding offices in that society as well as serving as co-editor of its Journal of Ventilation. Dr. Chew holds a B.S. in Respiratory Therapy from the University of Missouri, a M.S. in Education from the University of Dayton, and a Ph.D. in Administration and Policy Analysis with Emphasis in Organizational Behavior from Stanford University. Dr. Chew is a Fellow in the American College of Healthcare Executives.

Todd Anderson, age 43, Executive Vice President for Finance and Clinical Integration Strategy, Kettering Health Network since December 2015. During 2015 he worked as the Senior Vice President for Market Strategies for the Network and led the service line development strategy. Mr. Anderson first came to the Network in July 2011 as the Vice President of Finance, Operations and Chief Financial Officer for Grandview Medical Center. Prior to that he led payor contracting and also worked as a Chief Financial Officer for several facilities in the Chicago market for Adventist Health System. Mr. Anderson started his career working as a financial statement auditor in the Texas market. He holds a Bachelor’s degree in Business Administration, Accounting, and Finance from Union College, and a M.B.A. in Financial Management and Accounting from Benedictine University. He is a member of the American Institute of Certified Public Accountants and is a licensed Certified Public Accountant.

Jarrod McNaughton, age 39, President, Kettering Medical Center and Executive Vice President, Kettering Health Network since December 2015. Mr. McNaughton started with KHN in 2013 as the Vice President of Mission and Development. Prior to this he was the Vice President of San Joaquin Community Hospital in Bakersfield, California from 2007-2012. From 2002-2007 Mr. McNaughton served as the Administrative Director of Marketing and Development at Ukiah Valley Medical Center. He has also worked in a number of other healthcare roles and was an Associate Adjunct Professor at Pacific Union College. He has a bachelor’s degree in Public Relations from Pacific Union College and a Master in Business Administration degree from the University of La Verne. Mr. McNaughton is a Fellow in the American College of Healthcare Executives.

Terrance M. Burns, age 61, Vice President for Finance, Kettering Medical Center and Executive Vice President, Kettering Health Network since December 2015. Prior to this he was President, Greene Memorial Hospital and Soin Medical Center since 2011. Mr. Burns returned to Kettering from Adventist Health Systems/West where he served as President and Chief Executive officer of Ukiah Valley Medical Center in California from 2007 until 2011. Mr. Burns first joined Kettering Health Network in 2001 as Vice President of Finance and Operations at KMC. Prior to joining KMC Mr. Burns was the Chief Operating Officer of a healthcare purchasing startup venture and from 1984-1999 he served as Vice President of Finance and Chief Information Officer at Adventist Health System/West. He also held other financial positions prior to this from 1975-1984. Mr. Burns graduated from Loma Linda University with a B.S. in Accounting and Management and an A.S. in Computer Science. He is a member of the American Institute of Certified Public Accountants and a diplomat in the American College of Healthcare Executives.

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Walter Sackett, age 57, President, Sycamore Medical Center since 2012. Prior to this Mr. Sackett was Vice President for Clinical Services at Kettering Medical Center from 2008-2012. From 1998-2007 he was CEO and an owner in several healthcare companies that operated specialty hospitals including Rehabilitation, Psychiatric, and Long Term Acute Care. Prior to that he was the CEO of an Acute Care facility in the Centura Health system from 1995-1998. Mr. Sackett held several Vice President roles from 1984-1995 with Adventist Health in California. He started his career at Shawnee Medical Center in Kansas as an Administrative Resident in 1982. Mr. Sackett has a B.A. in Business Administration and Theology from Walla Walla University and a Masters of Health Administration from Loma Linda University. He is a Fellow in the American College of Health Care Executives.

Rick Dodds, age 35, President, Greene Memorial Hospital and Soin Medical Center since December 2015. Mr. Dodds joined the network in 2014 as the director of Human Resources for the Network. Prior to joining the Network he was the Vice President of Compliance for Sonora Regional Medical Center from 2010-2013. Mr. Dodds was the Administrative Director of Human Resources for Ukiah Valley Medical Center from 2007-2009. He started his career at Glendale Adventist Medical Center in 2003 as an Administrative Resident and eventually an Employment Manager. Mr. Dodds holds a B.S. in Business Administration from Union College and a M.B.A. from La Sierra University.

Mark Smith, age 47, President, Fort Hamilton Hospital since March 2014. Mr. Smith was the President of Sycamore Medical Center and Senior Services from 2011-2013. Prior to these responsibilities Mr. Smith served as the Vice President of Finance and Operations at Greene Memorial Hospital since 2010. Before joining the Network he worked as the Chief Financial Officer of Nebraska Heart Hospital from 2005 to March 2010. From 1996-2005 Mr. Smith was a partner as well as a co-founder of the accounting practice of Buck, Smith, Reinke, LLP. From 1996-2002 he also served as an associate professor of accounting and business law for Union College. Prior to this he was an associate attorney with Orton, Thomas, Peterson and O’Connell from 1993-1996. Mr. Smith received a Bachelor of Science degree in Accounting from Union College and a Juris Doctorate from the University of Nebraska. He is a member of the Nebraska Bar Association and a certified healthcare financial professional.

Russell J. Wetherell, age 63, President, Grandview Medical Center since July 2014. Prior to this he was the President of Southview Medical Center from 2011. Mr. Wetherell served as CFO of Kettering Medical Center Network from 2004 to 2011. From 1995 – 1999, Mr. Wetherell held other Finance and Operations position with Kettering Health Network. He held several Finance positions with Boston Regional Medical Center between 1987-1995.. Mr. Wetherell also held Finance positions with other healthcare providers from 1984 – 1987. From 1974-1984, he held various financial positions in the publishing industry and the academic field. Mr. Wetherell graduated from Columbia Union College in 1974 with a B.A. in Business Administration and has received an M.B.A. from the University of Colorado. He is a Fellow of the Healthcare Financial Management Association and of the American College of Healthcare Executives.

Rebecca Lewis, age 67, President, Southview Medical Center since July 2014. Prior to this she was the Vice President for Nursing at Grandview Medical Center since 2009. From 2007-2008 Ms. Lewis was the CEO of Knox County Hospital. Prior to this she was the Director of Surgical Services at Good Samaritan Hospital and Saint Thomas Hospital from 2003-2007. She spent several years from 1999-2002 doing healthcare consulting and interim Director work. From 1980-1998 she began her career in administration in Louisville, Kentucky starting as an Administrative Coordinator progressing to Director, Vice President, and finally President & CEO of Jewish Hospital. Prior to this Ms. Lewis served as an Operating Room Nurse from 1970-1979 at Jewish Hospital. She holds a B.S. in Nursing and a M.A. in Education from Spalding University and a M.S. in Nursing from the University of Kentucky.

George Lewis, age 56, President, Kettering Physician Network since January 2013. Prior to this he was the Vice President of Clinical Operations for the Scripps Coastal Medical Group from 2007-2012. During 2006 and part of 2007 Mr. Lewis worked as the Chief Operating Officer for several hospitals in the Adventist Health System in California. He spent 2003-2005 as the CEO of Valley Plaza Doctors’ Hospital. From 1999-2002 he held several VP of Operations positions at Adventist Health System. He started his career at Loma Linda University Department of Family Medicine as an Administrator from 1994-1998. Mr. Lewis holds a B.A. in Business Administration from Oakwood College and a M.B.A. from the University of Redlands.

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Mission, Vision and Values

Kettering Health Network’s mission is to improve the quality of life of the people in the communities it serves through health care and education. The Network is dedicated to excellence and to providing each individual the most appropriate care in the most appropriate setting. In the spirit of the Seventh-day Adventist healthcare ministry, the Network strives to be innovative and convey God’s love in a caring environment. The vision is to be recognized as the leader in transforming the healthcare experience. Core values include being known as trustworthy, competent, caring, collaborative, and innovative.

Strategic Direction

Since 2013, Kettering Health Network has focused on identifying and promoting singular best practices throughout the network. “One Best Practice” encompasses all facets of the network including clinical quality, employee engagement, patient satisfaction and financial performance. The goal of One Best Practice is to ensure every patient can expect to receive the same high standard of care and excellent service at every network location, every time. Each year, specific targets are set for Quality & Safety, Patient Experience, Employee Engagement and Financial Performance. For the last three fiscal years, Kettering Network has met or exceeded the key result area measurements of Top Decile Performance for Quality & Safety and Patient Experience, Top Quartile Performance for Employee Engagement, and Operating Margin performance.

In addition to the foundational One Best Practice key result area focus and measurements, the Network drives strategic growth through service line business development. The service line leaders provide vision and strategic direction to hospitals, physician practices and other related sites and seek to reduce redundancy in pursuit of an aligned Network approach to growth. Service lines include Emergency/Trauma Care, Primary Care, Cardiology, Orthopedics, Neuroscience, Oncology and Women & Children Care.

Strategic Investments

Since 2012, Kettering Health Network has completed a number of strategic investments including:

• Soin Medical Center – the Network’s newest, a 127-bed hospital convenient to eastern Montgomery, Greene and Miami and western Clark counties, providing a Level III Trauma Center, comprehensive cancer care, expanded surgery services and other specialty services. • Franklin/Springboro ED – twelve room center providing emergency services to northern Warren county • Preble County ED – the only facility to offer emergency services in Preble County • EPIC System – fully implemented with continuing focus on data analytics • Physicians Acquisitions – Across a broad range of specialties

Strategic investments currently in process include the Kettering Cancer Center and Springboro Health Center, and a number of bed expansion projects at four existing facilities. Approximately $55 million of the Series 2016 Bond proceeds will be utilized for the new Kettering Cancer Center which is located on the Kettering Medical Center campus. The cancer center is expected to open during the fourth quarter of 2016 and will offer complete care to patients in a caring environment, with dedicated patient-centric services and specialized treatments to fight cancer. Designed with input from patients, employees, and physicians, a full menu of cancer-specific amenities will be tailored to patients in the new center. Planned services include:

• Radiation oncology • Breast imaging diagnostic center • Multi-specialty clinic - medical oncology • Dedicated cancer nurse navigators, social workers, dieticians and nutritionists and cancer financial navigators • Outpatient infusion center and infusion and specialty pharmacy on-site • Dedicated cancer laboratory and clinical treatment trials • Support services for patients and families

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The Network is opening the Springboro Health Center in 2016. The Health Center will bring together primary care, specialist, and other ancillary services to create a convenient place for patients Springboro, a fast growing area in the southern portion of the Dayton region.

KETTERING HEALTH NETWORK

Hospital Services

The eight hospitals of the Kettering Health Network provide a full continuum of healthcare services across many diversified inpatient services lines. Patients have access to state-of-the-art cancer fighting technology, Ohio’s leading heart hospital, comprehensive orthopedic services, revolutionary brain and spine surgery and top level maternity and neonatal care.

The following describes a number of the leading services:

Kettering Cancer Care – Oncology experts and professionals of the Kettering Health Network treat virtually all forms of adult cancer including brain and spine, breast, colon, gynecologic, and lung cancers. The Cancer Care team has access to the latest technology and drug treatments including the distinction of Ohio’s first Elektra Center of Excellence. Kettering Medical Center received the distinction of International Center of Excellence by Elekta, the producer of cutting-edge cancer treatment technologies, including the Gamma Knife® Perfexion™ brain treatment system and Versa HD™ radiation therapy. Kettering Medical Center was the first in the United States to use Elekta Versa HD™, a radiation therapy system designed to deliver higher-precision beam shaping for more patients and cancer types, four-to-five times faster than other radiation therapy systems. With its on-board CT scanning, the Versa HD is the least invasive radiosurgery device available. As described in “Strategic Investments”, the new Kettering Cancer Care Center will offer complete range of cancer care and amenities.

Cardiac Services – The Kettering Health Network cardiac team treats all forms of heart disease at seven Network hospitals, offering the latest surgical and non-invasive heart procedures and diagnostic testing. Advanced, specialized cardiac care is offered at the Benjamin and Marian Schuster Heart Hospital at Kettering Medical Center. Interventional and vascular care is offered in catheterization labs at all Kettering Health Network hospitals. Open heart surgeries are performed at the Kettering Medical Center and Grandview Medical Center. Electrophysiology studies to evaluate complex heart arrhythmias are performed at five hospitals.

Orthopedic Services – Orthopedic care needs are provided at seven hospitals and at more than 50 outpatient facilities. Physical and Occupational Therapy departments provide rehabilitation to meet specific patient needs with equipment and services not found anywhere else in the area. Sports Medicine is available throughout the network with sports acceleration programs, injury prevention and a full range of sport related injury care. In addition, the network has the only specialized hand surgery center in the Dayton area, providing surgical and trauma care.

Neurosciences – The Neuroscience Institute is Kettering Health Network's comprehensive treatment center for diseases and disorders of the brain and spine. The Neuroscience Institute is a trusted named in neuroscience treating all patients with brain-related illness, injury, disease or disorder with treatments ranging from routine CT scans to complex neurosurgery, autism and stroke care.

Maternity and Neonatal Services – The Kettering Health Network’s four maternity centers offer state of the art labor and delivery suites, special care nurseries and a Level IIIB NICU at the Kettering Medical Center.

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Table 3. Selected Services by Obligated Group Hospital

Kettering Grandview Sycamore Southview Soin Medical Medical Medical Medical Medical Center Center Center Center Center

Comprehensive Cancer Care X X X Level II Level III Level III Emergency Trauma Trauma X X Trauma Accredited Chest Pain and Stroke Center X X X X Full Range of Diagnostics and Testing X X X X X Graduate Medical Education X X Cardiovascular Institute X Level III B Maternity and Neonatal Intensive Care Unit X Maternity and Level II Special Care Nursery X X Orthopedics and Sports Medicine X X X X X Comprehensive Joint and Spine Center and Hip Fracture Program X X X X X Surgery including minimally invasive and robotic-assisted X X X X Neurosciences X X Bariatric Center of Excellence X X Comprehensive Wound Healing Center X Sleep Center X X X Behavioral Health including Adult & Geropsychiatric Programs X Diabetes Care X X Hand and Orthopedic Center of Excellence X

Ambulatory Services

The Kettering Health Network provides full service ambulatory services including ten emergency centers and 120 outpatient facilities. Outpatient facilities include urgent care, diagnostic and imaging centers, therapy and rehabilitation services, outpatient surgery and emergency medicine. Specialty care centers include the Joslin Diabetes Centers, Sleep Centers, Weight Loss and Wound Healing Centers.

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Table 4. Map of Kettering Health Network Major Facilities

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Service Area and Competitive Environment

The Network defines its primary market area as the greater Dayton, Ohio, Metropolitan Area, consisting of Montgomery County and portions of the eight contiguous counties in Ohio. The nine counties include Montgomery, Warren, Greene, Butler, Darke, Miami, Clark, and Preble and Clinton counties. Montgomery County represents approximately 32% of the primary market’s population as of 2014. The Network has expanded into growth areas outside of Montgomery County. The following tables present recent demographics for the primary market area:

Table 5. Population Trends

% Change 2000 2010 2014 2000-2014 Montgomery County 559,062 535,153 533,116 -4.6% Primary Market Area 1,577,937 1,655,657 1,668,824 5.8% State of Ohio 11,353,140 11,536,504 11,594,163 2.1% ______

Source: U.S. Census Bureau

Table 6. Average Wages

% Change 2000 2010 2014 2000-2014 Montgomery County 34,329.72 40,194.40 43,082.58 25.5% Primary Service Area 31,564.59 38,783.26 41,808.33 32.5% ______

Source: Ohio Department of Job and Family Services

Table 7. Top 10 Employers

1. Wright-Paterson Air Force Base 29,000 2. Premier Health Partners 14,765 3. Kettering Health Network 11,973 4. Kroger Co. 4,950 5. Montgomery County 3,884 6. LexisNexis 3,600 7. Miami University 3,313 8. Sinclair Community College 2,613 9. Honda of America Manufacturing 2,500 10. Wright State University 2,403 ______

Source: Dayton Business Journal

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Table 8. Unemployment

2013 2014 2015 Montgomery County 8.3% 6.0% 5.0% Primary Market Area 7.5% 5.5% 4.6% ______

Source: Ohio Department of Job and Family Services

KMC, Grandview and Soin’s competitive environment includes one local other hospital network, Premier Health Partners, providing services in the greater Dayton area, and one children’s hospital. Children’s Hospital provides services exclusively to children and is not viewed as a direct competitor.

Kettering Health Network’s competitive advantage is enabled by the hub and spoke model that includes 7 hospital / medical centers, 1 behavioral hospital, 3 freestanding Emergency Departments and more than 120 outpatient facilities. The Network has experienced growth in overall market share within the primary market area over the last four fiscal years and as of September 30, 2015 ranks first in overall market share. The following table presents Network overall market share indicators:

Table 9. Overall Market Share in Primary Market Area

YTD 9/30 2012 2013 2014 2015 KHN 29.6% 30.6% 31.4% 32.9% Premier 34.0% 33.1% 32.4% 31.7% Regional* 29.1% 29.2% 29.3% 28.7% Other 7.3% 7.1% 6.9% 6.7%

______

* No facility greater than 9%. Source: Ohio Hospital Association

Accreditation and Affiliation

KMC is registered with the Ohio Department of Health for 644 total beds and accredited by the American Osteopathic Association Bureau of Healthcare Facilities Accreditation Program. The current accreditation was completed in October 2014 and is valid through 2017. KMC is affiliated with the Wright State School of Medicine and has residency programs in internal medicine, pathology, plastic surgery, general surgery, emergency medicine and psychiatry.

Grandview is registered with the Ohio Department of Health for 421 total beds and accredited by the American Osteopathic Association Bureau of Healthcare Facilities Accreditation Program. The current accreditation was completed in March 2015 and is valid through 2018. In addition, Grandview offers one of the largest osteopathic medicine teaching programs (in terms of participants) in the country. Through an affiliation with the Ohio University College of Osteopathic Medicine, Grandview provides training for 100 interns and residents and over 200 medical students every year.

Soin is registered with the Ohio Department of Health for 127 total beds and accredited by the American Osteopathic Association Bureau of Healthcare Facilities Accreditation Program. The current accreditation was completed in April 2015 and is valid through 2018.

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Medical Staff

The medical staffs of all the KHN hospitals maintain development plans that are updated frequently. The plans focus on community needs and the hospitals’ mission in the current and expanded geographic areas. They strive to improve access and timeliness of care for the patients and to develop adequate succession planning.

The following is a breakdown of the medical staff by category.

Table 10. Medical Staff by Category

Obligated Group Non-Obligated Group Hospitals Hospitals Total

Active 1,712 417 2,129 Courtesy 509 121 630 Associate 39 21 60 Total 2,260 559 2,819 ______

Source: Corporation Records.

The average age of the active staff physicians is 50, 87% of which are board certified.

Employees

As of December 31, 2015, the Network employed 11,973 individuals, whose services equated to 9,141 full- time equivalent employees. The employees of the Network are not represented by any union or subject to any collective bargaining agreement. Management of Kettering HealthCare and the Obligated Group believe the relationship with employees is positive.

Retirement Plans

The Network manages several retirement plans, which are described in the footnotes to the consolidated financial statements provided in Appendix B. In the opinion of management, the plans that are subject to the Employee Retirement Income Security Act of 1974 are in compliance.

Insurance

The Network has two levels of insurance coverage in place for professional and general liability. The first level is a self-insurance program funded to actuarially determined levels to provide up to $4,000,000 of coverage per occurrence. The second level is a fully insured excess policy which provides up to $25,000,000 of coverage per occurrence over the first level. The professional and general liability coverage and other insurance coverage of the Network is in amounts not less than customary for corporations engaging in similar activities.

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Utilization

A summary of significant KHN Obligated Group statistics for the three fiscal years ended December 31, 2013, 2014 and 2015 is contained in the following table.

Table 11. Kettering Health Network Obligated Group Utilization Trends

2013 2014 2015 Inpatient Statistics: Registered Beds 1,190 1,181 1,192 Staffed Beds 1,006 1,021 1,012

Admissions Medical 31,265 31,967 32,964 Surgical 13,751 14,013 14,606 Total Admissions 45,016 45,980 47,570

Patient Days 193,665 194,883 196,790

Average Length of Stay 4.37 4.31 4.21

Occupancy Rate 0.64 0.65 0.67

Deliveries 4,365 4,556 4,621

Outpatient Statistics: Other Outpatients Visits 603,562 609,063 636,582 Emergency Visits 158,216 176,190 204,611 Total Visits 761,778 785,253 841,193

Surgical Statistics: Inpatient Cases 12,061 12,124 12,458 Outpatient Cases 25,291 26,437 26,817 Total Cases 37,352 38,561 39,275

Sources of Patient Service Revenue

The Network maintains agreements with governmental and numerous managed care programs that govern payment for services rendered to patients covered by these programs. The following table shows the percentage of distribution of gross patient service revenue by payor source for each of the three years ended December 31, 2013 through 2015. The information provided was compiled from the Network’s records and is based on patient classification categories at the time of registration or admission.

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Table 12. Kettering Health Network Gross Patient Revenue by Payment Source

Payor 2013 2014 2015

Medicare 25.43% 25.13% 23.21% Medicare Managed Care 20.40 20.67 22.46 Commercial / Managed Care 17.48 17.73 17.35 Medicaid 4.11 5.57 3.70 Medicaid Managed Care 9.72 12.82 16.86 Blue Cross 17.03 15.52 14.60 Self-Pay 5.83 2.56 1.82

Total 100.00% 100.00% 100.00%

Management’s Discussion and Analysis of Recent Financial Performance

The following sets forth the management discussion of financial performance of the Network.

Three-Year Overview. The Network’s inpatient volume has grown 5.1% over the past three years (2013-2015). This increase is due to the opening of Soin Medical Center and several free standing Emergency Centers as well as a small growth in the nine counties served of 5.8%. The Network has been able to maintain a fairly steady increase in market share during this time. Outpatient volume (excluding emergency room visits) has continued to increase also, with a 10.3% increase for the three-year period. ER visits saw a significant increase of 20.4% during the three years ended 2015.

Net patient service revenue has grown 14.0% from 2013 to 2015. In addition to contracted increases, the Network has focused on quality initiatives and met requirements to receive reimbursement increases. Significant time and effort are put into ensuring that the Network is providing value to the various constituents, including the payors. The Network participates with all major managed care companies in the area, and management does not anticipate any breaks in the near future.

Total expenses for the period from 2013 to 2015 increased 15.1%. The bulk of the increase has been in the volume-related items of salaries, benefits and supplies. Depreciation and interest expense have also increased as the capital structure of the Network has grown with IT investments and building projects. The Network continually looks for opportunities to improve costs and uses industry benchmarks for comparison.

In all years presented the Network has had positive results from operations and the total margin when including other income (loss).

The cash and cash equivalents and board designated assets whose use is limited increased from $644 million in 2013 to $769 million at the end of 2015. There was growth in every year, and for the three-year period the increase was 19.5%.

Twelve Months Ended December 31, 2015. For the Network, total unrestricted revenue for the twelve months ended December 31, 2015, was $1,503 million which represents an increase of $95 million or 6.7% from the twelve months ended December 31, 2014. The increase is primarily due to volume growth and scheduled rate increases.

For the Obligated Group, total unrestricted revenue for the twelve months ended December 31, 2015, was $1,212 million which represents an increase of $74 million or 6.5% from the twelve months ended December 31, 2014.

For the Network, total expenses for the twelve months ended December 31, 2015, were $1,438 million which represents an increase of $135 million or 10.4% from the twelve months ended December 31, 2014.

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For the Obligated Group, total expenses for the twelve months ended December 31, 2015, were $1,062 million which represents an increase of $81 million or 8.3% from the twelve months ended December 31, 2014. Total operating expenses, excluding depreciation and amortization and interest expense, were $963 million for the twelve months ended December 31, 2015.

As a result of the activities described above, for the Network, the excess of unrestricted revenue over expenses before other income (loss) for the twelve months ended December 31, 2015, was $65 million, which represents a decrease of $40 million or 38.0% from the same time period the previous year.

As a result of the activities described above, for the Obligated Group, the excess of unrestricted revenue over expenses before other income (loss) for the twelve months ended December 31, 2015, was $136 million, which represents a decrease of $13 million or 8.5% from the same time period the previous year.

For the Network, total other income (loss) for the twelve months ended December 31, 2015, was ($11 million) which represents a decrease of $36 million from the twelve months ended December 31, 2014. This decrease in other income (loss) was primarily related to lower investment market returns in 2015 compared to 2014.

For the Obligated Group, total other income (loss) for the twelve months ended December 31, 2015, was ($10 million) which represents a decrease of $32 million from the twelve months ended December 31, 2014. This decrease in other income (loss) was primarily related to lower investment market returns in 2015 compared to 2014.

Three Months Ended March 31, 2016. For the three months ended March 31, 2016, management expects greater Net Patient and Total Unrestricted Revenues and positive operating income in line with budget, although lower than the period ended March 31, 2015 which was higher than normal. Operating EBITDA (defined as Operating Net Income plus Interest and Depreciation & Amortization expenses) is expected to be within 10% for the comparable periods ended March 31.

Financial Information

Audited Financial Statements. The consolidated financial statements of the Network (including entities which are not members of the Obligated Group), as of December 31, 2015 and 2014 and for the years then ended, are included in APPENDIX B to this Official Statement, and have been audited by Ernst & Young LLP, independent auditors, as stated in their report appearing herein.

Other Financial Information. Management prepared a schedule of consolidating details related to the Obligated Group as of December 31, 2015 which is included in APPENDIX B of this Official Statement.

Historic Summary of Operations. The following table presents a three-year comparative summary of data related to the Network. The years 2013 through 2015 summaries have been derived from the respective consolidated financial statements and should be read in conjunction with the audited consolidated financial statements of the Network and related notes included in APPENDIX B.

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Table 13. Kettering Health Network Summary of Operations (Dollars in Thousands)

Fiscal Year Ended December 31 2013 2014 2015

UNRESTRICTED REVENUE: Net patient service revenue $1,241,163 $1,332,569 $1,422,056 Other revenue, net 72,925 75,743 81,326

Total unrestricted revenue 1,314,088 1,408,312 1,503,382

EXPENSES: Salaries and wages 538,035 568,651 645,956 Employee benefits 117,790 128,264 137,928 Supplies and other 479,550 492,367 537,260 Depreciation 84,971 85,306 89,449 Interest 29,302 28,673 27,686

Total expenses 1,249,648 1,303,261 1,438,279

Excess of unrestricted revenue over expenses before other income (loss) 64,440 105,051 65,103

Other income (loss) 68,656 25,252 (11,188)

Excess of unrestricted revenue over expenses $133,096 $130,303 $53,915

Liquidity Table

The following table sets forth the liquidity of the Network as of December 31, 2015 and 2014.

Table 14. Kettering Health Network Liquidity Table (Dollars in Thousands)

December 31, December 31, 2014 2015

Cash and cash equivalents $ 127,459 $ 134,061 Assets whose use is limited by board (A) 621,555 634,656

Total $ 749,014 $ 768,717 ______

Note (A): Includes all assets whose use is limited except for funds held under bond indenture, donor or agency restricted

In 1995, the Network developed and implemented an investment policy (the “Policy”) for the Network’s funded depreciation account and all other investments. The Policy recognizes that the funding obligations of the account are near-term in nature and consequently targets investments with a moderate to conservative focus. The investment objective is to maintain a high level of current income and achieve adequate growth in principal over the

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long term. The Policy calls for investment in a variety of asset classes including domestic stocks, international stocks, convertible securities and domestic fixed income securities.

Debt Structure

The Network has issued a variety of long-term debt to finance capital. A discussion of the debt is included in Note 5 to the audited consolidated financial statements of the Network included in APPENDIX B. The majority of the debt is secured by Notes issued by the Obligated Group under the Master Trust Indenture.

Interest Rate Swap Agreements

The Network has entered into certain interest rate swap agreements (swap agreements) with respect to debt. A discussion of such agreements is included in Note 6 to the audited consolidated financial statements of the Network included in APPENDIX B. The Network’s obligations under the swap agreements are secured by Notes issued by the Obligated Group under the Master Trust Indenture.

At December 31, 2015, the estimated termination value of all interest rate swaps in effect was approximately $(39.3) million.

Effect of Consolidation

Under generally accepted accounting principles, the accounts of related entities owned or controlled by the Network are consolidated into the financial statements of the Network. Three of these entities are members of the Obligated Group (KMC, Grandview and Soin). The other related entities are not members of the Obligated Group. APPENDIX B includes consolidating statements under “Other Financial Information” that shows the effect of consolidation of these various related entities for the periods indicated. The following is a summary of the effect of consolidation for the previous three fiscal years:

Table 15. Effect of Consolidation (Dollars in Thousands)

Fiscal Year Ended December 31 2013 2014 2015

Total Unrestricted Revenue Obligated Group $1,061,464 $1,137,684 $1,211,965 Non-Obligated Entities 252,624 270,628 291,417 Total $1,314,088 $1,408,312 $1,503,382

Excess of unrestricted revenue over expense (expenses over unrestricted revenue) Obligated Group $170,457 $171,615 $126,520 Non-Obligated Entities (37,361) (41,312) (72,605) Total 133,096 130,303 53,915

Total Assets Obligated Group 1,492,666 1,639,834 1,745,033 Non-Obligated Entities 244,821 251,397 229,685 Total $1,737,487 $1,891,231 $1,974,718

If the members of the Obligated Group encounter financial difficulty, there can be no assurance that the funds of certain of these non-obligated related entities will be available to satisfy the debts and obligations of the Obligated Group. None of these related organizations, other than KMC, Grandview and Soin, is a member of the Obligated Group under the Master Indenture or is otherwise responsible for debts or obligations of the Obligated

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Group. The funds of the non-obligated related entities may be retained in the related entity as a matter of operating practice or procedure or by agreement with unrelated parties who share in ownership or control of the related entity. Transfers of funds to the Obligated Group may be subject to approval of the governing body of the related entity or approval of such unrelated parties who share in ownership or control. Transfers of funds from a non-obligated related entity may also be subject to various principles of creditors’ rights, including the so-called fraudulent conveyance principle prohibiting conveyances that would render the conveying party insolvent.

Kettering HealthCare provides centralized services to the Network affiliates, including corporate finance, long-range planning, employee benefits, human resources, purchasing, marketing, insurance, information technology and corporate executive management. These centralized services generally represent fixed expenses for the Network as a whole and are allocated to the Network affiliates at cost. These allocable costs are included in the expenses of the Network affiliates in the consolidating statements in APPENDIX B under “Other Financial Information”.

From time to time, an Obligated Group Member has transferred funds to affiliates that are not members of the Obligated Group, or has paid expenses of an affiliate that were not reimbursed. Such transfers or unreimbursed expenses are subject to the provisions of the Master Indenture which limit transfers of assets from members of the Obligated Group to entities that are not members of the Obligated Group.

Debt Service Coverage

The table below contains debt service coverage ratios for the Network. These coverage ratios are based on estimates that give effect to the issuance of the Series 2016 Bonds.

The Master Indenture imposes financial covenants relating to annual debt service coverage and debt incurrence. Those covenants are based on coverage ratios that are similar to the ratios below, but those covenants are computed for the Obligated Group alone and the calculation methodology of those covenants differs in various respects. For a description of the Master Indenture covenants and related calculations, see the following section entitled “Coverage Tests Under the Master Indenture”.

The following table presents the calculation of debt service coverage for the Network for the years ended December 31, 2014 and 2015.

Table 16. Kettering Health Network Debt Service Coverage Fiscal Year Ended December 31 (Dollars in Thousands)

2014 2015

Excess of unrestricted revenue over expenses $ 130,303 $ 53,915 Plus: depreciation and interest 113,979 117,135 Plus: unrealized loss (gain) on interest rate swap agreements 3,621 (216) Plus: change in net unrealized investment losses 1,278 38,809 Total income available for debt service 249,181 209,643 Pro forma maximum annual debt service (A) 41,626 41,626 Historic pro forma debt service coverage 5.99x 5.04x

______

Note (A): Assumes the 2016 transaction occurred in 2014 and 2015 and excludes amortization of original issue premium.

Coverage Tests Under Master Indenture

The Master Indenture includes a debt service coverage ratio test and a debt incurrence test that compares pro forma maximum annual debt service requirements to income of the Obligated Group. The Master Indenture

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calculations for these covenants differ from the calculation in the table above in several respects. First, net income available for debt service is computed for the Obligated Group alone, rather than for the Network including all of its affiliates. For the periods included in the table below, net income available for debt service for the Obligated Group is higher than net income available for debt service for the Network and all of its affiliates.

The following table contains debt service coverage ratios calculated under the terms of the Master Indenture. The calculation of pro forma maximum annual debt service and coverage of pro forma maximum annual debt service gives effect to the issuance of the Series 2016 Bonds.

Table 17. Obligated Group Debt Service Coverage Fiscal Year Ended December 31 (Dollars in Thousands)

2014 2015

Excess of unrestricted revenue over expenses $ 171,615 $ 126,520 Plus: depreciation and interest 96,572 98,866 Plus: unrealized loss (gain) on interest rate swap agreements 3,608 (108) Plus: change in net unrealized investment losses 1,493 34,966 Total income available for debt service 273,288 260,244 Pro forma maximum annual debt service (A) 41,626 41,626 Historic pro forma debt service coverage 6.57x 6.25x

______

Note (A): Assumes the 2016 transaction occurred in 2014 and 2015 and excludes amortization of original issue premium.

Future Plans and Capital Projects

Management recognizes the potential for enhancing services and gaining efficiencies through strategic relationships, partnerships, affiliations, mergers, acquisitions or divestitures and through other projects to enhance the scope of health care services provided. Therefore, the Network will explore opportunities in these areas as part of the ongoing planning process. As a result, it is possible that certain newly acquired or affiliated organizations and their assets and liabilities may be added to the Obligated Group in the future or that certain facilities may be removed from the Obligated Group. There is, however, no guarantee that any particular initiative will lead to a future strategic partnership, affiliation, merger, acquisition or divestiture, or other projects.

As capital budgeting is a dynamic process, the amounts and/or timing of future proposed capital projects is subject to change. The Network maintains a capital policy that provides for most current needs and helps build long-term reserves over time. The plans for future service expansion and external financing are subject to change depending upon future financial performance and/or changes in the capital markets.

A-23 [THIS PAGE INTENTIONALLY LEFT BLANK]

APPENDIX B.

AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION OF THE KETTERING HEALTH NETWORK

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C ONSOLIDATED F INANCIAL S TATEMENTS AND S UPPLEMENTARY I NFORMATION

Kettering Health Network Years Ended December 31, 2015 and 2014 With Report of Independent Auditors

Ernst & Young LLP

Kettering Health Network

Consolidated Financial Statements and Supplementary Information

Years Ended December 31, 2015 and 2014

Contents

Report of Independent Auditors...... 1

Consolidated Financial Statements

Consolidated Balance Sheets ...... 3 Consolidated Statements of Operations and Changes in Net Assets ...... 5 Consolidated Statements of Cash Flows ...... 7 Notes to Consolidated Financial Statements...... 8

Supplementary Information

Report of Independent Auditors on Supplementary Information ...... 47 Consolidating Balance Sheet – Assets ...... 48 Consolidating Balance Sheet – Liabilities and Net Assets ...... 49 Consolidating Statement of Operations and Changes in Net Assets ...... 50

1602-1843091

Ernst & Young LLP Tel: +1 513 612 1400 1900 Scripps Center Fax: +1 513 612 1730 312 Walnut Street ey.com Cincinnati, OH 45202

Report of Independent Auditors

The Board of Directors Kettering Health Network

We have audited the accompanying consolidated financial statements of Kettering Health Network, which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of operations and changes in net assets, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

1602-1843091 1

A member firm of Ernst & Young Global Limited

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kettering Health Network at December 31, 2015 and 2014, and the consolidated results of its operations and changes in net assets, and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

April 12, 2016

1602-1843091 2

A member firm of Ernst & Young Global Limited Kettering Health Network

Consolidated Balance Sheets (In Thousands)

December 31 2015 2014 Assets Current assets: Cash and cash equivalents $ 134,061 $ 127,459 Current portion of assets whose use is limited 8,069 7,191 Patient accounts receivable, net of allowance for doubtful receivables (2015 – $71,298; 2014 – $62,831) 181,279 150,182 Other receivables 30,337 28,244 Inventories 24,204 20,155 Prepaid expenses and other current assets 14,197 10,082 Total current assets 392,147 343,313

Assets whose use is limited: Board designated 634,656 621,555 Donor or agency restricted 23,367 23,209 Trustee-held assets 21,200 21,973 Total assets whose use is limited 679,223 666,737

Retirement plans assets 16,996 15,848 Property and equipment, net 843,614 820,587 Other long-term assets 42,738 41,601

Total assets $ 1,974,718 $ 1,888,086

3 1602-1843091 Kettering Health Network

Consolidated Balance Sheets (In Thousands)

December 31 2015 2014 Liabilities and net assets Current liabilities: Accounts payable $ 95,794 $ 87,475 Payroll-related liabilities 77,637 66,809 Other accrued liabilities 43,804 47,834 Accrued interest 6,304 6,421 Current portion of deferred revenue 2,361 2,552 Estimated amounts due to third-party payors 11,213 3,696 Current portion of long-term debt 11,660 17,166 Total current liabilities 248,773 231,953

Deferred revenue 5,132 6,171 Accrued pension liability 35,817 36,396 Professional self-insurance liability 39,926 39,354 Other long-term liabilities 34,459 38,235 Interest rate swap agreements liability 39,257 39,647 Long-term debt, net of current portion 577,693 563,087 Total liabilities 981,057 954,843

Net assets: Unrestricted 966,114 907,798 Temporarily restricted 21,344 19,252 Permanently restricted 6,203 6,193 Total net assets 993,661 933,243 Total liabilities and net assets $ 1,974,718 $ 1,888,086

See accompanying notes.

1602-1843091 4 Kettering Health Network

Consolidated Statements of Operations and Changes in Net Assets (In Thousands)

Year Ended December 31 2015 2014 Unrestricted revenue: Patient service revenue (net of contractual provision and discounts) $ 1,506,379 $ 1,412,610 Provision for bad debts (84,323) ( 80,041) Net patient service revenue 1,422,056 1,332,569 Other revenue 81,326 75,743 Total unrestricted revenue 1,503,382 1,408,312

Expenses: Salaries and wages 645,956 568,651 Employee benefits 137,928 128,264 Supplies and other 370,598 342,981 Purchased services 166,662 149,386 Depreciation 89,449 85,306 Interest 27,686 28,673 Total expenses 1,438,279 1,303,261 Excess of unrestricted revenue over expenses before other (loss) income 65,103 105,051

Other (loss) income: Income (loss) on interest rate swap agreements 45 ( 3,993) Other, primarily investment (loss) income (11,233) 29,245 Excess of unrestricted revenue over expenses 53,915 130,303

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Consolidated Statements of Operations and Changes in Net Assets (continued) (In Thousands)

Year Ended December 31 2015 2014 Unrestricted net assets Excess of unrestricted revenue over expenses $ 53,915 $ 130,303 Net assets released from restrictions for capital 2,525 563 Change in plan assets and benefit obligation of pension plan 1,831 (10,332) Other changes, net 45 95 Increase in unrestricted net assets 58,316 120,629

Temporarily restricted net assets Contributions and investment income from restricted investments 5,816 2,328 Net assets released from restrictions for capital (2,525) (563) Net assets released from restrictions for operations (1,199) (1,301) Increase in temporarily restricted net assets 2,092 464

Permanently restricted net assets Contributions for endowment funds 10 8 Increase in permanently restricted net assets 10 8

Increase in net assets 60,418 121,101 Net assets at beginning of year 933,243 812,142 Net assets at end of year $ 993,661 $ 933,243

See accompanying notes.

1602-1843091 6 Kettering Health Network

Consolidated Statements of Cash Flows (In Thousands)

Year Ended December 31 2015 2014 Operating activities Increase in net assets $ 60,418 $ 121,101 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Depreciation 90,308 86,352 Amortization of long-term debt issuance costs 225 233 (Loss) income on interest rate swap agreements (45) 3,993 Restricted contributions (5,750) (1,501) Net change in unrealized losses (gains) on investments 37,459 1,113 Change in plan assets and benefit obligation of pension plan (1,831) 10,332 Provision for bad debts 84,323 80,041 Changes in assets and liabilities: Accounts receivable, net (117,513) (100,598) Inventories (4,049) (933) Prepaid expenses and other current assets (2,878) 909 Assets whose use is limited (50,823) (106,806) Accounts payable 6,934 27,825 Other current liabilities 14,008 (1,390) Other long-term liabilities (1,476) (2,951) Net cash provided by operating activities 109,310 117,720

Investing activities Additions to property and equipment (114,857) (105,347) Net (increase) decrease in other long-term assets (2,328) (5,850) Net cash used in investing activities (117,185) (111,197)

Financing activities Principal payments of long-term debt (17,326) (12,583) Refunding of long-term debt – (736) Proceeds from issuance of long-term debt 1,200 6,017 Draws on line of credit 25,000 – Proceeds from restricted contributions 5,603 1,860 Net cash used in financing activities 14,477 (5,442)

Increase in cash and cash equivalents 6,602 1,081 Cash and cash equivalents at beginning of year 127,459 126,378 Cash and cash equivalents at end of year $ 134,061 $ 127,459

See accompanying notes.

1602-1843091 7 Kettering Health Network

Notes to Consolidated Financial Statements (In Thousands)

December 31, 2015

1. Organization and Significant Accounting Policies

Organization

Kettering Adventist Healthcare dba Kettering Health Network (the Network) is comprised of the obligated group that includes the Kettering Medical Center, which consists of Kettering Medical Center (Kettering Hospital), Sycamore Medical Center (Sycamore Hospital), Kettering Behavioral Medical Center, and Kettering College; Grandview Medical Center which consists of Dayton Osteopathic Hospital dba Grandview Hospital and Medical Center (Grandview Hospital), Southview Medical Center, and Huber Health Center; and Beavercreek Medical Center dba The Indu and Raj Soin Medical Center (Soin Medical Center) (collectively, the Obligated Group). The Network also includes the parent corporation, Kettering Adventist Healthcare (KAH) which includes the operations of Grandcor, Ltd, a captive insurance company. Other entities included in the Network’s consolidated financial statements are Kettcor, Kettering Medical Center Foundation, Kettering Affiliated Health Services, Inc., Alliance Physicians, Inc. and Advanced Medical Group (collectively, dba Kettering Physician Network), Greene Memorial Hospital, which consists of Greene Memorial Hospital and Greene Foundation dba Greene Medical Foundation (collectively, Greene), and Fort Hamilton Hospital, which consists of The Fort Hamilton Hospital and Fort Hamilton Hospital Foundation (collectively, Fort Hamilton). KAH and Kettering Medical Center are together referred to as the Kettering Affiliates. Grandview Hospital, Southview Hospital, and Huber Health Center are collectively referred to as the Grandview Affiliates.

All entities are controlled by KAH and are consolidated. All significant intercompany balances and transactions have been eliminated upon consolidation.

The Kettering Medical Center Foundation exists for the purpose of soliciting and receiving contributions for the sole benefit of the Network. Kettering Affiliated Health Services, Inc. operates Sycamore Glen Health Center, Sycamore Glen Retirement Community, and other not- for-profit health care-related operations. Sycamore Glen Retirement Community is a retirement housing complex consisting of cottage apartments and a mid-rise building with apartment units.

The Network provides health care services through Kettering Hospital, Sycamore Hospital, Grandview Hospital, Southview Hospital, Sycamore Glen Health Center, Kettering Behavioral Medical Center, Greene Memorial Hospital, Fort Hamilton Hospital, and Soin Medical Center (collectively, the Hospitals).

1602-1843091 8 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued)

The Network also operates Kettering College, a division of Kettering Hospital, offering a curriculum primarily in the allied health professions.

Fair Value Measurements

The Network follows the provisions of Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820), which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a framework for measuring fair value. ASC 820 defines a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, and as noted above, ASC 820 defines a three-level fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participants. The fair value hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

• Level 1 – Inputs utilize quoted market prices in active markets for identical assets or liabilities that the Network has the ability to access.

• Level 2 – Inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset and liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

• Level 3 – Inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity.

1602-1843091 9 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued)

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Network’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

In order to meet the requirements of ASC 820, the Network utilizes three basic valuation approaches to determine the fair value of its assets and liabilities required to be recorded at fair value. The first approach is the cost approach. The cost approach is generally the value a market participant would expect to replace the respective asset or liability. The second approach is the market approach. The market approach looks at what a market participant would consider an exact or similar asset or liability to that of the Network, including those traded on exchanges, to be valued at. The third approach is the income approach. The income approach uses estimation techniques to determine the estimated future cash flows of the Network’s respective asset or liability expected by a market participant and discounts those cash flows back to present value (more typically referred to as a discounted cash flow approach).

Cash and Cash Equivalents

The Network considers highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

Net Patient Accounts Receivable

Net patient accounts receivable is reduced by an allowance for doubtful receivables based upon the historical collection experience of each of the Hospitals adjusted for current environmental risks and trends for each major payor source. The Network’s allowance for doubtful receivables is generally related to self-pay patient accounts receivable and is recognized in the period of service based on past collection experience. For patient accounts receivable associated with self- pay patients, including patients with deductible and copayment balances for which third-party coverage provides for a portion of the services provided, the Network records an estimated provision for bad debts in the year of service. Self-pay write-offs decreased $18,819 for the year ended December 31, 2015, compared to the same period in fiscal 2014 primarily due to the timing of self-pay write-offs as well as Medicaid expansion resulting in less self-pay patients.

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Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued)

The allowance for doubtful receivables for self-pay patients as a percentage of self-pay accounts receivable was approximately 88% and 92% for the years ended December 31, 2015 and 2014, respectively. This decrease was primarily due to the continued shift of self-pay patients to Medicaid under Medicaid expansion resulting in improved collectability in the remaining self- pay accounts receivable. The Network has not experienced significant changes in write-off trends and has not changed its charity care policy since December 31, 2014. The Network does not maintain a material allowance for doubtful receivables for amounts due from third-party payors.

1. Organization and Significant Accounting Policies (continued)

Assets Whose Use Is Limited

Assets whose use is limited include board-designated funds for the acquisition of property and equipment, funds restricted by donors for charitable purposes, funds to cover self-insurance liabilities, trustee-held assets for the retirement of long-term liabilities, and the funding of certain capital projects. These funds have been classified as noncurrent assets except for amounts required to meet current liabilities, which are classified as the current portion of assets whose use is limited. Assets whose use is limited in its entirety are classified as trading securities.

Investment (loss) income (including interest and dividend earnings, net realized gains on investments, and net change in unrealized (losses) gains on investments) is primarily included in the excess of unrestricted revenue over expenses as other, primarily investment (loss) income unless the investment (loss) income is restricted by donor or law.

The global financial markets and banking system are subject to volatility which could adversely impact the Network. Certain of the Network’s assets and liabilities are exposed to various risks, such as interest rate, market, and credit risks.

Inventories

Inventories (primarily supplies and pharmaceuticals) are valued using the lower of cost (first-in, first-out method) or market.

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Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued)

Property and Equipment

Property and equipment are stated at historical cost except for donated or impaired items, which are recorded at fair market value at the date of donation or determination. Expenditures, which materially increase values, change capacities or extend useful lives, are capitalized. Depreciation, which includes amortization related to capital leases, is computed utilizing the straight-line method over the expected useful lives of the assets, which range from 3 to 40 years. Total depreciation expense was $90,308 and $86,352 for the years ended December 31, 2015 and 2014, respectively.

The cost and related accumulated depreciation of property and equipment that are sold or retired are removed from the respective accounts and the resulting gain or loss is recorded in supplies and other, when the property is used in operations. Gains or losses on sales of property and equipment held for investment purposes are recorded in other, primarily investment (loss) income.

Select property and equipment purchased prior to year-end is excluded from the additions to property and equipment in the consolidated statements of cash flows, as cash payment was not made at the end of the year. These excluded additions at December 31, 2015 and 2014, were $9,175 and $7,789, respectively.

The Network evaluates the carrying value of long-lived assets and the related estimated remaining lives when events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed. Any resulting impairment losses or additional required depreciation due to shortened useful lives are reflected as other, primarily investment (loss) income in the consolidated statements of operations and changes in net assets. No impairment loss was recognized in 2015 or 2014.

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Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued)

Investments in Unconsolidated Organizations

The Network maintains an ownership percentage of 50% or less in various joint ventures and other companies that do not require consolidation. Certain of these investments are accounted for using the equity method of accounting as the Network has significant influence over the operating and financial policies of the investee. The aggregate value of investments in unconsolidated organizations accounted for under the equity method of accounting was $21,418 and $18,547 at December 31, 2015 and 2014, respectively, and is included in other long-term assets. The Network recognized equity method income of $2,520 and $6,481 for the years ended December 31, 2015 and 2014. respectively, and is included primarily in other revenue. Investments in unconsolidated organizations are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable. No impairment was recognized for the years ended December 31, 2015 or 2014, and there are no indicators that an impairment loss will be recognized in the near term.

The Network holds membership units in Premier Healthcare Alliance, LP (Premier), which is a group purchasing organization (GPO). The Network’s participation in the GPO provides purchasing contract rates and rebates the Network would not be able to obtain on its own. The Network holds exchanged membership units in Premier, which have vesting rights over a seven- year period and upon vesting become eligible for exchange into the Class A publically traded common stock of Premier, Inc. The Network currently accounts for its membership units in Premier using the equity method of accounting. The increase in the estimated value of the Network’s membership units as they vest is considered a vendor incentive under applicable accounting literature, which increase the Network’s investment in Premier and reduces supplies expense over the seven-year vesting period. The Network recognized a vendor incentive for the common stock vesting of $2,750 for the year ended December 31, 2015 ($3,329 for the year ended December 31, 2014). Additionally, the Network recognized income from unconsolidated organizations related to Premier of $2,132 for the year ended December 31, 2015 which is recognized as a reduction to supplies and other ($1,511 for the year ended December 31, 2014).

1602-1843091 13 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued)

Goodwill and Identifiable Intangible Assets

Other long-term assets include goodwill and identifiable intangible assets. The carrying value of identifiable intangible assets was $1,505 and $1,966 at December 31, 2015 and 2014, respectively. Identifiable intangible assets are amortized over their estimated expected life, which ranges from 3 to 10 years. Amortization expense related to identifiable intangible assets was $962 for both years ended December 31, 2015 and 2014, and is included in supplies and other expense. Amortization expense is expected to be approximately $482, $394, $272, $243, $114 for the next five fiscal years, respectively.

The carrying value of goodwill was $11,358 at both December 31, 2015 and 2014. The Network annually performs an evaluation of goodwill for impairment considering qualitative and quantitative factors. There was no impairment loss recognized in 2015 or 2014.

Deferred Revenue

The Network’s independent living community, Sycamore Glen Retirement Community, offers four types of resident agreements with regard to the one-time entrance fee paid in addition to the monthly service fees. The portion of the entrance fee that is refundable under these resident agreements varies from 25% to 100%. Additionally, some of the resident agreements include entrance fees that are not refundable.

Beginning in 2004, new resident agreements for residents were changed to stipulate that all or a portion of the entrance fees become refundable when the contract holder’s unit is reoccupied by another person. The portion of the fees that will be paid to current residents or their designees, only to the extent of the proceeds of reoccupancy of a contract holder’s unit, are accounted for as deferred revenue and considered a long-term liability. Prior to the change in resident agreements, the entrance fee was refundable within five months of termination of the resident agreement. The entrance fees associated with these resident agreements are recorded as current liability.

The Network follows Accounting Standards Update (ASU) 2012-01, Continuing Care Retirement Communities – Refundable Advance Fees, to Amend ASC 954, Health Care Entities which clarifies that an entity should classify an advance fee as deferred revenue when a continuing care retirement community has a resident contract that provides for payment of the

1602-1843091 14 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued) refundable advance fee upon reoccupancy by a subsequent resident, which is limited to the proceeds of reoccupancy. Refundable advance fees that are contingent upon reoccupancy by a subsequent resident but are not limited to the proceeds of reoccupancy should be accounted for and reported as a liability, as is the case with the Network.

Description of Net Asset Classes

Net assets are classified into three categories. Temporarily restricted net assets are those whose use by the Network has been limited by donors to a specific time period or purpose, and are restricted primarily for education services, clinical research programs, and capital expenditures. Permanently restricted net assets have been restricted by donors to be maintained by the Network in perpetuity and are primarily restricted in support of the Network’s mission. All other net assets are considered unrestricted.

Donor-Restricted Gifts

Unconditional promises to give cash and other assets to the Network are reported at fair value at the date the promise is received. Conditional promises to give and indications of intentions to give are reported at fair value at the date the gift is received or the condition is 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 the purpose of the restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and are reported in the consolidated statements of operations and changes in net assets as net assets released from restrictions for capital or operations.

Net assets released from restriction for operations are shown as a reduction to supplies and other expense in the consolidated statements of operations and changes in net assets. The amount of net assets released from restriction for operations was $1,199 and $1,301 for the years ended December 31, 2015 and 2014, respectively.

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Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued)

Net Patient Service Revenue

Net patient service revenue for services provided to patients who have third-party payor coverage is recognized based on contractual rates for the services rendered. Amounts recognized are subject to adjustment upon review by third-party payors. The Network recognizes a significant amount of patient service revenue at the time the services are rendered even though they do not assess the patient’s ability to pay. As a result, the provision for bad debts is presented as a deduction from patient service revenue (net of contractual provision and discounts).

For uninsured patients that do not qualify for charity care, the Network recognizes revenue when services are provided. Based on historical experience, a significant portion of the Network’s uninsured patients will be unable or unwilling to pay for the services provided. Thus, the Network records a significant provision for bad debts related to uninsured patients in the period the services are provided. Patient service revenue, net of contractual provision and discounts (but before the provision for bad debts), recognized for the year ended December 31 by major payor source, is as follows:

2015 2014

Medicare $ 512,396 $ 469,710 Medicaid 167,304 141,479 Commercial and other third party 810,811 785,007 Self-pay 15,868 16,414 Total $ 1,506,379 $ 1,412,610

The American Recovery and Reimbursement Act of 2009 established incentive payments under the Medicare and Medicaid programs for certain professionals and hospitals that meaningfully use certified electronic health record technology. Payments under the program are calculated based upon estimated discharges, charity care, and other input data and are predicated upon the Network’s attainment of program and attestation criteria and are subject to regulatory audit. The Network has opted to follow a gain contingency method, under ASC 450, Contingencies, which provides for recognition once attainment of program and attestation criteria has been achieved and amounts can be reasonably estimated. As a result, management estimated and recognized

1602-1843091 16 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued) revenue of $3,626 and $8,295 within net patient service revenue for the years ended December 31, 2015 and 2014, respectively. Amounts recognized are subject to change, with such changes impacting operations in the period in which they occur.

Third-Party Reimbursement Activities

The amounts related to third-party reimbursement activities, reported in the consolidated financial statements, represent estimated settlements outstanding at December 31, 2015 and 2014, which the Network’s management believes will approximate the final settlements after audit by the governmental agencies or other third-party payors.

Amounts reported in the consolidated financial statements consist of the following at December 31:

2015 2014

Other current receivables $ 9,947 $ 8,505 Estimated amounts due to third-party payors (11,213) (3,696) Other long-term liabilities (3,791) (3,831) $ (5,057) $ 978

Reimbursement for the majority of Medicare and Medicaid inpatient services and for Medicare capital costs is based on a prospectively determined fixed price, which varies, based on the illness or medical severity diagnostic related group (MS-DRG). The Network receives reimbursement for services provided under the Medicare and Medicaid programs for outpatients at amounts which approximate either the cost of providing the services or at fees based upon established rates. Reimbursement for the majority of Medicare outpatient services is based on a prospectively determined fixed price, which varies based on the ambulatory payment classification (APC). The Network recognizes contractual adjustments for the Medicare and Medicaid programs when the related patient service revenue is reported in the consolidated financial statements. These contractual adjustments represent the difference between established rates and the MS-DRG and APC payments and established reimbursement on a cost or fee

1602-1843091 17 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued)

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action, including fines, penalties, and exclusion from the Medicare and Medicaid programs. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term. The Network believes that it is in compliance with all applicable laws and regulations.

During the normal course of business, the Network settles prior years’ third-party receivables and liabilities for amounts different than previously estimated. The effect of these settlements and other changes in estimates resulted in an increase in net patient service revenue of $3,073 and $5,508 for the years ended December 31, 2015 and 2014, respectively.

Charity Care

The Network provides medically necessary services without charge or at amounts less than its established rates to patients who meet certain criteria under its charity care policy. In assessing a patient’s ability to pay, the Network not only utilizes generally recognized poverty income levels of the communities it serves, but also includes certain cases where incurred charges are significant when compared to the patient’s financial resources. Charity care amounts are not included in net patient service revenue.

The estimated direct and indirect costs of charity care, quantified as the cost of free or discounted health services provided to persons who cannot afford to pay, was $9,454 and $26,220 for the years ended December 31, 2015 and 2014, respectively. The decrease in charity care is primarily attributable to the increase in Medicaid patients due to the expansion of Medicaid eligibility in the State of Ohio and the resulting decrease in the number of charity patients. Charity care costs are estimated based on multiplying the ratio of costs to gross charges for all payments not attributable to other community benefits programs by the revenue recognized and written off for health services provided to persons who cannot afford to pay. The Ohio Hospital Care Assurance Program (HCAP) provides some reimbursement to the Network for services provided to qualified persons who cannot afford to pay. The amount of HCAP reimbursement was $11,665 and $10,530 for the years ended December 31, 2015 and 2014, respectively, and is included in net patient service revenue.

1602-1843091 18 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued)

Other Revenue

Other revenue includes Kettering College tuition revenue, certain investment (loss) income, retail pharmacy revenue, cafeteria and other food service revenue, rental income, and other miscellaneous revenue.

Other, Primarily Investment (Loss) Income

Other, primarily investment (loss) income is made up of the following components for the years ended December 31:

2015 2014

Investment (loss) income $ (10,560) $ 30,332 Other (673) (1,087) $ (11,233) $ 29,245

The components of other, primarily investment (loss) income are more fully described in the following notes.

Excess of Unrestricted Revenue Over Expenses

The consolidated statements of operations and changes in net assets include the excess of unrestricted revenue over expenses which represents the operating indicator for the Network. Consistent with industry practice, changes in net assets which are excluded from the excess of unrestricted revenue over expenses include investment (loss) income on donor-restricted funds, restricted contributions, and certain pension adjustments.

Federal Income Tax

Primarily all Network entities are recognized as exempt from federal income tax under Section 501(a) of the Internal Revenue Code as a charitable organization qualifying under Internal Revenue Code Section 501(c)(3) with the exception of Kettcor, which is a for-profit corporation. The provision for income taxes for Kettcor is not significant to the Network.

1602-1843091 19 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued)

The Network completed an analysis of its tax positions in accordance with applicable accounting guidance and determined that no amounts were required to be recognized in the consolidated financial statements at December 31, 2015 or 2014.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Reclassification

Certain reclassifications were made to the 2014 consolidated financial statement presentation to conform to the 2015 presentation.

Recent Accounting Pronouncements

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify revenue recognition principles. In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify revenue recognition principles. This guidance is intended to improve disclosure requirements and enhance the comparability of revenue recognition practices. Improved disclosures under the amended guidance relate to the nature, amount, timing and uncertainty of revenue that is recognized from contracts with customers. This guidance will be required to be applied retrospectively (either fully or on a modified approach). Although this guidance was originally expected to be effective for reporting periods beginning after December 15, 2016, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, to delay the effective date of ASU 2014-09 by one year (to reporting periods beginning after December 15, 2017) with early adoption permitted as of the original effective date. The Network is currently evaluating the impact that ASU 2014-09 will have on its consolidated financial statements.

1602-1843091 20 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

1. Organization and Significant Accounting Policies (continued)

Leases

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC 840, Leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Network is currently evaluating the impact that ASU 2016-02 will have on its consolidated financial statements.

Presentation of Debt Issuance Costs

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835- 30), to require debt issuance costs to be presented in the consolidated balance sheet as a direct deduction from the carrying value of the associated debt liability (i.e., a contra liability), consistent with the presentation of a debt discount. This amends current guidance that requires debt issuance costs to be presented as a deferred charge on the consolidated balance sheet (i.e., an asset). This guidance is effective for reporting periods beginning after December 15, 2015 with early adoption permitted. Management elected to adopt ASU 2015-03 early and made the relevant changes for all periods presented in the consolidated financial statements.

2. Concentration of Credit Risk

The Network’s primary purpose is to provide health care services. The Network grants credit without collateral to its patients, most of who are local residents and are insured under third-party payor agreements. The following schedule summarizes the mix of patient accounts receivable at December 31:

2015 2014

Medicare 42% 39% Commercial/managed care 21 21 Other 16 16 Medicaid 19 22 Self-pay 2 2 100% 100%

1602-1843091 21 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

3. Assets Whose Use Is Limited

The following schedule summarizes assets whose use is limited at December 31:

2015 2014

Cash and cash equivalents $ 22,800 $ 25,873 Municipal debt securities 26,293 19,052 U.S. government debt securities 53,519 46,266 U.S. government agency debt securities 59,048 60,741 Corporate debt securities 64,189 65,989 Corporate equity securities 326,705 321,961 Mutual funds 134,738 134,046 687,292 673,928 Less current portion of assets whose use is limited 8,069 7,191 $ 679,223 $ 666,737

The Network maintains diversification in its assets whose use is limited by allocating the assets to various asset classes and market segments and retains multiple professional investment firms with differing investment approaches. Accordingly, based on this diversification, management does not believe there are any material concentrations of credit at December 31, 2015 or 2014.

Interest and dividend earnings, net realized gains on investments, and the net change in unrealized (losses) on investments are considered investment (loss) income. The following schedule summarizes investment (loss) income, excluding investment (loss) income restricted by donors, for the years ended December 31:

2015 2014

Interest and dividend earnings $ 16,756 $ 14,995 Net realized gains on investments 16,107 22,674 Net change in unrealized (losses) on investments (38,809) (1,278) $ (5,946) $ 36,391

1602-1843091 22 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

3. Assets Whose Use Is Limited (continued)

Investment (loss) income is recorded in different consolidated financial statement lines on the consolidated statements of operations and changes in net assets based on the nature of the activities that the investment (loss) income supports or impacts. The following are the details of where investment (loss) income is recorded for the years ended December 31:

2015 2014

Other revenue, net $ 4,614 $ 6,059 Other, primarily investment (loss) income (10,560) 30,332 $ (5,946) $ 36,391

Investment management expenses, which are paid to professional investment managers and custodial organizations, were $2,940 and $2,919 for the years ended December 31, 2015 and 2014, respectively, and are primarily recorded as a reduction in other, primarily investment (loss) income.

There were no unexpended proceeds of the tax-exempt bond obligations at December 31, 2015 or 2014.

4. Property and Equipment, Net

The following schedule summarizes property and equipment, net at December 31:

2015 2014

Land improvements $ 53,440 $ 48,870 Buildings and fixed equipment 989,300 939,813 Movable equipment 609,802 581,625 1,652,542 1,570,308 Less accumulated depreciation (945,627) (867,592) 706,915 702,716

Construction in progress 53,679 36,861 Land 83,020 81,010 $ 843,614 $ 820,587

1602-1843091 23 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

4. Property and Equipment, Net (continued)

Capital lease costs of $15,751 at December 31, 2015 and 2014 are included in buildings and fixed equipment and movable equipment. The accumulated depreciation related to capital leases recorded in accumulated depreciation is $7,994 and $7,225 at December 31, 2015 and 2014, respectively.

Computer software costs are $119,589 and $119,361 at December 31, 2015 and 2014, respectively, and are included in movable equipment. The accumulated depreciation related to computer software recorded in accumulated depreciation is $54,347 and $40,896 at December 31, 2015 and 2014, respectively. The amount amortized for the years ended December 31, 2015 and 2014, related to computer software costs was $13,451 and $13,318, respectively, and is included in depreciation expense.

The Network periodically evaluates property and equipment to determine whether assets may have been impaired. Management has determined there were no impairment issues related to property and equipment as of December 31, 2015 or 2014.

The Network has entered into certain transactions with developers to construct medical office buildings or other structures on land which is owned by the Network. The Network is currently, or will in the future, lease portions of these buildings from the developers. Under applicable accounting guidance, the Network has determined that it maintains risk related to certain of these transactions and, as a result, has recorded the medical office buildings or other structures in property and equipment net, and a related liability, which is included in other long-term liabilities, of $21,043 and $23,951 at December 31, 2015 and 2014, respectively, related to these transactions.

The depreciation expense of $859 and $1,046 at December 31, 2015 and 2014, respectively, recorded on these medical office buildings or other structures is excluded from depreciation expense on the consolidated statements of operations and changes in net assets and is included in other, primarily investment (loss) income. Under the applicable accounting guidance, the rents related to these medical office buildings and other structures are recorded as a reduction in the recorded liability or as an increase to interest expense.

As of December 31, 2015, the Network is contractually obligated for construction projects of approximately $39,590 at current construction cost levels. It is expected that all of these costs will be incurred in the next twelve months. The Network will finance these construction projects through the use of assets whose use is limited and future debt financing.

1602-1843091 24 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

5. Long-Term Debt

The following is a summary of the Network’s long-term debt at December 31:

2015 2014 Hospital Facilities Revenue Bonds, Series 1996, with fixed rates ranging from 5.50% to 6.25%, due in installments from 2009 through 2026, net of unamortized bond discount of $608 ($693 in 2014) and unamortized issuance costs of $387 ($456 in 2014) $ 44,736 $ 47,723

Hospital Facilities Revenue Bonds, Greene County, Series 1999, with a variable rate of 0.07% (0.10% at December 31, 2014), due in installments from 1999 through 2024, net of unamortized issuance costs of $56 ($70 in 2014) 8,974 9,725

Hospital Facilities Revenue Bonds, Series 2009, with fixed rates ranging from 5.00% to 5.50%, due in installments from 2023 through 2039, net of unamortized bond discount of $1,508 ($1,599 in 2014) and unamortized issuance costs of $1,176 ($1,247 in 2014) 97,316 97,154

Hospital Facilities Revenue Bonds, Series 2011, with fixed rates ranging from 4.50% to 6.38%, due in installments from 2023 through 2041, net of unamortized bond discount of $3,827 ($4,032 in 2014) and unamortized issuance costs of $771 ($812 in 2014) 150,833 150,586

Hospital Facilities Revenue Bonds, Series 2011A, with a variable rate of 1.18% (1.23% at December 31, 2014), due in installments from 2012 through 2022, net of unamortized issuance costs of $31 ($40 in 2014) 61,594 69,110

Hospital Facilities Revenue Bonds, Series 2011B, with a variable rate of 1.07% (1.11% at December 31, 2014), due in installments from 2027 through 2047, net of unamortized issuance costs of $71 ($74 in 2014) 93,504 93,501

Hospital Facilities Revenue Bonds, Series 2012 with fixed rates ranging from 4.75% to 5.25%, due in installments from 2023 through 2047, net of unamortized bond premium of $1,189 ($1,241 in 2014) and unamortized issuance costs of $428 ($446 in 2014) 94,101 94,135 Total Hospital Facilities Revenue Bonds 551,058 561,934

1602-1843091 25 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

5. Long-Term Debt (continued)

2015 2014

Other notes payable 27,420 6,790 Capital lease obligations 10,875 11,529 589,353 580,253

Less current portion of long-term debt (11,660) (17,166) $ 577,693 $ 563,087

The following schedule of aggregate future minimum payments for principal repayment (net of discount or premium amortization and debt issuance cost) for all long-term debt based on scheduled maturities:

2016 $ 11,660 2017 38,104 2018 13,283 2019 13,884 2020 15,796 Thereafter through 2048 496,626 $ 589,353

Unamortized debt issuance cost of $2,920 and $3,145 at December 31, 2015 and 2014, respectively, represents costs related to the issuance of hospital facilities revenue bonds or other long-term debt transactions and is included as a reduction of long-term debt upon the adoption of ASU 2015-03 and prior periods have been reclassified for consistent presentation. Substantially all of these amounts are being amortized over the terms of the related long-term debt at amounts approximating the effective interest method.

At December 31, 2015 and 2014, the fair value of the fixed rate long-term debt is $426,449 and $431,552, respectively (carrying amount at December 31, 2015 and 2014, is $395,372 and $398,512, respectively). The fixed rate long-term debt has been valued based on trading history, if any, for the fixed rate long-term debt or the relationship of those fixed rate long-term debt yields with various market indices. The index used in the analysis is from an observable market source. The Network’s long-term debt currently carries an A rating, and, as a result, management, through a third-party provider, used market data that represents A-rated tax-exempt municipal health care bonds to determine the yield and calculate fair value. The yields used

1602-1843091 26 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

5. Long-Term Debt (continued) ranged from 0.18% to 3.58% and 0.49% to 3.89% for the years ended December 31, 2015 and 2014, respectively, based on the date of respective long-term debt principal payments. Management has determined the carrying amount of the Network’s variable rate long-term debt is representative of fair value as the interest rates associated with long-term debt are set by market participants. The determination of the fair value of long-term debt is consistent with a Level 2 measurement in the fair value hierarchy.

Interest payments made were $27,666 and $28,276 for the years ended December 31, 2015 and 2014, respectively. There was no interest capitalized for the years ended December 31, 2015 and 2014.

The Series 1999 Hospital Facilities Revenue Bonds, Greene County (Series 1999 Greene County Bonds) are secured by a letter of credit by JP Morgan Chase, which expires on July 22, 2017. Accordingly, the Series 1999 Greene County Bonds have been classified as long-term debt based on scheduled amortization. The Series 2011A and Series 2011B Hospital Facilities Revenue Bonds are subject to redemption clauses and are held by JP Morgan Chase through a private placement agreement which expires August 1, 2018. Accordingly, the Series 2011A and Series 2011B Hospital Revenue Bonds have been classified as long-term debt based on the scheduled amortization.

Outstanding long-term debt insured under municipal bond insurance policies is $44,736 at December 31, 2015 ($47,723 at December 31, 2014). Under the terms of these policies, the insurer guarantees the Network’s payment of principal and interest. The Obligated Group is liable for all long-term debt issued under an Obligated Group Master Trust Indenture, except for the Series 1999 Greene County Bonds, and has pledged gross unrestricted revenue as security to the bondholders. The Series 1999 Greene County Bonds are an obligation of Greene under a separate Greene Master Trust Indenture. The Obligated Group has entered into a guaranty agreement with the letter of credit bank to guarantee the payment of principal and interest of the Series 1999 Green County Bonds. The Obligated Group is subject to certain covenants under its current long-term debt agreements, Master Trust Indenture, guarantee agreement, municipal bond insurance policies, and the standby bond purchase agreements. Greene, on a stand-alone basis, is subject to certain covenants under its separate Greene Master Trust Indenture. Management is not aware of any violations of these covenants at December 31, 2015 or 2014.

1602-1843091 27 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

5. Long-Term Debt (continued)

Kettcor is a 25% partner in the Greater Dayton Surgery Center, LLC and the Dayton Surgical Properties, LLC. Kettcor guaranteed 25% of both entities’ outstanding long-term debt. Greater Dayton Surgical Center, LLC’s and Dayton Surgical Properties, LLC’s outstanding long-term debt was $1,104 and $1,008, respectively, at December 31, 2015 ($1,241 and $1,135 respectively, at December 31, 2014). The guarantee agreements are recorded as liabilities based on probability of payment and amount in the consolidated financial statements as required by ASC 460, Guarantees.

6. Interest Rate Swap Agreements

The Network has entered into derivative transactions in the form of interest rate swap agreements, which it uses to manage the relative amounts of its fixed and variable rate long-term debt exposure and lower its overall borrowing costs. The interest rate swap agreements are contracts between the Network and a third-party (counterparty) that provide for economic payments between parties based on changes in notional amounts and defined interest rates. The risk of interest rate swap agreements is estimated and managed on an ongoing basis by the Network. The interest rate swap agreements provide counterparty credit risk. This is the risk that contractual obligations of the counterparty will not be fulfilled. Certain collateralization requirements mitigate credit risk associated with the Network’s interest rate swap agreements.

The following schedule includes the notional and valuation amounts (parenthetical amounts represent liabilities) of the Network’s interest rate swap agreements at December 31:

Interest Rate Swap Transaction Interest Termination Notional Amount Valuation Amount Agreement Type Rate Date 2015 2014 2015 2014

June 2005 Pay fixed LIBOR 2024 $ 8,105 $ 8,793 $ (763) $ (874) October 2005 Pay fixed 3.99% 2022 61,625 69,150 953 832 March 2006 Pay variable SIFMA 2016 2,529 5,763 (32) (77) March 2006 Pay variable SIFMA 2022 31,507 31,507 513 455 March 2006 Pay fixed LIBOR 2026 38,020 41,160 (7,635) (8,269) October 2007 Pay fixed LIBOR 2047 94,240 94,240 (29,900) (27,943) December 2008 Pay variable SIFMA 2022 61,625 69,150 (6,118) (7,256) May 2012 Pay variable SIFMA 2017 20,408 20,408 874 777 May 2012 Pay variable SIFMA 2017 20,899 20,899 831 684 May 2012 Pay variable SIFMA 2017 24,211 24,211 971 925 May 2012 Pay variable SIFMA 2017 29,202 29,202 1,049 1,099 $ (39,257) $ (39,647)

1602-1843091 28 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

6. Interest Rate Swap Agreements (continued)

All changes in the fair value of the Network’s interest rate swap agreements are recognized in other income (loss) in the consolidated statements of operations. The following is the detail of income (loss) on interest rate swap agreements for the years ended December 31:

2015 2014

Unrealized gains (losses), net $ 216 $ (3,621) Hedge de-designation impact (45) (95) Settlements/realized losses (126) (277) $ 45 $ (3,993)

Net payments to/from counterparty of $2,247 and $2,932 (expense) for the years ended December 31, 2015 and 2014, respectively, are excluded from income (loss) on interest rate swap agreements and included as an increase in interest expense.

All of the Network’s interest rate swap agreements, except the October 2005 and October 2007 interest rate swap agreements, which are insured, include provisions that require collateralization of the market value of the interest rate swap agreements that exceed certain thresholds. The amount required for collateral is determined daily based on the current market value of the interest rate swap agreements. All of the Network’s interest rate swap agreements outstanding at December 31, 2015 and 2014 were issued pursuant to a single International Swaps and Derivatives Association, Inc. (ISDA) agreement with a single counterparty. Therefore, all interest rate swap agreements are viewed under a master netting arrangement to determine the aggregate amount of collateral to be posted or received by the Network. No collateral was required as of December 31, 2015 or 2014.

7. Line of Credit

KAH has a line of credit with a limit of $25,000 at both December 31, 2015 and 2014, which expires on October 31, 2017, to provide working capital for various operations. Interest is payable monthly on any outstanding balance. The balance outstanding was $25,000 and $0 at December 31, 2015 and 2014, respectively.

1602-1843091 29 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

8. Retirement Plans

Kettering Medical Center Retirement Plan

On January 1, 1992, KAH initiated a defined contribution plan known as Kettering Medical Center Retirement Plan (the Kettering Plan). On January 1, 2001, the Kettering Plan, a church plan, was expanded to include the Grandview Affiliates (now referred to as the Network Plan). The Network provides a discretionary matching employer contribution for eligible employee contributions up to 25% of the first 4% of an employee’s total pay. Employees must have completed 1,000 worked hours in an eligible year to qualify for the Network’s contributions. In 2015, the Network recognized $18,791 ($17,673 in 2014) of expense related to the Network Plan, which is included in employee benefits in the consolidated statements of operations and changes in net assets.

Kettering Defined Benefit Retirement and Health Care Benefit Plans

The Kettering Affiliates participated in noncontributory, defined benefit retirement and health care benefit plans (the Plans) through December 31, 1991. The Plans are multi-employer plans administered by the General Conference of Seventh-day Adventists and cover substantially all full-time employees who were at least 20 years of age at December 31, 1991. The Plans are exempt from compliance with the Employee Retirement Income Security Act of 1974 (ERISA). The Plans were frozen effective December 31, 1991.

Contributions to the Plans are determined by the Plans’ administrators and generally approximate funding levels recommended by consulting actuaries. Although there is no liability to the Kettering Affiliates upon withdrawal from the Plans, withdrawal by other participating entities would likely increase amounts assessed to the Kettering Affiliates and other remaining participants in future years. Management believes that any withdrawal liability will not have a material impact on the consolidated financial statements.

Contributions are allocated to participating organizations based upon total employee hours paid in 1991. There were no contributions in 2015 or 2014.

The Network sponsors certain retirement plans, as defined in the following paragraphs, for the benefit of select employees. These retirement plans require the Network to record long-term assets and/or long-term liabilities for the future benefit of these employees.

1602-1843091 30 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

8. Retirement Plans (continued)

Amounts recorded in the consolidated balance sheets related to these retirement plans are as follows at December 31:

Accrued Retirement Retirement Plan Assets Plan Liability 2015 2014 2015 2014 Supplemental Retirement Allowance Plan $ 3,695 $ 4,572 $ 3,695 $ 4,572 457(b) Eligible Deferred Compensation Plan 13,301 11,276 13,301 11,276 Grandview Defined Benefit Pension Plan – – 18,821 20,548 $ 16,996 $ 15,848 $ 35,817 $ 36,396

Supplemental Retirement Allowance Plan Summary

The Supplemental Retirement Allowance Plan (the SRA Plan) is a nonqualified deferred compensation plan maintained for certain employees of the Network and its affiliates. Covered employees are those (i) who were employed on January 1, 2004, (ii) who had become vested under the Seventh-day Adventist Retirement Plan of the North American Division (the SDA Retirement Plan) on or prior to December 31, 1991, (iii) who were not eligible to receive a “retirement allowance” under the SDA Retirement Plan, and (iv) who maintained continuous employment with the Kettering Affiliates from December 31, 1991 through age 65.

The benefit under the SRA Plan is based on a special benefit that was provided to certain eligible long-term employees under the SDA Retirement Plan when such plan was frozen on December 31, 1991. Generally, the SRA Plan provides eligible employees with five and one-half months of base pay (at the employee’s wage level as of December 31, 1991) following attainment of age 65, prorated downward if the employee had less than 40 years of service prior to the attainment of age 65 under the SDA Retirement Plan.

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Notes to Consolidated Financial Statements (continued) (In Thousands)

8. Retirement Plans (continued)

The SRA Plan provides that benefits are paid in a single lump-sum payment on or as soon as practicable following a participant’s attainment of age 65. The SRA Plan also provides benefits to certain employees who were granted disability retirement benefits under the SDA Retirement Plan or benefits from the Employee Disability Income Plan, if, after discontinuing disability benefits, the employee returns to denominational employment and earns at least ten years of service credit.

457(b) Eligible Deferred Compensation Plan

The purpose of the 457(b) Eligible Deferred Compensation Plan (the 457(b) Plan) is to enable eligible employees, as defined by the 457(b) Plan documents, to enhance their retirement security by permitting them to enter into agreements with the Network to defer a portion of their compensation and receive benefits generally at retirement, death, or in the event of financial hardship due to unforeseeable emergencies. The 457(b) Plan meets the requirements of Section 457(b) of the Internal Revenue Code, as amended. In addition, the 457(b) Plan meets the definition of “church plan” and, as a result, is exempt from ERISA and from certain requirements of the Internal Revenue Code.

Grandview Defined Benefit Pension Plan

The Grandview Affiliates have a defined benefit pension plan (the Grandview Plan) covering substantially all of its employees on record as of December 31, 2000. The benefits are based on years of service and the employee’s compensation during employment, subject to maximum limitations. Grandview Affiliates’ funding policy is to contribute amounts to the Grandview Plan at least equal to the minimum ERISA funding requirements. Effective January 1, 2001, the Grandview Plan was frozen. The Board of Directors adopted an amendment to cease all benefit accruals under the Grandview Plan and discontinue adding participants to the Grandview Plan. At the time of adoption, all Grandview Affiliates’ employees were made eligible to participate in the Network Plan.

The Network recognizes in its consolidated balance sheets the underfunded status of its defined benefit pension, measured as the difference between the fair value of plan assets and the benefit obligation. The Network recognizes the change in the funded status of the plan in the year in which the change occurs through unrestricted net assets.

1602-1843091 32 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

8. Retirement Plans (continued)

A summary of the components of the change in benefit obligation and plan assets for the Grandview Plan and the amounts recognized in the Network’s consolidated financial statements as of December 31 is as follows:

2015 2014 Change in benefit obligation Benefit obligation at beginning of period $ 66,514 $ 55,785 Service cost 95 95 Interest cost 2,447 2,562 Actuarial (gain) loss (3,118) 10,609 Benefits paid (2,619) (2,537) Benefit obligation at end of period 63,319 66,514

Change in plan assets Fair value of plan assets at beginning of period 45,966 43,765 Actual (loss) return on plan assets (314) 2,239 Employer contributions 1,492 2,499 Benefits paid (2,619) (2,537) Fair value of plan assets at end of period 44,498 45,966 Underfunded status $ (18,821) $ (20,548)

The accumulated benefit obligation of the Grandview Plan was $63,319 and $66,514 at December 31, 2015 and 2014, respectively.

Included in unrestricted net assets are the following amounts that have not yet been recognized in net periodic pension expense for the Grandview Plan as of December 31:

2015 2014

Net actuarial loss $ 26,304 $ 28,109 Accumulated excess of employer contributions over net periodic pension expense (7,483) (7,561) $ 18,821 $ 20,548

1602-1843091 33 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

8. Retirement Plans (continued)

The net actuarial loss is amortized as a component of net period pension expense, only if losses exceed 10% of the greater of the projected benefit obligation or the fair value of plan assets. The net actuarial loss included in unrestricted net assets which is expected to be recognized in net periodic pension expense during the year ending December 31, 2016 is $1,709.

The following amounts related to Grandview Plan activity have been recognized as a (decrease) increase in unrestricted net assets for the years ended December 31:

2015 2014

Net actuarial loss $ 897 $ 11,863 Amortization of net actuarial loss (2,728) (1,531) $ (1,831) $ 10,332

The following table summarizes the components of net periodic pension expense, which is included in employee benefits on the consolidated statements of operations and changes in net assets, for the Grandview Plan for the years ended December 31:

2015 2014

Service cost $ 95 $ 95 Interest cost 2,447 2,562 Expected return on plan assets (3,674) (3,502) Amortization of net actuarial loss 2,728 1,531 $ 1,596 $ 686

The following table summarizes the weighted-average assumptions used to determine the projected benefit obligation for the Grandview Plan as of December 31:

2015 2014

Discount rate 4.20% 3.75%

1602-1843091 34 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

8. Retirement Plans (continued)

During 2014, the Society of Actuaries issued new mortality tables (RP-2014) and a mortality improvement scale (MP-2014). Because the RP-2014 and MP-2014 reflect today’s longer life expectancies, this new information was considered by the Network when measuring benefit obligations that are based on the life expectancy of the participants in the Plans. As a result, the Network updated its mortality assumptions from the RP-2000 used in 2013 to the RP-2014, projected generationally with MP-2014 projection scale, for the determination of the Plan’s projected benefit obligation in 2014. This change resulted in an increase the Plan’s projected benefit obligation and decrease in funded status of approximately $2,612 at December 31, 2014.

The following table summarizes the weighted-average assumptions used to determine net periodic pension expense for the years ended December 31:

2015 2014

Discount rate 3.75% 4.69% Expected return on plan assets 8.00 8.00

In selecting the expected long-term return on plan assets, the Network considered the average rate of earnings on the funds invested or to be invested to provide for the benefit obligation of the Grandview Plan. This included considering the Grandview Plan’s asset allocation and the expected returns likely to be earned over the life of the Grandview Plan. This basis is consistent with the prior year.

The following is a summary of the fair value of the Grandview Plan’s plan assets by category at December 31:

2015 2014

Cash and cash equivalents $ 1,223 $ 1,451 Municipal debt securities 1,624 1,443 U.S. government debt securities 4,523 4,762 U.S. government agency debt securities 6,777 6,357 Corporate debt securities 6,594 7,035 Corporate equity securities 23,757 24,918 $ 44,498 $ 45,966

1602-1843091 35 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

8. Retirement Plans (continued)

The Grandview Plan’s plan assets are invested in a portfolio that provides for asset allocation strategies across equity and debt markets in the United States. The portfolio’s objective is to maximize total return, consisting of current income and capital appreciation, without assuming undue risk. Strategies are followed which increase or decrease investments in the equity and debt markets based upon ongoing analysis. The active management process combines judgments about the value of the equity and debt markets and the relative value of a wide variety of securities within these markets. Consideration is given to several variables, including productivity, inflation, global competitiveness, and risk. The Network’s objective is to have 50% invested in corporate equity securities or mutual funds, 45% invested in U.S. government, U.S. government agency, municipal and corporate debt securities, and 5% invested in cash and cash equivalents.

The Network maintains diversification in its plan assets by allocating assets to various asset classes and market segments. Accordingly, based on this diversification, management does not believe there are any concentrations of credit at December 31, 2015 or 2014.

1602-1843091 36 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

8. Retirement Plans (continued)

The following is a summary of the Grandview Plan’s plan assets measured at fair value on a recurring basis based on the fair value hierarchy at:

December 31, 2015 Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 1,223 $ – $ – $ 1,223 Municipal debt securities – 1,624 – 1,624 U.S. government debt securities 4,523 - – 4,523 U.S. government agency debt securities – 6,777 – 6,777

Corporate debt securities: Asset-backed securities – 345 – 345 Communications – 566 – 566 Consumer – 1,187 – 1,187 Energy – 813 – 813 Financial – 2,233 – 2,233 Other – 1,450 – 1,450 Total corporate debt securities – 6,594 – 6,594

Corporate equity securities: Basic materials 528 – – 528 Communications 2,425 – – 2,425 Consumer 8,374 – – 8,374 Energy 1,542 – – 1,542 Financial 4,630 – – 4,630 Industrial 2,528 – – 2,528 Technology 3,329 – – 3,329 Other 401 – – 401 Total corporate equity securities 23,757 – – 23,757 $ 29,503 $ 14,995 $ – $ 44,498

1602-1843091 37 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

8. Retirement Plans (continued)

December 31, 2014 Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 1,451 $ – $ – $ 1,451 Municipal debt securities – 1,443 – 1,443 U.S. government debt securities 4,762 – – 4,762 U.S. government agency debt securities – 6,357 – 6,357

Corporate debt securities: Asset-backed securities – 160 – 160 Communications – 590 – 590 Consumer – 1,290 – 1,290 Energy – 890 – 890 Financial – 2,523 – 2,523 Other – 1,582 – 1,582 Total corporate debt securities – 7,035 – 7,035

Corporate equity securities: Basic materials 765 – – 765 Communications 2,760 – – 2,760 Consumer 8,443 – – 8,443 Energy 2,218 – – 2,218 Financial 4,822 – – 4,822 Industrial 2,822 – – 2,822 Technology 2,950 – – 2,950 Other 138 – – 138 Total corporate equity securities 24,918 – – 24,918 $ 31,131 $ 14,835 $ $ 45,966

The fair value methodologies for cash and cash equivalents and the other asset classes included in Level 1 and Level 2 of the fair value hierarchy above are consistent with the inputs described in Note 11.

1602-1843091 38 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

8. Retirement Plans (continued)

The Network plans to contribute $350 to the Grandview Plan in 2016.

The projected benefit payments for the Grandview Plan are as follows:

2016 $ 2,760 2017 2,905 2018 3,054 2019 3,215 2020 3,365 2021–2025 18,532

9. Commitments and Contingencies

Litigation

The Network is involved in litigation arising in the ordinary course of business. It is not possible to determine the eventual outcome of any presently unresolved litigation. However, in the opinion of management, after consultation with legal counsel, these matters will be resolved without material adverse effect to the Network’s consolidated financial position or results of operations.

General and Professional Liability

The Network is self-insured for professional and general liability losses through an irrevocable trust. Losses from asserted claims and unasserted claims identified under the Network’s incident reporting system are accrued based on estimates that incorporate the Network’s past experience as well as other considerations, including the nature of each claim or incident. An accrual has been made for possible losses attributable to incidents that may have occurred but that have not been identified under the incident reporting system. An actuary has been engaged to determine the appropriate liability to be recorded. The liability for all identified and unidentified claims was estimated as the present value of the future claim payments using a discount rate of 1.70% and 2.75% at December 31, 2015 and 2014, respectively. In the opinion of management, the reserve for professional and general liability losses is adequate to provide for any liabilities arising from these claims within the self-insurance retention levels.

1602-1843091 39 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

9. Commitments and Contingencies (continued)

Operating Leases

The Network leases certain buildings and equipment from third parties, including those discussed in Note 4, in the form of noncancelable operating leases. Rental expense for certain buildings and equipment was $15,326 and $16,241 for the years ended December 31, 2015 and 2014, respectively. The following is a schedule of aggregate future minimum payments under noncancelable operating leases as of December 31, 2015:

2016 $ 12,788 2017 8,824 2018 7,786 2019 6,600 2020 6,080 Thereafter 14,677 $ 56,755

10. Functional Expenses

The Network provides health care, general and administrative, and educational services to residents within its geographical location. Expenses related to providing these services are as follows for the years ended December 31:

2015 2014

Education $ 13,813 $ 13,396 Health care services 1,241,030 1,115,948 General and administrative 183,436 173,917 $ 1,438,279 $ 1,303,261

11. Fair Value Measurements

The carrying amount reported in the consolidated balance sheets for current assets and current liabilities are reasonable estimates of fair value due to the short-term nature of these financial instruments. These financial instruments are not required to be recorded at fair value on a recurring basis and therefore are not disclosed in the accompanying table under ASC 820.

1602-1843091 40 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

11. Fair Value Measurements (continued)

The following tables represent the financial instruments measured at fair value, by asset class on the consolidated balance sheets, under the fair value hierarchy at:

December 31, 2015 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 134,061 $ – $ – $ 134,061 Assets whose use is limited: Cash and cash equivalents 22,800 – – 22,800 Municipal debt securities – 26,293 – 26,293 U.S. government debt securities 53,519 - – 53,519 U.S. government agency debt securities – 59,049 – 59,049 Corporate debt securities: – – Asset-backed securities – 3,848 – 3,848 Communications – 4,782 – 4,782 Consumer – 11,515 – 11,515 Energy – 7,545 – 7,545 Financial – 22,775 – 22,775 Other – 13,724 – 13,724 Total corporate debt securities – 64,189 – 64,189 Corporate equity securities: Basic materials 10,884 – – 10,884 Communications 35,359 – – 35,359 Consumer 111,961 – – 111,961 Energy 20,831 – – 20,831 Financial 64,679 – – 64,679 Industrial 33,636 – – 33,636 Technology 42,021 – – 42,021 Other 7,334 – – 7,334 Total corporate equity securities 326,705 – – 326,705 Mutual funds: Equity 30,864 – – 30,864 Debt 100,662 2,379 – 103,041 Other 832 – – 832 Total mutual funds 132,358 2,379 – 134,737 Total assets whose use is limited 535,382 151,910 – 687,292 Retirement plan assets 16,996 – – 16,996 Total assets at fair value $ 686,439 $ 151,910 $ – $ 838,349

Liabilities Interest rate swap agreements liability $ – $ – $ 39,257 $ 39,257 Total liabilities at fair value $ – $ – $ 39,257 $ 39,257

1602-1843091 41 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

11. Fair Value Measurements (continued)

December 31, 2014 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 127,459 $ – $ – $ 127,459 Assets whose use is limited: Cash and cash equivalents 25,873 – – 25,873 Municipal debt securities – 19,052 – 19,052 U.S. government debt securities 46,266 – – 46,266 U.S. government agency debt securities – 60,741 – 60,741 Corporate debt securities: Asset-backed securities – 2,934 – 2,934 Communications – 4,639 – 4,639 Consumer – 11,660 – 11,660 Energy – 7,908 – 7,908 Financial – 23,658 – 23,658 Other – 15,190 – 15,190 Total corporate debt securities – 65,989 – 65,989 Corporate equity securities: Basic materials 11,535 – – 11,535 Communications 35,384 – – 35,384 Consumer 107,736 – – 107,736 Energy 27,097 – – 27,097 Financial 63,838 – – 63,838 Industrial 36,583 – – 36,583 Technology 38,265 – – 38,265 Other 1,523 – – 1,523 Total corporate equity securities 321,961 – – 321,961 Mutual funds: Equity 27,217 – – 27,217 Debt 104,031 2,385 – 106,416 Other 413 – – 413 Total mutual funds 131,661 2,385 – 134,046 Total assets whose use is limited 525,761 148,167 – 673,928 Retirement plan assets 15,848 – – 15,848 Total assets at fair value $ 669,068 $ 148,167 $ – $ 817,235

Liabilities Interest rate swap agreements liability $ – $ – $ 39,647 $ 39,647 Total liabilities at fair value $ – $ – $ 39,647 $ 39,647

1602-1843091 42 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

11. Fair Value Measurements (continued)

Cash and Cash Equivalents and Assets Whose Use Is Limited

The Network’s cash and cash equivalents and assets whose use is limited are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources, primarily matrix pricing, with reasonable levels of price transparency. Matrix pricing, primarily used for marketable debt securities, is based on quoting prices for securities with similar coupons, ratings, and maturities, rather than on specific bids and offers for the specific security. The types of financial instruments based on quoted market prices in active markets include most U.S. government debt securities, corporate equity securities, mutual funds, and certain money market securities (cash equivalents). Such instruments are generally classified within Level 1 of the fair value hierarchy. The Network does not adjust the quoted market price for such financial instruments.

The types of financial instruments valued based on quoted market prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include certain U.S. government securities, U.S. government agency debt securities, municipal debt securities, corporate debt securities, as well as certain thinly-traded mutual funds. Such financial instruments are generally classified within Level 2 for the fair market value hierarchy. Primarily all of the Network’s marketable debt securities, including corporate asset- backed obligations, are actively traded and the recorded fair value reflects current market conditions. However, due to the inherent volatility in the investment market, there is at least a possibility that recorded investment values may change by a material amount in the near term.

Following is the summary of the inputs and techniques as of December 31, 2015 and 2014, used for valuing Level 2 securities in the portfolio:

Securities Input Technique

Municipal debt securities Broker/Dealer Market U.S. government debt securities Broker/Dealer Market U.S. government agency debt securities Broker/Dealer Market Corporate debt securities Broker/Dealer Market/Income Mutual funds NAV Market

1602-1843091 43 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

11. Fair Value Measurements (continued)

Interest Rate Swap Agreements

The Network participates in interest rate swap agreements to manage its exposures to fluctuations in interest rates and overall long-term debt portfolio. The Network’s interest rate swap agreements are not traded on an exchange. The valuation of interest rate swap agreements is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each interest rate swap agreement based on the respective fixed rates and the LIBOR (or Securities Industry and Financial Markets Association (SIFMA) yield curve adjusted for the spread between the LIBOR (or SIFMA) yield curve and the Federal funds rate for collateralized portions of the liability. The valuation of the Network interest rate swap agreements is performed by the Network’s counterparty and validated through the use of an independent third-party valuation, including the unobservable inputs used in the calculation. Management monitors the changes in the Network’s interest rate swap agreements period to period and ensures all significant changes are disclosed in the consolidated financial statements.

The following is a summary of key inputs used to determine the fair value for each interest rate swap agreement at December 31:

Interest Rate Variable Rate Curve Fixed Rate Discount Rate Swap Agreement 2015 2014 2015 2014 2015 2014

June 2005 LIBOR LIBOR 3.29% 3.29% LIBOR curve LIBOR curve October 2005 SIFMA SIFMA 3.99% 3.99% LIBOR curve LIBOR curve March 2006 SIFMA SIFMA 5.63% 5.63% N/A N/A March 2006 SIFMA SIFMA 5.50% 5.50% N/A N/A March 2006 LIBOR LIBOR 4.48% 4.48% LIBOR curve LIBOR curve October 2007 LIBOR LIBOR 3.57% 3.57% LIBOR curve LIBOR curve December 2008 SIFMA SIFMA N/A N/A LIBOR curve LIBOR curve May 2012 SIFMA SIFMA 5.00% 5.00% N/A N/A May 2012 SIFMA SIFMA 4.75% 4.75% N/A N/A May 2012 SIFMA SIFMA 5.00% 5.00% N/A N/A May 2012 SIFMA SIFMA 5.25% 5.25% N/A N/A

1602-1843091 44 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

11. Fair Value Measurements (continued)

The discounted cash flow analysis reflects the contractual terms of the interest rate swap agreements, including the period to maturity, and uses observed market-based inputs, including interest rate curves and implied volatilities. Valuation adjustments are required to be considered in the determination of fair value. This includes amounts to reflect counterparty credit quality and liquidity risk. Although the Network has determined that certain of the inputs used to value its interest rate swap agreements fall within Level 2 of the fair value hierarchy, certain inputs and the credit valuation adjustment associated with the interest rate swap agreements utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Network or the counterparty. As a result, the Network has determined that its interest rate swap agreements in their entirety are classified in Level 3 of the fair value hierarchy. Increases (decreases) in any of those inputs, specifically assumptions related to the LIBOR or SIFMA curves, in isolation would result in higher (lower) fair value measurement that could be material to the consolidated financial statements. However, based on historical experience, the inputs, including the LIBOR and SIFMA curves, typically change gradually over time.

The following table summarizes the activity related to interest rate swap agreements having fair value measurements based on significant unobservable inputs (Level 3):

Interest Rate Swap Agreements

Fair value at December 31, 2013 $ 35,857 Unrealized losses 13,106 Unrealized gains (9,485) Settlement loss 169 Fair value at December 31, 2014 $ 39,647

Unrealized losses $ 2,049 Unrealized gains (2,265) Settlement gain (174) Fair value at December 31, 2015 $ 39,257

1602-1843091 45 Kettering Health Network

Notes to Consolidated Financial Statements (continued) (In Thousands)

11. Fair Value Measurements (continued)

All realized and unrealized (losses) gains on interest rate swap agreements are included in the consolidated statements of operations and changes in net assets as other (loss) income.

The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair value. Furthermore, while the Network believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the consolidated balance sheet date.

12. Fourth Quarter Adjustments – Unaudited

Companies that are considered public (e.g., have publicly traded debt) are required to disclose significant changes occurring in the fourth quarter that may impact previously reported quarterly consolidated financial statements. Management has determined there are no transactions that require disclosure for the fourth quarter ended December 31, 2015.

13. Subsequent Events

The Network has evaluated and disclosed any subsequent events through April 12, 2016, which is the date the consolidated financial statements were issued and made publicly available.

1602-1843091 46 Supplementary Information

1602-1843091

Ernst & Young LLP Tel: +1 513 612 1400 1900 Scripps Center Fax: +1 513 612 1730 312 Walnut Street ey.com Cincinnati, OH 45202

Report of Independent Auditors on Supplementary Information

The Board of Directors Kettering Health Network

Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying consolidating balance sheet and consolidating statement of operations and changes in net assets are presented for purposes of additional analysis and are not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

April 12, 2016

1602-1843091 47

A member firm of Ernst & Young Global Limited Kettering Health Network

Consolidating Balance Sheet – Assets (In Thousands)

December 31, 2015

Obligated Other Group Entities Eliminations Consolidated Assets Current assets: Cash and cash equivalents $ 123,863 $ 10,198 $ - $ 134,061 Current portion of assets whose use is limited 8,069 – – 8,069 Patient accounts receivable, net of allowance for doubtful receivables 148,367 36,545 (3,633) 181,279 Other receivables 19,215 11,122 – 30,337 Inventories 20,422 3,782 – 24,204 Prepaid expenses and other current assets 12,438 1,759 – 14,197 Total current assets 332,374 63,406 (3,633) 392,147

Assets whose use is limited: Board designated 628,677 5,979 – 634,656 Donor or agency restricted 802 22,565 – 23,367 Trustee-held assets 10,127 11,073 – 21,200 Total assets whose use is limited 639,606 39,617 – 679,223

Retirement plans assets 13,301 3,695 – 16,996 Property and equipment, net 731,990 111,624 – 843,614 Other long-term assets 27,762 14,976 – 42,738

Total assets $ 1,745,033 $ 233,318 $ (3,633) $ 1,974,718

48 1602-1843091 Kettering Health Network

Consolidating Balance Sheet – Liabilities and Net Assets (In Thousands)

December 31, 2015

Obligated Other Group Entities Eliminations Consolidated Liabilities and net assets Current liabilities: Accounts payable $ 83,393 $ 12,401 $ – $ 95,794 Payroll-related liabilities 48,994 28,643 – 77,637 Other accrued liabilities 31,307 16,130 (3,633) 43,804 Accrued interest 5,848 456 – 6,304 Current portion of deferred revenue 137 2,224 – 2,361 Estimated amounts due to third-party payors 10,995 218 – 11,213 Current portion of long-term debt 10,830 830 – 11,660 Total current liabilities 191,504 60,902 (3,633) 248,773

Deferred revenue 893 4,239 – 5,132 Accrued pension liability 32,122 3,695 – 35,817 Professional self-insurance liability 26,920 13,006 – 39,926 Other long-term liabilities 29,486 4,973 – 34,459 Interest rate swap agreements liability 38,495 762 – 39,257 Long-term debt, net of current portion 538,463 39,230 – 577,693 Total liabilities 857,883 126,807 (3,633) 981,057

Net assets: Unrestricted 886,571 79,543 – 966,114 Temporarily restricted 579 20,765 – 21,344 Permanently restricted - 6,203 – 6,203 Total net assets 887,150 106,511 – 993,661 Total liabilities and net assets $ 1,745,033 $ 233,318 $ (3,633) $ 1,974,718

1602-1843091 49 Kettering Health Network

Consolidating Statement of Operations and Changes in Net Assets (In Thousands)

Year Ended December 31, 2015

Obligated Other Group Entities Eliminations Consolidated Unrestricted revenue: Patient service revenue (net of contractual provision and discounts) 1,206,895 337,506 $ (38,022) $ 1,506,379 Provision for bad debts (59,680) (24,643) – (84,323) Net patient service revenue 1,147,215 312,863 (38,022) 1,422,056 Other revenue 64,750 66,139 (49,563) 81,326 Total unrestricted revenue 1,211,965 379,002 (87,585) 1,503,382

Expenses: Salaries and wages 409,170 249,907 (13,121) 645,956 Employee benefits 92,330 50,927 (5,329) 137,928 Supplies and other 280,726 91,675 (1,803) 370,598 Purchased services 180,553 54,046 (67,937) 166,662 Depreciation 74,331 15,118 – 89,449 Interest 24,535 3,151 – 27,686 Total expenses 1,061,645 464,824 (88,190) 1,438,279

Excess of unrestricted revenue over expenses (expenses over unrestricted revenue) before support allocation and other (loss) income 150,320 (85,822) 605 65,103 Support allocation (14,155) 14,760 (605) –

Excess of unrestricted revenue over expenses (expenses over unrestricted revenue) before other (loss) income 136,165 (71,062) – 65,103

Other (loss) income: Income (loss) on interest rate swap agreement 10 35 – 45 Other, primarily investment (loss) income (9,655) (1,578) – (11,233)

Excess of unrestricted revenue over expenses (expenses over unrestricted revenue) 126,520 (72,605) – 53,915

Continued on next page.

1602-1843091 50 Kettering Health Network

Consolidating Statement of Operations and Changes in Net Assets (continued) (In Thousands)

Year Ended December 31, 2015

Obligated Other Group Entities Eliminations Consolidated Unrestricted net assets Excess of unrestricted revenue over expenses (expenses over unrestricted revenue) $ 126,520 (72,605) $ – $ 53,915 Net assets released from restrictions for capital 2,319 206 – 2,525 Transfer (to) from affiliate (39,414) 39,414 – – Change in plan assets and benefit obligation of pension plan 1,831 – – 1,831 Other changes, net (25) 70 – 45 Increase (decrease) in unrestricted net assets 91,231 (32,915) – 58,316

Temporarily restricted net assets Contributions and investment income from restricted investments 1,600 4,216 – 5,816 Net assets released from restrictions for capital (1,599) (926) – (2,525) Net assets released from restrictions for operations - (1,199) – (1,199) Increase (decrease) in temporarily restricted net assets 1 2,091 – 2,092

Permanently restricted net assets Contributions for endowment funds – 10 – 10 Increase in permanently restricted net assets – 10 – 10

Increase (decrease) in net assets 91,232 (30,814) – 60,418 Net assets at beginning of year 795,918 137,325 – 933,243 Net assets at end of year $ 887,150 $ 106,511 $ – $ 993,661

1602-1843091 51 EY | Assurance | Tax | Transactions | Advisory

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APPENDIX C.

SUMMARY OF CERTAIN BOND DOCUMENTS

APPENDIX C

SUMMARY OF CERTAIN BOND DOCUMENTS

TABLE OF CONTENTS

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

SUMMARY OF THE MASTER INDENTURE ...... C-21

SUMMARY OF SUPPLEMENTAL MASTER INDENTURE NUMBER NINETEEN ...... C-37

SUMMARY OF THE LEASES ...... C-37

SUMMARY OF THE SUBLEASES...... C-37

SUMMARY OF THE BOND INDENTURE ...... C-43

SUMMARY OF THE TAX REGULATORY AGREEMENT ...... C-51

APPENDIX C

SUMMARY OF CERTAIN BOND DOCUMENTS

The following are summaries of the Master Indenture, Supplemental Indenture Number Nineteen, the Leases, the Subleases, the Bond Indenture and the Tax Regulatory Agreement. The summaries do not purport to set forth all of the provisions of such documents, to which reference is made for the complete and actual terms thereof. Capitalized terms used but not defined herein shall have the definitions given to them in the attached Official Statement.

DEFINITIONS OF CERTAIN TERMS

The terms defined below are among those used in this Official Statement and in the summaries of the Master Indenture, Supplemental Indenture Number Nineteen, the Leases, the Subleases, the Bond Indenture and the Tax Regulatory Agreement which follow:

“Act” means Chapter 140 of the Ohio Revised Code, as from time to time supplemented and amended.

“Adjusted Annual Revenue” means, as of any date of determination thereof, the total revenues (other than gains or losses upon defeasance of Indebtedness, unrealized gains and losses on Hedge Transactions, unrealized gains and losses on investments and all non-cash transactions as a result of changes in accounting rules) of the members of the Obligated Group for the Fiscal Year in question, including contributions of Current Assets to members of the Obligated Group by Affiliates, less revenues derived from Property financed with the proceeds of Nonrecourse Indebtedness, bad debt allowances, contractual adjustments with third-party payors and adjustments for free services relating to such Fiscal Year and, to the extent otherwise included therein, gifts, grants or bequests of a nonrecurring nature to the extent such gifts, grants and bequests exceed the arithmetic mean of the gifts, grants and bequests of a nonrecurring nature received by members of the Obligated Group during the two immediately preceding Fiscal Years.

“Affiliate” means (a) any corporation, association, business trust, joint venture, partnership or similar entity organized on a for-profit basis under the laws of any state, of which the Corporation (or its members or Governing Body) possesses, directly or indirectly, in excess of 50% of the voting rights with respect thereto, provided that the ability to acquire voting rights shall not be treated as possession of such rights until the rights are acquired, or (b) any other corporation, association, business trust, joint venture, partnership or similar entity organized on a nonprofit basis under the laws of any state, the articles of incorporation, by-laws, articles of association or similar organizational documents of which require or expressly permit the Corporation (or its members or Governing Body) to exercise control thereof, whether through (i) appointment of officers or employees of the Corporation (or its members or Governing Body) to a majority of its governing body on an ex-officio basis (with voting rights), (ii) appointment of a majority of members of such governing body by the Corporation (or its members or Governing Body) or (iii) authority of the Corporation (or its members or Governing Body) to remove a majority of members of such governing body.

“Assumed Amortization Period” means, with respect to any Indebtedness, the principal and interest requirements of which are to be recast for purposes of a calculation of the Debt Service Coverage Ratio, or in connection with the incurrence of Interim Indebtedness, pursuant to the Master Indenture, the period of time determined, at the election of the Obligated Group Representative, pursuant to either (a) or (b) hereafter: (a) twenty-five (25) years or (b) the period of time, not exceeding thirty (30) years, set forth in an opinion delivered to the Master Trustee of an investment banker selected by the Obligated Group Representative and experienced in underwriting indebtedness of the type being recast, or of another Person selected by the Obligated Group Representative and experienced in the issuance and sale of indebtedness of such type, as being the maximum period of time over which indebtedness having comparable terms and security issued or incurred by similar institutions of comparable credit standing would, if then being offered, be marketable on reasonable and customary terms.

“Assumed Interest Rate” means, with respect to any Indebtedness, the principal and interest requirements of which are to be recast for purposes of a calculation of the Debt Service Coverage Ratio or in connection with the incurrence of Interim Indebtedness, the rate per annum determined in accordance with the applicable paragraph set forth below:

(a) With respect to Variable Rate Indebtedness, the rate per annum which was in effect as of the last day of the calendar month next preceding the month in which the determination of Assumed Interest Rate is being made or, if no rate was in effect on such day, then the rate per annum which was in effect on the date on which such Variable Rate Indebtedness was issued or incurred;

(b) With respect to other Indebtedness, the rate per annum determined as of the last day of the calendar month next preceding the month in which the determination of Assumed Interest Rate is being made and determined at the election of the Obligated Group Representative, pursuant to clause (i) or clause (ii) below:

(i) A rate per annum equal to (1) 90%, if interest on the Indebtedness is exempt from Federal income taxation, or (2) 110%, if interest on the Indebtedness is subject to Federal income taxation, of the most recently published daily yields to maturity of United States Treasury obligations adjusted to a constant maturity of 30 years as published by the Board of Governors of the Federal Reserve System; or

(ii) The rate per annum set forth in an opinion delivered to the Master Trustee of an investment banker selected by the Obligated Group Representative and experienced in underwriting indebtedness of the type being recast, or of another Independent Person selected by the Obligated Group Representative and experienced in the issuance and sale of indebtedness of such type, as being the lowest rate of interest (which may be a rate which reflects the exemption of such interest from Federal income taxation if such exemption is then available) at which indebtedness having comparable terms and security, amortized on a level debt service basis over a period of time equal to the Assumed Amortization

C-2

Period, and issued or incurred by similar institutions of comparable credit standing would, if being offered as of such last day of the calendar month, be marketable on reasonable and customary terms; provided that such rate shall not be less than the rate specified in the “Twenty Bond Index” published in The Bond Buyer, or any successor index, as in effect on the date of such opinion.

“Book Value”, (a) when used in connection with Property of an Obligated Issuer, means the value of such Property, net of accumulated depreciation, as it is carried on the books of account of such Obligated Issuer and in conformity with generally accepted accounting principles and (b) when used in connection with Property of the Obligated Group shall mean the aggregate of the values so determined with respect to Property of each member of the Obligated Group, but calculated so that no portion of such value of Property of any member of the Obligated Group is included more than once.

“Capitalization” means the principal amount of all outstanding Long-Term Indebtedness plus the equity accounts of the Obligated Issuers (i.e. unrestricted fund balances). In the case of Long-Term Indebtedness issued or incurred at a discount, such Long-Term Indebtedness shall be valued at the accreted value thereof.

“Completion Indebtedness” means any Long-Term Indebtedness or Interim Indebtedness incurred or issued by any member of the Obligated Group for the purpose of financing (i) the improvement, replacement or renovation of or substitutions for, or additions to, facilities for which Long-Term Indebtedness or Interim Indebtedness has been incurred, necessitated by faulty design, damage to or destruction of such facilities or (ii) the completion of a project for which Long-Term Indebtedness or Interim Indebtedness has already been issued or incurred.

“Convertible Indebtedness” means Indebtedness which by its terms permits the borrower on one or more occasions to establish or to modify the period for which the rate of interest thereon shall be fixed.

“Corporation” or “Kettering” means Kettering Medical Center, a nonprofit corporation incorporated under the laws of the State of Ohio, and its successors and assigns.

“Corporation Lease” means the Agreement of Lease dated as of May 1, 2016 between the Corporation and the Issuer, as amended and supplemented.

“Corporation Sublease” means the Sublease dated as of May 1, 2016 between the Corporation and the Issuer.

“Credit Enhanced Indebtedness” means Indebtedness the principal of or interest on which is secured by the proceeds of an irrevocable letter of credit, surety bond, insurance policy or other credit facility or arrangement with a person not a member of the Obligated Group.

“Current Assets” means cash and cash equivalent deposits, marketable securities, accounts receivable, accrued interest receivable and any other assets of the Obligated Group which at the time of computation thereof are considered current assets under generally accepted

C-3

accounting principles (including those set forth under the heading of other assets which otherwise would qualify therefor) except that, regardless of generally accepted accounting principles, Current Assets shall include cash and cash equivalent deposits and marketable securities (“Board Designated Assets”) that have been designated as such by the Governing Body of any member of the Obligated Group except for assets that have been contractually committed by action of that Governing Body to pay part of the costs of a particular capital project with respect to which Indebtedness has been incurred and the completion of which capital project has not been abandoned by action of that Governing Body; provided that funds held by trustees for the self-insurance of professional liability shall be treated as Current Assets, notwithstanding the characterization to the contrary on the balance sheets of the Obligated Group.

“Debt Service Coverage Ratio” means the ratio of Net Income Available for Debt Service for the period in question to the Maximum Annual Debt Service, consisting of principal payments (whether at maturity or pursuant to sinking fund redemption requirements) and interest payments of the Obligated Group on outstanding Long-Term Indebtedness (including certain Interim Indebtedness and including Long-Term Indebtedness arising from Guaranties) for the then current or any succeeding Fiscal Year; provided, however, that for purposes of calculating such ratio:

(a) principal and interest requirements on Long-Term Indebtedness, or portions thereof, shall not be included in the computation of the Maximum Annual Debt Service (i) until the Fiscal Year in which such principal or interest, or portions thereof, first becomes payable, and with respect to the Fiscal Year in which it first shall become payable, only to the extent it shall be payable, from sources other than amounts deposited in trust, escrowee or otherwise set aside for the payment thereof at the time of incurrence of Indebtedness (including without limitations, so as to prevent the double-counting of any Indebtedness in the computation of the Maximum Annual Debt Service, capitalized interest and accrued interest so deposited into trust, escrowee or otherwise set aside) with the Master Trustee, a Related Bond Trustee or another person approved by the Master Trustee, and (ii) following deposit of amounts in trust, escrowee or otherwise set aside with the Master Trustee, any Related Bond Trustee or another Person approved by the Master Trustee which are sufficient in time and amount to pay such principal and interest;

(b) any Long-Term Indebtedness having a single principal maturity and no sinking fund redemption requirements, or having a principal amount due in any Fiscal Year in an amount equal to 20% or more of the principal amount of such Long-Term Indebtedness and with no mandatory sinking fund redemption requirements shall be deemed to bear interest at the Assumed Interest Rate determined in accordance with paragraph (a) of the definition of Assumed Interest Rate and shall be deemed to be amortized on a level debt service basis over a period equal to the Assumed Amortization Period;

(c) the interest on any Variable Rate Indebtedness shall be calculated in accordance with paragraph (a) of the definition of Assumed Interest Rate;

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(d) the annual principal and interest payments on Indebtedness arising from any Guaranty shall be taken into account as follows:

(i) if at any time within the 18 months immediately preceding the computation date, the obligee of the guaranteed Indebtedness shall have demanded that the guarantor pay all or a portion of principal of or interest on the guaranteed Indebtedness and if within 30 calendar days of the guarantor’s receipt of such demand, the Obligated Group Representative shall have failed to deliver to the Master Trustee an Opinion of Counsel to the effect that the guarantor is not legally obligated to honor such demand, then 100% of the portion of the annual principal and interest payments scheduled to become due on the guaranteed Indebtedness which the guarantor shall be obligated to pay; or

(ii) otherwise, twenty percent (20%) of the annual principal and interest payments scheduled to become due on the guaranteed Indebtedness;

provided that, if the principal amount of the guaranteed Indebtedness is not more than $1,000,000 and the total principal amount of all Indebtedness secured by any Guaranty by any member of the Obligated Group is not more than $10,000,000, then the annual principal and interest payments on Indebtedness arising from a Guaranty shall not be taken into account;

(e) notwithstanding the requirements of paragraph (d) hereof, principal and interest requirements on outstanding Long-Term Indebtedness arising from any Guaranty by a member of the Obligated Group shall not be taken into account if such member or any other member of the Obligated Group is the obligor of the guaranteed Indebtedness;

(f) principal and interest requirements on Long-Term Indebtedness, or portions thereof, shall not be included in the computation of the Maximum Annual Debt Service due in any Fiscal Year to the extent that a Federal, state or local government has absolutely, unconditionally and irrevocably committed to make payments in such Fiscal Year to or for the benefit of a member of the Obligated Group and the application of such payments is limited to the payment of such principal and interest; provided, however, that the exclusion set forth in this subsection (f) shall apply only if an Officer’s Certificate shall be delivered to the Master Trustee describing the amount to be excluded hereunder and the year of such exclusion and only if such Officer’s Certificate shall be accompanied by a copy of the contract, commitment letter or other evidence of the Federal, state or local government’s commitment together with an Opinion of Counsel to the effect that such commitment is absolute, unconditional and irrevocable and that the amounts so committed are legally and validly restricted to the payment of principal and/or interest on Long-Term Indebtedness;

(g) debt service on Optional Tender Indebtedness shall not include amounts payable upon exercise by the holder thereof of the option to tender such Indebtedness for payment to the extent and for so long as a Person other than an Obligated Issuer is required to provide the moneys necessary for such payment (the “Liquidity Backer”), shall be

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deemed to include any periodic fees of the Liquidity Backer and shall not be based upon the terms of any reimbursement obligation to the Liquidity Backer except to the extent and for periods during which payments have been required to be made pursuant to such reimbursement obligation due to the Liquidity Backer advancing funds and not being reimbursed;

(h) debt service on Convertible Indebtedness shall be determined based upon the type of Indebtedness the Convertible Indebtedness will be at the time of calculation if each of the following tests is satisfied: (i) the Obligated Issuer incurring such Indebtedness has no current intention or expectation that the conversion option of such Indebtedness will be exercised at any particular future time, (ii) the conversion option has been included to provide flexibility in reacting to future circumstances, (iii) the conversion option has not been included for the purpose of avoiding any limit or restriction herein on the incurrence of Indebtedness of a type into which such Convertible Indebtedness may by its terms be converted and (iv) the Officer’s Certificate required by the Master Indenture with respect to Convertible Indebtedness has been filed with the Master Trustee. If any one or more of the foregoing tests are not satisfied, debt service on Convertible Indebtedness shall be calculated at the higher of the debt service at the time of calculation or debt service upon conversion; and

(i) debt service on Credit Enhanced Indebtedness shall be deemed to include all periodic payments to the Credit Enhancer but shall not be based upon the terms of any reimbursement obligation to the Credit Enhancer except to the extent and for periods during which payments have been required to be made pursuant to such reimbursement obligation due to the Credit Enhancer advancing funds and not being reimbursed. Any Obligated Issuer which also is undertaking any contingent repayment obligation to a Person other than an Obligated Issuer who has undertaken to provide moneys necessary for payment to holders of such Credit Enhanced Indebtedness (the “Credit Enhancer”) shall not also be deemed to be incurring separate Indebtedness to the Credit Enhancer.

“Defeasance Obligations”, as used in the Bond Indenture, means (i) direct general obligations of the United States of America, which shall specifically include obligations of the Resolution Funding Corporation; and (ii) evidences of ownership of proportionate interests in future interest or principal payments on obligations specified in clause (i) of this definition held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor on the underlying obligations described in clause (i) of this definition, and which underlying obligations are not available to satisfy any claim of the custodian or any person claiming through the custodian or to whom the custodian may be obligated.

“Defeasance Obligations”, as used in the Master Indenture, means (i) Federal Securities; (ii) evidences of ownership of proportionate interests in future interest or principal payments on obligations specified in clause (i) or (iii) of this definition held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor on the underlying obligations described in clause (i) of this definition, and which underlying obligations are not available to satisfy any

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claim of the custodian or any person claiming through the custodian or to whom the custodian may be obligated; (iii) obligations issued by or on behalf of states or political subdivisions, (A) provision for the payment of the principal of, premium, if any, and interest on which shall have been made by irrevocable deposit with a bank or trust company in the capacity of trustee or escrow agent of cash or obligations described in (i) or (ii) above, the maturing principal of and interest on which, when due and payable (without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom), shall provide sufficient money to pay the principal of, any redemption premium and interest, if any, on such obligations issued by or on behalf of states of political subdivisions and (B) which obligations are rated at the time of acquisition in the highest rating category by a Rating Service; and (iv) any obligations issued by or on behalf of states or political subdivisions which are insured and are rated in either of the two highest Rating Categories by a Rating Service, at the time of the acquisition of such obligations.

Notwithstanding the foregoing provisions of this definition, the Supplemental Indenture or Related Bond Indenture pursuant to which a series of Notes or Related Bonds, respectively, is issued may preclude providing for the payment thereof through the deposit of one or more types of Defeasance Obligations described in the preceding paragraph, and as to such series of Notes or Related Bonds, respectively, the provisions of such Supplemental Indenture or Related Bond Indenture shall control.

“Excluded Property” means (a) the Property described in Exhibit B to the Master Indenture, as amended or supplemented from time to time and (b) Real Property financed solely with the proceeds of Nonrecourse Indebtedness.

“Existing Facilities” means the Existing Real Property and all Hospital Facilities acquired, constructed and installed on the Existing Real Property including, without limitation, the Project.

“Existing Real Property” means the real estate described in Exhibit A attached to the Bond Indenture as of the date of the original execution thereof.

“Fair Market Value” means the value established for Property pursuant to an appraisal made by an Independent Person appointed by the Obligated Group Representative and experienced in appraising the value of assets similar or identical to the Property; provided, however, that if at the time a determination of Fair Market Value is required under any provision of the Master Indenture the Debt Service Coverage Ratio for the then most recently completed Fiscal Year for which financial statements have been delivered is not less than 2.00, then such appraisal may be made by any Person, otherwise qualified under the foregoing provisions of this definition and without regard to whether or not such Person shall be an officer or employee of any member of the Obligated Group or an employee or elected official of any Related Issuer.

“Federal Securities” means direct obligations of, or obligations the full and timely payment of the principal and interest on which is unconditionally guaranteed by, the United States of America, and shall specifically include obligations of the Resolution Funding Corporation. Evidence of ownership of proportionate interests in federal securities shall also constitute federal securities, as long as the Master Trustee shall have received an Opinion of

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Counsel that the owner of a proportionate interest in federal securities is the real party in interest and has the right to proceed against the obligor on the underlying federal securities and which underlying federal securities are not available to satisfy any claim of any custodian of the underlying federal securities or any Person claiming through the custodian or to whom the custodian may be obligated and that evidence of ownership of proportionate interest in such federal securities is not subject to, or is exempt from registration under the Securities Act of 1933.

“Fiscal Year” means, with respect to each member of the Obligated Group, that period of twelve complete, consecutive calendar months determined by the Obligated Group Representative (which determination shall be made by delivery of written notice thereof to the Master Trustee) to be the fiscal year of the members of the Obligated Group and which period shall have been reported on by an Independent Certified Public Accountant.

“Governing Body” means, with respect to each Lessee, the board of directors or board of trustees of such Lessee, or if there is no board of trustees or board of directors, then such Person or body which pursuant to law or the organizational documents of the Obligated Issuer is vested with powers similar to those vested in a board of trustees or a board of directors; the term also encompasses any committee empowered to act on behalf of such board or body.

“Governmental Regulations” means state or Federal laws or regulations or administrative interpretations of such laws or regulations then in existence, cost containment requirements or restrictions on rates, charges and/or revenues of the members of the Obligated Group, or reimbursement regulations and policies which may be imposed by third-party payors (whether governmental or private).

“Grandview” means Dayton Osteopathic Hospital d/b/a Grandview Hospital and Medical Center, a nonprofit corporation incorporated under the laws of the State of Ohio, and its successors and assigns.

“Grandview Lease” means the Agreement of Lease dated as of May 1, 2016 between Grandview and the Issuer.

“Grandview Sublease” means the Sublease dated as of May 1, 2016 between the Issuer and Grandview.

“Gross Receipts” means all cash and other receipts, present and future accounts, receivables, contracts and contract rights (including particularly contracts, agreements, contract rights and agreement rights, particularly those between any member of the Obligated Group and the State of Ohio with respect to Medicaid, any member of the Obligated Group and third-party insurers of patients of any members of the Obligated Group and any member of the Obligated Group and the United States of America with respect to Medicare, and all other equivalent insurance programs, or any state or federal program substituted in lieu thereof), general intangibles, documents and instruments, which are now owned or hereafter acquired by the Obligated Group, and all proceeds therefrom, whether cash or noncash, derived by the Obligated Group from the conduct of all or any part of its operations, and all revenue and income of the

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Obligated Group from whatever source derived, including not only that derived by the Obligated Group from the Existing Facilities but also from any and all facilities hereafter acquired, leased or used by the Obligated Group, income from and the principal of investments, lease and income received from lease, and grants received by the Obligated Group from any source and excluding only (i) grants, gifts, bequests, contributions and other donations, to the extent specifically restricted by the donor or grantor to a special object or purpose so as to preclude use thereof for payment of principal or interest on the Notes, (ii) the proceeds of any borrowing or any funds held in trust by a trustee as security for each borrowing, (iii) revenues, income, receipts and money received by a member of the Obligated Group as agent for and on behalf of a Person other than a member of the Obligated Group, and (iv) any Property that is the subject of a lien or encumbrance permitted by the Master Indenture or that has been conveyed or otherwise disposed of as permitted by the Master Indenture.

“Guaranty” means a loan commitment or obligation of any Obligated Issuer which loan commitment or obligation guarantees in any manner whether directly or indirectly any obligation of any other Person which obligation would, if such other Person were an Obligated Issuer, constitute Indebtedness under the Master Indenture; provided, however, that notwithstanding the foregoing, none of the following shall be deemed to constitute a Guaranty: (a) the endorsement in the ordinary course of business of negotiable instruments for deposit or collection; (b) rentals payable in future years under leases, other than leases properly capitalized under generally accepted accounting principles; (c) any indemnification agreement entered into by any Obligated Issuer in connection with surety bonds, performance bonds, bid bonds, material bonds, labor bonds, stay bonds, appeal bonds and other similar bonds except to the extent any of such bonds requires reimbursement of reserves; (d) any income maintenance agreement with or on behalf of physicians or employees of the Corporation or any Affiliate in connection with recruiting or other staff requirements; (e) the discount or sale with recourse of any such Person’s notes receivable or accounts receivable; and (f) any obligation of such Person guaranteeing or in effect guaranteeing any obligation of the primary obligor which does not constitute a sum certain.

“Hedge Transactions” means (a) any agreement, device or arrangement designed to protect a Member of the Obligated Group from fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, dollar-denominated or cross-currency exchange agreements, forward currency exchange agreements, interest rate caps, collars or floors, forward rate currency or interest rate options, puts, warrants, swaps, swaptions, U.S. Treasury locks and U.S. Treasury options, (b) any other interest rate hedging transactions, such as, but not limited to, managing a Member of the Obligated Group’s interest rate risk associated with any pending or potential capital market transactions such as fixed rate bond issues and (c) any and all cancellations, buybacks, reversals, terminations or assignments of any of the foregoing.

“Indebtedness” means, without duplication, (a) all indebtedness of the Obligated Group and each member thereof for borrowed moneys which is shown, under generally accepted accounting principles, on the balance sheet of that member as a liability; (b) all indebtedness for borrowed moneys, no matter how created, secured by Property (other than Excluded Property) of any member of the Obligated Group, whether or not such indebtedness is assumed by any member of the Obligated Group; (c) the liability of any member of the Obligated Group under any lease of real or Personal property which is properly capitalized on the balance sheet of any

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member of the Obligated Group in accordance with generally accepted accounting principles; and (d) any Guaranty; provided that if more than one instrument represents the same obligation to make payments it shall be counted only once; and provided further that Indebtedness shall not include (i) payments required to be deposited into any reserve funds pursuant to the provisions of any indenture or other agreement securing Indebtedness or Related Bonds; (ii) any obligation owed by one member of the Obligated Group to another member of the Obligated Group; (iii) Nonrecourse Indebtedness; (iv) any continuing obligation of any member of the Obligated Group to pay principal of and interest on Indebtedness on Related Bonds which are deemed discharged or defeased in accordance with the agreement or instrument creating or evidencing such Indebtedness or Related Bonds; (v) any obligation to reimburse any Person for the payment of Indebtedness or the payment of debt service on any Related Bonds; (vi) dividends which have been declared with respect to stock of an Obligated Issuer unless and until such dividends shall remain unpaid on the date established for the payment thereof; (vii) Indebtedness for which moneys or obligations are on deposit in an irrevocable escrow and such moneys or obligations (including, where appropriate, the earnings or other investment to accrue thereon) are required to be applied solely to pay on a timely basis such amounts and such moneys or obligations so required to be applied are sufficient to pay such amounts; (viii) deferred compensation agreements between Obligated Issuers and employees of such Obligated Issuers, to the extent that payments under such deferred compensation agreements are secured by, or are otherwise to be made from, assets of such Obligated Issuers of equal or greater value, which are segregated for such purpose; (ix) accounts payable obligations of Obligated Issuers arising in the ordinary course of business; and (x) Hedge Transactions. As of any date of computation, the principal amount of any Indebtedness arising from any Guaranty shall be deemed to be an amount calculated as follows:

(a) if any time within the 18 months immediately preceding the computation date, the obligee of the guaranteed indebtedness shall have demanded that the guarantor pay all or a portion of principal of or interest on the guaranteed indebtedness and if within thirty (30) calendar days of the guarantor’s receipt of such demand the Obligated Group Representative shall have failed to deliver to the Master Trustee an Opinion of Counsel to the effect that the guarantor is not legally obligated to honor such demand, then 100% of the outstanding principal balance of the guaranteed indebtedness; or

(b) otherwise, twenty percent (20%) of the then outstanding principal balance of the guaranteed indebtedness.

“Independent Certified Public Accountant” means an Independent Person qualified as a certified public accountant.

“Independent Consultant” means an Independent Person (which may be an Independent Certified Public Accountant) with experience in the health care field (or other appropriate experience if the Obligated Issuer is not in the health care field) appointed by the Obligated Group Representative and while a Municipal Bond Insurance Policy shall be in full force and effect with respect to part or all of any series of Indebtedness or while a Bond Insurer shall own any Indebtedness, approved by such Bond Insurer, qualified to pass upon questions relating to the financial affairs of facilities of the type or types operated by the members of the Obligated

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Group and having a favorable reputation for skill and experience in the financial affairs of such facilities.

“Independent Engineer” means an Independent Person qualified to practice the profession of architecture or engineering.

“Independent Insurance Consultant” means any Independent Person, appointed by the Obligated Group Representative and while a Municipal Bond Insurance Policy shall be in full force and effect with respect to part or all of any series of Indebtedness or while a Bond Insurer shall own any Indebtedness, not unsatisfactory to such Bond Insurer, qualified to survey risks and to recommend insurance coverage for facilities of the type or types operated by the members of the Obligated Group and services and organizations engaged in like operations and having a favorable reputation for skill and experience in such surveys and such recommendations.

“Independent Person” means a Person in which no partner (treating a shareholder of a professional association which is a partner as though such shareholder were a partner), director, officer or employee is a member, stockholder, partner, director, officer or employee of a member of the Obligated Group.

“Insured Bonds” means any series of Related Bonds the payment of principal and interest on which is insured by a Bond Insurer.

“Insured Indebtedness” means any series of Indebtedness the payment of principal and interest on which is insured by a Bond Insurer.

“Interim Indebtedness” means Indebtedness incurred or assumed in anticipation of being refinanced or refunded with Long-Term Indebtedness.

“Leases” means, collectively, the Corporation Lease, the Soin Lease and the Grandview Lease.

“Lessee Documents” means, collectively, the Leases and the Subleases.

“Lessees” means, collectively, the Corporation, Soin and Grandview.

“Lien” means any Mortgage or other encumbrance on, any property of any Obligated Issuer which secures any Indebtedness or any other obligation of any Obligated Issuer other than an obligation to any other Obligated Issuer; provided, however, that any lien applicable to Property in which any Obligated Issuer has only a leasehold interest shall be deemed a “Lien” only if such lien secures Indebtedness.

“Long-Term”, when used in connection with Indebtedness, means Indebtedness (including that evidenced or collateralized by Notes) having an original maturity greater than one year (including demand notes with alternative stated maturities of less than one year unless and until a demand for the payment thereof shall have been made) or renewable at the option of the obligor for a period greater than one year from the date of original incurrence or issuance

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thereof, which shall not include the current portion of such Long-Term Indebtedness as determined in accordance with generally accepted accounting principles.

“Maximum Annual Debt Service”, as used in the Master Indenture, means the aggregate maximum annual scheduled payments of principal (including mandatory sinking fund redemption requirements) and interest on Long-Term Indebtedness computed in accordance with clauses (a) through (i) of the definition of Debt Service Coverage Ratio due in any succeeding Fiscal Year.

“Mortgage” means any mortgage, deed of trust, collateral assignment of lease, security interest and other lien, charge or encumbrance on or pledge of Property given as security for the payment of Indebtedness or the performance of other obligations.

“Net Income Available for Debt Service” means, with respect to any period of calculation, the excess of total Adjusted Annual Revenue of the Obligated Group over total expenses of the Obligated Group (including without limitation all property, franchise, income, sales, use and other taxes, assessments and governmental charges) other than (i) expenses directly incurred with respect to Property the acquisition of which has been financed from the proceeds of Nonrecourse Indebtedness, (ii) depreciation, amortization and interest on Long-Term Indebtedness (including the current portion thereof) and (iii) all Federal, state and local taxes assessed with respect to the income of any member of the Obligated Group if and to the extent that such income shall not have been included in the determination of Adjusted Annual Revenue, all as determined in accordance with generally accepted accounting principles consistently applied, which may be determined on a consolidated or combined basis, but excluding: (a) material balances and transactions between or among members of the Obligated Group; (b) all insurance proceeds payable as a result of casualty or other similar circumstances (other than the proceeds of medical and health insurance received for services rendered by a member of the Obligated Group or by a physician on behalf of such member, the proceeds of casualty insurance but only to the extent that the loss resulting from the casualty is included in the total expenses of the Obligated Group with respect to the period in question, and the proceeds of business interruption insurance); (c) gains and losses from the sale of capital assets; and (d) gains and losses attributable to refundings, advance refundings and other early extinguishments of Indebtedness or Nonrecourse Indebtedness.

“Nonrecourse Indebtedness” means any Indebtedness secured by and payable from sources limited solely to the revenues and/or Property associated with the project financed by such Indebtedness; provided, however, that the instrument evidencing such Indebtedness shall provide that it is with no recourse, directly or indirectly, to any other Property (except Excluded Property) or revenues of any member of the Obligated Group; provided, however, that such Property (except Excluded Property) shall not be Property to which any member of the Obligated Group has title as of the date of delivery of the Master Indenture.

“Note” means any Note issued, authenticated and delivered under the Master Indenture to evidence Indebtedness or obligations under Hedge Transactions. References to Notes of a series or such series shall mean the Notes or series issued pursuant to, and in the form set forth in, the Related Supplemental Indenture authorizing their issuance. Notwithstanding the foregoing, prior

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to the termination of a Hedge Transaction which is secured by a Note, such Note shall be deemed outstanding under the Master Indenture solely for the purpose of receiving payments under the Master Indenture and the Holder of such Note shall not be entitled to exercise any rights under the Master Indenture. The periodic payments made pursuant to a Hedge Transaction secured by a Note shall be deemed to constitute Indebtedness under the Master Indenture solely for purposes of the Supplemental Indenture Number Eight dated as of January 1, 2008, supplemental to the Master Indenture.

“Obligated Group” means all Obligated Issuers.

“Obligated Group Representative” means any one of such officer or officers of the Corporation as may be designated pursuant to a written notice delivered to the Master Trustee executed on behalf of the Corporation by the president, any vice president or treasurer.

“Obligated Issuer” means the Corporation, Grandview, Soin and any Person which has become an Obligated Issuer under the Master Indenture.

“Officer’s Certificate” means, in the case of any Obligated Issuer which is a corporation, a certificate signed by the president or any vice president of such Obligated Issuer; in the case of the entire Obligated Group, by the Obligated Group Representative; or in the case of any Obligated Issuer which is not a corporation, by the managing partner or other Person in which the power to act on behalf of such Person is vested by law, the organizational documents of such Obligated Issuer or by subsequent action of its Governing Body.

“Opinion of Bond Counsel” means an opinion in writing signed by a firm of attorneys which shall be nationally recognized as experienced in matters pertaining to the validity of obligations of governmental issuers (as such term is defined within the definition of the term “Related Bonds”) and the exemption from Federal income taxation of interest on such obligations.

“Opinion of Counsel” means an opinion in writing signed by an attorney or firm of attorneys who may be an employee of or counsel to any Obligated Issuer and who shall be reasonably satisfactory to the Master Trustee.

“Optional Tender Indebtedness” means any portion of Indebtedness a feature of which is an option on the part of the holders of such Indebtedness to tender for purchase at a stated purchase price prior to its stated due date all or a portion of such Indebtedness to one or more members of the Obligated Group or an agent, or a trustee or other fiduciary for such holders, or other party whom one or more members of the Obligated Group are obligated to reimburse.

“Permitted Encumbrances” means:

(a) Liens created by the Master Indenture or any Supplemental Indenture, all Related Bond Indentures and any loan, lease, sublease, guaranty, sale or similar agreement entered into in connection with the issuance of and providing for or securing the payment of Related Bonds or any reimbursement agreement related to the above;

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(b) Liens arising by reason of good faith deposits by any Obligated Issuer in connection with tenders, leases of real estate, or tangible Personal property, bids or contracts (other than contracts for the payment of money), deposits by any Obligated Issuer to secure public or statutory obligations, or as security for a surety or an issuer of, or in lieu of, surety, performance bonds, bid bonds, material bonds, labor bonds, stay bonds, appeal bonds or other similar bonds and deposits as security for the payment of taxes or assessments or other similar charges;

(c) any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation (i) as a condition to the transaction of any business or the exercise of any privilege or license, or (ii) to enable any Obligated Issuer to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with worker’s compensation, unemployment insurance, old age pension or other social security, or to share in the privileges or benefits required for companies participating in such arrangements;

(d) any judgment Lien against any Obligated Issuer, so long as the finality of such judgment is being contested and execution thereon is stayed or provision for payment of the judgment has been made in accordance with applicable law or by the deposit of cash or Federal Securities with the Master Trustee or a commercial bank or trust company acceptable to the Master Trustee;

(e) (i) rights reserved to or vested in any municipality or public authority by the terms of any right, power, franchise, grant, license, permit or provision of law, affecting any Property, to (A) terminate such power, franchise, grant, license or permit, or (B) purchase, condemn, appropriate or recapture, or designate a purchaser of, such Property; (ii) any Liens on any Property for taxes, assessments, levies, fees, water and sewer rents, and other governmental and similar charges and any liens of mechanics, materialmen, laborers, suppliers or vendors for work or services performed or materials furnished in connection with such Property, which are not due and payable or which are not delinquent or which, or the amount or validity of which, are being contested and execution thereon is stayed; (iii) easements, rights-of-way, servitudes, restrictions and other defects, encumbrances, and irregularities in the title to any Property which do not materially impair the use of such Property or materially and adversely affect the value thereof (for purposes of this clause (iii) the absence of such material impairment or such material and adverse effect can be conclusively established by an Officer’s Certificate delivered to the Master Trustee); (iv) rights reserved to or vested in any municipality or public authority to control or regulate any Property or to use such Property in any manner; and (v) landlord’s liens;

(f) encumbrances arising from grants, loans or guarantees of the United States of America pursuant to 42 U.S.C. §291 et seq. (the “Hill-Burton Act”) or 42 U.S.C. §300 et seq.; and other existing encumbrances arising from grants or loans from, or guarantees of

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Indebtedness by Federal, state and local governments or agencies thereof certified in an Officer’s Certificate to be similar in nature to the encumbrances described in the first part of this clause (f);

(g) Liens for taxes and special assessments not then delinquent or being contested in accordance with the provisions of the Master Indenture;

(h) any Mortgage permitted by the Master Indenture;

(i) any lease or sublease of real or personal property or space within its real or personal property to any Person; provided that where the application of generally accepted accounting principles would require the Person leasing such real or personal property or such space from any member of the Obligated Group to treat the lease as Indebtedness (were such Person a member of the Obligated Group), the lease or sublease shall be treated as a disposition of Property by a member of the Obligated Group which must qualify under paragraphs (a) or (b) under the caption “SUMMARY OF THE MASTER INDENTURE - Restrictions on Transfers of Property”;

(j) other mortgages, security interests, liens, charges and encumbrances expressly permitted by the terms of the Master Indenture;

(k) reservations contained in patents from the United States of America;

(l) Liens existing on Property when received by an Obligated Issuer through gifts, grants or bequests; provided that no such Lien may be extended, renewed or modified so as to apply to any Property of any Obligated Issuer not previously subject to such Liens, unless such Lien, as so extended, renewed or modified otherwise qualifies as a Permitted Encumbrance under the Master Indenture;

(m) Liens on moneys deposited by patients or others with any Obligated Issuer as security for or as prepayment for the cost of patient care;

(n) Liens on Current Assets due to rights of third party payors for recoupment of amounts paid to any Obligated Issuer;

(o) Liens, encumbrances and other matters affecting title existing on the date of execution and delivery of the Master Indenture which are described in the Master Indenture;

(p) Liens in favor of a lessor, vendor, or lender extending credit to an Obligated Issuer (including, without limitation, any Related Bond Trustee or Related Issuer with respect to Indebtedness permitted under the Master Indenture) for the acquisition by an Obligated Issuer of the Property which is the subject of the Lien (whether or not such Lien constitutes a purchase money mortgage or purchase money security interest under applicable state or local law), the acquisition of which Property has not been financed,

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directly or indirectly, with moneys representing the proceeds of Notes or Related Bonds, which Liens may be prior to, or on a parity with, the lien of the Master Indenture;

(q) Liens which are security only for Nonrecourse Indebtedness and which do not extend to any Property other than that acquired with the proceeds of Nonrecourse Indebtedness and revenues derived therefrom;

(r) Liens on the Property of a Person (other than the Corporation or any other Person who or which on the date of execution and delivery of the Master Indenture is an Affiliate) which Liens exist on the date such Person shall become a member of the Obligated Group and Liens existing on the date Property, which has not theretofore been owned by any member of the Obligated Group or by an Affiliate, is acquired by a member of the Obligated Group;

(s) Liens on Excluded Property, which Liens may be prior to, or on a parity with, the lien of the Master Indenture; and

(t) Any other Mortgage provided that the aggregate Book Value of the Property of the Obligated Group securing all Mortgages under this clause (t) does not, after giving effect to the Mortgage then to be imposed, exceed 15% of the Book Value of all assets of the Obligated Group, as reflected in the audited financial statements for the most recent Fiscal Year preceding the proposed date for the imposition of such Mortgage for which such financial statements are available.

“Person” means an individual, a corporation, a limited liability company, a partnership, an association, a joint stock company, a joint venture, a trust, an unincorporated organization, or a government or any agency or political subdivision thereof.

“Project” means the financing of certain improvements to the Existing Facilities from the proceeds of the Series 2016 Bonds, including to acquire, construct, install and equip “hospital facilities”, as defined in Chapter 140 of the Ohio Revised Code including, without limitation (a) the acquisition, construction, equipping and installation of a cancer center at 3700 Southern Boulevard in Kettering, Ohio, and certain other real and personal property constituting hospital facilities at the acute care hospitals known as Kettering Medical Center, 3535 Southern Boulevard in Kettering, Ohio and Sycamore Medical Center, 4000 Miamisburg-Centerville Road in Miamisburg, Ohio, and the reimbursement of certain prior capital expenditures at such facilities, (b) the acquisition, construction, equipping and installation of certain real and personal property constituting hospital facilities at the acute care hospital known as Beavercreek Medical Center d/b/a Indu & Raj Soin Medical Center, 3535 Pentagon Boulevard in Beavercreek, Ohio and the reimbursement of certain prior capital expenditures at such facility, and (c) the acquisition, construction, equipping and installation of certain real and personal property constituting hospital facilities at the acute care hospitals known as Dayton Osteopathic Hospital d/b/a Grandview Hospital and Medical Center, 405 W. Grand Avenue in Dayton, Ohio and Southview Medical Center, 1997 Miamisburg-Centerville Road in Centerville, Ohio and the reimbursement of certain prior capital expenditures at such facilities.

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“Property” when used in connection with a particular Person or group of Persons, means any and all rights, titles and interests of such Person or group of Persons in and to any and all property, whether real or personal, tangible or intangible, and wherever situated.

“Property, Plant and Equipment” means all Property of the members of the Obligated Group which is property, plant and equipment under generally accepted accounting principles.

“Qualified Investments” means, to the extent permitted by law:

(a) direct obligations of, or obligations guaranteed unconditionally as to full and timely payment of the principal thereof and the interest thereon by, the United States of America, including, without limitation, (i) any investments in pools of such obligations; (ii) obligations issued or held in book-entry form on the books of the Department of Treasury; and (iii) certificates which evidence ownership of the right to the payments of the principal of and interest on such obligations or specified portions thereof, including portions consisting solely of the principal thereof or solely of the interest thereon;

(b) bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies (including any investments in pools of such obligations) and provided such obligations are backed by the full faith and credit of the United States of America: (i) direct obligations or fully guaranteed certificates of beneficial ownership of the U.S. Export-Import Bank; (ii) certificates of beneficial ownership of the Farmers Home Administration; (iii) obligations of the Federal Financing Bank; (iv) Federal Housing Administration debentures; (v) General Services Administration participation certificates; (vi) guaranteed mortgage-backed bonds and guaranteed pass-through obligations of the Government National Mortgage Association (“GNMA”); (vii) guaranteed Title XI financing of the U.S. Maritime Administration; (viii) U.S. government guaranteed new communities debentures; (ix) U.S. government guaranteed public housing notes and bonds; and (x) U.S. Department of Housing and Urban Development project notes and local authority bonds;

(c) bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies (non-full faith and credit agencies): (i) senior debt obligations of the Federal Home Loan Bank System; (ii) participation certificates and senior debt obligations of the Federal Home Loan Mortgage Corporation (“FMAC”); (iii) mortgage-backed securities and senior debt obligations of the Federal National Mortgage Association (“FNMA”); and (iv) senior debt obligations of the Student Loan Marketing Association;

(d) money market funds (including those for which the Bond Trustee, the Master Trustee or any affiliate of either, serves as investment manager, administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Bond Trustee, the Master Trustee or an affiliate of either receives fees from such funds for services rendered, (ii) the Bond Trustee or the Master Trustee or an affiliate of either charges and collects fees for services rendered pursuant to the Bond Indenture, which fees are, separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Bond Indenture may at times duplicate

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those provided to such funds by the Bond Trustee, the Master Trustee or the affiliates of either), registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating, at the time of purchase, of “F-1” (or its equivalent) by Fitch, “Prime-1” by Moody's or “AAAm” (or its equivalent) by S&P;

(e) certificates of deposit issued by savings and loan associations, commercial banks, or mutual savings banks located in the United States (including the Bond Trustee, the Master Trustee or any affiliate of either), provided that to the extent any deposit is not insured by the Federal Deposit Insurance Corporation: (1) it is fully collateralized with obligations described in paragraphs (a) and (b) above having a market value at all times at least equal to the uninsured amount of the deposit, (2) the Bond Trustee either has legal title to, or a prior perfected security interest in, the Qualified Investments constituting the collateral, and (3) those Qualified Investments are free and clear of any claims by third parties and are segregated in a custodial or trust account held by the Bond Trustee or a third party as the agent solely of, or in trust solely for the benefit of, the Bond Trustee;

(f) certificates of deposit, savings accounts, deposit accounts or money market deposits in one or more savings and loan associations, commercial banks or mutual savings banks located in the United States (including the Bond Trustee, the Master Trustee or any affiliate of either), which are fully insured by the Federal Deposit Insurance Corporation;

(g) investment agreements, forward purchase agreements, interest rate float agreements, or repurchase agreements with any institution (including the Bond Trustee, the Master Trustee or any affiliate of either), the long-term rating, at the time of purchase, of which is rated not lower than the third highest rating category (without regard to gradations within such category) by each Rating Service then providing a rating on the Series 2016 Bonds;

(h) open market debt instruments or commercial paper rated, at the time of purchase, not less than “F-1” (or its equivalent) by Fitch, “Prime-1” by Moody's or “A-1+” by S&P;

(i) obligations of any state of the United States or any political subdivision of any state, rated, at the time of purchase, by either of the Rating Services in a rating category not lower than the four highest rating categories assigned by such Rating Services;

(j) federal funds or bankers acceptances with a maximum term of one year of any bank (including the Bond Trustee, the Master Trustee or any affiliate of either), which has an unsecured, uninsured and unguaranteed obligation rating, at the time of purchase, of “F-1” or “A” or better by Fitch, “Prime-1” or “A3” or better by Moody's and “A-1+” or better by S&P;

(k) any repurchase agreement or reverse repurchase agreement with a term of not more than 30 days: (1) with any bank (including the Bond Trustee, the Master Trustee or any affiliate of either), which is rated, at the time of purchase, “AAA” or better by any

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Rating Service or any primary dealer on the Federal Reserve reporting dealer list; (2) which is secured by collateral of the type specified in (a) or (b) above, which collateral (i) is delivered (prior to or simultaneously with payment) and in the possession of the Bond Trustee or a third party acting solely as agent for the Bond Trustee and in which the Bond Trustee has a perfected first security interest, (ii) is not subject to any third party claims, (iii) has a market value (determined at least once every 7 days) at least equal to 102% (105% if the collateral is obligations of FNMA or FMAC) of the amount invested in the repurchase agreement plus accrued interest; (3) which permits the Bond Trustee to liquidate the collateral immediately upon failure to maintain the collateral at the required level; and (4) which is accompanied by an opinion of counsel addressed to the Issuer and the Obligated Group to the effect that the repurchase agreement is a lawful investment for public funds in the State; and

(l) unsecured certificates of deposit, including those placed by a third party pursuant to an agreement between the Bond Trustee and the Corporation or a Lessee, demand deposits, including interest bearing money market accounts, trust deposits, trust accounts, time deposits, overnight bank deposits, bank deposit products, interest-bearing deposits, or bankers acceptances (in each case having maturities of not more than 360 days) of any domestic bank (including the Bond Trustee, the Master Trustee or any affiliate of either) including a branch office of a foreign bank, which branch office is located in the United States, provided that such bank at the time of purchase, has a short-term bank deposit rating of “Prime-1” or better by Moody’s and a rating of “A-1” or better by S&P.

Investments or deposits in certificates of deposit or pursuant to investment contracts shall not be made unless there is compliance, at or prior to such investment or deposit, with the requirements of Treasury Regulations Section 1.148-5(d)(6)(ii) and (iii) respectively, or with any successor provisions thereto. In determining whether the ratings assigned by the Rating Services to an investment complies with the rating categories provided in this definition of Qualified Investments, the rating category shall be determined without regard to any numerical or plus or minus modifier.

“Rating Category” or “Rating Categories” means one or more of the generic rating categories of a Rating Service without regard to any refinement or gradation of such rating category or categories by numerical modifier or otherwise.

“Rating Service”, as used in the Bond Indenture, means Moody’s Investors Service, if the Series 2016 Bonds are rated by such at the time, and Standard & Poor’s, if the Series 2016 Bonds are rated by such at the time, and their successors and assigns, or if either shall be dissolved or no longer assigning credit ratings to long term debt, then any other nationally recognized entity assigning credit ratings to long term debt designated by the Obligated Group Representative.

“Rating Service”, as used in the Master Indenture, means Moody’s Investors Service and Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc., and their successors and assigns, or if either shall be dissolved or no longer assigning credit ratings to long term debt, then any other nationally recognized entity assigning credit ratings to long term debt designated by the Obligated Group Representative.

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“Real Property” means that Property which under the laws of the jurisdiction in which such Property is located is deemed to be “real property”.

“Refunding Indebtedness” means any Indebtedness issued for the purpose of refunding outstanding Interim Indebtedness or Long-Term Indebtedness.

“Related Bonds” means the revenue bonds or other obligations issued by any Obligated Issuer or state of the United States of America or any municipal corporation or political subdivision formed under the laws thereof or any body corporate and politic or any constituted authority of any of the foregoing empowered to issue obligations on behalf thereof (“governmental issuer”) pursuant to a single Related Bond Indenture, the proceeds of which are loaned or otherwise made available to or for the benefit of (i) one or more members of the Obligated Group, directly or indirectly, in consideration, in whole or in part, of the execution, authentication and delivery of a Note or Notes to or for the order of such governmental issuer, the Related Bond Trustee or a Person providing credit enhancement for such bonds or other obligations or (ii) any Person other than the Corporation or any other Obligated Issuer in consideration of issuance to such governmental issuer or trustee for such obligations (a) by such Person or any indebtedness or other obligation of such Person and (b) by the Corporation or any other Obligated Issuer of a Guaranty issued under the Master Indenture in respect of such indebtedness or other obligation.

“Related Bond Indenture” means any indenture or resolution or comparable instrument pursuant to which a series of Related Bonds is issued.

“Related Bond Trustee” means the trustee and its successors in the trusts created under any Related Bond Indenture.

“Related Issuer” means the issuer of any issue of Related Bonds.

“Related Supplemental Indenture”, when used with reference to Notes of a particular series, means the Supplemental Indenture creating such series.

“Short-Term”, when used in connection with Indebtedness (including Notes), means having an original maturity less than or equal to one year and not renewable at the option of the obligor for a term greater than one year beyond the date of original incurrence or issuance.

“Significant Obligated Issuer” means any member of the Obligated Group which for the three Fiscal Years (for which financial statements have been delivered pursuant to the Master Indenture) immediately preceding the occurrence of certain events of bankruptcy or insolvency involving such member or preceding the withdrawal of such member from the Obligated Group, as the case may be, either shall have had average Adjusted Annual Revenue (determined solely with reference to such member) greater than or equal to five percent (5%) of the average Adjusted Annual Revenue for such three Fiscal Years or shall have owned or leased Property having a Book Value greater than or equal to five percent (5%) of the Book Value of the Property of the Obligated Group for such three Fiscal Years.

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“Soin” means Beavercreek Medical Center d/b/a Indu & Raj Soin Medical Center, a nonprofit corporation incorporated under the laws of the State of Ohio, and its successors and assigns.

“Soin Lease” means the Agreement of Lease dated as of May 1, 2016 between Soin and the Issuer.

“Soin Sublease” means the Sublease dated as of May 1, 2016 between the Issuer and Soin.

“Subleases” means, collectively, the Corporation Sublease, the Soin Sublease and the Grandview Sublease.

“Subordinated Indebtedness” means Indebtedness (including Notes) which contains provisions substantially in the form set forth in the Master Indenture.

“Supplemental Indenture” means an indenture supplemental to, and authorized and executed pursuant to the terms of, the Master Indenture for the purpose of creating a particular series of Notes issued thereunder, or amending or supplementing the terms thereof.

“Supplemental Indenture Number Nineteen” means Supplemental Master Indenture Number Nineteen dated as of May 1, 2016, executed and delivered by the Corporation, Grandview and Soin to the Master Trustee, supplemental to the Master Indenture, providing for the issuance of the Series 2016 Note.

“Value” means, with respect to any Property of the Obligated Group, at the option of the Obligated Group Representative, either the Book Value thereof or the Fair Market Value thereof.

“Variable Rate Indebtedness” means any portion of Indebtedness the rate of interest on which is not established at the time of incurrence as one or more numerical rates applicable throughout the term thereof or for specified periods during the term thereof, with the result that at the time of incurrence the numerical rate of interest which will be in effect during any portion of the term thereof cannot be determined.

“Written Request” means, with respect to each Lessee, a request in writing signed by the Authorized Lessee Representative or alternate Authorized Lessee Representative.

SUMMARY OF THE MASTER INDENTURE

The following summarizes certain provisions of the Master Indenture as will be in effect when no Series 1996 Bonds are outstanding. So long as any Series 1996 Bonds are outstanding, the Obligated Group is obligated to comply with covenants which are, generally, more restrictive.

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Authorization and Issuance of Notes

Any member of the Obligated Group that wishes to incur Indebtedness or enter into any Hedge Transaction secured by the Master Indenture shall do so by executing a Note or Notes. The number of series of Notes that may be created under the Master Indenture is not limited. The aggregate principal amount of Notes of each series that may be issued, authenticated and delivered under the Master Indenture is not limited except as shall be set forth in the Related Supplemental Indenture and as restricted by the provisions of the Master Indenture.

Covenants of the Obligated Group

Each member of the Obligated Group covenants that for so long as any Note is outstanding:

Payment of Principal, Premium and Interest; Interest on Overdue Payments. It shall duly and punctually pay the principal of, the premium, if any, and the interest on each Note at the times and at the place and in the manner provided in such Note, the related Supplemental Indenture and the Master Indenture. If any such payment is not so received, the Master Trustee shall notify the Obligated Group Representative by telephone, telegram, express mail or other expeditious means. To the extent permitted by applicable law, each Note shall bear interest, at the rate specified in the Related Supplemental Indenture, on any part of the principal thereof or the premium, if any, or interest thereon not paid when due for any period when the same shall be overdue.

Insurance. It shall maintain insurance covering such risks and in such amounts as, in its reasonable judgment, is adequate to protect it and its properties and operations. Each member of the Obligated Group which owns or operates hospital facilities or other health care facilities shall also maintain insurance covering the risk of professional and medical malpractice in such amounts as, in its reasonable judgment, is adequate to protect it and its operations. The Master Trustee shall be an additional insured under such insurance policies. The insurance required to be maintained pursuant to the Master Indenture shall be subject to the biennial review and approval of an Independent Insurance Consultant, and such member shall follow any recommendations of the Independent Insurance Consultant to the extent reasonable.

An Obligated Issuer may, upon resolution adopted in good faith by its Governing Body, which resolution shall be delivered to the Master Trustee, and upon the recommendations of an Independent Insurance Consultant, adopt alternative risk management programs which shall be in compliance with applicable governmental rules and regulations including, without limitation, the right: to self-insure in whole or in part; to organize captive insurance companies; to participate in programs of captive insurance companies organized by others; to establish self-insurance trust funds; to participate in mutual or other cooperative insurance or other risk management programs with others; to participate in or enter into agreements with local, state or federal governments in order to achieve such insurance; to take advantage of state or federal statutes or laws limiting medical and malpractice liability; or to participate in other alternative risk management programs as shall be recommended by said Independent Insurance Consultant.

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Tax Exempt Status. It shall not take any action or omit to take any action which is lawful and within its power to take, and which, if taken or omitted, would cause previously tax-exempt interest on any series of Related Bonds to become subject to Federal income taxation.

Restrictions as to Incurrence of Indebtedness. Other than in connection with the issuance of the initial series of Notes and Related Bonds under the Master Indenture, it will incur Indebtedness only as follows; provided that no Event of Default shall have occurred or be continuing unless such event will be cured upon incurrence of such Indebtedness and application of the proceeds thereof and the placing in service of any facilities financed thereby, and that prior to the incurrence thereof the Obligated Group Representative’s certificate to the effect that the Obligated Group has given its consent to the incurrence of such indebtedness in accordance with the agreements and rules of the Obligated Group with respect to matters arising under the Master Indenture shall be delivered to the Master Trustee:

(a) Long-Term Indebtedness provided that:

(1) such Obligated Issuer proposing to incur such Indebtedness shall certify in an Officer’s Certificate delivered to the Master Trustee the intended uses of the proceeds of such Long-Term Indebtedness and, if any portion is to be used to acquire or improve Real Property, the estimated cost thereof; and

(2) such Obligatated Issuer shall have delivered to the Master Trustee either:

(i) Report on Historical Coverage. A report or opinion of an Independent Certified Public Accountant to the effect that for the most recent Fiscal Year for which financial statements have been delivered to the Master Trustee, the Debt Service Coverage Ratio was not less than 1.10 for all Outstanding Long-Term Indebtedness (exclusive of any Outstanding Indebtedness which is to be refunded with proceeds of the Indebtedness proposed to be incurred) and the Long-Term Indebtedness then proposed to be incurred; or

(ii) Reports on Historical and Pro-Forma Coverage. (x) a report or opinion of an Independent Certified Public Accountant to the effect that for the most recent Fiscal Year for which financial statements have been delivered to the Master Trustee, the Debt Service Coverage Ratio is not less than 1.10 for all outstanding Long-Term Indebtedness other than the Long-Term Indebtedness then proposed to be incurred; and

(y) a report or opinion of an Independent Consultant to the effect that the Debt Service Coverage Ratio for the first full Fiscal Year immediately following the completion of the acquisition, construction, renovation or replacement being paid for with the proceeds of such additional Long-Term Indebtedness, or following the incurrence of Long-Term Indebtedness for other purposes, is

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not less than 1.15 for all Long-Term Indebtedness to be outstanding after giving effect to the incurrence of such additional Long-Term Indebtedness and the application of the proceeds thereof; provided that an Officer’s Certificate may be delivered instead of a report or opinion of an Independent Consultant if the estimated Debt Service Coverage Ratio is not less than 1.25; or

(iii) an Officer’s Certificate demonstrating that as of the date of the incurrence of such Long-Term Indebtedness the sum of the proposed Long-Term Indebtedness and the existing Long-Term Indebtedness of the Obligated Group does not exceed 66-2/3% of the Capitalization of the Obligated Group; or

(iv) an Officer’s Certificate that the aggregate principal amount of Long-Term Indebtedness incurred in reliance on the test set forth in this clause (iv), that is outstanding on the date of delivery of such Officer’s Certificate, plus the Long-Term Indebtedness then proposed to be incurred in reliance on the test set forth in this clause (iv), does not exceed 10% of the Adjusted Annual Revenue for the most recent Fiscal Year preceding the date of the proposed issuance of such Long-Term Indebtedness for which audited financial statements are available, minus the investment income for such Fiscal Year; provided, however, that, for purposes of this clause (iv), Indebtedness represented by a Guaranty shall be calculated as equal to 20% of the outstanding principal amount of the obligation guaranteed, so long as no member of the Obligated Group has made any payments pursuant to such Guaranty within 18 months preceding the date of calculation, and otherwise shall be calculated as equal to 100% of the outstanding principal amount of the obligation guaranteed.

In the event that an Independent Consultant shall deliver a report to the Master Trustee to the effect that Governmental Regulations do not permit or by their application make it impracticable for the Obligated Group to produce the required ratios set forth in (a)(2) above, then such ratios shall be reduced to the highest practicable ratios then permitted by such Governmental Regulations but in no event less than 1.00.

(b) Completion Indebtedness.

(c) Refunding Indebtedness (i) which has Maximum Annual Debt Service no greater than 120% of the Maximum Annual Debt Service of the Indebtedness refunded thereby, (ii) which results in a reduction in total debt service or (iii) which will be used to refund Interim Indebtedness described in subsection (f) below.

(d) Short-Term Indebtedness; provided that (i) the combined Outstanding principal amount of such Short-Term Indebtedness does not exceed 20% of the Adjusted Annual Revenue as shown on or calculable from the audited financial statements of the Obligated Group for the most recent Fiscal Year for which financial statements have been delivered

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to the Master Trustee or (ii) if the combined Outstanding principal amount of Indebtedness incurred pursuant to this subsection shall at any time thereafter exceed the twenty percent (20%) limitation, then the combined Outstanding principal amount of Indebtedness incurred pursuant to this subsection shall be reduced to an amount not exceeding such twenty percent (20%) limitation not later than ninety (90) days after the date such limitation shall have been exceeded.

(e) Nonrecourse Indebtedness.

(f) Interim Indebtedness provided that, at the time such Interim Indebtedness is incurred or assumed, there shall be delivered to the Master Trustee:

(i) an Officer’s Certificate setting forth the information required by paragraph (a)(1) above and stating that the anticipated financing thereof by the issuance of Long-Term Indebtedness is reasonably expected to be completed within the next 60 months; and

(ii) reports or opinions of the type required by any of the subparagraphs (a)(2)(i) through (iv) above demonstrating that all requirements of such subparagraphs would be met if such Interim Indebtedness were then being issued as Long-Term Indebtedness maturing over a term equal to the Assumed Amortization Period with level annual combined payments of principal and interest and having an interest rate equal to the Assumed Interest Rate.

(g) Subordinated Indebtedness.

(h) Any continuing obligation of any member of the Obligated Group to pay principal of and interest on Indebtedness or Related Bonds which are deemed to be discharged or defeased in accordance with the terms of the instrument or instruments creating or evidencing such Indebtedness or Related Bonds, as the case may be; provided, however, that there is delivered to the Master Trustee a letter from a nationally recognized firm of Independent Certified Public Accountants verifying the adequacy of any escrow established in connection with the discharge or defeasance of such Indebtedness or Related Bonds.

(i) Indebtedness which constitutes Indebtedness for which money for the payment of which is on deposit in a construction fund or another restricted fund.

(j) Indebtedness of any member of the Obligated Group to any other member thereof.

(k) Indebtedness representing a loan to any member of the Obligated Group of moneys on deposit in accumulated capital reserve accounts or depreciation reserve accounts created under Supplemental Master Indentures or Related Bond Indentures.

Completion Indebtedness, Refunding Indebtedness, Nonrecourse Indebtedness and Subordinated Indebtedness which would otherwise be Long-Term Indebtedness shall not be

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subject to the tests in (a) above of this caption “Restrictions as to Incurrence of Indebtedness”, unless the Obligated Group elects to treat such Indebtedness as issued as Long-Term Indebtedness pursuant to paragraph (a) above. In addition, any Indebtedness issued or guaranteed by any member of the Obligated Group pursuant to any of the preceding paragraphs may at any time and from time to time, if the same shall be permitted to be issued or guaranteed pursuant to another paragraph, be reclassified by the Obligated Group as having been issued or guaranteed by the member pursuant to such other paragraph.

For purposes of the Master Indenture:

(i) Indebtedness shall generally be deemed to be “incurred” by a Person whenever such Person shall create, assume, guarantee, or otherwise become liable in respect thereof;

(ii) the sale or other transfer of indebtedness of any member of the Obligated Group by the member which holds such indebtedness to any Person not a member of the Obligated Group shall be deemed to be the incurrence of Indebtedness as of the date of sale or transfer;

(iii) Outstanding Indebtedness of any Person which becomes a member of the Obligated Group shall be deemed to be incurred on the date such Person becomes a member; and

(iv) in the case of Indebtedness which is subject to conversion, at the option of the Obligated Group, with respect to term and interest rate, any such conversion shall be deemed not to be the incurrence of Indebtedness.

Debt Service Coverage Ratio. If the Debt Service Coverage Ratio as calculated at the end of any Fiscal Year is below 1.10, the Obligated Group covenants to retain an Independent Consultant to make recommendations (which may include, without limitation, increasing rates and charges, reducing operating costs, adjusting the patient mix, altering the intensity or scope of services or any combination of the foregoing) to increase the Debt Service Coverage Ratio to at least 1.10 or if, in the opinion of the Independent Consultant, Governmental Regulations then in existence do not permit or by their application make impracticable the attainment of such level, to the highest practicable level permitted by such Governmental Regulations. So long as the Obligated Group shall retain an Independent Consultant and each member of the Obligated Group shall follow such Independent Consultant’s recommendations with respect to such member to the extent feasible, this requirement shall be deemed to have been complied with even if the Debt Service Coverage Ratio for any subsequent Fiscal Year is below 1.10, which event will not constitute an Event of Default under the Master Indenture unless and until such Debt Service Coverage Ratio falls below 1.00.

Consolidation, Merger, Sale or Conveyance. Each member of the Obligated Group covenants that it will not merge or consolidate with any other Person not a member of the Obligated Group or sell or convey all or substantially all of its assets to any Person not a member of the Obligated Group unless:

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(a) either such Obligated Issuer shall be the continuing Person, or the successor Person (if other than such Obligated Issuer) shall be a Person organized and existing under the laws of the United States of America or a state thereof and such Person shall expressly assume the due and punctual payment of the principal of and premium, if any, and interest on all Notes issued by such Obligated Issuer under the Master Indenture according to their tenor and the due and punctual performance and observance of all of the covenants and conditions of the Master Indenture to be performed and observed by such Obligated Issuer by supplemental indenture satisfactory to the Master Trustee, executed and delivered to the Master Trustee by such Person;

(b) such Obligated Issuer shall have delivered an Officer’s Certificate to the Master Trustee to the effect that such Obligated Issuer or such successor Person, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance or observance of any such covenant or condition;

(c) such Obligated Issuer, or such successor Person, as the case may be, demonstrates, in a report of an Independent Consultant delivered to the Master Trustee, that the Debt Service Coverage Ratio for each of the two Fiscal Years immediately succeeding the proposed date of such merger, consolidation, sale or conveyance is expected to be

(i) at least 1.10 or

(ii) if less than 1.10, greater than the Debt Service Coverage Ratio would have been in the absence of such merger, consolidation, sale or conveyance, provided that an Officer’s Certificate may be delivered instead of a report of an Independent Consultant if the expected Debt Service Coverage Ratio is at least 1.50, and

(d) if there are any Outstanding Related Bonds bearing interest that is excludable from gross income for federal income tax purposes, there shall have been delivered to the Master Trustee an Opinion of Bond Counsel, in form and substance satisfactory to the Master Trustee, to the effect that under then existing law the consummation of such merger, consolidation, sale or conveyance would not cause the interest payable on such Related Bonds to become included in gross income of the holders thereof for federal income tax purposes;

(e) there shall have been delivered to the Master Trustee either

(i) an Opinion of Counsel, in form and substance satisfactory to the Master Trustee, to the effect that such merger, consolidation, sale or conveyance would not give rise to a right of recovery under the Hill-Burton Act, 42 USC §291(i) or that such right of recovery has been validly and effectively waived or

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(ii) a report of an Independent Certified Accountant confirming that the amount of any such recovery has been fully and adequately reserved on the books of the Obligated Issuer.

Filing of Financial Statements, Certificate of No Default, Other Information.

(a) As soon as practicable but in no event later than 135 calendar days after the end of each Fiscal Year, beginning with the Fiscal Year ending on December 31, 1996, the Obligated Group Representative shall file, or cause to be filed, with the Master Trustee, with each Noteholder who may have so requested or on whose behalf the Master Trustee may have so requested, with each Bond Insurer and with each Rating Service which shall have issued a rating on any Indebtedness evidenced by Notes or any series of Related Bonds, provided that any such Notes or series of Related Bonds is then rated by such Rating Service, (i) audited consolidated or combined financial statements of the Corporation and subsidiaries prepared in accordance with generally accepted accounting principles, and a supplemental balance sheet, statement of operations prepared on a consolidating and consolidated basis (segregated between the Obligated Group and Subsidiaries that are not in the Obligated Group), along with combining entries eliminating material balances and transactions between or among members of the Obligated Group, each accompanied by the certificate or opinion of an Independent Certified Public Accountant, in each case in comparative form showing the corresponding figures for the preceding Fiscal Year, and (ii) a special report prepared by such Independent Certified Public Accountant setting forth their calculation of the Debt Service Coverage Ratio for the Fiscal Year then ended, together with a separate written statement of such Independent Certified Public Accountant to the effect that such Independent Certified Public Accountant has obtained no knowledge of any default by any member of the Obligated Group under the Master Indenture or in the fulfillment of any of the terms, covenants, provisions or conditions of the Master Indenture or any Related Supplemental Indenture, or, if such Independent Certified Public Accountant shall have obtained knowledge of any such default or defaults, they shall disclose the same and the nature thereof; provided, however, that so long as the audit conducted by such Independent Certified Public Accountant shall have been conducted in accordance with generally accepted auditing standards, such Independent Certified Public Accountant shall have no liability directly or indirectly to anyone for failure to obtain knowledge of any default, and (iv) an Officer’s Certificate of each Obligated Issuer stating whether or not, to the best knowledge of the signer, such Obligated Issuer is in default in the performance of any covenant contained in the Master Indenture or Related Supplemental Indenture, and, if so, specifying each such default of which the signer may have knowledge and stating what action the Obligated Group proposes to take with respect thereto.

(b) If an Event of Default shall have occurred and be continuing, the Obligated Group Representative will (i) file with the Master Trustee such other financial statements and information concerning the operations and financial affairs of each Obligated Issuer (or of any consolidated group of companies of which such Obligated Issuer is a member) as the Master Trustee may from time to time reasonably request, excluding specifically

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donor records, patient records, Personnel records, medical staff records, medical staff committee records, and any other records the confidentiality of which may be protected by law and materials protected by the attorney-client privilege, and (ii) provide access to the facilities of such Obligated Issuer for the purpose of inspection by the Master Trustee during regular business hours or at such other times as the Master Trustee may reasonably request.

(c) Within ten (10) days after such Obligated Issuer’s receipt thereof, the Obligated Group Representative shall file with the Master Trustee a copy of each report which any provision of the Master Indenture requires to have been prepared by an Independent Consultant or an Independent Insurance Consultant.

(d) The Master Trustee is authorized to provide copies of the financial statements and reports delivered to the Master Trustee to any Noteholder or holder of Related Bonds, upon written request.

(e) The requirements of the Master Indenture to file the financial information specified therein shall be interpreted consistent with the requirements of any disclosure agreement required by Securities Exchange Commission Rule 15c2-12.

Restrictions on Transfers of Property.

(a) Any member of the Obligated Group may sell or otherwise voluntarily dispose of any of its Property (i) to another member of the Obligated Group, (ii) in payment of Indebtedness, (iii) which is Excluded Property, or (iv) in the ordinary course of business, provided that, with respect to sales or dispositions of accounts receivable and contract rights in the ordinary course of business, such sale or other disposition is also on terms not less favorable to the transferor than in an arms-length transaction.

(b) Except as otherwise provided in the Master Indenture, each member of the Obligated Group agrees that it will not sell or otherwise voluntarily dispose of any of its Property (other than Current Assets) unless one of the tests listed in (i) through (iv) below has been met and the sale or disposition of such Property will not impair the structural soundness, efficiency or economic value of the remaining Property of that member:

(i) in the judgment of the Obligated Group such Property has, or within the next succeeding 24 calendar months is reasonably expected to, become inadequate, obsolete, worn out, unsuitable, unprofitable, undesirable or unnecessary; or

(ii) the sale or disposition of such Property was pursuant to the reasonable requirements of the Obligated Group and for consideration, in the form of cash or securities in an amount, or real or personal property having a Fair Market Value, at least equal to the Fair Market Value of such Property sold or disposed of, except in the case of a bargain sale, in which case to the extent the Fair Market Value of such Property sold or disposed of exceeds the consideration

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received, the disposition of an amount equal to such excess must qualify under clause (iii) or clause (iv) below; or

(iii) after giving effect to such transaction, either of the conditions described under clause (a)(2)(i) or (ii) under the caption “SUMMARY OF THE MASTER INDENTURE - Restrictions as to Incurrence of Indebtedness” would be met for the incurrence of one dollar of Long-Term Indebtedness, and that:

(A) the Debt Service Coverage Ratio, as reported by the Obligated Group’s independent certified public accountants or an Independent Consultant, for the most recent Fiscal Year preceding the proposed date of such transaction for which audited financial statements are available, assuming such transaction actually occurred at the beginning of such Fiscal Year, would not have been reduced or, if reduced, would not have been reduced to less than 1.10; or

(B) the Debt Service Coverage Ratio, as reported by the Obligated Group’s Independent Certified Public Accountants or an Independent Consultant, for the Fiscal Year immediately following the proposed date of such transaction is expected to be:

(1) greater than 1.15; or

(2) higher than it would have been had such transactions not been effected; or

(iv) the aggregate Value of such Property sold or otherwise disposed of pursuant to this paragraph in any one Fiscal Year does not exceed 5% of the aggregate Value of all Property (other than Current Assets) of the Obligated Group.

(c) Any member of the Obligated Group may lease or sublease to any Person its real or personal property or space within its real or personal property; provided that where the application of generally accepted principles would require the Person leasing such real or personal property or such space from any member of the Obligated Group to treat the lease as Indebtedness (were such Person a member of the Obligated Group), the lease shall be treated as a disposition of Property by a member of the Obligated Group which must qualify under paragraphs (a) or (b) hereof and not as a lease under this paragraph (c).

(d) A certificate of the Obligated Group Representative shall be delivered to the Master Trustee within five months after the end of each Fiscal Year (commencing with the Fiscal Year ending December 31, 1996) to the effect that all dispositions of Property during that Fiscal Year were permitted under the provisions of the Master Indenture.

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(e) No member of the Obligated Group shall designate any Property as Excluded Property unless:

(i) a certificate of the Obligated Group Representative has been delivered to the Master Trustee to the effect that one of the tests listed in clause (iii) or (iv) of paragraph (b) above has been met; and

(ii) a Supplemental Master Indenture designating such Property as Excluded Property has been executed and delivered.

Members of the Obligated Group

(a) Any Person may, at any time, become a member of the Obligated Group by complying with paragraphs (b) and (c) below.

(b) To become a member to the Obligated Group, such Person shall deliver to the Master Trustee

(i) an appropriate instrument containing an agreement of such Person (1) to become an Obligated Issuer and be subject to compliance with all provisions of the Master Indenture pertaining to an Obligated Issuer, and (2) agreeing with the Master Trustee and each other member of the Obligated Group that it shall be jointly and severally obligated to pay all Indebtedness evidenced by Notes and that such Indebtedness will be paid when due in accordance with the terms thereof and of the Master Indenture;

(ii) an Opinion of Counsel, addressed to the Master Trustee, (1) to the effect that each such Person has the power and authority to execute and deliver such instruments and to perform its obligations thereunder and such instruments have been duly authorized, executed and delivered by all parties thereto and constitutes valid and binding obligations of each of such parties enforceable in accordance with its terms, except as limited by bankruptcy laws, insolvency laws and other similar laws affecting creditors’ rights generally and general principles of equity, and (2) as to such matters incidental to such Person becoming a member of the Obligated Group as the Master Trustee may reasonably deem necessary; and

(iii) a certificate of the Obligated Group Representative consenting to the inclusion of such Person in the Obligated Group.

(c) The Master Trustee shall also have received (i) a report by an Independent Consultant which demonstrates that, immediately upon any Person’s becoming an Obligated Issuer as part of such transaction, the Obligated Group considered as a pro forma consolidated or combined group for purposes of the Master Indenture, with the elimination of material balances and transactions between or among members of the Obligated Group: (A) would not be in default in the performance or observance of any

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covenant or condition to be performed or observed by the Obligated Group, and (B) either would meet any of the conditions for the incurrence of one dollar of Long-Term Indebtedness under the provisions described under clause a(2)(i) or (ii) under the caption “SUMMARY OF THE MASTER INDENTURE - Covenants of the Obligated Group - Restrictions as to Incurrence of Indebtedness”, or if it would not so meet the conditions then in the opinion of such Independent Consultant such transaction shall be in the best interest of the Noteholders and after giving effect to such transaction the Debt Service Coverage Ratio for the first Fiscal Year following the effective date thereof would be greater than what it would have been for such Fiscal Year if such transaction would not have occurred; and (ii) if any Related Bonds then shall be Outstanding, an Opinion of Bond Counsel to the effect that the consummation of such transaction would not adversely affect the exclusion from gross income for Federal income tax purposes of interest payable on any Related Bonds, the interest on which was excludable from gross income for Federal income tax purposes.

Withdrawal from the Obligated Group

Any member of the Obligated Group may, upon 10 Business Days’ prior written notice to the Master Trustee, withdraw from the Obligated Group and be released from further liability or obligations under the Master Indenture provided that prior to such release the Master Trustee shall be furnished with (a) evidence satisfactory to it that either (i) such Person is not a Significant Obligated Issuer or (ii) there are no Notes Outstanding issued by such Person; (b) the consent of the Obligated Group Representative to such withdrawal; (c) one or more Notes executed by one or more members of the Obligated Group in substitution for all Outstanding Notes, if any, executed by such member; (d) an Officer’s Certificate confirming that after giving effect to the withdrawal, no Event of Default or event which with the giving of notice or lapse of time or both shall constitute an Event of Default shall have occurred and be continuing; and (e) evidence that after giving effect to such withdrawal, the Obligated Group either would meet the conditions for the incurrence of one dollar of additional Long-Term Indebtedness under the provisions described under clause (a)(2)(i) or (ii) under the caption “SUMMARY OF THE MASTER INDENTURE - Covenants of the Obligated Group - Restrictions as to Incurrence of Indebtedness” or, if not, that after giving effect to such withdrawal the Debt Service Coverage Ratio for the most recent Fiscal Year for which financial statements have been delivered to the Master Trustee pursuant to the Master Indenture would be greater than if the withdrawal had not occurred.

Gross Receipts Pledge

For so long as the Series 2016 Note is outstanding, to secure the prompt payment of the principal of and interest and any premium on the Notes, and the observance and performance by each member of the Obligated Group of all of its covenants, agreements and obligations under the Master Indenture, each member of the Obligated Group assigns and grants to the Master Trustee an assignment of and a security interest in all present or future Gross Receipts, subject however to the conditional permission given to each member of the Obligated Group to collect and use Gross Receipts during a period while no Event of Default under the Master Indenture shall have occurred and be continuing.

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Negative Pledge

Property of the Obligated Group, except for Excluded Property, shall not be subject to any Lien except for:

(i) Permitted Encumbrances;

(ii) Liens on Property other than Excluded Property so long as prior to or contemporaneously with the attachment thereof, such member of the Obligated Group shall have entered into a Lien with the Master Trustee granting it a Lien prior to or on a parity with such other Lien and shall have taken all action necessary to perfect the Lien granted to the Master Trustee; and

(iii) Other mortgages, security interests, liens, charges and encumbrances expressly permitted by the terms of the Master Indenture.

Events of Default

The following are Events of Default under the Master Indenture:

(a) failure of any Obligated Issuer to make any payment of the principal of, the premium, if any, or interest on any Indebtedness evidenced by Notes issued and outstanding as the same shall become due and payable, whether at maturity, by acceleration or otherwise, in accordance with the terms thereof, of the Master Indenture and the Related Supplemental Indenture and the continuance of such default beyond the period of grace, if any, set forth in the Related Supplemental Indenture if such Note or Notes collateralize Related Bonds, then in the Related Bond Indenture; or

(b) failure of any Obligated Issuer to observe or perform any other covenant or agreement contained in the Master Indenture for a period of 60 days after the date on which written notice of such failure has been given to the members of the Obligated Group and to the Obligated Group Representative by the Master Trustee, or to the members of the Obligated Group and the Master Trustee by the holders of at least 25% in aggregate principal amount of Notes then outstanding; provided that if any such default can be cured by the Corporation or any Obligated Issuer but cannot be cured within the 60-day curative period described above, it shall not constitute an Event of Default if corrective action is instituted by the Corporation or any Obligated Issuer within such 60-day period and diligently pursued until the default is corrected; and provided, further, that if the performance, observation or compliance with any of the terms, covenants, conditions or provisions referred to in this paragraph shall be prevented by the application of Governmental Regulations, and such member of the Obligated Group shall have complied in full with its obligation described above under the caption “SUMMARY OF THE MASTER INDENTURE - Covenants of the Obligated Group - Debt Service Coverage Ratio”, the inability to perform, observe or comply with any such term,

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covenant, condition or provision shall not constitute an Event of Default under the Master Indenture; or

(c) default of any Obligated Issuer in the payment of any Indebtedness and the expiration of any period of grace with respect thereto, or the occurrence of an event of default as defined in any mortgage, indenture or instrument, under which there may be issued, or by which there may be secured or evidenced, such Indebtedness, which default in payment or event of default shall result in such Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; provided that any such failure by an Obligated Issuer will not be an Event of Default under this paragraph if such Obligated Issuer is diligently contesting in good faith its obligation to pay such Indebtedness and has provided the Master Trustee with an Officer’s Certificate of the member of the Obligated Group that should the member of the Obligated Group fail in such efforts contesting its obligation to pay such Indebtedness, the member of the Obligated Group shall have the ability to and shall pay such Indebtedness declared due and payable; or

(d) certain events of bankruptcy or insolvency involving any Significant Obligated Issuer; or

(e) any representation or warranty with respect to the due authorization, execution and delivery of the Notes, the Master Indenture and any Related Supplemental Indenture which proves untrue in any material respect as of the date of issuance or making thereof and shall not be made good within 30 days after written notice thereof to the Obligated Group Representative by the Master Trustee; or

(f)(i) any judgment, writ or warrant of attachment or of any similar process which shall be entered or filed against any Obligated Issuer or against any of its Property (other than Excluded Property) and remains unvacated, unpaid, unbonded, uninsured or unstayed for a period of 60 days, and (ii) failure of the Obligated Group to deposit with the Master Trustee within 15 calendar days of the Obligated Group Representative’s receipt of written notice from the Master Trustee that such an event has occurred, an amount sufficient to pay such judgment, writ or warrant of attachment or similar process in full.

The provisions described under paragraph (b) above are subject to the following limitations: If by reason of acts of God; fires; epidemics; landslides; floods; strikes; lockouts or other industrial disturbances; acts of public enemies; acts or orders of any kind of any governmental authority; insurrections; riots; civil disturbances; explosions; breakage or accident to machinery, transmission pipes or canals; partial or entire failure of utilities; or any cause or event not reasonably within the control of an Obligated Issuer is unable in whole or in part to carry out its agreements on its part contained in the Master Indenture, other than the obligations on the part of an Obligated Issuer to pay when due principal of and interest and premium on Indebtedness, taxes and insurance premiums, an Obligated Issuer shall, however, use its best efforts to remedy with all reasonable dispatch the cause or causes preventing an Obligated Issuer from carrying out its agreements; provided, that an Obligated Issuer shall in no event be required to settle strikes, lockouts or other industrial disturbances by acceding to the demands of the

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opposing party or parties when such course is, in the judgment of the Governing Body, unfavorable to such Obligated Issuer.

Remedies. Upon the occurrence of an Event of Default arising from the failure of an Obligated Issuer to pay the principal of, or premium or interest on any Note, the Master Trustee may, and, upon receipt of a written notice therefor from the holders of (or one or more Related Bond Trustees acting on behalf of the holders of) not less than 25% in aggregate principal amount of all Notes then outstanding shall, declare the principal of all Notes then outstanding to be due and payable immediately; provided, however that if, at any time after the principal of all Notes shall have been declared due and payable and before any judgment or decree for the payment of the moneys due shall have been obtained, the members of the Obligated Group shall pay or deposit with the Master Trustee a sum sufficient to pay all matured installments of interest upon all such Notes and the principal and premium, if any, of all such Notes that shall have become due otherwise than by acceleration (with interest on overdue installments of interest and on such principal and premium, if any, at the rate specified in the Related Supplemental Indenture) and the expenses of the Master Trustee, and any and all events of default under the Master Indenture, other than by reason of acceleration, have been remedied, the Master Trustee may, and upon the written request of the holders of (i) a majority of the aggregate principal amount of Notes of each series then outstanding in respect of which default in the payment of principal, premium or interest occurred (other than by reason of acceleration) either on such Notes or any Indebtedness evidenced, collateralized or secured by such Notes, or (ii) a majority in aggregate principal amount of all Notes then outstanding shall waive all Events of Default and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or affect any subsequent Event of Default, or shall impair any right consequent thereon.

Suit by Noteholders. No holder of a Note shall have any right by virtue or by availing of any provision of the Master Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to the Master Indenture or for the appointment of a receiver or trustee, or any other remedy under the Master Indenture, unless such holder previously shall have given to the Master Trustee written notice of default and of the continuance thereof, as provided in the Master Indenture, and unless also (a) the holders of not less than a majority in aggregate principal amount of Notes of any series, if such Event of Default arises by reason of the failure of any member of the Obligated Group to pay the principal of or premium or interest on any Note of such series, or (b) the holders (or one or more Related Bond Trustees acting on behalf of the holders) of not less than a majority in aggregate principal amount of all Notes then outstanding, if such Event of Default arises for any other reason, shall have made written request upon the Master Trustee to institute such action, suit or proceeding in its own name as Master Trustee under the Master Indenture and shall have offered to the Master Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Master Trustee, for thirty days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding and no direction inconsistent with such written request shall have been given to the Master Trustee pursuant to the Master Indenture; it being understood and intended, and being expressly covenanted by the taker and holder of a Note with every other taker and holder of a Note and the Master Trustee, that no one or more holders of Notes shall have any right in any manner

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whatever by virtue or by availing of any provision of the Master Indenture to affect, disturb or prejudice the rights of any other holder of a Note or to obtain or seek to obtain priority or preference to any other such holder, or to enforce any right under the Master Indenture, except in the manner provided in the Master Indenture and for the equal, ratable and common benefit of all holders of Notes.

Supplements and Amendments to the Master Indenture

The Master Indenture may be supplemented or amended, without the consent of any Noteholder, to add additional Excluded Property in accordance with the terms of the Master Indenture, to evidence the succession of another Person to any Obligated Issuer, to add to the covenants and restrictions imposed on any Obligated Issuer, to cure any ambiguities or defects in the Master Indenture, to qualify the Master Indenture under the Trust Indenture Act of 1939, to evidence additions to or withdrawals from membership in the Obligated Group, to substitute another trustee for the Master Trustee or to add co-trustees as provided in the Master Indenture, to permit the issuance of Notes in coupon form or not evidenced by physical certificates, to make any other change which, in the judgment of an Independent Consultant is in the best interest of the Obligated Group and does not materially adversely affect the Holders taken as a group, to pledge or assign additional revenues and/or property under the Master Indenture, to permit the Master Trustee to comply with any duties imposed upon it by law, to achieve compliance of the Master Indenture with any applicable federal securities or tax law, to issue additional Notes in accordance with the Master Indenture and to make necessary or advisable amendments or additions in connection with the issuance of additional Notes which do not affect adversely the interests of Holders of outstanding Notes, and in connection with any other change therein which, in the judgment of the Master Trustee, is not to the prejudice of the Noteholders or the Master Trustee.

With the consent of the holders of not less than a majority in aggregate principal amount of Notes outstanding, the Master Indenture may be changed in any manner; provided, however, that no Supplemental Indenture shall (a) change the times, amounts of currency of payment of the principal of, premium, if any, or interest on any Note or reduce the principal amount or redemption price of any Note or the rate of interest thereon, without the consent of the holder of such Note, or (b)(i) reduce the percentage of Notes, the holders of which are required to consent to any such supplemental indenture, or (ii) permit the preference or priority of any Note or Notes over any other Note or Notes, without the consent of the holders of all Notes then outstanding, or (c) modify the right of the holders of not less than 25% in aggregate principal amount of any series of Notes, if any Note in that series is in default as to payment of principal, premium or interest to compel the Master Trustee to declare the principal of all Notes to be due and payable, without the consent of the holders of a majority in aggregate principal amount of the Notes of such series then outstanding.

Satisfaction and Discharge

If, when the Notes shall become due and payable and the whole amount of the principal of, premium, if any, and interest due and payable upon all of the Notes shall be paid or provided for, together with all other sums payable under the Master Indenture, then the right, title and

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interest of the Master Trustee to the property securing performance of the obligations of the Obligated Group pledged by the Master Indenture and all covenants, agreements and other obligations of the members of the Obligated Group to the Noteholders shall thereupon cease, terminate and become void and become discharged and satisfied.

All or any part of the outstanding Notes of any one or more series shall, prior to the maturity or redemption date thereof, be deemed to have been paid if there shall have been deposited with the Master Trustee either moneys in an amount which shall be sufficient, or Defeasance Obligations the principal of and the interest on which when due, and without any reinvestment thereof, will provide moneys which shall be sufficient to pay when due the principal of, premium, if any, and interest due and to become due on said Notes on and prior to the redemption date or maturity date thereof, as the case may be, and the members of the Obligated Group shall have given the Master Trustee irrevocable instructions to give a notice to the holders of such Notes that the deposit described above has been made with the Master Trustee.

SUMMARY OF SUPPLEMENTAL MASTER INDENTURE NUMBER NINETEEN

Supplemental Indenture Number Nineteen will be executed and delivered contemporaneously with the Bond Indenture. Supplemental Indenture Number Nineteen provides for the creation and issuance by the Obligated Group of the Series 2016 Note as a registered Note without coupons issued to the Bond Trustee.

SUMMARY OF THE LEASES

Conveyance and Term

The Leases provide that the Lessees shall lease to the Issuer the Existing Facilities owned by the Lessees. The terms of the Leases commence on the date of delivery of the Series 2016 Bonds and terminate on August 1, 2047, unless extended or sooner terminated in accordance with the terms of such Leases.

Rent

As rent for the Existing Facilities the Issuer shall pay each Lessee total rent of One Dollar ($1.00), plus other valuable consideration.

SUMMARY OF THE SUBLEASES

Prior to the issuance of the Series 2016 Bonds, the Issuer and the Corporation will enter into the Corporation Sublease with respect to the Existing Facilities of the Corporation, with certain exclusions; the Issuer and Grandview will enter into the Grandview Sublease with respect to the Existing Facilities of Grandview, with certain exclusions; and the Issuer and Soin will

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enter into the Soin Sublease with respect to the Existing Facilities of Soin, with certain exclusions. The term of each Sublease commences on the date of delivery of the Series 2016 Bonds, and shall terminate on August 1, 2047, unless extended or terminated earlier pursuant to the provisions of such Subleases.

Payments to Bond Trustee

Each Lessee covenants and agrees to make the following Basic Rent payments to the Bond Trustee, on a joint and several basis, for deposit into the following funds and accounts established by the Bond Indenture on the following dates:

(a) Interest Account Deposits. On or before three business days prior to August 1, 2016, and on or before three business days prior to each February 1 and August 1 thereafter, an amount equal to the interest to become due on the Corresponding Series 2016 Bonds on such February 1 or August 1; provided that no such payment need be made to the extent that moneys are on hand in the Interest Account for that purpose.

(b) Principal Account Deposits. On or before three business days prior to August 1, 2016, and on or before three business days prior to each August 1 thereafter, an amount equal to f the principal coming due on the Corresponding Series 2016 Bonds on such August 1, whether at maturity or by mandatory sinking fund redemption; provided that no such payment need be made to the extent that moneys are on hand in the Principal Account for that purpose.

Each Lessee shall pay to the Bond Trustee or the Issuer, as the case may be, when due and payable, as Additional Rent, such of the following costs and expenses properly incurred by the Issuer as are not paid out of the proceeds of the Series 2016 Bonds:

(i) the reasonable fees and other costs incurred for services of such Independent engineers, architects, attorneys, and accountants as are employed to make examinations and/or render opinions and reports in connection with the issuance and delivery of the Series 2016 Bonds required under the Subleases or the Bond Indenture;

(ii) reasonable fees and other costs, including attorney’s fees and expenses, not otherwise paid under the Subleases or the Bond Indenture, incurred by the Issuer in connection with its administration and enforcement of, and compliance with, the Subleases and the Bond Indenture; and

(iii) amounts advanced by the Issuer or the Bond Trustee under authority of the Subleases or the Bond Indenture and which each Lessee is obligated to repay.

If other Related Bonds are issued for the benefit of each Lessee, payments of rent may be made to the trustee under the Related Bond Indenture securing the other series of Related Bonds.

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Lessees’ Obligations Unconditional

Each Lessee shall bear all risk of damage or destruction, in whole or in part, to the Existing Facilities or any part thereof, including, without limitation, any loss, complete or partial, or interruption in the use, occupancy or operation of the Existing Facilities, or any manner or thing which for any reason interferes with, prevents or renders burdensome the use or occupancy of the Existing Facilities or the compliance by each Lessee with any of the terms of the Subleases. Each Lessee agrees that its obligations to make payments will be absolute and unconditional and that such Lessee will not be entitled to any abatement, diminution, set-off, abrogation, waiver or modification thereof nor to any termination of the respective Sublease by any reason whatsoever, regardless of any rights of set-off, recoupment or counterclaim that such Lessee might otherwise have against the Issuer, the Master Trustee or the Bond Trustee or any other party or parties and regardless of any contingency, act of God, event or cause whatsoever.

Use of the Existing Facilities

Each Lessee will use the Existing Facilities only in furtherance of the lawful corporate purposes of such Lessee. Each Lessee further agrees that it will not use the Existing Facilities, or permit the Existing Facilities to be used by any non-exempt Person in such manner as would result in the loss of the exclusion from gross income for federal income tax purposes of interest on the Series 2016 Bonds otherwise afforded under Section 103(a) of the Code. Each Lessee further agrees that the Existing Facilities shall not be used primarily for sectarian instruction or study or as a place for devotional activities or religious worship.

Repairs, Maintenance and Alterations

Each Lessee shall at its own cost and expense keep the Existing Facilities in good repair and order, reasonable wear and tear excepted, and in as reasonably safe condition as its operations will permit and will make all necessary repairs thereto, interior and exterior, structural and nonstructural, ordinary as well as extraordinary and foreseen as well as unforeseen, and all necessary replacements or renewals, subject in all respects to the receipt by such Lessee of all necessary governmental permits and approvals therefor, and, subject further to the provisions of the Master Indenture.

Each Lessee shall have the right from time to time at its sole cost and expense to make repairs, restorations, replacements, additions, alterations and changes, whether structural or nonstructural (hereinafter collectively referred to as “alterations”) in or to the Existing Facilities; provided, however, that no alteration of any kind shall be made which would result in a violation of the provisions of the Subleases.

Effecting Changes in the Existing Facilities

Each Lessee at its own cost and expense may make such additions, renewals, replacements or improvements to or alterations of the Existing Facilities or may construct or place on the Existing Facilities such additional or renewal or replacement facilities, furnishings or equipment as such Lessee may deem desirable to effectuate the purposes contemplated in the

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Subleases; provided that such additions, renewals, replacements, improvements, alterations, facilities, furnishings or equipment will not materially impair the structural soundness or the usefulness of the Existing Facilities nor adversely affect the purposes of the Subleases.

The Issuer covenants that, except as in the Leases, the Subleases and the Bond Indenture otherwise permitted, it will not, during the term of the Subleases sell or otherwise dispose of or encumber its leasehold interest in the Existing Facilities or any part thereof or permit the Existing Facilities or any part thereof to be sold, demolished, removed or otherwise disposed of or encumbered.

Easements

The Issuer and the Lessees shall at any time or times lawfully grant or release, as the case may be, with or without consideration, such easements, rights of way, licenses or other rights over, upon or beneath the surface of the land constituting a part of the Existing Real Property as shall constitute Permitted Encumbrances under the Master Indenture, provided that the efficient operation of the Existing Facilities or reasonable ingress thereto and egress therefrom shall not be thereby materially impaired.

Release of Land

Notwithstanding any other provision of the Subleases, the parties to each of the Subleases reserve the right, by mutual written consent (which consent will not be unreasonably withheld or delayed by either party) at any time and from time to time, to amend such Subleases for the purpose of effectuating the release of one or more parcels of or interests in land constituting a part of the Existing Real Property and the removal from the purview of the Subleases and from the leasehold estate created by the Subleases of such parcel or parcels of or interest in land to the extent permitted by the conditions and requirements of the Subleases and, in the case of the Obligated Issuers, the Master Indenture.

Events of Default

The occurrence and continuance of any of the following events shall constitute an “event of default” under the Subleases:

(a) failure of each Lessee to pay any installment of Basic Rent when the same shall become due and payable; or

(b) except as noted in clause (c) below, failure by a Lessee faithfully and efficiently to administer, maintain and operate the Existing Facilities as Hospital Facilities or failure to provide the services thereof without regard to race, creed, color or national origin, or discrimination by a Lessee in the provision of such services by reason of race, creed, color or national origin; or

(c) each Lessee shall fail duly to observe, comply with or perform any covenant, representation, warranty or agreement on its part under the Subleases for a period of 60

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days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Lessees and the Bond Trustee by the holders of at least 25% in aggregate principal amount of Series 2016 Bonds then outstanding; provided, however, if said default be such that it cannot be corrected within the applicable period, it shall not constitute an event of default if corrective action is instituted by the Lessees within the applicable period and diligently pursued until the default is corrected; and provided, further that if the performance, observation or compliance with any of the terms, covenants, conditions or provisions referred to in clause (b) and this clause shall be prevented by the application of federal or State wage and price controls, economic stabilization, cost containment requirements, or restrictions on rates, charges and/or revenues of the Lessees, or reimbursement regulations and policies, which may be imposed by third-party payors (whether governmental or private), and the Obligated Group shall have complied in full with its obligation described above under the caption “SUMMARY OF THE MASTER INDENTURE - Covenants of the Obligated Group - Debt Service Coverage Ratio”, the inability to perform, observe or comply with any such term, covenant, condition or provision shall not constitute an event of default under the Subleases; or

(d) an event of default shall occur under the Bond Indenture; or

(e) if the principal of all Notes shall have been declared by the Master Trustee to be immediately due and payable pursuant to the Master Indenture.

The provisions of clause (c) above are subject to the following limitations: If by reason of acts of God; fires; epidemics; landslides; floods; strikes; lockouts or other industrial disturbances; acts of public enemies; acts or orders of any kind of any governmental authority; insurrections; riots; civil disturbances; explosions; breakage or accident to machinery, transmission pipes or canals; partial or entire failure of utilities; or any cause or event not reasonably within the control of the Lessees, the Lessees are unable in whole or in part to carry out their agreements on their part, pay taxes and to carry insurance, the Lessees shall not be deemed in default during the continuance of such inability. The Lessees shall, however, each use its best efforts to remedy with all reasonable dispatch the cause or causes preventing such Lessee from carrying out its agreements; provided, that the Lessees shall in no event be required to settle strikes, lockouts or other industrial disturbances by acceding to the demands of the opposing party or parties when such course is, in the judgment of the Lessees, unfavorable to the Lessees.

During the occurrence and continuance of any event of default, the Bond Trustee shall have the following rights and remedies, in addition to any other remedies in the Subleases or by law provided, which rights and remedies (except for the acceleration of the payment of Basic Rent and the Bond Trustee’s rights as a Noteholder) the Bond Trustee shall exercise solely at the express direction of the Master Trustee:

I. Acceleration of Maturity; Waiver of Default and Rescission of Acceleration. The Bond Trustee may, by written notice to the Lessees, declare the Rent (if not then due and payable) to be due and payable immediately, and upon any such declaration the Rent shall become and be immediately due and payable, anything in the Subleases to the contrary

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notwithstanding. This provision, however, is subject to the condition that if, at any time after the Rent shall have been so declared and become due and payable and all arrears of Rent and the expenses of the Issuer and the Bond Trustee shall be paid by the Lessees, and every other default in the observance or performance of any covenant, condition or agreement in the Subleases and the Bond Indenture shall be made good, or be secured, to the satisfaction of the Bond Trustee, or provision deemed by the Bond Trustee to be adequate shall be made therefor, then and in every such case the Bond Trustee by written notice to each Lessee shall waive the event of default by reason of which the Rent shall have been so declared and become due and payable, and may rescind and annul such declaration and its consequences; but no such waiver, rescission or annulment shall extend to or affect any subsequent event of default or impair any right consequent thereon.

II. Right to Bring Suit. The Bond Trustee may in its discretion, but with the consent of the Master Trustee, and subject to its right to be indemnified to its satisfaction, proceed to protect and enforce its rights by a suit or suits in equity or at law, whether for damages or for the specific performance of any covenant or agreement contained in the Sublease, or in aid of the execution of any power granted; provided, however, that all costs incurred by the Bond Trustee, including reasonable counsel fees, shall be paid to the Bond Trustee by each Lessee on demand.

III. Right of Noteholder. The Bond Trustee may take any other action permitted of a Noteholder under the Master Indenture.

Before any of the foregoing remedies are exercised by the Issuer or its designee if an event of default under clause (b) above occurs, the Issuer shall give written notice to the Lessee that it believes an event of default under that clause has occurred, specifying the charges or circumstances constituting the event of default in sufficient detail that each Lessee will be fully advised of the nature of the charges made against it and able to adequately prepare a response thereto. Such notice shall fix a date, time and place for a hearing before a hearing officer who shall be a member of the American Arbitration Association or any organization which is nationally recognized as performing the functions now performed by that Association who is knowledgeable concerning health care facilities reasonably comparable in size and type to the Existing Facilities and who shall be mutually acceptable to the applicable Lessee and the Issuer. The hearing shall be held to determine whether an Event of Default has occurred. That date shall not be sooner than 30 days following the giving of that notice.

At the date, time and place specified in the notice, unless the Issuer shall have withdrawn the notice, the Lessees shall be heard on the charges specified in the notice, shall be confronted with the evidence of the alleged Event of Default, shall have the right to examine and to cross-examine witnesses, and may introduce any other evidence and testimony with respect to the alleged Event of Default which the Lessees desire. After the hearing is concluded, the hearing officer shall consider whether an Event of Default has occurred and shall report his findings or determinations to the Issuer and the Lessees.

If the hearing officer determines that an Event of Default has occurred, the Issuer may give notice to the Lessees, the Master Trustee and the Bond Trustee of its intention to terminate

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the applicable Sublease on the basis of such Event of Default and effective as of a date not earlier than the 30th day following the giving of the notice. If on the date specified for termination, the determination of such Event of Default shall not have been appealed by such Lessees, Bond Trustee or Master Trustee to any judicial authority or suspended or waived by the Issuer, the applicable Sublease shall be terminated, subject to reinstatement pursuant to that Sublease. If that determination has been appealed, that Sublease shall not be terminated until the 30th day following the expiration of all periods for judicial review or appeal.

Payment of Defaulted Amounts on Demand

In case any Lessee shall fail to pay any installment of Rent when and as the same shall become due and payable, whether at maturity or upon designation for prepayment or by declaration, or otherwise, then upon written demand of the Issuer or the Bond Trustee, such Lessee will pay to the Bond Trustee the whole amount which then shall have become due and payable with interest at the rate borne by the Series 2016 Bonds until paid, and in addition thereto such further amount as shall be sufficient to cover the cost and expenses of collection, including a reasonable compensation to the Issuer, the Bond Trustee and their agents, attorneys and counsel, and any expenses or liabilities incurred by the Issuer or the Bond Trustee.

Reinstatement

Notwithstanding any termination of the Subleases, the Lessees may, with the prior written consent of the Master Trustee, at any time after such termination pay all accrued unpaid Basic Rent plus any costs to the Issuer and the Bond Trustee occasioned by the default including all interest required to be paid in accordance with the Bond Indenture on overdue principal and, to the extent lawful, on any overdue interest, and on the principal of Series 2016 Bonds not redeemed in accordance with the Bond Indenture by reason of any default by the Lessees in the payment of Basic Rent, and fully cure, all other defaults then capable of being cured. Upon such payment and cure, the Subleases shall be fully reinstated, as if they had never been terminated, and the Lessees shall be restored to the use, occupancy and possession of the Existing Facilities.

SUMMARY OF THE BOND INDENTURE

Creation of Trust

In connection with the issuance of the Series 2016 Bonds the Issuer and the Bond Trustee will execute and deliver the Bond Indenture. In order to secure payment of the principal of, premium, if any, and interest on the Series 2016 Bonds, and to secure the other obligations of the Issuer set forth in the Bond Indenture, the Issuer has pledged, assigned and granted a security interest in and to the Bond Trustee:

(a) All right, title and interest of the Issuer (other than Unassigned Rights) in and to the Leases and the Subleases, and all of the Basic Rent received or to be received under the Subleases, provided that the Bond Trustee’s rights under the Subleases, including the exercise by the Bond Trustee of any remedies under the Subleases, shall be on a parity

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basis with any subsequent assignment by the State of Ohio or any municipal corporation or political subdivision formed under the laws thereof or any constituted authority or agency or instrumentality of any of the foregoing, in connection with the issuance of Related Bonds;

(b) All moneys and securities on deposit from time to time in the funds established under the provisions of the Bond Indenture; and

(c) Any and all other property of every kind and nature from time to time hereafter, by delivery or by writing of any kind pledged, assigned or transferred as and for additional security by the Issuer or by anyone on its behalf to the Bond Trustee, which is authorized to receive the same at any time as additional security; to hold in trust, however, for the equal and ratable benefit, security and protection of all owners of the Series 2016 Bonds issued under the Bond Indenture.

Application of Series 2016 Bond Proceeds and Other Moneys

The Issuer shall deposit with the Bond Trustee all proceeds from the sale of the Series 2016 Bonds (including accrued interest on the Series 2016 Bonds from their date to the date of their delivery), and the Bond Trustee shall out of such proceeds and other available moneys:

(a) Deposit an amount equal to the accrued interest, if any, on the Series 2016 Bonds to the credit of the Interest Account;

(b) Deposit to the Expense Fund the amount permitted to be spent from Series 2016 Bond proceeds for the payment of fees and expenses incurred in connection with the issuance of the Series 2016 Bonds; and

Investment of Funds

Moneys in the Interest Account, the Principal Account, the Bond Redemption Fund, the Expense Fund and the Project Fund shall be invested in Qualified Investments pursuant to the Subleases. The Bond Trustee shall not be liable or responsible for any loss resulting from any such investment. Any such investments shall be held by or under the control of the Bond Trustee and shall mature at such times as it is anticipated that moneys from the particular Fund or Account will be required for the purposes of the Bond Indenture. The Bond Trustee is authorized to trade with itself in the purchase and sale of securities for such investment.

For the purpose of determining the amount from time to time on deposit in any of said Funds or Accounts, such investment shall be valued at the market value thereof, exclusive of accrued and unpaid interest. Such valuation shall occur at least annually, commencing May 1, 2017. The method of valuation shall be reasonably determined by the Bond Trustee.

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All income from the investment of moneys in the Principal Account, the Interest Account, the Bond Redemption Fund, the Expense Fund and the Project Fund shall be deposited into the respective Fund or Account from which such investment was made.

The Issuer shall not cause the Bond Trustee to make any investment or determination or do any other act or thing during the period that any Series 2016 Bonds are outstanding under the Bond Indenture which would cause the Series 2016 Bonds to become or be classified as “arbitrage bonds” within Sections 103(b)(2) and 148 of the Code. It is further understood and agreed that the Bond Trustee shall not be required at any time to make any such investment or to do any such act.

Events of Default

Each of the following events is declared an “event of default” under the Bond Indenture:

(a) payment of any installment of interest on any of the Series 2016 Bonds shall not be made when the same is due and payable; or

(b) payment of the principal of, or the redemption premium, if any, on any of the Series 2016 Bonds shall not be made when the same is due and payable, either at maturity or by redemption or otherwise; or

(c) the Issuer shall for any reason be rendered incapable of fulfilling its obligations under the Bond Indenture or under the Subleases; or

(d) any event of default as defined in the Subleases shall occur and be continuing; or

(e) the Master Trustee shall declare under the Master Indenture that the principal of all Notes is immediately due and payable; or

(f) the Issuer shall default in the due and punctual performance of any other of the covenants, conditions, agreements and provisions contained in the Series 2016 Bonds or in the Bond Indenture or any agreement supplemental thereof on the part of the Issuer to be performed and such default shall continue for 30 days after written notice specifying such default and requiring the same to be remedied shall have been given to the Issuer and the Corporation by the Bond Trustee, which shall only give such notice at the written request of the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Series 2016 Bonds then outstanding; provided, however, if said default be such that it cannot be corrected within the applicable period, it shall not constitute an event of default if corrective action is instituted by the Issuer within the applicable period and diligently pursued until the default is corrected.

Acceleration

Upon the happening of any event of default specified in the Bond Indenture, and the continuance of the same for the specified period, if any, the Bond Trustee may, without any

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action on the part of the owners of the Series 2016 Bonds, and shall (i) in the event the principal of the Notes has been declared immediately due and payable, or (ii) upon the written request of the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Series 2016 Bonds then outstanding, exclusive of Series 2016 Bonds then owned by the Issuer or the Lessees, and upon being indemnified to its satisfaction, by notice in writing delivered to the Issuer and the Lessees, declare the entire principal amount of the Series 2016 Bonds then outstanding and the interest accrued thereon immediately due and payable, and the said entire principal and accrued interest shall thereupon become and be immediately due and payable.

The provisions of the preceding paragraph, however, are subject to the condition that if, after the principal of, premium, if any, and accrued interest on, the Series 2016 Bonds and the principal of the Notes have been declared immediately due and payable, the declaration of acceleration of the Notes shall be annulled in accordance with the provisions of the Master Indenture, the declaration of acceleration of the Series 2016 Bonds shall be automatically annulled, and the Bond Trustee shall promptly give written notice of such annulment to the Issuer and the Corporation and notice to Bondholders in the same manner as a notice of redemption. The provisions of the preceding paragraph are subject to the further condition that after the principal of, premium, if any, and accrued interest on, the Series 2016 Bonds have been declared immediately due and payable, the owners of a majority in aggregate principal amount of the Series 2016 Bonds then outstanding shall have the right, by written notice to the Bond Trustee, the Issuer and the Lessees, to annul such declaration of acceleration of the Series 2016 Note pursuant to the Master Indenture. No such annulment shall extend to or affect any subsequent event of default or impair any right or remedy consequent thereon.

Remedies; Rights of Owners of the Series 2016 Bonds

Upon the occurrence of an event of default the Bond Trustee may, with the consent of the Master Trustee, also pursue any available remedy at law or in equity to enforce the payment of the principal of and interest on the Series 2016 Bonds then outstanding or to enforce any obligations of the Issuer under the Bond Indenture.

If any event of default shall have occurred, and if requested so to do in writing by the owners of not less than twenty-five percent (25%) in aggregate principal amount of Series 2016 Bonds then outstanding, and having been indemnified as provided in the Bond Indenture, the Bond Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this section as the Bond Trustee, being advised by counsel, shall deem most expedient in the interests of the Bondholders.

In the event that the Master Trustee has accelerated the Notes and is pursuing its available remedies under the Master Indenture, the Bond Trustee, without waiving any event of default, shall not pursue its available remedies under the Bond Indenture or the Subleases in such manner as to hinder or frustrate the pursuit by the Master Trustee of its remedies under the Master Indenture; provided that the Bond Trustee may take any action permitted of a Noteholder under the Master Indenture.

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Waivers of Events of Default

The Bond Trustee may, in its discretion waive any event of default and its consequences and rescind any declaration of maturity of principal of and interest on the Series 2016 Bonds, and shall do so upon the written request of the owners of a majority in aggregate principal amount of all Series 2016 Bonds then outstanding; provided, however, that there shall not be waived (a) any event of default in the payment of the principal of any outstanding Series 2016 Bonds at the date of maturity specified therein, or upon proceedings for mandatory redemption or any mandatory sinking fund payments required by any supplemental indenture or (b) any default in the payment when due of the interest or premium on any such Series 2016 Bonds unless prior to such waiver or rescission, all arrears of interest, or all arrears of payments of principal, with interest at the rate borne by the Series 2016 Bonds on all arrears of payments of principal until paid, as the case may be, and all expenses of the Bond Trustee in connection with such default, shall have been paid or provided for, and in case of any such waiver or rescission, or in case any proceeding taken by the Bond Trustee on account of any such default shall have been discontinued or abandoned or determined adversely, then and in every such case the Issuer, the Bond Trustee and the Bondholders shall be restored to their former positions and rights, respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereon.

Supplemental Indentures Not Requiring Consent of Owners of Series 2016 Bonds

The Issuer and the Bond Trustee may, without the consent of, or notice to, any of the owners of the Series 2016 Bonds, enter into an indenture or indentures supplemental to the Bond Indenture, as shall not be inconsistent with the terms and provisions of the Bond Indenture, for any one or more of the following purposes:

(a) To cure any ambiguity, inconsistency or formal defect or omission in the Bond Indenture;

(b) To grant to or confer upon the Bond Trustee for the benefit of the owners of the Series 2016 Bonds any additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon such owners or the Bond Trustee;

(d) To add to the covenants and agreements of the Issuer contained in the Bond Indenture other covenants and agreements thereafter to be observed for protection of the Bondholders, or such is not to the prejudice of the Bond Trustee or the Bondholders, to surrender or limit any right, power or authority reserved to or conferred upon the Issuer in the Bond Indenture, including, without limitation, the limitation of rights of redemption;

(e) To evidence any succession to the Issuer and the assumption by such successor of the covenants and agreements of the Issuer contained in the Bond Indenture, the Subleases or any subsequent lease or other instruments providing for the operation of the Existing Facilities, and the Series 2016 Bonds;

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(f) In connection with the issuance of any Related Bonds or other Indebtedness which is secured by a Note, in accordance with the provisions of the Master Indenture;

(g) To modify, amend or supplement the Bond Indenture or any indenture supplemental thereto in such manner as shall not be materially prejudicial to the interest of the owners of the Series 2016 Bonds, so as to permit the qualification thereof under the Trust Indenture Act of 1939 or any similar federal statute hereafter in effect or under any state blue sky law;

(h) To conform the Bond Indenture to any changes in the Lessee Documents permitted by the Bond Indenture;

(i) To provide for the issuance of coupon Series 2016 Bonds if in the written opinion of an attorney or a firm of attorneys of nationally recognized standing in matters of the tax-exempt status of municipal obligations the interest on such coupon Series 2016 Bonds would be exempt from federal income taxes;

(j) To permit the use of a book entry system to identify the owner of any interest in an obligation issued by the Issuer under the Bond Indenture, whether that obligation was formerly, or could be, evidenced by a physical security;

(k) To permit the Bond Trustee to comply with any duties imposed upon it by law;

(l) To specify further the duties and responsibilities of the Bond Trustee;

(m) To make any other change which is not prejudicial to the Bond Trustee or materially prejudicial the Bondholders; and

(n) In connection with any other change which, in the judgment of an Independent Consultant, a copy of whose report shall be sent to the Bond Trustee, (1) is in the best interest of the Lessees and (2) does not materially adversely affect the Bondholders taken as a group; provided that no such change shall be made if within 60 days of its receipt of such Independent Consultant’s report, the Bond Trustee shall have obtained a report from another Independent Consultant indicating that in its opinion either clauses (1) or (2) of this subsection (n) is not satisfied; provided further, that the Bond Trustee shall be under no duty to retain another such Independent Consultant.

In connection with the execution and delivery of any supplemental indenture pursuant to clause (f) above, the Bond Trustee, at the written direction of the Corporation or the Issuer, shall take whatever actions necessary to provide that such additional Related Bonds are equally and ratably secured with the Series 2016 Bonds.

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Supplemental Indentures Requiring Consent of Owners of Series 2016 Bonds

Exclusive of supplemental indentures not requiring the consent of owners of Series 2016 Bonds, and not otherwise, the owners of not less than a majority in aggregate principal amount of the Series 2016 Bonds then outstanding shall have the right, from time to time, anything contained in the Bond Indenture to the contrary notwithstanding, to consent to and approve the execution by the Issuer and the Bond Trustee of such other indenture or indentures supplemental thereto as shall be deemed necessary and desirable by the Issuer for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Bond Indenture or in any supplemental indenture; provided, however, that nothing shall permit or be construed as permitting (a) an extension of the stated maturity or reduction in the principal amount of, or reduction in the rate or extension of the time of paying of interest on, or reduction of any premium payable on the redemption of, any Series 2016 Bonds, without the consent of the owner of such Series 2016 Bonds, or (b) a reduction in the amount or extension of the time of any sinking fund payment required under the Bond Indenture, or (c) except in connection with the issuance of Related Bonds or other Indebtedness secured by a Note in accordance with the Master Indenture, the creation of any lien prior to or on a parity with the lien of the Bond Indenture, without the consent of the owners of all the Series 2016 Bonds at the time outstanding, or (d) a reduction in the aforesaid aggregate principal amount of Series 2016 Bonds the owners of which are required to consent to any such supplemental indenture, without the consent of the owners of all the Series 2016 Bonds at the time outstanding which would be affected by the action to be taken, or (e) the modification of the rights, duties or immunities of the Bond Trustee, without the written consent of the Bond Trustee.

Amendments to Lessee Documents Not Requiring Consent of Bondholders

The Issuer and the Lessees with the consent of the Bond Trustee may, without the consent of or notice to the owners of Series 2016 Bonds, enter into any amendment, change or modification of the Lessee Documents as may be permitted or required (i) by the provisions of the Lessee Documents and the Bond Indenture, (ii) for the purpose of curing any ambiguity, inconsistency or formal defect or omission therein, (iii) in order to provide for the issuance of any additional Related Bonds, including, without limitation, the addition of the State or any political subdivision thereof as a lessee under a Lease and as a lessor under a Sublease, (iv) in connection with adding or releasing real property to the Lessee Documents as permitted therein or in connection with the granting of easements as permitted by the Subleases, (v) any amendments, modifications or changes which, if they were amendments, modifications or changes to the Bond Indenture, would be permitted without the consent of Bondholders, or (vi) in connection with any other change therein which is not materially to the prejudice of the Bond Trustee or the owners of the Series 2016 Bonds. The Trustee may rely upon an opinion of counsel as conclusive evidence that execution and delivery of an amendment to the Lessee Documents has been effected in compliance with the provisions of the Bond Indenture and such documents.

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Amendments to Lessee Documents Requiring Consent of Bondholders

Except for the amendments, changes or modifications to the Lessee Documents not requiring the consent of Bondholders, neither the Issuer nor the Bond Trustee shall consent to any other amendment, change or modification of the Lessee Documents without the written approval or consent of the Obligated Group Representative and the owners of the amount of Series 2016 Bonds outstanding required by the Bond Indenture which approval or consent shall be given and procured as provided therein.

No Amendment May Alter Series 2016 Note

Under no circumstances shall any amendment to the Lessee Documents alter the Series 2016 Note or the payments of principal and interest thereon, without the consent of the owners of all the Series 2016 Bonds at the time outstanding.

Discharge of Lien

If the Issuer or the Lessees, as the case may be, shall pay or cause to be paid the principal of, premium, if any, and interest on the Series 2016 Bonds at the times and in the manner stipulated therein, and shall have made arrangements satisfactory to the Bond Trustee for the payment of all fees and expenses of the Bond Trustee and each paying agent, then the presents and the estate and rights granted by the Bond Indenture shall, at the Written Request of the Lessees, cease, determine and be void, and thereupon the Bond Trustee shall cancel and discharge the lien of the Bond Indenture and execute and deliver to the Issuer such instruments in writing as shall be requisite to satisfy the lien thereof, and assign and deliver to the Issuer any property at the time is subject to the lien of the Bond Indenture which may then be in its possession, except amounts required to be paid to the Lessees under the Subleases and except funds held by the Bond Trustee for the payment of principal of, premium, if any, and interest on the Series 2016 Bonds.

All outstanding Series 2016 Bonds and all interest due thereon, or a portion of the outstanding Series 2016 Bonds and all interest due thereon, shall prior to the maturity thereof be deemed to have been paid within the meaning and with the effect expressed in the immediately preceding paragraph if, under circumstances which do not render interest on the Series 2016 Bonds subject to federal income taxation, (a) there shall have been deposited with the Bond Trustee either moneys in an amount which shall be sufficient, or Defeasance Obligations the principal of and the interest or other income on which when due will provide moneys which, together with moneys, if any, deposited with the Bond Trustee at the same time, shall be sufficient to pay when due the principal of, premium, if any, and interest due and to become due on said Series 2016 Bonds on and prior to the maturity date thereof, (b) there shall be delivered to the Bond Trustee the report of an independent certified public accountant or nationally recognized bond counsel to the effect that the moneys or Defeasance Obligations will be sufficient to pay, as the same becomes due at maturity or upon redemption, the principal of and interest and premium, if any, on the Series 2016 Bonds and an opinion of nationally recognized bond counsel to the effect that the Series 2016 Bonds have been paid within the meaning of the Bond Indenture, and (c) the Issuer shall have given the Bond Trustee in form satisfactory to it

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irrevocable instructions to mail, postage prepaid, a notice to the owners of such Series 2016 Bonds that the deposit required by (a) above has been made with the Bond Trustee and that said Series 2016 Bonds are deemed to have been paid and stating the date upon which moneys are to be available for the payment of the principal on said Series 2016 Bonds, provided, however, that the lien of the Bond Indenture shall not be discharged unless and until all outstanding Series 2016 Bonds and all interest due thereon are deemed to have been paid within the meaning of the Bond Indenture. Except as provided in the Bond Indenture, neither direct or guaranteed obligations of the United States of America nor moneys deposited with the Bond Trustee nor principal or interest payments on any such securities shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of, premium, if any, and interest on the Series 2016 Bonds for which such deposit was made.

SUMMARY OF THE TAX REGULATORY AGREEMENT

The Tax Regulatory Agreement contains covenants and provisions relating to compliance with provisions of the Code governing the exclusion of interest on the Series 2016 Bonds from the gross income of the recipients thereof for federal income tax purposes, including covenants and provisions relating to (i) ownership of the Existing Facilities by a governmental entity or an organization described in Section 501(c)(3) of the Code; (ii) the weighted average maturity of the Series 2016 Bonds as compared to the reasonably expected economic life of the property financed or refinanced by the proceeds of the Series 2016 Bonds; (iii) use of the proceeds of the Series 2016 Bonds in a manner which would cause the Series 2016 Bonds to be “arbitrage bonds”; (iv) limitations on the amount of the reserve fund or any replacement fund attributable to the Series 2016 Bonds; (v) compliance with the arbitrage rebate requirements of the Code; (vi) compliance with the public approval requirements of the Code; (vii) limitation on the use of proceeds of the Series 2016 Bonds to pay costs of issuance; and (viii) compliance with the information reporting requirements of the Code.

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APPENDIX D.

FORM OF OPINION OF BOND COUNSEL

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FORM OF BOND COUNSEL OPINION

The form of the legal approving opinion of Peck, Shaffer & Williams, a Division of Dinsmore & Shohl LLP, bond counsel, is set forth below. The actual opinion will be delivered on the date of delivery of the bonds referred to therein and may vary from the form set forth to reflect circumstances both factual and legal at the time of such delivery. Recirculation of the Official Statement shall create no implication that Peck, Shaffer & Williams, a Division of Dinsmore & Shohl LLP has reviewed any of the matters set forth in such opinion subsequent to the date of such opinion.

County of Montgomery, Ohio Dayton, Ohio

Merrill Lynch, Pierce, Fenner & Smith Incorporated New York, New York

Ladies and Gentlemen:

We have examined the transcript of proceedings, including the Leases, Subleases, Master Indenture, Supplemental Indenture Number Nineteen, Master Note and Bond Indenture, all as hereinafter defined, relating to the issue of $91,175,000* Hospital Facilities Revenue Bonds, Series 2016 (Kettering Health Network Obligated Group Project), dated the date of initial delivery (the “Series 2016 Bonds”) of the County of Montgomery, Ohio (the “County”). The Series 2016 Bonds are initially issued as fully registered bonds of the denomination of $5,000 each, or any integral multiple thereof.

The Series 2016 Bonds mature, bear interest and are redeemable all as provided in the Indenture of Trust (Bond Indenture) dated as of May 1, 2016 (the “Bond Indenture”) between the County and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Bond Trustee”).

Both the principal of and any premium and the interest on the Series 2016 Bonds are payable, without deduction for services of the paying agent of the County, in any coin or currency of the United States of America which on the respective dates of payment thereof is legal tender for the payment of public and private debts. The principal of all Series 2016 Bonds is payable at the designated corporate trust office of the Bond Trustee. The interest is payable by check or draft mailed to the registered owner of Series 2016 Bonds.

The Series 2016 Bonds have been issued, together with other available moneys, to (1) finance the acquisition, construction, renovation and equipping of the Project, as defined in the Bond Indenture, and (2) pay certain issuance costs in connection with the Series 2016 Bonds.

* Preliminary; Subject to change.

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County of Montgomery, Ohio Merrill Lynch, Pierce, Fenner & Smith Incorporated May __, 2016 Page 2

The County has entered into (i) an Agreement of Lease, dated as of May 1, 2016 (the “Corporation Lease”) with Kettering Medical Center (the “Corporation”), an Ohio nonprofit corporation which has authority to own and operate Hospital Facilities, (ii) an Agreement of Lease, dated as of May 1, 2016 (the “Grandview Lease”), with Dayton Osteopathic Hospital d/b/a Grandview Hospital and Medical Center (“Grandview”), an Ohio nonprofit corporation which has authority to own and operate Hospital Facilities, and (iii) an Agreement of Lease, dated as of May 1, 2016 (the “Soin Lease”, and together with the Corporation Lease and the Grandview Lease, the “Leases”) with Beavercreek Medical Center, d/b/a Indu & Raj Soin Medical Center (“Soin”, and together with the Corporation and Grandview, the “Lessees”), an Ohio nonprofit corporation which has authority to own and operate Hospital Facilities. Under the provisions of the Leases, the County has leased the Existing Facilities (as defined in the Bond Indenture) from the Lessees. The Existing Facilities have then been subleased from the County to each respective Lessee pursuant to (i) a Sublease, dated as of May 1, 2016 (the “Corporation Sublease”), between the Corporation and the County, (ii) a Sublease dated as of May 1, 2016 (the “Grandview Sublease”) between Grandview and the County, and (iii) a Sublease dated as of May 1, 2016 (the “Soin Sublease”, and together with the Corporation Sublease and the Grandview Sublease, the “Subleases”) between Soin and the County. The Subleases provide for the payment by the Lessees of Basic Rent, as defined therein, in amounts sufficient to pay the principal of and the interest on the Series 2016 Bonds.

The Lessees have entered into Supplemental Master Indenture Number Nineteen, dated as of May 1, 2016 (“Supplemental Indenture Number Nineteen”), which supplements and amends a Master Trust Indenture dated as of May 1, 1996, as previously supplemented and amended (the “Master Indenture”), between the Corporation and The Bank of New York Mellon Trust Company, N. A. (as successor to Bank One Trust Company, N.A.), as trustee (the “Master Trustee”), whereby the Lessees have issued their Series 2016 Note (the “Master Note”) to the Bond Trustee, which Master Note provides for payments sufficient in time and amount to assure the full and prompt payment of the Series 2016 Bonds and the interest thereon, whether payable at maturity, redemption prior to maturity or acceleration.

The Bond Indenture provides for the creation of a special fund designated the Bond Fund (herein called the “Bond Fund”), which special fund is pledged to and charged with the payment of the principal of and interest and premium, if any, on all Series 2016 Bonds.

The Series 2016 Bonds are issued under authority of the general laws of the State of Ohio, particularly Chapter 140 of the Ohio Revised Code, and by virtue of a resolution of the Board of County Commissioners of the County in relation thereto.

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County of Montgomery, Ohio Merrill Lynch, Pierce, Fenner & Smith Incorporated May __, 2016 Page 3

We have also examined a copy of the signed and authenticated bond numbered R-1 of the Series 2016 Bonds.

From such examination we are of the opinion that:

1. The laws under which the Series 2016 Bonds are issued are constitutional and the proceedings regular and in due form.

2. The County is validly existing under the laws of the State of Ohio with full power and authority to issue the Series 2016 Bonds.

3. The Bond Indenture, the Leases and the Subleases are valid and binding obligations of the County enforceable in accordance with the terms and tenor thereof, except to the extent that the enforceability (but not the validity) thereof may be limited by bankruptcy, insolvency or other laws affecting enforcement of creditors’ rights generally.

4. The County has full and lawful authority to provide, lease, sublease and cause to be operated and maintained the Existing Facilities as provided in the Leases, the Subleases and the Bond Indenture. All right, title and interest of the County in and to the Leases and Subleases has been validly assigned to the Bond Trustee.

5. The Series 2016 Bonds are valid and legally binding limited revenue obligations of the County payable in accordance with their terms solely from the Trust Estate (as defined in the Bond Indenture) and other amounts derived from its ownership, sale or leasing of the Existing Facilities (except to the extent paid out of moneys attributable to the Series 2016 Bond proceeds or the income from the temporary investment thereof) and constitute a valid claim of the respective holders thereof only against the Bond Fund and other moneys held by the Bond Trustee and the revenues and other amounts derived from the leasing or sale of the Existing Facilities.

6. The Series 2016 Bonds are not general obligations, debt or bonded indebtedness of the County or of the State of Ohio or any political subdivision thereof, and the holders or owners thereof do not have the right to have excises or taxes levied by the County or the State of Ohio or any political subdivision thereof for the payment of the principal of and interest and premium, if any, on the Series 2016 Bonds. The right to payment of such principal, interest and premium, if any, is limited to the revenues pledged therefor in the Bond Indenture and to other moneys payable under the Master Note.

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County of Montgomery, Ohio Merrill Lynch, Pierce, Fenner & Smith Incorporated May __, 2016 Page 4

7. The Series 2016 Bonds, the Master Note, the Leases and the Subleases are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Bond Indenture, Master Indenture and Supplemental Indenture Number Nineteen are exempt from qualification as indentures pursuant to the Trust Indenture Act of 1939, as amended.

8. The interest on the Series 2016 Bonds is exempt from the income base used in calculating the corporate franchise tax levied by Chapter 5733 of the Ohio Revised Code and from the Ohio personal income tax levied by Chapter 5747 of the Ohio Revised Code. Pursuant to Section 140.08 of the Ohio Revised Code, the Series 2016 Bonds, the transfer thereof, and the income therefrom, including any profit made on the sale thereof, are exempt from taxation within the State of Ohio.

9. Under laws, regulations, rulings and judicial decisions in effect as of the date hereof, interest on the Series 2016 Bonds is excludible from gross income for Federal income tax purposes, pursuant to the Internal Revenue Code of 1986, as amended (the “Code”). Furthermore, interest on the Series 2016 Bonds will not be treated as a specific item of tax preference, under Section 57(a)(5) of the Code, in computing the alternative minimum tax for individuals and corporations. The Series 2016 Bonds are “qualified 501(c)(3) bonds” within the meaning of the Code. In rendering the opinions in this paragraph, we have assumed continuing compliance with certain covenants made by the County and the Lessees designed to meet the requirements of Section 103 of the Code. We express no other opinion as to the federal tax consequences of purchasing, holding or disposing of the Series 2016 Bonds.

Very truly yours,

PECK, SHAFFER & WILLIAMS, A DIVISION OF DINSMORE & SHOHL LLP

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APPENDIX E.

SUMMARY OF CONTINUING DISCLOSURE UNDERTAKING

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SUMMARY OF CONTINUING DISCLOSURE UNDERTAKING

General

The members of the Obligated Group, together with KAHS (together, the “Obligors”) have covenanted, for the benefit of the Bondholders and the Beneficial Owners, pursuant to an Amended and Restated Continuing Disclosure Agreement executed and delivered by the members of the Obligated Group in connection with the issuance of the Series 2009 Bonds, and as will be further amended by Amendment No. 3 to Continuing Disclosure Agreement (as amended, the “Disclosure Agreement”) to be executed and delivered by the Obligors, to provide or cause to be provided, as appropriate, (i) each year, certain financial information and operating data relating to the members of the Obligated Group (the “Annual Report”) by no later than 150 days after the last day of the fiscal year of the current members of the Obligated Group; (ii) each quarter other than the fourth quarter certain financial information relating to the members of the Obligated Group (the “Quarterly Report”) by no later than 60 days after the last day of the fiscal quarter of the members of the Obligated Group; and (iii) timely notices of the occurrence of certain enumerated events. Currently the fiscal year of each of the current members of the Obligated Group commences on January 1. The fiscal quarters of each of the current members of the Obligated Group commence on January 1, April 1, July 1 and October 1. “Beneficial Owners” means, under this caption only, any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of directly or indirectly, to vote or consent with respect to, or to dispose of ownership of any Series 2016 Bonds (including persons holding Series 2016 Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Series 2016 Bonds for federal income tax purposes.

Annual Reports, Quarterly Reports and notices of enumerated events will be filed, in electronic format, by or on behalf of each of the current members of the Obligated Group with the Municipal Securities Rulemaking Board (the “MSRB”). These covenants have been made in order to assist the Underwriters and registered brokers, dealers and municipal securities dealers in complying with the requirements of Rule 15c2-12 (the “Rule”) promulgated by the Securities and Exchange Commission (the “SEC”) pursuant to the Securities Exchange Act of 1934, as amended.

Notice of Certain Events

Each of the Obligors covenants to provide, or cause to be provided, notice of the occurrence of any of the following events with respect to the Series 2016 Bonds in a timely manner not in excess of 10 business days after the occurrence of the event and in accordance with the Rule:

(1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notice of Proposed Issue (IRS Form 5701-TEB), or other material notices or determinations with respect to the tax status of the Series 2016 Bonds, or other material events affecting the tax status of the Series 2016 Bonds; (7) modifications to rights of the holders of the Series 2016 Bonds, if material; (8) Bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution or sale of property securing repayment of the Series 2016 Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar events affecting a member of the Obligated Group;

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(13) the consummation of a merger, consolidation, or acquisition involving a member of the Obligated Group or the sale of all or substantially all of the assets of a member of the Obligated Group, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material: and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material.

In addition, the Obligors agree to provide notice in a timely manner of their failure to provide any Annual Report or Quarterly Report on or before the date required.

Annual Report

The Annual Report will contain or incorporate by reference at least the following items:

(a) The audited financial statements of the members of the Obligated Group for the fiscal year immediately preceding the due date of the Annual Report; provided, however, that if such audited financial statements are not available by the deadline for filing the Annual Report, they shall be provided when and if available, and unaudited financial statements shall be included in the Annual Report. The financial statements shall be audited and prepared pursuant to accounting and reporting policies conforming in all material respects to generally accepted accounting principles. Neither the Obligated Group nor the Obligors have separately audited financial statements. The Obligors intend to comply with their obligations under the Disclosure Agreement by continuing to provide audited consolidated financial statements, together with consolidating statements as supplementary information, substantially in the form presented in APPENDIX B.

(b) An update of the material financial information and material operating data of the same general nature as that contained in APPENDIX A hereto relating to utilization and sources of revenue.

The Obligors may modify from time to time the specific types of information provided to the extent necessary to conform to changes in legal requirements or changes in the nature of the members of the Obligors; provided, that any such modification will be done in a manner consistent with the Rule and will not, in the opinion of the Bond Trustee (who may rely on an opinion of counsel), materially impair the interests of the Series 2016 Bondholders.

Any or all of the items listed above may be included by specific reference to other documents which previously have been provided to the MSRB. The Obligors shall clearly identify each such document as included by reference.

Quarterly Report

The Quarterly Report will contain or incorporate by reference the unaudited financial statements of the members of the Obligated Group for the fiscal quarter immediately preceding the due date of the Quarterly Report. The financial statements shall be prepared pursuant to accounting and reporting policies conforming in all material respects to generally accepted accounting principles.

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Failure to Comply

In the event of a failure of the Obligors to comply with any provision of the Disclosure Agreement, any Bondholder or Beneficial Owner may take such actions as may be necessary and appropriate including seeking specific performance by court order, to cause the Obligors to comply with the obligations under the Disclosure Agreement. A failure to comply with the Disclosure Agreement shall not be deemed an Event of Default under the Bond Indenture. The sole remedy under the Disclosure Agreement in the event of any failure of the Obligors to comply with the Disclosure Agreement shall be an action to compel performance, and no person or entity shall be entitled to recover monetary damage thereunder under any circumstances.

Amendment of the Disclosure Agreement

The provisions of the Disclosure Agreement, including but not limited to the provisions relating to the accounting principles pursuant to which the financial statements are prepared, may be amended as deemed appropriate by an authorized officer of each of the Obligors; but any such amendment must be adopted procedurally and substantively in a manner consistent with the Rule, including any interpretation thereof made from time to time by the SEC. Such interpretations currently include the requirements that (a) the amendment may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the Obligors or the type of activities conducted thereby, (b) the undertaking, as amended, would have complied with the requirements of the Rule at the time of the primary offering of the Series 2016 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, and (c) the amendment does not materially impair the interests of Bondholders, as determined by parties unaffiliated with the Obligors (such as independent legal counsel). The foregoing interpretations may be changed in the future.

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APPENDIX F

DTC Book-Entry Only System

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APPENDIX F

DTC Book-Entry Only System

1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Series 2016 Bonds (the “Securities”). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for each maturity of each series of the Securities, in the aggregate principal amount of such maturity, and will be deposited with DTC.

2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 7A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book- entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

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 ownership interest of each actual purchaser of each Security (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.

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 DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

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 governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the

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alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from Authority or Bond Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, Bond Trustee, or Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Authority or Bond Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Authority or Bond Trustee. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

10. The Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.

11. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Issuer believes to be reliable, but the Issuer takes no responsibility for the accuracy thereof.

THE ISSUER, KETTERING, THE UNDERWRITERS AND THE BOND TRUSTEE CANNOT AND DO NOT GIVE ANY ASSURANCES THAT THE DIRECT PARTICIPANTS OR THE INDIRECT PARTICIPANTS WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE SERIES 2016 BONDS (1) PAYMENTS OF PRINCIPAL OF OR INTEREST AND PREMIUM, IF ANY, ON THE SERIES 2016 BONDS, (2) CERTIFICATES REPRESENTING AN OWNERSHIP INTEREST OR OTHER CONFIRMATION OF BENEFICIAL OWNERSHIP INTERESTS IN THE SERIES 2016 BONDS, OR (3) REDEMPTION OR OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS NOMINEE, AS THE REGISTERED OWNERS OF THE SERIES 2016 BONDS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR THAT DTC OR DIRECT OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CURRENT “RULES” APPLICABLE TO DTC ARE ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE CURRENT “PROCEDURES” OF DTC TO BE FOLLOWED IN DEALING WITH DTC PARTICIPANTS ARE ON FILE WITH DTC.

NEITHER THE ISSUER, KETTERING, THE UNDERWRITERS NOR THE BOND TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO SUCH DTC PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO (1) THE SERIES 2016 BONDS; (2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT; (3) THE PAYMENT BY ANY DTC PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OF OR INTEREST OR PREMIUM, IF ANY, ON THE SERIES 2016 BONDS; (4) THE DELIVERY BY ANY DTC PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED

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UNDER THE TERMS OF THE BOND INDENTURE TO BE GIVEN TO BONDHOLDERS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE SERIES 2016 BONDS; OR (6) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS BONDHOLDER.

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County of Montgomery, Ohio • Hospital Facilities Revenue Bonds, Series 2016 (Kettering Health Network Obligated Group Project)