$34,780,000* Wayne County Hospital and Health

This Preliminary Official Statement and the information contained herein are subject to completion, amendment or other change without notice. The securities described herein may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. 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 these securities 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. * Preliminary, subjecttochange. Dated: ______, 2017 cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtaininformationessentialthe makingofaninformedinvestmentdecision. It isexpectedthatthe2017A BondsinbookentryformwillbeavailablefordeliverythroughDTCNew York, New York onoraboutSeptember21,2017. legal approving the to subject and Underwriters the by received the and by Authority issued if and as when, delivery for offered 2017Aare Bonds Lee C. Krause, Esq., Honesdale, Pennsylvania, by County Solicitor,County and the for the for Underwriters by Pennsylvania, Hall Render Honesdale, Killian Heath Howell, & Lyman,& P.C.,Howell by Offices Hospital Indianapolis, Indiana. Law the for The Solicitor, by Authority Pennsylvania, Honesdale, Authority the Esquire, Martin, for John upon of passed be will matters legal Certain Counsel. Bond Pennsylvania, P.C.,Scranton, Lee, & Stevens of opinion 2017A Bonds will be secured under the provisions of the Bond Indenture and the Loan Agreement, as each is referred to herein, by a Promissory Note are additionallysecuredbyaGuarantyof Wayne County, Pennsylvania(the“County”). issued pursuant to a Master Trust Indenture between The Bank of New York Mellon Trust Company, N.A. and Wayne Memorial Hospital (the “Hospital”), and 2017A BONDS ARE LIMITED OBLIGATIONS OF WAYNE COUNTY HOSPTIAL AND HEALTH FACILITIES AUTHORITY AND, EXCEPT PENNSYLVANIA OR ANY OTHERPOLITICAL SUBDIVISION THEREOF. THE AUTHORITY HASNO TAXING POWER. AS SECURED BY A COUNTY GUARANTY HEREINAFTER REFERRED TO, ARE NOT A DEBT OR OBLIGATION OF THE COMMONWEALTH OF in thesectiontitled“Descriptionof2017A Bonds”below). defined (as Date Record appropriate the of as Bonds such of Bond owners the Trusteeregistered on the drawn to check mailed by and payable be will Bonds when due, to the registered owner of such Bond upon surrender of such Bond to the Bond Trustee at its principal corporate trust office and the interest on such 2017A Bonds. If the use of the Book-Entry long Only as System Cede for & the Co., as 2017Anominee for DTC, is Bonds the is registered ever owner discontinued, of the the principal 2017Aof each of the Bonds, 2017Apayments of the principal Bonds of will and be interest payable, on the 2017A Bonds, (the “Bond Pennsylvania Trustee”), Philadelphia, as Bond in Trustee,located and Company,N.A., DTC TrustYorkwill New Mellon in turn of remit such Bank payments The of DTC by Participants for DTC subsequent to disbursement to directly the Beneficialmade Owners ofbe the will payment, for due when the under If, herein. SYSTEM” ONLY “BOOK-ENTRY as describedherein. See Bonds. 2017A the on interest and circumstances described herein, Bonds are ever issued in certificated of form, the 2017A Bonds will be subject to registration of transfer, principal exchange and payment of payment receive to Participant DTC a through, acts or is, who dealer a or broker a with account an maintain must purchaser that Bond, a of owner beneficial the is purchaser any as long so For 2017ABonds. the of delivery physical receive not will 2017ABonds the of purchasers The Participants. DTC through, act or are, who dealers and brokers County Guaranteed Hospital 2017ARevenue Bonds Bonds may be (Wayneacquired in denominations of Memorial $5,000 or Hospital any integral Project), multiple thereof Series only under the Abook- entry only system of maintained by 2017, DTC through in the the aggregate name of Cede principal & Co., as amount the registered owner of and nominee of $34,780,000* The Depository Trust Company (“DTC”), New York, New York. in registered Beneficialand thereof ownershipmultiples integral ofand $5,000 the of denomination the in coupons, without form, registered fully in issued “2017Abe (the will Bonds”) First Interest Payment: Dated: DateofDelivery Pennsylvania. or gains profits, Pennsylvania, of Commonwealth the income derivedfromof thesale,exchangeorotherdispositionof2017A BondsshallbesubjecttoStateandlocaltaxationwithintheCommonwealthof laws the Under thereon. interest the or Bonds 2017A the on directly addressed or levied not purposes withintheCommonwealthofPennsylvania,butthisexemptiondoesnotextendtogift,estate,successionorinheritancetaxesanyother EXEMPTION AND OTHERTAX MATTERS” herein forabriefdescriptionoftheseprovisions. See 2017A Bonds. of the “TAX holders the and affect purchasers may Code the Other TAX of OTHER provisions Statement. Official MATTERS”this in preference forpurposesofthe federal, individual or corporate alternative minimum taxes except as setforthunderthe heading “TAX EXEMPTION AND interest onthe2017A Bondsisnotincludableingross incomeunderSection103(a)oftheCodeandinterest onthe2017A Bondsisnotanitemoftax certain covenantstocomplywithprovisions This The The THE So The Under thelawsofCommonwealthPennsylvania,2017A In theopinionofStevens&Lee,P County GuaranteedHospitalRevenueBonds(Wayne MemorialHospitalProject) WAYNE COUNTY HOSPITAL AND HEALTH FACILITIES AUTHORITY January1,2018 PRELIMINARY OFFICIAL STATEMENT DATED AUGUST 24,2017 .C., Scranton,Pennsylvania,BondCounsel,assumingcontinuingcompliancebythe Authority andtheHospitalwith WAYNE COUNTY, PENNSYLVANIA Series A of2017 $34,780,000* Bondsandtheinterest thereon shallbefree from taxationforStateandlocal Principal Due: Interest Due:January1andJuly July 1,asshowninsidefrontcover S&P RATING: AA-

$34,780,000* WAYNE COUNTY HOSPITAL AND HEALTH FACILITIES AUTHORITY WAYNE COUNTY, PENNSYLVANIA County Guaranteed Hospital Revenue Bonds (Wayne Memorial Hospital Project) Series A of 2017

Dated: Date of Delivery Principal Due: July 1, as shown below First Interest Payment: January 1, 2018 Interest Due: January 1 and July 1

Principal Interest Offering Maturity* Amount* Rate Price CUSIP† (July 1) 2018 $ 5,000 2019 5,000 2020 5,000 2021 5,000 2022 5,000 2023 5,000 2024 5,000 2025 490,000 2026 505,000 2027 530,000 2028 1,150,000 2029 1,210,000 2030 1,270,000 2031 1,335,000 2032 1,400,000 2033 1,455,000 2034 1,515,000 2035 1,570,000 2036 1,630,000 2037 1,685,000 2038 1,745,000 2039 1,810,000 2040 1,875,000 2041 1,955,000 2042 2,055,000 2043 2,160,000 2044 2,495,000 2045 2,400,000 2046 2,520,000 $______% Term Bonds* due July 1, 20__ at a price of ___% $______% Term Bonds* due July 1, 20__ at a price of ___%

* Preliminary, subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein provided by CUSIP Global Services managed by S&P Global Marketing Intelligence on behalf of the American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Global Services. CUSIP numbers have been assigned by an independent company not affiliated with the Authority or the Underwriters and are included solely for the convenience of the holders of the 2017A Bonds. Neither the Authority nor the Underwriters is responsible for the selection of the CUSIP numbers, and no representation is made as to their correctness on the 2017A Bonds or as indicated above. The CUSIP number for a specific maturity is subject to being changed after the execution and delivery of the 2017A Bonds as a result of various subsequent action including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of the 2017A Bonds.

REGARDING USE OF THIS OFFICIAL STATEMENT

This Official Statement is being distributed in connection with the sale of the 2017A Bonds referred to in this Official Statement and may not be used, in whole or in part, for any other purpose. No dealer, broker, salesman or other person is authorized to make any representations concerning the 2017A Bonds other than those contained in this Official Statement, and if given or made, such other information or representations may not be relied upon as statements of the Authority, the Hospital or the County. 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 2017A Bonds by any person in any jurisdiction in which it is unlawful to make such an offer, solicitation or sale.

For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this document, as the same may be supplemented or amended by the Authority, from time to time (collectively, the “Official Statement”), may be treated as a final Official Statement with respect to the 2017A Bonds described herein that is deemed final by the Authority as of the date hereof (or of any such supplement or amendment).

Unless otherwise indicated, the Hospital and the County are the source of the information contained in this Official Statement. Certain information in this Official Statement has been obtained by the Authority or on its behalf from The Depository Trust Company and other non-Authority sources that the Authority believes to be reliable. No representation or warranty is made, however, as to the accuracy or completeness of such information. Nothing contained in this Official Statement is a promise of or representation by Robert W. Baird & Co. Incorporated or Piper Jaffray & Co. (collectively, the “Underwriters”). The Underwriters have provided the following sentence of inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information and opinions expressed in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale made under this Official Statement shall, under any circumstances, create any implication that there has been no change in the financial condition or operations of the Authority, the Hospital, the County or other information in this Official Statement, since the date of this Official Statement.

This Official Statement contains statements that are “forward-looking statements” as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this Official Statement, the words “estimate,” “intend,” “project” or “projection,” “expect” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties, some of which are discussed herein, that could cause actual results to differ materially from those contemplated in such forward-looking statements. Investors and prospective investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Official Statement.

This Official Statement should be considered in its entirety. No one factor should be considered more or less important than any other by reason of its position in this Official Statement. Where statutes, ordinances, reports or other documents are referred to in this Official Statement, reference should be made to those documents for more complete information regarding their subject matter.

The 2017A Bonds will not be registered under the Securities Act of 1933, as amended, or the securities laws of any state of the United States, and will not be listed on any stock or other securities exchange. Neither the Securities and Exchange Commission nor any other federal, state, municipal or other governmental entity shall have passed upon the accuracy or adequacy of this Official Statement.

IN CONNECTION WITH THE OFFERING OF THE 2017A BONDS, THE UNDERWRITERS MAY OR MAY NOT OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE 2017A BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME WITHOUT NOTICE. THE PRICES AND OTHER TERMS RESPECTING THE OFFERING AND SALE OF THE 2017A BONDS MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS AFTER THE 2017A BONDS ARE RELEASED FOR SALE AND THE 2017A BONDS MAY BE OFFERED AND SOLD AT PRICES OTHER THAN THE INITIAL OFFERING PRICES, INCLUDING SALES TO DEALERS WHO MAY SELL THE 2017A BONDS INTO INVESTMENT ACCOUNTS.

TABLE OF CONTENTS Page BOARD AUTHORITY MEMBERS...... ii COUNTY COMMISSIONERS ...... ii SUMMARY STATEMENT ...... iii INTRODUCTION ...... 1 PURPOSE OF THE ISSUE; PLAN OF FINANCE ...... 3 THE PROJECT ...... 3 SOURCES AND USES OF FUNDS ...... 3 THE OBLIGATED GROUP ...... 4 THE AUTHORITY ...... 4 THE COUNTY ...... 4 COUNTY FINANCIAL HISTORY ...... 5 SECURITY FOR THE 2017A BONDS ...... 5 DESCRIPTION OF THE 2017A BONDS ...... 7 BOOK-ENTRY ONLY SYSTEM ...... 8 REDEMPTION PROVISIONS ...... 10 BONDHOLDERS’ RISKS ...... 12 LITIGATION ...... 34 LEGAL MATTERS ...... 35 TAX EXEMPTION AND OTHER TAX MATTERS ...... 35 CONTINUING DISCLOSURE UNDERTAKING ...... 37 RATING ...... 38 UNDERWRITING ...... 38 INDEPENDENT AUDITORS ...... 39 UNAUDITED FINANCIAL INFORMATION ...... 39 MISCELLANEOUS ...... 39

APPENDIX A – Wayne Memorial Hospital APPENDIX B – Financial Statements for the Hospital APPENDIX C – Description of Wayne County and Financial Factors APPENDIX D – County of Wayne, Financial Statements APPENDIX E – Summary of Principal Documents APPENDIX F – Proposed Form of Opinion of Bond Counsel APPENDIX G – Proposed Form of Joint Continuing Disclosure Agreement

WAYNE COUNTY HOSPITAL AND HEALTH FACILITIES AUTHORITY

BOARD AUTHORITY MEMBERS

Scott Rickard ...... Chairman Allaina Propst ...... Vice-Chairman Earl Marshall ...... Secretary D. James Chapman ...... Member Richard Teeter ...... Member

COUNTY COMMISSIONERS

Brian W. Smith ...... Chairman Wendell R. Kay ...... Commissioner Joseph W. Adams ...... Commissioner

Authority Address County Address 1022 Court Street 925 Court Street Honesdale, Pennsylvania 18431 Honesdale, Pennsylvania 18431

Authority Solicitor Bond Counsel The Law Offices of John Martin, Esquire Stevens & Lee, P.C. Honesdale, Pennsylvania Scranton, Pennsylvania

Hospital Counsel County Solicitor Howell & Howell Lee C. Krause, Esq. Honesdale, Pennsylvania Honesdale, Pennsylvania

Bond Trustee Underwriters The Bank of New York Mellon Trust Company, N.A. Robert W. Baird & Co. Incorporated Philadelphia, Pennsylvania Harrisburg, Pennsylvania

Underwriters’ Counsel Piper Jaffray & Co. Hall Render Killian Heath & Lyman, P.C. Dublin, Ohio Indianapolis, Indiana

SUMMARY STATEMENT

This Summary Statement is subject in all respects to more complete information in this Official Statement. No person is authorized to detach this Summary Statement from this Official Statement or otherwise use it without the entire Official Statement. A full review of the entire Official Statement should be made by potential Bond purchasers.

Issuer ...... Wayne County Hospital and Health Facilities Authority, Wayne County, Pennsylvania (the “Authority”). See “THE AUTHORITY” herein.

Bonds ...... $34,780,000* aggregate principal amount of Wayne County Hospital and Health Facilities Authority County Guaranteed Hospital Revenue Bonds (Wayne Memorial Hospital Project), Series A of 2017 (the “2017A Bonds”), dated the date of delivery, maturing on or subject to mandatory redemption as described herein, with interest payable semiannually on January 1 and July 1 of each year, beginning January 1, 2018. See “DESCRIPTION OF THE 2017A BONDS” herein.

Optional Redemption Provision .. The 2017A Bonds stated to mature on or after July 1, 20__ are subject to optional redemption by the Authority at the direction of the Hospital, in whole or in part, on July 1, 20__, or any date thereafter, as a whole or from time to time in part, in such order of maturity or portion of each maturity as may be designated by the Hospital and within a maturity by lot, at 100% of the principal amount, plus accrued interest to the redemption date. The 2017A Bonds may also, in certain circumstances, be subject to extraordinary redemption prior to maturity. See “REDEMPTION PROVISIONS” herein.

Form ...... Book-Entry Only Bonds. See “BOOK-ENTRY ONLY SYSTEM” and “DESCRIPTION OF THE 2017A BONDS” herein.

Application of Proceeds ...... Proceeds of the 2017A Bonds are being issued to provide funds to finance a portion of certain capital projects as more fully described herein, fund capitalized interest on the 2017A Bonds through and including July 1, 2019, fund a debt service reserve fund and to pay a portion of the costs and expenses of the issuance of the 2017A Bonds. See “PURPOSE OF THE ISSUE” herein.

Security ...... The 2017A Bonds are limited obligations of the Authority payable from Hospital revenues and guaranteed by the County of Wayne, Pennsylvania. See “SECURITY FOR THE 2017A BONDS” herein.

Rating ...... The 2017A Bonds have received a credit rating of “AA-” from S&P Global Ratings, a business unit of Standard & Poor’s Financial Services LLC (“S&P”). See “RATING” herein.

Record Date ...... The 15th day next preceding each interest payment date. See “DESCRIPTION OF THE 2017A BONDS” herein.

* Preliminary, subject to change.

iii

[ THIS PAGE INTENTIONALLY LEFT BLANK ] OFFICIAL STATEMENT

$34,780,000* WAYNE COUNTY HOSPITAL AND HEALTH FACILITIES AUTHORITY WAYNE COUNTY, PENNSYLVANIA County Guaranteed Hospital Revenue Bonds (Wayne Memorial Hospital Project) Series A of 2017

INTRODUCTION

This Official Statement, including its Appendices, is furnished by the Wayne County Hospital and Health Facilities Authority, Wayne County, Pennsylvania in connection with the offering of its County Guaranteed Hospital Revenue Bonds (Wayne Memorial Hospital Project), Series A of 2017 (the “2017A Bonds”).

The 2017A Bonds shall be issued in book-entry form only, without coupons, in the denomination of $5,000 principal amount or any integral multiple thereof and will be registered in the name of Cede & Co., the nominee of The Depository Trust Company (“DTC”), as registered owner. Interest on the 2017A Bonds is payable semiannually, on January 1 and July 1 of each year, commencing January 1, 2018, and is payable to the registered owner as it appears on the registration books on the appropriate Record Date (hereinafter defined). The 2017A Bonds are only transferable on the registration books as maintained by The Bank of New York Mellon Trust Company, N.A. (the “Bond Trustee”) having a corporate trust office in Philadelphia, Pennsylvania. See “DESCRIPTION OF BONDS” herein. The 2017A Bonds may be subject to optional or mandatory redemption prior to stated maturity. See “REDEMPTION PROVISIONS” herein. The 2017A Bonds shall be registered in the name of Cede & Co., as the registered owner and nominee of The Depository Trust Company (“DTC”). Purchasers of the 2017A Bonds will not receive any physical delivery of bond certificates, and beneficial ownership of the 2017A Bonds will be evidenced only by book entries. See “BOOK-ENTRY SYSTEM ONLY” herein.

The description and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. See “DEFINITIONS OF CERTAIN TERMS” in APPENDIX E hereto for definitions of certain words and terms used herein.

The Authority. Wayne County Hospital and Health Facilities Authority (the “Authority”) is a body corporate and politic, organized under the provisions of the Pennsylvania Municipality Authorities Act, Act 22 of 2001, as amended and supplemented (the “Act”), by the Board of County Commissioners of Wayne County, Pennsylvania. See “THE AUTHORITY” herein.

Wayne Memorial Hospital. Wayne Memorial Hospital (the “Hospital”) is a Pennsylvania corporation not- for-profit operating a short term, acute care, general community hospital with 98 licensed medical-surgical beds located in Honesdale, Wayne County, Pennsylvania. The Hospital was chartered in 1896. Wayne Memorial Hospital is affiliated through its parent corporation, Wayne Memorial Health System, Inc., with Wayne Memorial Long Term Care, Inc. that owns and operates Wayne Woodlands Manor, a 121 bed skilled nursing facility. See APPENDIX A for additional information regarding the Hospital.

Security. The 2017A Bonds will be secured by a pledge and assignment by the Authority to the Bond Trustee under the Bond Indenture (hereinafter defined) of all of its loan payments and other revenues received from the Hospital under a Loan Agreement (hereinafter described), between the Authority and the Hospital. Payments, to be made by the Hospital directly to the Authority under the Loan Agreement, with respect to the 2017A Bonds are secured by a promissory note dated the date of issuance of the 2017A Bonds (hereinafter described) issued pursuant to the Master Indenture (hereinafter described) between the Hospital and the Master Trustee. The promissory note is referred to herein as the “2017A Note.” As of the date hereof, the Hospital is the only member of the Obligated Group under the Master Indenture. The 2017A Bonds will also be secured by a County Guaranty (hereinafter described) under which the County of Wayne, Pennsylvania, will pledge its full faith, credit and taxing power to the full and timely payment of the principal of and interest on the 2017A Bonds. For a more detailed discussion of the Bond Indenture,

* Preliminary, subject to change.

the Loan Agreement, the 2017A Note, the Master Indenture, and the County Guaranty, see “SECURITY FOR THE 2017A BONDS” herein and APPENDIX E “Summary of Principal Documents” hereto. BONDHOLDERS SHOULD NOTE THAT WAYNE MEMORIAL HEALTH SYSTEM, INC. AND WAYNE MEMORIAL LONG TERM CARE, INC. SHALL HAVE NO OBLIGATION WITH RESPECT TO THE PAYMENT OF DEBT SERVICE ON, OR ANY OTHER OBLIGATION WITH RESPECT TO, THE 2017A BONDS.

In connection with the issuance of the 2017A Bonds, certain amendments will be made to the Master Indenture. The amendments concern the financial compliance and reporting requirements of the Master Indenture upon changes to generally accepted accounting principles, the requirements for the issuance of additional Long Term Indebtedness, and provisions relating to the removal and replacement of the Master Trustee. The amendments will take effect upon compliance with, among other things, the requirements of the Master Indenture which requires the consent of the Holders (as defined in the Master Indenture) of not less than 51% in aggregate principal amount of Obligations (as defined in the Master Indenture) then Outstanding (as defined in the Master Indenture) under the Master Indenture for the amendments to become effective. The initial purchasers of the 2017A Bonds by their purchase and acceptance of the 2017A Bonds shall be deemed to have approved and consented to all such amendments which consent shall be binding upon present and future holders of the 2017A Bonds. Upon issuance and delivery of the 2017A Bonds, holders of such 2017A Bonds will be deemed to have consented to the amendments, which shall constitute the required consent of the holders for the amendments to the Master Indenture to become effective. See APPENDIX E “Summary of Principal Documents – THE MASTER INDENTURE – Amendments to the Master Indenture” for a description of the amendments to the Master Indenture.

Existing Parity Issues. The 2017A Bonds are secured by the Bond Indenture, County Guaranty and Master Indenture described in this Official Statement. After the issuance of the 2017A Bonds and the 2017B Bond (as hereinafter defined), the Bond Indenture, the Loan Agreement and the Master Indenture will secure, on an equal and ratable basis, $34,780,000* outstanding principal amount of 2017A Bonds, $10,000,000* outstanding principal amount of 2017B Bond, $5,215,000 outstanding principal amount County Guaranteed Hospital Revenue Refunding Bonds (Wayne Memorial Hospital Project), Series of 2013 (the “Series 2013 Bonds”), $7,130,000 outstanding principal amount County Guaranteed Hospital Revenue Refunding Bonds (Wayne Memorial Hospital Project), Series of 2012 (the “Series 2012 Bonds”), $2,975,000 outstanding principal amount County Guaranteed Hospital Revenue Refunding Bonds (Wayne Memorial Hospital Project), Series A of 2012 (the “Series 2012A Bonds” and together with the Series 2012 Bonds, the Series 2013 Bonds and the 2017A Bonds, the “Existing Bonds”) previously issued by the Authority for the benefit of the Hospital.

Concurrent Financing. Shortly after the issuance of the 2017A Bonds, the Hospital anticipates that the Authority will issue the 2017B Bond (as hereinafter defined) in an aggregate principal amount equal to $10,000,000* to be placed with a financial institution. See “PURPOSE OF THE ISSUE; PLAN OF FINANCE” herein.

Additional Indebtedness. Upon compliance with certain terms and conditions of the Bond Indenture, the Authority, at the request of the Hospital, may issue additional series of Bonds (“Additional Bonds” and, together with the Existing Bonds, the “Bonds”), including the 2017B Bond, on a parity with, to the extent provided in the Bond Indenture, the Existing Bonds, for certain specified purposes. In addition, upon compliance with certain terms in the Master Indenture, the Hospital and other members of the Obligated Group (as defined in the Master Indenture) may incur additional Long Term Indebtedness on a parity with, to the extent provided in the Master Indenture, or subordinated to, the 2017A Note and additional Long Term Indebtedness. See “Master Indenture – Additional Long Term Indebtedness” and “Bond Indenture – Additional Bonds” in APPENDIX E hereto.

Risk Factors Affecting the County Guaranty, the Hospital and the Health Care Industry Generally. For a discussion of certain risks associated with the purchase of the 2017A Bonds, see “BONDHOLDERS’ RISKS” herein.

This Introductory Statement is intended to introduce certain terms and issues discussed in this Official Statement. It does not purport to be comprehensive or definitive, and the reader should read this entire Official Statement, together with the various documents referenced herein, for a more detailed description of the matter and transactions described above.

* Preliminary, subject to change.

2 PURPOSE OF THE ISSUE; PLAN OF FINANCE

Proceeds of the 2017A Bonds will be used to provide funds to finance a portion of the Project as defined and more fully described herein, fund capitalized interest on the 2017A Bonds through and including July 1, 2019, fund a Debt Service Reserve Fund and to pay all or a portion of the costs and expenses of the issuance of the 2017A Bonds.

Upon the issuance of the 2017A Bonds, the Hospital will make an equity contribution in an amount equal to $1,000,000*. Such equity contribution will be used to provide funds to finance a portion of the Project and to pay any portion of the costs and expenses of the issuance of the 2017A Bonds not paid with proceeds of the 2017A Bonds.

Shortly after the issuance of the 2017A Bonds, the Hospital expects the Authority will issue its Wayne County Hospital and Health Facilities Authority County Guaranteed Hospital Revenue Bond (Wayne Memorial Hospital Project), Series B of 2017 in an aggregate principal amount equal to $10,000,000* (the “2017B Bond”). Proceeds of the 2017B Bond will be used to provide funds to finance a portion of the Project and to pay all or a portion of the costs and expenses of the issuance of the 2017B Bond. The 2017B Bond will be issued as a series of Additional Bonds under the Bond Indenture and will be secured under the Bond Indenture and by a promissory note issued pursuant to the Master Indenture (as defined herein) and guaranteed by the County on a parity with the 2017A Bonds and the Existing Bonds, with the exception that the 2017B Bond will NOT be secured by the Debt Service Reserve Fund.

THE PROJECT

The Project includes (i) the acquisition, design, construction, renovation, equipping and furnishing of new facilities and improvements and additions to the existing facilities of the Hospital, including, but not limited to, the acquisition, design, construction, equipping and furnishing of a new 3-story addition to the existing hospital facility; (ii) parking, site and infrastructure improvements and various other capital improvements to the Hospital’s existing facilities and the acquisition of capital equipment for use in or in connection with the facilities of the Hospital; and (iii) the acquisition of by the Hospital certain real property and/or the direct or indirect ownership interest in certain real property (collectively, the “Project”).

SOURCES AND USES OF FUNDS* Hospital Sources of Funds 2017A Bonds 2017B Bond Contribution Proceeds of the 2017A Bonds $______$______$______[Net 2017A Original Issue Premium/(Discount)] ______Hospital Contribution ______Proceeds of the Series 2017B Bond 1 ______Total Sources of Funds $______$______$______

Uses of Funds Deposit to 2017A Construction Subaccount $______$______$______Deposit to 2017A Bonds Account of Debt Service Reserve Fund ______Deposit to 2017A Construction Subaccount for capitalized interest 2 ______Deposit to 2017B Construction Subaccount ______Costs of Issuance 3 ______Total Uses of Funds $______$______$______

(1) Expected to be issued shortly after the issuance of the 2017A Bonds. (2) Includes an amount equal to $______to pay capitalized interest on the 2017A Bonds through and including July 1, 2019. (3) Includes Underwriters’ discount, legal, printing, Trustee fees, rating, CUSIP and miscellaneous fees.

* Preliminary, subject to change.

3 THE OBLIGATED GROUP

As of the date hereof, the only member of the Obligated Group (as defined in the Master Indenture) is the Hospital.

Wayne Memorial Hospital is a Pennsylvania corporation not-for-profit operating a short term, acute care, general community hospital with 98 licensed medical-surgical beds located in Honesdale, Wayne County, Pennsylvania. The Hospital was chartered in 1896. The Hospital is licensed by the Pennsylvania Department of Health and meets all of the requirements for participation in the Federal Medicare and Pennsylvania Medicaid programs.

See APPENDIX A for additional information regarding the Hospital.

THE AUTHORITY

The Authority, the issuer of the 2017A Bonds, is a body corporate and politic existing under the laws of the Commonwealth of Pennsylvania and was formed pursuant to the Act by an ordinance of the Wayne County Board of Commissioners (the “County Commissioners” or “Commissioners”) enacted October 7, 1980. The Authority may acquire, hold, construct, finance, improve, maintain, own, operate, and lease hospitals and health centers in the capacity of either lessor or lessee or as a lender. The Authority was created to provide funds through the issuance of bonds and notes to assist nonprofit hospitals and other health facilitates and is authorized by the Act to issue the 2017A Bonds. The Authority’s address is 1022 Court Street, Honesdale, Pennsylvania 18431.

The governing body of the Authority is a Board of five members appointed by the Commissioners to serve five-year terms. Present Members of the Board are:

Name Position Term Expires

Scott Rickard Chairman December 31, 2018 Allaina Propst Vice-Chairman December 31, 2017 Earl Marshall Secretary December 31, 2020 D. James Chapman Member December 31, 2019 Richard Teeter Member December 31, 2021

THE COUNTY

Wayne County is a county of the 6th Class, a classification established on the basis of population by the State Legislature on October 20, 1967. Counties of the 6th Class have a population between 45,000 and 95,000 inhabitants. Those counties having a population between 35,000 and 45,000 may, by resolution of the County Commissioners, elect to be a county of the sixth class. Including Wayne, there are twenty-four 6th Class counties in the Commonwealth of Pennsylvania.

Wayne County functions under the County Code (which governs counties of the 3rd through 8th classes), which delegates various duties to the County Commissioners, including, among others, the responsibility for the adoption of an annual budget and the levying of taxes, assessment of property for tax purposes, administration of

4 elections and registration of voters, care of prisoners, maintenance of roads and bridges, care of the aged, dependent and indigent ill, planning and civil defense. There are three County Commissioners elected at-large for four year terms, one of whom is elected by the County Commissioners to be chairman. Provisions are made for minority party representation as no party may place more than two candidates on the ballot for the three positions. Other elected offices in the County include: Auditors, Coroner, District Attorney, Prothonotary/Clerk of Courts, Recorder of Deeds/Register of Wills, Sheriff, Treasurer and Common Pleas Judge.

For additional information on financial and economic matters regarding the County, see “Description of Wayne County and Financial Factors” and “County of Wayne, Financial Statements” attached hereto as APPENDICES C and D, respectively.

The County’s independent auditor has not been engaged to perform, and has not performed, any procedures with respect to the County’s financial statement appended to this Official Statement since the date of the auditor’s report included in such appendix.

COUNTY FINANCIAL HISTORY

The County has never defaulted on the payment of lease rentals or debt service.

The status of the County’s present indebtedness is shown under “COUNTY BORROWING CAPACITY AND DEBT STATEMENT” and in the table entitled “DEBT SUMMARY AND RELATED INFORMATION” in APPENDIX C. See also APPENDIX C “Description of Wayne County and Financial Factors.”

SECURITY FOR THE 2017A BONDS

General

The 2017A Bonds are limited obligations of the Authority, secured by the County Guaranty (described below), and otherwise payable solely from loan payments and other revenues received from the Hospital pursuant to a Loan Agreement dated as of July 1, 1993, as amended and supplemented by a First Supplemental Loan Agreement dated as of April 15, 1994, a Second Supplemental Loan Agreement dated as of December 1, 1997, a Third Supplemental Loan Agreement dated as of June 1, 2003, a Fourth Supplemental Loan Agreement dated as of September 15, 2005, a Fifth Supplemental Loan Agreement dated as of November 1, 2007, a Sixth Supplemental Loan Agreement dated as of October 1, 2012, a Seventh Supplemental Loan Agreement dated as of December 1, 2012, an Eighth Supplemental Loan Agreement dated as of January 1, 2013, and further supplemented by a Ninth Supplemental Loan Agreement dated as of September 1, 2017 (hereinafter referred to collectively as the “Loan Agreement”) between the Authority and the Hospital. Pursuant to the Loan Agreement, the Authority will loan to the Hospital an amount equal to the principal amount of the 2017A Bonds and the Hospital will make payments to the Authority corresponding in time and amount to debt service payment on the 2017A Bonds. Pursuant to the Bond Indenture, the Authority will assign rights to receive payments under the Loan Agreement to the Bond Trustee.

Payments to be made by the Hospital and received by the Authority pursuant to the Loan Agreement in respect of the 2017A Bonds are secured by a promissory note titled Wayne Memorial Hospital Promissory Note, Series 2017A (the “2017A Note”) issued pursuant to a Master Trust Indenture, dated as of October 15, 1986, as supplemented and amended by a First Supplemental Master Trust Indenture dated as of October 15, 1986, a Second Supplemental Master Trust Indenture dated as of July 1, 1993, a Third Supplemental Master Trust Indenture dated as of April 15, 1994, a Fourth Supplemental Master Trust Indenture dated as of December 1, 1997, a Fifth Supplemental Master Trust Indenture dated as of June 1, 2003, a Sixth Supplemental Master Trust Indenture dated as of September 15, 2005 a Seventh Supplemental Master Trust Indenture dated as of November 1, 2007, an Eighth Supplemental Master Trust Indenture dated as of October 1, 2012, a Ninth Supplemental Master Trust Indenture dated as of December 1, 2012, a Tenth Supplemental Master Trust Indenture dated as of January 1, 2013 and as further supplemented and amended by an Eleventh Supplemental Master Trust Indenture dated as of September 1, 2017 (collectively, hereinafter, the “Master Indenture”) between the Hospital and The Bank of New York Mellon Trust Company, N.A. (the “Master Trustee”). Payments on the 2017A Note will be credited against the Hospital’s payment obligations in respect of the 2017A Bonds due pursuant to the Loan Agreement.

5 The 2017A Bonds are secured by a pledge to the Bond Trustee of (a) all the Authority’s right, title, and interest in: (i) the Loan Agreement; (ii) the principal of and any income on the funds and accounts established and held by the Bond Trustee pursuant to the Bond Indenture (except the Rebate Fund); and (iii) the Pledged Revenues (as defined in the Bond Indenture) and (b) a security interest in the 2017A Note and in all right, title, and interest of the Authority to the security for the 2017A Note.

Rate Covenant

The Hospital covenants to maintain its rates and charges in each Fiscal Year so as to provide: (a) funds sufficient to pay all its operating and non-operating expenses and all other payments or deposits required to be made by it under the terms of any applicable Related Financing Documents (as defined in the Master Indenture), and (b) Revenues Available for Debt Service (as defined in the Indenture; see “APPENDIX E – DEFINITIONS OF CERTAIN TERMS”), which, together with such revenues of the other Obligated Issuers (as defined in the Master Indenture), are at least equal to 110% of the Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group (as defined in the Master Indenture). The rate covenant is more fully described under “THE MASTER INDENTURE – Rate Covenant” in APPENDIX E hereto.

Debt Service Reserve Fund

The 2017A Bonds will also be secured, on a parity basis with all other Existing Bonds, except the 2017B Bond, by the Debt Service Reserve Fund created under the Bond Indenture. At the time of the issuance of the 2017A Bonds, monies deposited in the Debt Service Reserve Fund, including a portion of the proceeds of the 2017A Bonds, will at least equal one-half of the Maximum Annual Debt Service Requirements on all Bonds then outstanding, which sum will be in addition to the sum already on deposit in the Debt Service Reserve Fund with respect to the Series 2013 Bonds, the Series 2012 Bonds and the Series 2012A Bonds that will remain outstanding after issuance of the 2017A Bonds.

Money in the Debt Service Reserve Fund may be withdrawn by the Bond Trustee to make payment of the principal of and interest on the Bonds in the event that funds in the Debt Service Fund are inadequate. Any such withdrawals or any other deficiency in the Debt Service Reserve Fund is required to be made up by the Hospital in equal monthly deposits, to be commenced in the month in which the withdrawal is made, and completed no later than twelve months after such deficiency is determined, until the amount on deposit is at least equal to one-half of the Maximum Annual Debt Service Requirement on all Bonds then outstanding.

It is anticipated that the 2017B Bond will NOT be secured by the Debt Service Reserve Fund.

County Guaranty

The 2017A Bonds are further secured by a Guaranty Agreement to be entered into between the Bond Trustee, the Authority, the Hospital and the County, dated as of September 1, 2017 (the “County Guaranty”), under which the County pledges its full faith, credit, and taxing power, which presently includes the power to levy an annual ad valorem taxes on all taxable property in the County, presently unlimited as to rate and amount for the purpose of honoring its guaranty obligations for the full and prompt payment of the principal of and interest on the 2017A Bonds and covenants to budget, appropriate, and pay, in each year during which the 2017A Bonds are outstanding, any amounts necessary to meet its obligations under the County Guaranty.

The County Guaranty is issued pursuant to the Local Government Unit Debt Act of Pennsylvania, Act No. 177 of 1996, as amended (the “Debt Act”). The Debt Act specifically prescribes certain remedies to the registered owners upon the occurrence of the following defaults. As required by the County Guaranty, if the County fails to make adequate provision in its budget for any fiscal year for the sums payable on the 2017A Bonds subject to credits for amounts made available to the Authority by the Hospital, or if the County fails to appropriate or pay the moneys necessary in such year for the payment of maturing principal and interest on the 2017A Bonds, or any sinking fund obligation for the 2017A Bonds, then any registered owner of the 2017A Bonds may bring suit in the Court of Common Pleas of Wayne County and request the court to issue a writ of mandamus directing the County to pay into the appropriate sinking fund the first tax moneys or other available revenues thereafter received in such fiscal year by the County, in proportion to the debt service requirements of each series of bonds outstanding until the sum on deposit in each sinking fund shall equal the moneys that should have been budgeted or appropriated for such bonds.

6 If the County fails or neglects to pay or cause to be paid the interest on or principal of the 2017A Bonds as the same become due and payable, and such failure continues for thirty (30) days, any registered owner has the right to recover the amount due in an action in assumpsit in the Court of Common Pleas of Wayne County. Under the Debt Act, a judgment obtained in such action would be on a parity with all other general obligation debt with respect to moneys next received by the County.

In lieu of the remedies heretofore described, upon a default in payment of the principal of or interest on the 2017A Bonds after the same shall become due, and if such default continues for thirty (30) days, or if the County fails to comply with any provision of the 2017A Bonds, or the County Guaranty, the registered owners of twenty-five percent (25%) in aggregate principal amount of the 2017A Bonds then outstanding may appoint a trustee by filing the instruments prescribed by the Debt Act with the Department of Real Estate of Wayne County, Pennsylvania. The trustee, upon its appointment, will then represent all registered owners and will have the power, upon being furnished with satisfactory indemnity, to take various actions, and the taking of such actions will preclude similar action whether previously or subsequently initiated by individual registered owners. The actions which such trustee may undertake include: (i) commencing a lawsuit to enforce all rights of the registered owners; (ii) bringing suit on the 2017A Bonds without the necessity for producing the 2017A Bonds, and with the same effect as a suit by any registered owner; (iii) petitioning the court to levy the amount due upon all taxable real estate and other property subject to ad valorem taxation in the County, in proportion to the value thereof assessed for tax purposes, and such trustee may collect or cause the County to collect such assessment as by foreclosure if not paid on demand; and (iv) commencing a suit in equity to enjoin any acts or things which may be unlawful and are in violation of the rights of the registered owners.

See “SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT, BOND INDENTURE, MASTER INDENTURE AND COUNTY GUARANTY – THE COUNTY GUARANTY” in APPENDIX E hereto for additional information regarding the County Guaranty.

DESCRIPTION OF THE 2017A BONDS

General Provisions

The 2017A Bonds are issued in one series as fully registered Bonds in denominations of $5,000 principal amount or any integral multiple thereof. Principal and interest are payable as set forth below. The 2017A Bonds shall be dated as of the date of original issuance and delivery thereof to the Underwriters (the “Date of Delivery”), shall mature on the dates and in the amounts set forth on the inside front cover hereof and shall be payable as to interest semiannually on January 1 and July 1 of each year, commencing January 1, 2018, at the rates set forth on the inside front cover. The 2017A Bonds shall be subject to redemption prior to maturity as described below.

The 2017A Bonds will be issued in fully registered form and, when issued, will be registered in the name of Cede & Co., the nominee of The Depository Trust Company (“DTC”), as registered owner. Purchases of Bonds may be made in book-entry only form, in denominations of $5,000 principal amount or any integral multiple thereof, but only through brokers and dealers who are, or act through, DTC Participants (See “BOOK-ENTRY ONLY SYSTEM” herein). Purchasers of Bonds (“Beneficial Owners”) will not receive certificates representing their interests in the 2017A Bonds and must maintain an account with a broker or a dealer who is, or acts through, a DTC Participant, so long as they desire to retain an ownership interest in Bonds. So long as Cede & Co. is the registered owner of the 2017A Bonds, references herein to the registered owners or holders of the 2017A Bonds shall mean Cede & Co., and not the Beneficial Owners of the 2017A Bonds.

Payments of principal and interest on the 2017A Bonds will be made directly to DTC by the Bond Trustee, and DTC will, in turn, remit such payments to DTC Participants for subsequent disbursement to the Beneficial Owners of the 2017A Bonds. Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of DTC Participants and Indirect Participants (defined below), as more fully described below.

Payment of Principal and Interest

So long as Cede & Co., as nominee of DTC, is the registered owner of the 2017A Bonds (see “Book-Entry Only System” herein), payments of principal of and interest on the 2017A Bonds, when due, are to be made to DTC

7 and all such payments shall be valid and effective to satisfy fully and to discharge the obligations of the Authority with respect to, and to the extent of, principal and interest so paid.

If the use of the Book-Entry Only System for the 2017A Bonds is discontinued for any reason, bond certificates will be issued to the Beneficial Owners of the 2017A Bonds and payment of principal, redemption premium, if any, and interest on the 2017A Bonds shall be made as described in the following paragraphs:

The principal of the certificated 2017A Bonds will be paid, when due, to the registered owners thereof or their transferees upon presentation and surrender of the 2017A Bonds at the designated corporate trust office of the Bond Trustee, presently its principal corporate trust office located in Philadelphia, Pennsylvania.

Interest on the 2017A Bonds will be payable by check drawn by the Bond Trustee mailed to the persons in whose names the 2017A Bonds are registered, each at the address as it appears on the registration books maintained on behalf of the Authority by the Bond Trustee at the close of business on the applicable Regular or Special Record Date (hereinafter defined), irrespective of any transfer or exchange of such Bond subsequent to such date and prior to such Scheduled Interest Payment Date or, at the written request of the holder of at least $1,000,000 aggregate principal amount of the 2017A Bonds received by the Trustee at least ten days prior to a Regular Record Date or Special Record Date, interest accrued on such Bonds will be paid by wire transfer of immediately available funds to an account designated in the notice with a bond in the continental United States.

The record date for any Scheduled Interest Payment Date shall be fifteenth day of the calendar month next preceding such scheduled Interest Payment Date. If sufficient funds for the payment of interest becoming due on any Scheduled Interest Payment Date are not on deposit with the Bond Trustee on such date, the interest so becoming due shall forthwith cease to be payable to the registered owners otherwise entitled thereto as of such date. If sufficient funds thereafter become available for the payment of such overdue interest, the Bond Trustee shall establish a special interest payment date (any such date being herein referred to as a “Special Interest Payment Date”) on which such overdue interest shall be paid and a special record date relating thereto (any such date being herein referred to as a “Special Record Date”), and shall mail a notice of each such date to the registered owners of all of the 2017A Bonds at least ten days prior to the Special Record Date, but not more than 30 days prior to the Special Interest Payment Date.

BOOK-ENTRY ONLY SYSTEM

The information in this section has been obtained from materials provided by DTC for such purpose. None of the Authority (referred to in this section as the “Issuer”), the Hospital, the County or the Underwriters guarantee the accuracy or completeness of such information, and such information is not to be construed as a representation of the Issuer, the County or the Underwriters.

DTC, New York, New York, will act as securities depository for the 2017A Bonds. The 2017A Bonds 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 bond certificate will be issued for each maturity of the 2017A Bonds, each in the aggregate principal amount of such issue, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”).

8 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.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2017A Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2017A Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the 2017A Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 2017A Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2017A Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such 2017A Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2017A Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the 2017A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the 2017A Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the 2017A Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Issuer or the 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, the Bond Trustee, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Bond Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the 2017A Bonds at any time by giving reasonable notice to the Issuer or the Bond Trustee. Under such circumstances, in the event that a successor depository is not obtained, bond certificates are required to be printed and delivered.

The Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered to DTC.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Issuer believes to be reliable, but the Issuer takes no responsibility for the accuracy thereof.

9 Disclaimer

THE INFORMATION PROVIDED ABOVE UNDER THIS CAPTION HAS BEEN PROVIDED BY DTC. NO REPRESENTATION IS MADE BY THE ISSUER, THE HOSPITAL, THE COUNTY OR THE UNDERWRITER AS TO THE ACCURACY OR ADEQUACY OF SUCH INFORMATION PROVIDED BY DTC OR AS TO THE ABSENCE OF MATERIAL ADVERSE CHANGES IN SUCH INFORMATION SUBSEQUENT TO THE DATE HEREOF.

FOR SO LONG AS THE 2017A BONDS ARE REGISTERED IN THE NAME OF DTC OR ITS NOMINEE, CEDE & CO., THE ISSUER AND THE BOND TRUSTEE WILL RECOGNIZE ONLY DTC OR ITS NOMINEE, CEDE & CO., AS THE REGISTERED OWNER OF THE 2017A BONDS FOR ALL PURPOSES, INCLUDING PAYMENTS, NOTICES AND VOTING. UNDER THE BOND INDENTURE, PAYMENTS MADE BY THE BOND TRUSTEE TO DTC OR ITS NOMINEE WILL SATISFY THE ISSUER’S OBLIGATIONS UNDER THE BOND INDENTURE AND THE BORROWER’S OBLIGATIONS UNDER THE LOAN AGREEMENTS TO THE EXTENT OF THE PAYMENTS SO MADE.

The Issuer, the Hospital, the County and the Bond Trustee will have no responsibility or obligation with respect to:

(i) the accuracy of the records of DTC, its nominee or any Direct Participant or Indirect Participant with respect to any beneficial ownership interest in any Bonds;

(ii) the delivery to any Direct Participant or Indirect Participant or any other person, other than an owner, as shown in the bond register, of any notice with respect to any Note including, without limitation, any notice of redemption;

(iii) the payment to any Direct Participant or Indirect Participant or any other person, other than an owner, as shown in the bond register, of any amount with respect to the principal of or premium, if any, or interest on any Note; or

(iv) any consent given by DTC or its nominee as registered owner.

Prior to any discontinuation of the book-entry-only system described under this caption, the Issuer and the Bond Trustee may treat DTC as, and deem DTC to be, the absolute owner of the 2017A Bonds for all purposes whatsoever, including, without limitation:

(i) the payment of the principal of and premium, if any, and interest on the 2017A Bonds;

(ii) giving notices of redemption and other matters with respect to the 2017A Bonds;

(iii) registering transfers with respect to the 2017A Bonds; and

(iv) the selection of Bonds for redemption.

REDEMPTION PROVISIONS

Optional Redemption

The 2017A Bonds maturing on and after July 1, 20__ shall be subject to redemption, prior to maturity, at the option of the Authority at the direction of the Hospital, on or after ______1, 20__, as a whole at any time, or in part from time to time on any interest payment date, in the order of maturities as designed by the Hospital, and by lot within a maturity, upon payment of the principal amount thereof plus accrued interest to the date of redemption.

Mandatory Sinking Fund Redemption

The 2017A Bonds stated to mature on July 1, 20__ are subject to mandatory redemption prior to maturity on July 1 of the years (at a price equal to principal amount of the 2017A Bonds called for mandatory redemption plus

10 accrued interest thereon to the date fixed for such mandatory redemption) and in the principal amounts as set forth in the following schedule, as drawn by lot by the Paying Agent:

Year Amount

* *Stated Maturity

Extraordinary Redemption

The 2017A Bonds are subject to redemption in the event of damage to, or destruction or condemnation of, any part of the Hospital Facilities, in whole or in part at any time, in inverse order of principal maturities and within a maturity by lot at the principal amount thereof, plus accrued interest to the date of redemption upon the terms and conditions described more fully in the Bond Indenture.

Purchase in Lieu of Redemption

The 2017A Bonds are subject to purchase by the Hospital at any time, and from time to time, that any 2017A Bond is subject to optional redemption on the dates of such optional redemption and at a purchase price equal to the redemption price therefor. In order for the Hospital to exercise its option to purchase, the Hospital must notify the Trustee not less than ten (10) Business Days prior to the proposed redemption date that amounts available to pay the redemption price of the 2017A Bond are to be applied to purchase the 2017A Bond in lieu of redemption. No notice other than the notice of redemption need be given in connection with any such purchase in lieu of redemption. On the day fixed for redemption, following the receipt of a Favorable Opinion of Bond Counsel, the Trustee will purchase the 2017A Bond to be redeemed in lieu of such redemption and, following such purchase, the Trustee will cause the 2017A Bond to be registered in the name of or upon the written direction of the Hospital and deliver them to or as directed by the Hospital. No purchase of the 2017A Bond pursuant to these provisions will operate to extinguish the indebtedness of the Authority evidenced thereby. The Hospital’s option to purchase in lieu of redemption does not apply to mandatory sinking fund redemptions.

Manner of Redemption

So long as Cede & Co., as nominee of DTC, is the registered owner of the 2017A Bonds, payment of the redemption price shall be made to Cede & Co. in accordance with the existing arrangements by and among the Authority, the Paying Agent and DTC and, if less than all Bonds of any particular maturity are to be redeemed, the amount of the interest of each DTC Participant, Indirect Participant and Beneficial Owner in such Bonds to be redeemed shall be determined by the governing arrangement among them, subject to any statutory or regulatory requirement as may be in effect front time to time. See “BOOK-ENTRY ONLY SYSTEM” herein for further information regarding redemption of Bonds registered in the name of Cede & Co.

If a Bond is of a denomination larger than $5,000 principal amount, a portion of such Bond may be redeemed. For the purposes of redemption, a Bond shall be treated as representing the number of Bonds that is equal to the principal amount thereof divided by $5,000, each $5,000 portion of such Bond being subject to redemption. In the case of partial redemption of a Bond, payment of the redemption price shall be made only upon surrender of such Bond in exchange for Bonds of authorized denominations in aggregate principal amount equal to the unredeemed portion of the principal amount thereof.

If the date for payment of the principal of, premium, if any, or interest on any of the 2017A Bonds shall be a Saturday, Sunday, legal holiday or on a day on which banking institutions in the municipality where the designated corporate trust office of the Paying Agent is located are authorized by law or executive order to close, then the date of such payment shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or on a day on which banking institutions are authorized to close, and payment on such date shall have the same force and effect as if made on the nominal date established for such payment.

11 Notice of Redemption

So long as Cede & Co., as nominee of DTC, is the registered owner of the 2017A Bonds, the Authority and Bond Trustee shall send redemption notices only to Cede & Co. See “BOOK-ENTRY ONLY SYSTEM” herein for further information regarding conveyance of notices to Beneficial Owners.

Notice of redemption of the 2017A Bonds by the Bond Trustee pursuant to the above provisions shall be made as provided in the Bond Indenture upon not less than thirty days’ notice by mailing a copy of the redemption notice to the registered holder thereof at the address shown on the bond register of the Authority maintained by the Bond Trustee. In the event that less than the full principal amount thereof shall have been called for redemption, the registered owner thereof shall surrender such Bond in exchange for one or more new Bonds in an aggregate principal amount equal to the unredeemed portion of the principal amount thereof.

If at time of mailing of a notice of redemption the Authority shall not have deposited with the Bond Trustee (or, in the case of a refunding, with another bank or depositary acting as refunding escrow agent) money sufficient to redeem all Bonds called for redemption, the notice of redemption may state that it is conditional i.e., that it is subject to the deposit of sufficient redemption money with the Trustee not later than the opening of business on the redemption date, and such notice shall be of no effect unless such money is so deposited.

BONDHOLDERS’ RISKS

General

The 2017A Bonds are limited obligations for the Authority and are secured by and payable solely from the payments made by the Hospital pursuant to the Loan Agreement, payments under the 2017A Note, funds held under the Master Indenture, certain funds held by the Trustee pursuant to the Bond Indenture and the County Guaranty. No representation or assurance can be given to the effect that the Hospital will generate sufficient revenues to meet its payment obligations under the Loan Agreement or that the County will collect sufficient revenues to meet its payment obligations, if necessary, under the County Guaranty.

Various factors could adversely affect the Hospital’s ability to pay the obligations under the Loan Agreement and the 2017A Note. The future financial condition of the Hospital could be adversely affected by, among other things, economic conditions in the service area, levels and methods of federal reimbursement under Medicaid, reimbursement from other third-party payors, legislation, regulatory actions, increased competition from other health care providers, changes in the demand for health care services, demographic changes, malpractice claims and litigation. Some of such risk factors are described below. The Underwriters and the Authority have made no independent investigation of the extent to which any such factors may have an adverse effect on the revenues of the Hospital.

Future economic and other factors may adversely affect the County’s revenues and expenses and, consequently, the County’s ability to meet its operating expenses and to make payment on the County Guaranty. Among the factors that could have such adverse effects are: decreases in property tax collections, increases in unemployment in the County and the Commonwealth of Pennsylvania, the County’s ability to gain concessions from its unionized workers and the consequent impact on wage scales and operating costs of the County, the County’s ability to access capital markets, adverse changes to Commonwealth budgets and appropriations affecting crucial revenue streams from the Commonwealth to the County, changes in demographic trends, the County’s ability to provide governmental service as and when obligated by residents, and closure or disinvestment of key industries located in the County. The County cannot assess or predict the ultimate effect of these factors on the operations or financial results of operations for the County or on its ability to make payments under the County Guaranty.

The following is intended only as a summary of certain risk factors attendant to an investment in the 2017A Bonds and is not intended to be exhaustive. In order to identify risk factors and make informed investment decisions, potential investors should be thoroughly familiar with the entire Official Statement (including each Appendix) in order to make a judgment as to whether the 2017A Bonds are an appropriate investment.

The descriptions set forth below of certain governmental policies affecting health care and other matters are not intended as a complete discussion of all relevant aspects of laws and regulations. Health care providers operate in

12 a complicated regulatory environment, many aspects of which may adversely affect the revenues and operations of such providers.

Risks Associated with Obligated Group Financings. If other persons join the Obligated Group, it is possible that the joint and several obligation of one of the members of the Obligated Group to make payments on obligations issued under the Master Indenture in respect of moneys used by one of the other members of the Obligated Group may be voided in an action brought by third party creditors pursuant to the Pennsylvania fraudulent conveyance statute or may be voided by a trustee in bankruptcy in the event of the bankruptcy of the member of the Obligated Group from which payment is requested. Under the federal Bankruptcy Code, a trustee in bankruptcy and, under the Pennsylvania fraudulent conveyance statute, a creditor, may void an obligation if (a) the obligation was incurred without receipt by the obligor of “fair consideration” or “valuable consideration,” and (b) the obligation renders the obligor “insolvent,” as such terms are construed under the applicable statute. The joint and several obligation of a member of the Obligated Group under the Master Indenture to pay all the obligations issued there under may be held to be a “transfer” which makes such member of the Obligated Group “insolvent,” in the sense that the total amount of obligations issued and due under the Master Indenture could be considered as causing its liabilities to exceed its assets. Also, a member of the Obligated Group may be deemed to have received less than “fair consideration” or “valuable consideration” for its joint and several obligation to the extent that the proceeds of the obligations are not used to finance facilities occupied or used by that member of the Obligated Group. While a member of the Obligated Group may benefit generally from the facilities financed or guaranteed for other members of the Obligated Group, the actual cash value of this benefit may be less than the value of the joint and several liability of such member of the Obligated Group for payment of all obligations.

In addition, the assets of a member of the Obligated Group may be held by a court to be subject to a charitable trust, which prohibits payments in respect of obligations incurred by or for the benefit of others. Such a determination may be made only if the member of the Obligated Group making the payments has insufficient assets remaining to carry out its own charitable functions or under certain circumstances, if the obligations paid were incurred for purposes inconsistent with or beyond the scope of the charitable purposes of the member of the Obligated Group that made the payment.

The combined financial conditions of the members of the Obligated Group may be adversely affected if new members are admitted to the Obligated Group whose financial condition is not as strong as the current member of the Obligated Group. Furthermore, financial tests under the Master Indenture, including tests related to the issuance of additional indebtedness are based on the combined financial statements for the Obligated Group notwithstanding the uncertainties as to enforceability of obligations of the Obligated Group against all members as discussed above. Currently, the Hospital is the sole member of the Obligated Group.

Ability of Hospital to Realize Revenues Sufficient to Pay Debt Service Is Not Guaranteed. The 2017A Bonds are a limited obligation of the Authority, secured by the County Guaranty, and otherwise payable solely from amounts received by the Authority from the Hospital pursuant to the Loan Agreement. As discussed below, the ability of the Hospital to realize revenues sufficient to pay debt service on the Bonds is not guaranteed and subject to many factors. None of the provisions of the Loan Agreement or the Master Indenture provide any assurance that the obligations of the Hospital will be paid as and when due if the Hospital becomes unable to pay its debts as they come due or the Hospital otherwise becomes insolvent.

The Hospital’s ability to realize revenues sufficient to pay outstanding obligations, including debt service when due on the Bonds, is affected by and subject to many conditions which may change in the future to an extent and with effects that cannot be determined. The Hospital’s receipt of future revenues is subject to, among other factors: (1) federal and state laws and regulations, particularly those targeting the health care industry, (2) the policies of third party payors, including governmental (Medicare and Medicaid) and commercial payors, (3) relationships with third party payors, including the Hospital’s ability to maintain favorable third party payor contracts, (4) future economic conditions, (5) increased competition from other health care providers, and (6) the capabilities of management of the Hospital (“Management”). No assurance can be given or can be made that the Hospital’s future revenues will be sufficient to pay debt service on the Bonds when due.

An Economic Downturn or other Unfavorable Economic Conditions Could Negatively Impact the Hospital’s Financial Condition. The United States economy is unpredictable. Economic downturns and other unfavorable economic conditions have previously impacted the health care industry and health care providers’ business and

13 financial condition. If general economic conditions worsen, the Hospital may not be able to sustain future profitability, and its liquidity and ability to repay outstanding debt, including debt service on the Bonds, may be adversely affected. Broad economic factors – such as unemployment rates or instabilities in consumer spending – could affect the Hospital’s volumes and its ability to collect outstanding receivables. Other economic conditions that may adversely affect Obligated Group revenues and expenses, and consequently, its ability to make payments on the 2017A Note, include but are not limited to: (1) volatility in the securities markets resulting in investment portfolios losses, (2) increased business failures and consumer and business bankruptcies, (3) federal and state budget challenges resulting in reduced or delayed Medicare and Medicaid reimbursement, (4) a reduction in the demand for health care services or patient decisions to postpone or cancel elective and non-emergency health care procedures, (5) increased malpractice and casualty insurance expenses, (6) reduced availability and affordability of health insurance, (7) a shortage of physicians, nursing and other professional personnel, (8) increased operating costs, (9) a reduction in the receipt of grants and charitable contributions, (10) unfavorable demographic developments in the Hospital’s service areas, and (11) increased competition from other health care institutions.

The Hospital has significant holdings in a broadly diversified pool of short-term and long-term investments. Due to previous market disruptions, the Hospital experienced losses on investments that adversely affected the nonoperating results of the Hospital. No assurance can be given that the Hospital’s investments will produce positive returns or that losses on investments will not occur in the future.

The availability of liquidity and credit to fund the continuation and expansion of many business operations has been limited in recent years. An inability to access the financial markets on acceptable terms at a desired time could negatively impact the Hospital’s plans, its ability to respond to changing economic and business conditions, and its ability to refinance existing debt.

Issuance of the 2017B Bond and Completion of the Project. The Hospital expects the Authority will, shortly following the issuance of the 2017A Bonds, issue the 2017B Bond for the purpose of providing funds to pay a portion of the cost of the Project and the costs of issuance related to the 2017B Bond. In the event the 2017B Bond is not issued, or is issued in a lesser par amount than that anticipated by the Hospital, the Hospital’s ability to complete the Project may be in jeopardy. In the event the 2017B Bond is issued on terms more onerous than those anticipated by the Hospital, the Hospital’s financial performance may be negatively affected. Failure to issue the 2017B Bond in the amounts and on the terms anticipated by the Hospital could have a negative adverse effect on the financial position of the Hospital and its performance.

Risks Associated with County Guaranty.

Uncertainty of Tax Revenues. The ability of the County to generate sufficient revenue to meet its operating expenses, working capital needs and its obligations on the 2017A Bonds and other indebtedness is subject to many factors including the availability of current revenues of the County to make required payments in full, when due, prior to the levy of additional taxes on the County residents and real property. There can be no assurances or representations that the County will realize revenue in sufficient amounts or that the County will be able to generate sufficient revenue through its taxing and other revenue generating powers to pay debt service on the 2017A Bonds and other payments necessary to meet the obligations of the County.

Remedies Under the Debt Act. In addition to any available remedies provided for in the Bond Indenture or other bond documents, the remedies available to registered bondholders upon failure of the County to pay principal of or interest on the 2017A Bonds when due include those prescribed in the Debt Act, subject to certain limitations, if applicable, set forth in the Pennsylvania Municipalities Financial Recovery Act, Act 47 of 1987, 53 P.S. § 11701.101 et seq. Should such failure continue for 30 days, the registered owners (subject to certain priorities) may bring suit for the amount due him in the Court of Common Pleas for Wayne County, Pennsylvania.

The Debt Act provides that any judgment shall have “an appropriate priority” upon the moneys next coming into the treasury of the County. If the County defaults in the payment of principal of or interest on the 2017A Bonds and such default continues for 30 days, or the County fails to comply with any provision of the 2017A Bonds, the registered owners of 25% in aggregate principal amount of the 2017A Bonds may also appoint a trustee (who may be the Bond Trustee) to represent the registered owners. Such trustee may, and upon written request of the owners of 25% in aggregate principal amount of 2017A Bonds and being furnished with satisfactory indemnity shall, take one or more of the following actions: (i) bring suit to enforce all rights of the registered owners, (ii) bring suit on the

14 2017A Bonds, (iii) petition the court to levy on property subject to ad valorem taxation for the amount due on the 2017A Bonds, and (iv) by suit in equity, enjoin any acts or things which may be unlawful or in violation of the rights of registered owners all as set forth more fully in the Debt Act. The taking of such action by such trustee shall preclude the taking of similar action by individual registered owners of the 2017A Bonds

Remedies Under Court Issued Writ of Mandamus. If the County fails or neglects to budget, appropriate, and pay debt service on the 2017A Bonds when due, a holder or trustee may petition the Court of Common Pleas of Wayne County, upon a finding of such failure or neglect, to direct by order of mandamus the treasurer of the County to pay into the sinking funds established for all outstanding bonds of the County, including the 2017A Bonds, the first tax moneys or other available revenues or moneys thereafter received by the treasurer for the payment of debt service due on outstanding bonds. Such order could mandate that the County pay such debt service prior to all other County expenses, including County employee wages and benefits. Courts may be allowed certain discretion in deciding whether to grant a writ of mandamus, and the judges who enter such orders are usually elected to the bench by local voters. Additionally, municipal officials presented with a writ could resign rather than carry out the mandamus order, in which case it is uncertain the extent to which bondholders would be able to cause other County officials to pay amounts then due and owing.

Enforcement of Remedies; Public Health and Safety. Enforcement of a claim for payment of principal of and or interest on the 2017A Bonds may be subject to applicability of general principles of equity as well as provisions of federal bankruptcy laws (as described below) and to the provisions of other statutory laws enacted by the United States Congress or the General Assembly of the Commonwealth of Pennsylvania or case law developed by competent courts having jurisdiction extending the time for payment or imposing other constraints upon enforcement insofar as such laws may be constitutionally applied.

County officials are generally charged with the duty of providing for the health, safety and general welfare of their residents. Confronted with a choice between providing basic human services to its residents or funding other obligations like debt service on the 2017A Bonds, bondholders should consider carefully the risk that such officials might choose to provide basic services to its residents from its limited funds available before it pays its other obligations.

Affordable Care Act; Impact of Current and Future Health Care Reform Efforts Unpredictable

Affordable Care Act, Generally. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act” or “ACA”), has significantly changed, and continues to change, how health care services are covered, delivered, and financed in the United States. The primary goal of the ACA – extending health coverage to millions of uninsured legal U.S. residents – has taken place through a combination of private sector health insurance reforms and Medicaid program expansion (discussed below). To fund Medicaid expansion, the ACA includes a broad array of quality improvement programs, cost efficiency incentives, and enhanced fraud and abuse enforcement measures, each designed to generate savings within the Medicare and Medicaid programs. Certain key provisions of the ACA are briefly discussed in more detail below. Additionally, the possible repeal or amendment of the ACA is also discussed below.

Future of ACA Uncertain; Amendment or Repeal Could Negatively Impact the Hospital’s Financial Condition. The ACA and its implementation has been, and remains, politically controversial. Accordingly, the ACA has continually faced legal and legislative challenges, including repeated repeal efforts, since its enactment. Management cannot predict the impact any major modification or repeal of the ACA, or any replacement health care reform legislation, might have on the Hospital’s business or financial condition, though such effects could be material. In particular, any legal, legislative or executive action that reduces federal health care program spending, increases the number of individuals without health insurance, reduces the number of people seeking health care due to increased insurance premiums, or otherwise significantly alters the health care delivery system or insurance markets could have a material adverse effect on the Hospital’s business or financial condition.

Current ACA Repeal Efforts. President Trump and Republican leaders of Congress have repeatedly cited health care reform, and particularly, repeal and replacement of the ACA, as a key goal. On May 4, 2017, the United States House of Representatives passed a bill known as the American Health Care Act of 2017 (the “AHCA”), aimed at repealing and replacing certain portions of the ACA. In order to become law, the AHCA also must pass the United States Senate and be signed by President Trump. If the Senate passes an amended version of the AHCA, such revised

15 bill will return to the House for a vote. It is unknown how long it will take for the Senate to act on the AHCA. Additionally, Management cannot predict whether any version of the AHCA or any subsequent bill aimed at repealing and replacing all or a portion of the ACA will become law. Because the Congressional Budget Office (“CBO”) has not evaluated the economic effects of the current version of the AHCA, its potential effects on federal health care spending and the uninsured rate is unclear. A May 24, 2017 CBO report scoring the AHCA as passed by the House predicted the bill would result in: (1) the uninsured rate increasing by 23 million people by 2026, and (2) the federal deficit shrinking by $119 billion by 2026, largely due to reductions in Medicaid spending. Various Senate proposals have been sent for CBO scores. The CBO score dated June 26, 2017, predicted (1) the uninsured rate increasing by 22 million people by 2026; and a reduction in the federal deficit of $321 billion by 2026. Recently a series of votes on various repeal and replace efforts have failed in the Senate. As of the date hereof it is unclear what, if any, further action the Senate might take. Any legislative action that reduces federal health care program spending, increases the number of individuals without health insurance, reduces the number of people seeking health care due to increased insurance premiums, or otherwise significantly alters the health care delivery system or insurance markets could have a material adverse effect on the Hospital’s business or financial condition.

Executive Action and the ACA. In addition to legislative changes, ACA implementation and the ACA insurance exchange markets can be significantly impacted by executive branch actions. On January 20, 2017, President Trump issued an executive order requiring all federal agencies with authorities and responsibilities under the ACA to “exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay” parts of the ACA that place “unwarranted economic and regulatory burdens” on states, individuals or health care providers. While it is impossible to predict the effect of this broad executive order, the Department of Health and Human Services (“HHS”) might interpret the executive order to require it to freely grant exemptions from the individual mandate’s “shared responsibility payment” (discussed below), which has the potential to significantly impact the insurance exchange market by reducing the number of healthy individuals in the ACA health insurance exchanges. Additionally, should the executive branch: (1) cease defending a pending lawsuit (House v. Price) which challenges the legality of cost-sharing subsidies paid by the federal government to insurance companies which offer coverage on the ACA insurance exchanges, or (2) otherwise reduce or stop paying the cost-sharing subsidies, insurers may incur financial losses and stop offering plans through the ACA insurance exchanges. Either action has the potential to significantly impact the insurance exchange market by reducing the number of plans available on the ACA health insurance exchanges and/or increase insurance premiums. Management cannot predict the likelihood or effect of any such executive actions on the Hospital’s business or financial condition, though such effects could be material.

ACA Health Insurance Market Reforms/Health Insurance Exchanges. One key provision of the ACA is the individual mandate, which requires most Americans to maintain minimum essential health insurance coverage. Those who do not comply with the individual mandate must make a shared responsibility payment to the federal government in the form of a tax penalty. Individuals who are not exempt from the individual mandate, and who do not receive health insurance through an employer or government program, are expected to satisfy the individual mandate requirement by purchasing insurance from a private company or a health insurance exchange. Health insurance exchanges are government-regulated organizations that provide competitive markets for buying health insurance by offering individuals and small employers a choice of different health plans, certifying plans that participate, and providing information to help consumers better understand their options. Some states have elected to operate their own exchanges. Citizens in states without a health insurance exchange may use the federal government’s health insurance exchange found online at Healthcare.gov. Individuals enrolled in an insurance plan purchased through an exchange may be eligible for a premium credit or cost-sharing subsidy. Following legal challenges seeking to limit the availability of premium credits and subsidies only to individuals enrolled in coverage through a state-based exchange, the U.S. Supreme Court upheld U.S. Internal Revenue Service (“IRS”) regulations extending such subsidies to individuals who purchase coverage through the federal government’s health insurance exchange. The health insurance exchanges may have a positive impact for hospitals by increasing the availability of health insurance to individuals who were previously uninsured. Conversely, health insurance exchanges may have a negative financial impact on health care providers to the extent (1) insurance plans purchased on the exchange reimburse providers at lower rates, or (2) high deductible plans offered on the exchanges become more prevalent and lead to lower inpatient volumes as patients choose to forgo medical treatment to avoid such high deductibles. As the health insurance exchanges are still relatively new, their effect on the reimbursement rates paid by health insurers, and accordingly, on health care providers’ business and financial condition, cannot be predicted. In the past year, many insurance companies decided to cease offering plans through the exchanges due to financial losses on such plans. For example, if the federal government stops making cost-sharing subsidy payments (discussed above) to insurers offering plans on

16 the exchanges, it is predicted that even more insurers will drop out of the exchanges. Accordingly, even without repeal or modification of the ACA as discussed above, the future of the exchanges is uncertain.

The employer mandate provision of the ACA requires the imposition of penalties on employers having 50 or more employees who do not offer qualifying health insurance coverage to those working 30 or more hours per week. The ACA also established a number of other health insurance market reforms, including bans on lifetime limits and pre-existing condition exclusions, new benefit mandates, and increased dependent coverage (until the age of 26). Any future legal, legislative, or executive action that results in a reduction of the number of individuals with health insurance coverage, a reduction of the number of people seeking health care due to increased premiums, or a decrease in health care reimbursement rates could have a material adverse effect on the Hospital’s business or financial condition.

ACA Medicaid Expansion. Another key provision of the ACA is the expansion of Medicaid coverage. Prior to the passage of the ACA, Medicaid offered federal funding to states to assist limited categories of low-income individuals (including children, pregnant women, the blind, and the disabled) in obtaining medical care. The ACA expanded Medicaid eligibility to virtually all individuals under 65 years old with incomes up to 138% of the federal poverty level beginning in 2014. The ACA provided that the federal government would fund 100% of the Medicaid expansion costs through 2016. Federal funding for state Medicaid expansion will gradually decrease to 90% by 2020 and beyond. The expansion of the Medicaid program in each state is not mandatory and there is no deadline for a state to undertake expansion and qualify for the enhanced federal funding available under the ACA. For states that chose not to participate in the federally funded Medicaid expansion, the net effect of ACA reforms has been significantly reduced.

Pennsylvania first expanded Medicaid in accordance with a waiver from the Centers for Medicare & Medicaid Services (“CMS”) that gave Pennsylvania flexibility in the form of its Medicaid expansion, but in 2015, Governor Wolf transitioned Pennsylvania to a traditional Medicaid expansion.

ACA Spending Reductions. The ACA contains a number of provisions designed to significantly reduce Medicare and Medicaid program spending, including: (1) negative adjustments to the “market basket” updates for Medicare’s inpatient, outpatient, long-term acute and inpatient rehabilitation prospective payment systems, which began in 2010, as well as additional “productivity adjustments” that began in 2011; and (2) reductions to Medicare and Medicaid disproportionate share hospital (“DSH”) payments, which began for Medicare payments in federal fiscal year 2014 and will begin for Medicaid payments in federal fiscal year 2018, as the number of uninsured individuals declines. Any reductions to reimbursement under the Medicare and Medicaid programs could adversely affect the Hospital’s financial condition to the extent such reductions are not offset by increased revenues from providing care to previously uninsured individuals.

ACA Quality Improvement and Clinical Integration Initiatives. The ACA mandated the creation of a number of payment reform measures designed to incentivize or penalize hospitals based on quality improvement measures, performance measures and clinical integration, such as the Readmission Reduction Program, the Hospital Value- Based Purchasing Program, and the Hospital Acquired Condition Reduction Program. The Readmission Reduction Program reduces Medicare payments by specified percentages to hospitals with excess or preventable hospital admissions based on historical discharge data. The Hospital Value-Based Purchasing Program, funded through an across the board reduction in payments to hospitals for inpatient services, reallocates and redistributes Medicare reimbursement funds to hospitals based on how well they perform on quality and patient experience measures. The ACA also gave the Center for Medicare & Medicaid Innovation within CMS the authority to develop and test new payment methodologies designed to improve quality of care and lower costs. Management is not currently aware of any situation in which an ACA quality, efficiency or clinical integration program is materially adversely affecting the business and financial condition of the Hospital. However, the Hospital’s business and financial condition may be adversely affected by such programs in the future.

ACA Fraud and Abuse Enforcement Enhancements. In an attempt to reduce unnecessary health care spending, the ACA included a number of provisions aimed at combating fraud and abuse within the Medicare and Medicaid programs. The ACA provides additional enforcement tools to the government, facilitates cooperation between agencies by establishing mechanisms for the sharing of information, and enhances criminal and administrative penalties for non-compliance with the Medicare and Medicaid fraud and abuse laws, such as the Anti- Kickback Statute, Stark Law and federal False Claims Act (discussed below). For example, the ACA: (1) provides

17 $350 million in increased federal funding over 10 years to fight health care fraud, waste and abuse; (2) authorizes HHS, in consultation with the Office of Inspector General (“OIG”), to suspend Medicare and Medicaid payments to a provider of services or a supplier “pending an investigation of a credible allegation of fraud;” (3) provides Medicare contractors with additional flexibility to conduct random prepayment reviews; and (4) strengthens the rules for returning overpayments made by governmental health programs and expands liability under the federal False Claims Act to include failure to timely repay identified overpayments. Furthermore, the ACA contains provisions relating to recovery audit contractors (“RACs”), which are third-party organizations under contract with CMS that identify underpayments and overpayments under the Medicare program and recoup any overpayments on behalf of the government. The ACA expanded the RAC program’s scope to include Medicaid claims and required all states to enter into contracts with RACs. Management is not currently aware of any pending recovery audit which, if determined adversely to the Hospital, would materially adversely affect the business and financial condition of the Hospital.

Full Impact of ACA Difficult to Predict. It remains difficult to predict the full impact of the ACA on the Hospital’s future revenues and operations at this time due to uncertainty regarding a number of material factors, including: (1) how many currently uninsured individuals will ultimately obtain and retain insurance coverage as a result of the ACA (either through private health insurance or Medicaid); (2) what percentage of any newly insured patients will be covered under the Medicaid program versus a commercial plan obtained on a health insurance exchange; (3) the pace at which insurance coverage expands, including the pace of different types of coverage expansion; (4) future changes in the reimbursement rates and market basket updates; (5) the percentage of individuals in the exchanges who select the high-deductible plans, considering that health insurers offering those kinds of products have traditionally sought to pay lower rates to hospitals; (6) the extent to which the enhanced program integrity and fraud and abuse provisions lead to a greater number of civil or criminal actions or impact Medicare and Medicaid payments; (7) the extent to which the ACA puts pressure on the profitability of health insurers, which in turn might cause them to seek to reduce payments to hospitals with respect to both newly insured individuals and their existing business; (8) the amount of overall revenues the Hospital will generate from the Medicare and Medicaid programs when the reductions are fully implemented; (9) whether future reductions required by the ACA will be changed by statute prior to becoming effective; (10) the reductions to Medicaid DSH payments; (11) what the losses in revenues, if any, will be from the ACA’s quality initiatives; (12) how successful clinical integration and other pilot programs in which the Hospital participates will be at coordinating care and reducing costs; and (13) the scope and nature of potential changes to Medicare reimbursement methods, such as an emphasis on bundling payments or coordination of care programs. Further, as noted above, the future of the ACA is unclear and the impact of any current or future health care reform efforts is unpredictable. It is impossible to predict the impact future health reform efforts might have on the Hospital’s business or financial condition, but such effects could be material.

Federal Budget Cuts

The Budget Control Act of 2011 (the “BCA”) mandated significant reductions and spending caps on the federal budget for fiscal years 2012-2021. The BCA also created a Joint Select Committee on Deficit Reduction (the “Super Committee”) to develop a plan to further reduce the federal deficit by $1.5 trillion on or before November 23, 2011. Because the Super Committee failed to act, the BCA mandated that a 2% reduction in Medicare spending, among other reductions, would be triggered to take effect on January 2, 2013.

The American Taxpayer Relief Act of 2012 (“ATRA”) postponed this scheduled reduction until March 1, 2013. On March 11, 2013, CMS implemented the 2% reductions for all Medicare Parts A and B claims with dates- of-service or dates-of-discharge on or after April 1, 2013, and for all payments made to Medicare Advantage Organizations, Part D plans and other programs (including Managed Care Organizations) with enrollment periods beginning on or after April 1, 2013. Additionally, ATRA affects hospital Medicare reimbursement in that it requires the Medicare program to recoup funds from hospitals based on changes made from 2010-2012 to documentation and coding that have increased Medicare inpatient prospective payment system (“IPPS”) payments but that do not represent real increases in the intensity of services provided to patients. In the final IPPS regulations for federal fiscal year 2014, CMS stated that it intends to phase in this recoupment over time, starting with a 0.8% reduction in the Medicare standardized amount for 2014. The fiscal year 2015 IPPS final rule reduced standardized amounts by a second 0.8% installment, for a cumulative reduction of 1.6% for fiscal year 2015. The fiscal year 2016 IPPS final rule reduced standardized amounts by an additional 0.8%, for a cumulative reduction of 2.4%. The fiscal year 2017 IPPS final rule, which implements the final year of reductions pursuant to ATRA, reduced standardized amounts by an additional 1.5%, for a cumulative reduction of 3.9%.

18 While the 2013 budget agreement offered limited relief from sequestration cuts for certain defense and non- defense spending for fiscal years 2014 and 2015, it did not extend relief to sequestration reductions impacting Medicare, but rather extended the 2% reduction to Medicare providers and insurers at least through March 31, 2024, subject to additional Congressional action. Certain commercial Medicare Advantage plans are passing this reduction on to health care providers. On November 2, 2015, President Obama signed the Bipartisan Budget Act of 2015 (the “BBA”) into law, increasing the budget caps imposed by the BCA for fiscal years 2016 and 2017 and authorizing $80 billion in increased spending over the two years. The BBA also extended the 2% reduction to Medicare providers and insurers for another year, to at least March 31, 2025, and suspended the limit on the federal government’s debt until March 2017. Special accounting measures are being taken which are expect to keep the federal debt below the debt ceiling until the fall of 2017. On May 5, 2017, President Trump signed an appropriations bill providing for federal funding through the end of September 2017.

Absent further Congressional action, these automatic spending cuts will become permanent. Because Congress may make changes to the budget in the future, it is impossible to predict the impact any spending cuts may have upon the Hospital. Similarly, it is impossible to predict whether any automatic reductions to Medicare may be triggered in lieu of other spending cuts that may be proposed by Congress. If and to the extent Medicare and/or Medicaid spending is reduced under either scenario, this may have a material adverse effect upon the financial condition of the Hospital. Ultimately, these reductions or alternatives could have a disproportionate impact on hospital providers and could have an adverse effect on the financial condition of the Hospital, which could be material.

Major Third-Party Payment Programs

A significant portion of the revenues of the Hospital are derived from third-party payors including Medicare, Medicare Advantage Organizations, Medicaid, Medicaid managed care organizations, Blue Cross of Northeastern Pennsylvania (“Blue Cross”) and other commercial insurers. Significant changes to reimbursement by any of these payors could have a material adverse effect on the financial condition of the Hospital. In addition, bills have been and may be introduced by the U.S. Congress and in the Commonwealth of Pennsylvania legislature that, if enacted, could adversely affect the operations of the Hospital by, for example, decreasing reimbursement by third-party payors by limiting the ability of the Hospital to provide certain services, or by requiring that the Hospital increase the number of services provided to patients without a corresponding increase in reimbursement. The following paragraphs describe certain of these programs.

Overview of Medicare and Medicaid Programs

Medicare and Medicaid are the commonly used names for health care reimbursement or payment programs governed by certain provisions of the federal Social Security Act Amendments of 1965. The federal government, as the country’s largest payer of health care services, uses reimbursement as a key tool to implement health care policies, to allocate health care resources and to control utilization, facility and provider development and expansion, and technology use and development. Health care reform legislation continues these practices. These laws reflect the national policy that persons who are aged and persons who are poor should have access to medical care regardless of ability to pay. The Hospital serves this population and it is unlikely that the Hospital and its affiliates could attract sufficient numbers of private pay patients to their facilities to become self-sufficient without reimbursement from government sources.

For fiscal years ended June 30, 2017 and 2016, respectively, approximately 37% and 40% of the net patient service revenues of the Hospital were derived from the Medicare program. For fiscal years ended June 30, 2017 and 2016, respectively, approximately 9% and 9% of the net patient service revenues of the Hospital were derived from the Medicaid program. As a result, the Hospital is highly dependent on these government health insurance programs and could be adversely affected by changes in federal and state funding for these programs. See “SOURCES OF REVENUE AND THIRD PARTY REIMBURSEMENT PROGRAMS” in APPENDIX A hereto.

Medicare provides certain health care benefits to beneficiaries who are 65 years of age or older, disabled, or qualify for Medicare’s End Stage Renal Disease Program. Medicare Part A covers inpatient hospital, home health, nursing home care and certain other services, and Medicare Part B covers certain physicians services, certain outpatient ancillary care services, medical supplies and durable medical equipment. Medicare Part C, the Medicare Advantage program, enables Medicare beneficiaries to choose to obtain their benefits through a variety of private, managed care, risk-based plans.

19 Medicare Part D makes outpatient prescription drug benefits available to Medicare beneficiaries. The private Medicare Part D plans are funded through premium payments from enrolled Medicare beneficiaries and subsidies from the federal government. Enrollment is available on an ongoing and intermittent basis. While participation in the program is voluntary, those who wait to enroll beyond their initial point of eligibility are penalized with additional surcharges which increase over time. The ACA includes changes to the Medicare Part D program, including the gradual reduction of the cost sharing burden by beneficiaries under Medicare Part D (the so-called “donut hole”). Although Medicare Part D reimbursement does not cover inpatient prescriptions, changes in enrollment or program administration could affect the Hospital’s revenue. Going forward, an expansion of coverage for outpatient pharmaceutical therapy may reduce the Hospital’s admissions or shift the characteristics of those patients that are admitted.

Medicaid, together with the Children’s Health Insurance Program, provides health coverage for certain low- income individuals and individuals with disabilities. Medicaid is funded by federal and state appropriations and is administered by an agency of the applicable state. Under the ACA, beginning January 1, 2014, eligibility for Medicaid was expanded to cover individuals with income under 133% of the Federal Poverty Level (“FPL”).

Conditions of Participation. Hospitals must comply with standards called “Conditions of Participation” in order to be eligible for Medicare and Medicaid reimbursement. The Centers for Medicare and Medicaid Services of the U.S. Department of Health and Human Services (“HHS”) is the federal agency responsible for ensuring that hospitals meet the regulatory Conditions of Participation. Generally, under Medicare rules, hospitals accredited by The Joint Commission (a private nonprofit corporation that accredits health care programs and providers in the United States) and other CMS approved accreditation bodies are deemed to meet the Conditions of Participation. The Hospital facilities are currently accredited by The Joint Commission but there is no guarantee that the Hospital will continue to be accredited or will meet the Conditions of Participation in the future. Failure to maintain accreditation or to otherwise comply with the Conditions of Participation could have a materially adverse effect on the continued participation in the Medicare and Medicaid programs, and ultimately on the revenues of the Hospital.

Medicare Reimbursement

Overview. Medicare is administered by CMS, which delegates to the states the process for certifying those health care organizations to which CMS will make payment. HHS’s rule-making authority is substantial and the rules are extensive and complex. Substantial deference is given by courts to rules promulgated by HHS.

Most Medicare hospital services are paid at a fixed rate per case under the reimbursement methods described below. Some Medicare recipients, however, enroll in Medicare Advantage managed care plans, which reimburse providers on a contractually determined basis. Health care providers that participate in the Medicare program must agree to be bound by the terms and conditions of the program such as meeting the quality standards for rendering covered services and adopting and enforcing policies to protect patients from certain discriminatory practices.

Medicare Managed Care Program. Every individual entitled to Medicare Part A benefits, and who is enrolled in Medicare Part B, with the exception of individuals who suffer from End Stage Renal Disease, may elect coverage under either the traditional Medicare fee for service program (Parts A and B) or a Medicare managed care (Part C) program, known as the Medicare Advantage Program. The Medicare Advantage program is designed to expand the number and types of private regional plans available to beneficiaries as an alternative to traditional Parts A and B Medicare coverage. Payments for Medicare Advantage plans are based on competitive bids to the government rather than administered pricing.

Public and private health maintenance organizations, preferred provider organizations, fee for service and medical savings account plans may qualify as authorized Medicare Advantage plans. With limited exceptions, Medicare Advantage plans are risk- bearing programs that accept a fixed annual amount in return for providing beneficiaries with a defined level of benefits (basic or basic plus supplemental), either directly or through arrangements with other providers. All Medicare Advantage plans are required to provide coverage, even if out of network, for emergency services, renal dialysis services provided while the enrollee was temporarily outside of the plan’s service area, post-stabilization care services (under limited circumstances) and services for which coverage was denied but, following appeal by the enrollee, were determined to be covered services. Providers wishing to participate in Medicare Advantage plans are subject to specific requirements concerning enrollee protection and accountability.

20 Impacts of ACA on Medicare. As the population ages, more people will become eligible for the Medicare program. Current projections indicate that demographic changes and continuation of current cost trends will exert significant and negative forces on the overall federal budget. The ACA institutes multiple mechanisms for reducing the costs of the Medicare program, including the following:

Value-Based Purchasing Program. Beginning in federal fiscal year 2013, Medicare inpatient payments to hospitals will be determined, in part, based on a program under which value-based incentive payments are made in a fiscal year to hospitals that meet certain performance standards during that fiscal year. 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.

Market Basket Reductions. Generally, Medicare payment rates to hospitals are adjusted annually based on a “market basket” of estimated cost increases. In recent years, market basket adjustments for inpatient hospital care have averaged approximately 2-4% annually. The ACA required automatic 0.25% reductions in the “market basket” for federal fiscal years 2010 and 2011, and calls for reductions in the annual “market basket” update amount ranging from 0.10% to 0.75 % each year through federal fiscal year 2019.

Market Productivity Adjustments. In federal fiscal year 2012 and thereafter, the ACA provides for “market basket” adjustments based on overall national economic productivity statistics calculated by the Bureau of Labor Statistics. This adjustment is currently anticipated to result in an approximately 1% additional reduction to the “annual market basket” update.

Hospital Acquired Conditions. Medicare inpatient payments to hospitals that are in the top quartile nationally for frequency of certain “hospital-acquired conditions” identified by CMS are reduced by 1% of what would otherwise be payable to each hospital for the applicable federal fiscal year.

Readmission Rate Penalty. Medicare inpatient payments to those hospitals with excess readmissions compared to the national average for specified conditions are reduced based on the dollar value of that hospital’s percentage of excess preventable Medicare readmissions within 30 days of discharge, for certain medical conditions. The current maximum penalty is 3%. CMS expanded the patient conditions for which this penalty is assessed beginning in federal fiscal year 2017.

DSH Payments. Beginning in federal fiscal year 2014, hospitals receiving supplemental Medicare DSH payments (i.e., those hospitals that care for a disproportionate share of low-income Medicare beneficiaries) had their Medicare DSH payments reduced by 75%, although a portion of this reduction potentially could be offset in whole or in part by new payments to each hospital based on the volume of uninsured and uncompensated care. Separately, Medicaid DSH allotments from the federal government to the states are scheduled to be reduced in the aggregate amount of $44 billion during federal fiscal years 2018 through 2025. These ACA-initiated Medicaid DSH allotment reductions have been delayed three times and modified five times by subsequent federal statutes. See also “Disproportionate Share Payments” below.

From October 1, 2010 through September 30, 2019, payments under the Medicare Advantage programs will be reduced, which may result in increased premiums or out-of-pocket costs to Medicare beneficiaries enrolled in Medicare Advantage plans. Those beneficiaries may terminate their participation in those plans and opt for the traditional Medicare fee-for-service program. The reduction in payments to Medicare Advantage programs may also lead to decreased payments to providers by managed care companies operating Medicare Advantage programs, depending on the contractual arrangement between the Medicare Advantage program and the provider. All or any of these outcomes could have a disproportionately negative effect upon those providers with relatively high dependence upon Medicare Advantage program revenues.

For information concerning the Medicare payments received by the Hospital for the fiscal years ended June 30, 2016 and 2017, see APPENDIX A – “SOURCES OF REVENUE AND THIRD PARTY REIMBURSEMENT PROGRAMS.”

Hospital Inpatient Reimbursement. Hospitals are generally paid for inpatient services provided to Medicare beneficiaries based on established categories of treatments or conditions known as diagnosis related groups (“DRGs”).

21 The actual cost of care, including capital costs, may be more or less than the DRG rate. DRG rates are subject to adjustment by CMS, including reductions mandated by the ACA and the BCA and are subject to federal budget considerations. There is no guarantee that DRG rates, as they change from time to time, will cover actual costs of providing services to Medicare patients. For information regarding the impact of the ACA on payments to hospitals for inpatient services, see “Overview of Medicare and Medicaid Programs” above.

Effective October 1, 2013, CMS adopted a policy known as the Inpatient Hospital Prepayment Review “Probe & Educate” review process or the “Two-Midnight” rule. The “Two-Midnight” policy specifies that hospital stays spanning two or more midnights after the beneficiary is properly and formally admitted as an inpatient will be presumed to be “reasonable and necessary” for purposes of inpatient reimbursement. With some exceptions, stays not expected to extend past two midnights should not be admitted and instead be billed as outpatient. On April 1, 2014, President Obama signed the Protecting Access to Medicare Act of 2014, which further delayed enforcement of the “Two-Midnight” rule until March 31, 2015. The Medicare Access and CHIP Reauthorization Act of 2015 directed CMS to continue to refrain from conducting post-payment patient status reviews through recovery audit contractors on claims with dates of admission through 2015, absent evidence of systematic gaming, fraud, abuse, or delays in the provision of care. In a fiscal year 2016 final rule, CMS maintained the benchmark established by the original Two- Midnight rule, but permitted greater flexibility for determining when an admission that does not satisfy that benchmark should nonetheless be payable on a case-by-case basis. CMS continued its use of Beneficiary and Family Centered Core Quality Improvement Organizations (“BFCC-QIOs”), rather than recovery audit contractors or Medicare administration contractors, to conduct the initial medical reviews of providers who submit claims for short stay inpatient admissions beginning October 1, 2015. On May 4, 2016 CMS temporarily paused the BFCC-QIOs performance of initial patient status reviews under the revised Two-Midnight rule, which reviews resumed effective September 12, 2016. The “Two-Midnight” rule has had and will likely continue to have an adverse financial impact for hospitals.

Hospital Outpatient Reimbursement. Hospitals are generally paid for outpatient services provided to Medicare beneficiaries based on established categories of treatments or conditions known as ambulatory payment classifications (“APC”). The actual cost of care, including capital costs, may be more or less than the reimbursements. There is no guarantee that APC rates, as they change from time to time, will cover actual costs of providing services to Medicare patients.

Other Medicare Service Payments. Medicare payment for skilled nursing services, psychiatric services, inpatient rehabilitation services, general outpatient services and home health services are based on regulatory formulas or pre-determined rates. There is no guarantee that these rates, as they may change from time to time, will be adequate to cover the actual cost of providing these services to Medicare patients.

Reimbursement of Hospital Capital Costs. Hospital capital costs apportioned to Medicare patient use (including depreciation and interest) are paid by Medicare on the basis of a standard federal rate (based upon average national costs of capital), subject to limited adjustments specific to the hospital. There can be no assurance that future capital-related payments will be sufficient to cover the actual capital-related costs of the Hospital’s facilities applicable to Medicare patient stays or will provide flexibility for hospitals to meet changing capital needs.

Medical Education Payments. Medicare currently pays for a portion of the costs of medical education at hospitals that have teaching programs. These payments are vulnerable to reduction or elimination. The direct and indirect medical education reimbursement programs have repeatedly emerged as targets in the legislative efforts to reduce the federal budget deficit.

Medicare Bad Debt Reimbursement. Under Medicare, the costs attributable to the deductible and coinsurance amounts which remain unpaid by the Medicare beneficiary can be added to the Medicare share of allowable costs as cost reports are filed. Hospitals generally receive interim pass-through payments during the cost report year which were determined by the Medicare Administrative Contractor (“MAC”) from the prior cost report filing. Bad debts must meet the following criteria to be allowable:

 the debt must be related to covered services and derived from deductible and coinsurance amounts;  the provider must be able to establish that reasonable collection efforts were made;  the debt was actually uncollectible when claimed as worthless; and  sound business judgment established that there was no likelihood of recovery at any time in the future.

22 The amounts uncollectible from specific beneficiaries are to be charged off as bad debts in the accounting period in which the accounts are deemed to be uncollectible. In some cases, an amount previously written off as a bad debt and allocated to the program may be recovered in a subsequent accounting period. In these cases, the recoveries must be used to reduce the cost of beneficiary services for the period in which the collection is made. In determining reasonable costs for hospitals, the amount of bad debts otherwise treated as allowable costs is reduced by 35%. Amounts incurred by a hospital as reimbursement for bad debts are subject to audit and recoupment by the MAC. Bad debt reimbursement has been a focus of MAC audit/recoupment efforts in the past.

Off-Campus Provider-Based Departments. Effective January 1, 2016, the calendar year 2015 Outpatient Prospective Payment System Final Rule requires hospitals to use new modifiers for services provided to Medicare beneficiaries at off-campus provider-based departments. The stated purpose of the new modifiers is to permit CMS to obtain information regarding the effect of the trend of the conversion of physician offices to off-campus provider- based hospital departments. A potential result of this information could be a future reduction in reimbursement for certain services provided at certain types of off-campus provider-based departments. In any event, failure to use the modifiers correctly could jeopardize the provider-based status of associated off-campus locations. In addition, the BBA created “site neutral” reimbursement for services to Medicare beneficiaries at certain off-campus provider based locations beginning January 1, 2017. Services subject to the change will not be reimbursed under Medicare’s hospital outpatient prospective payment system (“OPPS”), but rather will be reimbursed under alternative payment systems (for example, at ambulatory surgery center rates). The exclusion applies to off-campus hospital departments that did not bill for services under the OPPS prior to November 2, 2015. The financial impact of these changes cannot yet be predicted.

Medicaid. Medicaid is a program of medical assistance, funded jointly by the federal government and the states, for certain low-income and needy individuals and their dependents. Under Medicaid, the federal government provides limited funding to states that have medical assistance programs that meet federal standards. Each state determines the type, amount, duration and scope of services, sets the payment rates for services, and administers its own programs. Attempts to balance or reduce the federal and state budgets will likely negatively impact spending for Medicaid and other state health care program spending.

The ACA requires Medicaid to be expanded to all individuals under the age of 65 with income less than 138% of the federal poverty limit, effective in 2014. To fund this expansion, the ACA provides that the federal government will fund 100% of the costs of this expansion from fiscal years 2014 – 2016, decreasing to 90% of the costs of this expansion in fiscal year 2020 and thereafter. In June 2012, the Supreme Court held that the federal government cannot withhold existing federal funds for states that refuse to expand Medicaid as required by the ACA. As of January 1, 2017, 31 states and the District of Columbia, including Pennsylvania, had adopted the Medicaid expansion in some form, with the remainder declining to participate in the expansion, or remaining undecided.

Federal and state governments continue to consider changes to Medicaid funding, particularly in light of the budget challenges facing many states. Certain additional proposals being examined may ultimately result in reduced federal Medicaid funding to the states, which could adversely impact amounts received by the Hospital.

While Management cannot predict the effect of these changes to the Medicaid program on operations, results from operations or financial condition of the Hospital, historically Medicaid has reimbursed at rates below the cost of care. Therefore, increases in the overall proportion of Medicaid patients poses a financial risk to the Hospital. It is uncertain to what extent this risk may be mitigated if the increased Medicaid utilization replaces previously uncompensated care.

Pennsylvania Medical Assistance. The Pennsylvania Department of Public Welfare (“DPW”) administers the Medicaid program, also referred to as “Medical Assistance,” in the Commonwealth of Pennsylvania.

Under the ACA, eligibility for Medicaid is expanded to cover individuals with income under 133% of the Federal Poverty Level (“FPL”). Also, for Fiscal Year 2013 and 2014, the ACA establishes a floor for Medicaid reimbursement for primary care physician services at 100% of Medicare rates. The federal government is responsible for the cost of this coverage expansion in the initial years. Thereafter, each state will share in the financial burden of the expanded coverage. Pennsylvania sets maximum reimbursement rates for Medicaid as the lowest of: rates set by Medicare or Medicaid, the rates in the provider fee schedule, or the provider’s usual and customary charge. Providers,

23 including hospitals, that accept Medicaid are required to accept the Medicaid payment as payment in full for services and providers may not bill for any balance except for certain allowable co-payments and deductibles.

Federal cost cutting initiatives, and Commonwealth of Pennsylvania budget shortfalls in Medicaid revenues, may lead Pennsylvania to reduce the Medicaid reimbursement received by hospitals. Pennsylvania Act 49 of 2010 and its related amendments assess a 3.71% fee on the annual net inpatient revenue of all licensed acute care hospitals for fiscal years 2015-2016 and 2017-2018. Revenue from Pennsylvania Act 49, as amended, will be used to update Medicaid claims pricing for inpatient hospital services, revise disproportionate share payments and increase reimbursement through the state Medicaid managed care plan, HealthChoices (see “Managed Care Medicaid Program: HealthChoices” below). The reimbursement currently paid by the Medicaid program is likely to be subject to restrictions in the future, and there can be no assurance that such payments will be adequate to cover the cost of care for Medicaid beneficiaries in the future.

Managed Care Medicaid Program: HealthChoices. Under HealthChoices, Pennsylvania Medicaid recipients enroll in managed care programs. Like any private managed care plan, HealthChoices programs attempt to negotiate lower fee schedules with their contracted healthcare providers. There can be no assurance that the Hospital will be successful in contracting with its assigned managed care organizations or that the reimbursements from these managed care organizations will be sufficient to cover the costs of delivering care to Pennsylvania’s Medicaid recipients.

Medicaid Managed Care Proposed Rule. On May 6, 2016, CMS published a final rule to modernize Medicaid managed care plans to create more standardized practices across states and align managed care standards with those of the private market whose circumstances change during the year. This final rule was the first major update to Medicaid managed care in over ten years. The final rule changes include:

 Supporting states’ efforts to encourage delivery system reform initiatives within managed care programs that aim to improve healthcare outcomes and beneficiary experience while controlling costs;

 Strengthening the quality of care provided to beneficiaries by strengthening transparency and measurement, establishing a quality rating system, and broadening state quality strategies and consumer and stakeholder engagement;

 Improving consumer experience in the areas of enrollment, communications, care coordination, and the availability and accessibility of covered services;

 Implementing best practices identified in existing managed long term services and supports programs;

 Aligning Medicaid managed care policies to a much greater extent with those of Medicare Advantage and the private market; and

 Strengthening the fiscal and programmatic integrity of Medicaid managed care programs and rate setting.

Additionally, the final rule set a minimum medical loss ratio (or “MLR”) of 85% for Medicaid Managed Care plans, which applies to rating periods for contracts starting on or after July 1, 2019. In Pennsylvania, the HealthChoices plans are not currently held to an MLR requirement by the state.

Medicare and Medicaid Audits. Hospitals that participate in the Medicare and Medicaid programs are subject from time to time to audits and other investigations relating to various aspects of their operations and billing practices, as well as to retroactive audit adjustments to reimbursements claimed under these programs. Medicare and Medicaid regulations also provide for withholding reimbursement payments in certain circumstances. New billing rules and reporting requirements for which there is no clear guidance from CMS or state Medicaid agencies could result in claims submissions being considered inaccurate. The penalties for violations may include an obligation to refund money to the Medicare or Medicaid program, payment of criminal or civil fines and, for serious or repeated violations, exclusion from participation in federal health programs.

24 Authorized by the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the Medicare Integrity Program (“MIP”) was established to deter fraud and abuse in the Medicare program. Funded separately from the general administrative contractor program, the MIP allows CMS to enter into contracts with outside entities and insure the “integrity” of the Medicare program. These entities, Medicare zone program integrity contractors (“ZPICs”), formerly known as program safeguard contractors, are contracted by CMS to review claims and medical charts, both on a prepayment and post-payment basis, conduct cost report audits and identify cases of suspected fraud. ZPICs have the authority to deny and recover payments as well as to refer cases to the Office of Inspector General. ZPICs have the ability to compile claims data from multiple sources in order to analyze the complete claims histories of beneficiaries for inconsistencies.

Medicare and Medicaid audits may result in reduced reimbursement or repayment obligations related to past alleged overpayments and may also delay Medicare and Medicaid payments to providers pending resolution of the appeals process. The ACA explicitly gives DHHS the authority to suspend Medicare and Medicaid payments to a provider or supplier during a pending investigation of fraud. The ACA also amended certain provisions of the FCA (as defined herein) to include retention of overpayments as a false claim. It also added provisions respecting the timing of the obligation to identify, report and reimburse overpayments.

CMS has implemented a Recovery Audit Contractor (“RAC”) program on a nationwide basis pursuant to which CMS contracts with private contractors to conduct pre- and post-payment reviews to detect and correct improper payments in the fee-for-service Medicare program. The ACA expands the RAC program’s scope to include managed Medicare plans and Medicaid claims. CMS also employs Medicaid Integrity Contractors (“MICs”) to perform post- payment audits of Medicaid claims and identify overpayments. These programs tend to result in retroactively reduced payment and higher administration costs to hospitals, and so could have a material adverse impact on the Hospital.

Disproportionate Share Payments. The federal Medicare and Medicaid programs each provide additional payment for hospitals that serve a disproportionate share of certain low-income patients. The Hospital is a disproportionate share hospital and received $529,028 in Medicare DSH payments in the fiscal year ended June 30, 2017, but there can be no assurance that the Hospital will qualify for disproportionate share status in the future. As discussed above, the ACA substantially reduced Medicare and Medicaid payments to disproportionate share hospitals (with some of the reductions delayed by subsequent federal law). There can be no assurance that payments to disproportionate share hospitals will not be further decreased or eliminated in the future.

State Children’s Health Insurance Program. The State Children’s Health Insurance Program (“SCHIP”) is a federally funded insurance program for families which are financially ineligible for Medicaid, but cannot afford commercial health insurance. CMS administers SCHIP, but each state creates its own program based upon minimum federal guidelines. SCHIP insurance is provided through private health plans contracting with the state. Each state must periodically submit its SCHIP plan to CMS for review to determine if it meets the federal requirements. If it does not meet the federal requirements, a state can lose its federal funding for the program. The ACA temporarily increased reimbursement for primary care visits for Medicaid enrolled individuals, which the federal government will fully fund through federal fiscal year 2017.

Private Health Plans and Managed Care

Most private health insurance coverage is provided by various types of “managed care” plans, including health maintenance organizations (“HMOs”) and preferred provider organizations (“PPOs”) that generally use discounts and other economic incentives to reduce or limit the utilization of or payment for health care services. Medicare and Medicaid also purchase health care using managed care options. Payments to health care organizations from managed care plans typically are lower than those received from traditional indemnity or commercial insurers.

In many markets, managed care plans have replaced indemnity insurance as the primary source of non- governmental payment for health care services, and health care organizations must be capable of attracting and maintaining managed care business, often on a regional basis. Regional coverage and aggressive pricing may be required. However, it is also essential that contracting health care organizations be able to provide the contracted services without significant operating losses, which may require multiple forms of cost containment.

Many HMOs and PPOs currently pay providers on a negotiated fee-for-service basis or on a fixed rate per day of care, or a fixed rate per hospital stay, which, in each case, usually is discounted from the usual and customary

25 charges for the care provided. As a result, the discounts offered to HMOs and PPOs could, in some cases, result in payment to a provider that is less than its actual cost. Additionally, the volume of patients directed to a provider may vary significantly from projections, and changes in the utilization may be dramatic and unexpected, thus jeopardizing the provider’s ability to manage this component of revenue and cost.

Some HMOs employ a “capitation” payment method under which health care organizations are paid a predetermined periodic rate for each enrollee in the HMO who is “assigned” or otherwise directed to receive care from a particular organization. The health care organization may assume financial risk for the cost and scope of institutional care given. If payment is insufficient to meet the health care organization’s actual costs of care, or if utilization by such enrollees materially exceeds projections, the financial condition of the health care organization could erode rapidly and significantly. In addition to this standard managed care risk sharing approach, private health insurance companies are increasingly adopting various additional risk sharing/cost containing measures, sometimes similar to those introduced by government payors. Providers may expect health care cost containment and its associated risk sharing to continue to increase in the coming years amongst all payors.

Often, HMO contracts are enforceable for a stated term, regardless of losses by the health care organization and may require health care organizations to care for enrollees for a certain time period, regardless of whether the HMO is able to pay the health care organization. The Hospital may from time to time have disputes with HMOs, PPOs and other managed care payors concerning payment and contract interpretation issues. Such disputes may result in mediation, arbitration or litigation. Management expects that most types of such issues ultimately will be resolved, sometimes through renegotiation or termination of the contract.

Defined broadly, for the fiscal year ended June 30, 2017, commercial care and other managed care payments (excluding Medicare and Medicaid contracts) constituted approximately 21% of the Hospital’s net patient service revenue less provision for bad debt expense. For the fiscal year ended June 30, 2016, commercial care and other managed care payments (excluding Medicare and Medicaid contracts) represented approximately 22% of the Hospital’s net patient service revenue less provision for bad debt expense.

With implementation of the ACA, and further efforts to change healthcare regulation, substantial numbers of employers may elect to discontinue employer-funded medical care for employees eligible for federal assistance in securing private insurance, and the employees could then chose health insurance under the health insurance exchanges. Individuals choosing their own coverage may become highly price sensitive, which could increase the number of enrollees in HMO plans and increase the use of capitation, making price negotiations with HMO and other insurance plans more difficult.

Failure to maintain contracts could have the effect of reducing a health care organization’s market share and net patient service revenues. Conversely, participation may result in lower net income if participating organizations are unable to adequately contain their costs. In part to reduce costs, health plans are increasingly implementing, and offering to purchasing employers, tiered provider networks, which involve classification of a plan’s network providers into different tiers based on care quality and cost. With tiered benefit designs, plan enrollees are generally encouraged, through incentives or reductions in copayments or deductibles, to seek care from providers in the top tier. Classification of a provider in a non-preferred or lower tier by a significant payor may result in a material loss of volume. The new demands of dominant health plans and other shifts in the managed care industry may also reduce patient volume and revenue. Thus, managed care poses one of the most significant business risks (and opportunities) that health care organizations face.

Dependence Upon Third-Party Payors

The Hospital’s ability to develop and expand its services and, therefore, profitability, is dependent upon its ability to enter into contracts with third-party payors at competitive rates. There can be no assurance that the Hospital will be able to attract third-party payor or to do so on advantageous terms. The inability of the Hospital to contract with the primary payors in its service area on advantageous terms could have a material adverse effect on the Hospital’s future operations and financial results.

26 Regulatory Environment

Licensing, Surveys, Investigations and Accreditations. Health facilities, including those of the Hospital, are subject to numerous legal, regulatory, professional and private licensing, certification and accreditation requirements. These include, but are not limited to, requirements relating to Medicare Conditions of Participation, requirements for participation in Medicaid, private payors, certain licensure requirements as determined by the Commonwealth of Pennsylvania, and the accreditation standards of The Joint Commission or the Healthcare Facilities Accreditation Program. Renewal and continuation of certain of these licenses, certifications and accreditations are based on inspections, surveys, audits, investigations or other reviews, some of which may require affirmative action(s) by the Hospital.

Management currently anticipates no difficulty renewing or continuing currently held licenses, certifications or accreditations, nor does Management anticipate a reduction in third-party payments from events that would materially adversely affect its operations or financial condition. Nevertheless, actions in any of these areas could result in the loss of utilization or revenues, or the ability of the Hospital to operate all or a portion of its health care facilities, and consequently, could have a material and adverse effect on its financial results.

Negative Rankings Based on Clinical Outcomes, Cost, Quality, Patient Satisfaction and Other Performance Measures. Health plans, Medicare, Medicaid, employers, trade groups and other purchasers of health services, private standard-setting organizations and accrediting agencies increasingly are using statistical and other measures in efforts to characterize, publicize, compare, rank and change the quality, safety and cost of health care services provided by hospitals and other providers. The ACA shifts payments from paying for volume to paying for value, based on various health outcome measures. Published rankings such as “score cards,” “pay for performance” and other financial and non-financial incentive programs are being introduced to affect the reputation and revenue of hospitals, the members of their medical staffs and other providers and to influence the behavior of consumers and providers such as the Hospital. Currently prevalent are measures of quality based on clinical outcomes of patient care, reduction in costs, patient satisfaction and investment in health information technology. Measures of performance set by others that characterize a hospital or other provider negatively may adversely affect its reputation and financial condition.

Civil and Criminal Fraud and Abuse Laws and Enforcement. Health care “fraud and abuse” laws have been enacted at the federal and state levels to broadly regulate the provision of services to government program beneficiaries and the methods and requirements for submitting claims for services rendered to the beneficiaries. Under these laws, hospitals and others can be penalized for a wide variety of conduct, including submitting claims for services that are not provided, billing in a manner that does not comply with government requirements or including inaccurate billing information, billing for services deemed to be medically unnecessary, or billing accompanied by certain proscribed inducements to utilize or refrain from utilizing a service or product.

Federal and state governments have a broad range of criminal, civil and administrative sanctions available to penalize and remediate health care fraud, including the exclusion of a provider from participation in the Medicare/Medicaid programs, civil monetary penalties and suspension of Medicare/Medicaid payments. Fraud and abuse cases may be prosecuted by one or more government entities and/or private individuals, and more than one of the available sanctions may be, and often are, imposed for each violation.

Laws governing fraud and abuse may apply to a health care organization and to nearly all individuals and entities with which a health care organization does business. Fraud investigations, settlements, prosecutions and related publicity can have a material adverse effect on health care organizations. Major elements of these often highly technical laws and regulations are generally summarized below.

The ACA authorizes the Secretary of DHHS to exclude a provider’s participation in Medicare and Medicaid, as well as suspend payments to a provider pending an investigation or prosecution of a credible allegation of fraud against the provider.

The Hospital has internal policies and procedures and has developed and implemented a compliance program that Management believes will effectively reduce exposure for violations of these laws. However, because the government’s enforcement efforts presently are widespread within the industry and may vary from region to region, there can be no assurance that the compliance program will significantly reduce or eliminate the exposure of the Hospital to civil or criminal sanctions or adverse administrative determinations.

27 False Claims Act. The federal False Claims Act (“FCA”) makes it illegal to knowingly submit or present a false, fictitious or fraudulent claim to the federal government. A person may be charged with knowledge of the falsity of a claim based not only on actual knowledge but also based on deliberate ignorance or reckless disregard of the relevant facts. Due to the broad range of conduct covered by the statute, FCA investigations and cases are common and may cover a range of activity from intentionally inflated billings, to highly technical billing infractions, to allegations of inadequate care. Damages under the FCA may include “treble damages” (i.e., damages up to three times the amount of the false claims) plus civil monetary penalties of up to $11,000 per false claim for violations that occurred prior to August 1, 2016, and up to $21,563 per false claim for violations that occurred on or after August 1, 2016. As a result, violations or alleged violations of the FCA frequently result in settlements that require multi-million dollar payments and corporate integrity agreements. The FCA also permits individuals to initiate civil actions on behalf of the government in lawsuits called “qui tam” actions. Qui tam plaintiffs, or “whistleblowers,” can share in the damages recovered by the government or recover independently if the government does not participate. The FCA has become one of the government’s primary weapons against health care fraud. FCA violations or alleged violations could lead to settlements, fines, exclusion or reputation damage that could have a material adverse impact on a hospital.

Under the ACA, the FCA has been expanded to include overpayments that are discovered by a health care provider and are not promptly refunded to the applicable federal health care program, even if the claims relating to the overpayment were initially submitted without any knowledge that they were false. This expansion of the FCA exposes hospitals and other health care providers to liability under the FCA for a considerably broader range of claims than in the past.

Anti-Kickback Law. The federal “Anti-Kickback Law” is a criminal statute that prohibits anyone from soliciting, receiving, offering or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for a referral (or to induce a referral) for any item or service that is paid by any federal or state health care program. The Anti-Kickback Law potentially applies to many common health care transactions between persons and entities with which a hospital does business, including hospital-physician joint ventures, medical director agreements, physician recruitment agreements, physician office leases and other transactions.

Violations or alleged violations of the Anti-Kickback Law may result in settlements that require multi-million dollar payments and onerous corporate integrity agreements. The Anti-Kickback Law can be prosecuted either criminally or civilly. A criminal violation may be prosecuted as felony, subject to a fine of up to $25,000 for each act (which may be each item or each bill sent to a federal program), imprisonment and/or exclusion from the Medicare and Medicaid programs. In addition, civil monetary penalties may be assessed of tens of thousands of dollars per item or service in noncompliance (which may be each item or each bill sent to a federal program), plus an “assessment” of three times the amount claimed may be imposed. In addition, violations of the Anti-Kickback Law are increasingly being prosecuted under the FCA, triggering the FCA penalties discussed above. The IRS has taken the position that hospitals which are in violation of the Anti-Kickback Law may also be subject to revocation of their tax status.

Stark Law. The federal “Stark” statute prohibits the referral by a physician of Medicare and Medicaid patients for certain designated health services (including inpatient and outpatient hospital services, clinical laboratory services, and radiation and other imaging services) to entities with which the referring physician has a financial relationship unless that relationship fits within a Stark exception. It also prohibits a hospital furnishing the designated services from billing Medicare, or any other payor or individual for services performed pursuant to a prohibited referral. The government does not need to prove that the entity knew that the referral was prohibited to establish a Stark violation. If certain technical requirements of an exception are not satisfied, many ordinary business practices and economically desirable arrangements between hospitals and physicians constitute “financial relationships” within the meaning of the Stark statute, thus triggering the prohibition on referrals and billing. Most providers of designated health services with physician relationships have exposure to liability under the Stark statute.

Medicare may deny payment for all services performed based on a prohibited referral and a hospital that has billed for prohibited services may be obligated to refund the amounts collected from the Medicare program. For example, if an office lease between a hospital and a large group of heart surgeons is found to violate Stark, the hospital could be obligated to repay CMS for the payments received from Medicare for all of the heart surgeries performed by all of the physicians in the group for the duration of the noncompliance with the Stark law exception, a potentially significant amount. As a result, even relatively minor, technical violations of the law may trigger substantial refund obligations. Moreover, if the violations of the Stark statute were knowing, the government may also seek civil monetary penalties of more than $20,000 per claim, and in some cases, a hospital may be excluded from the Medicare

28 and Medicaid programs. In addition, violations of the Stark statute are increasingly being prosecuted under the FCA, triggering the FCA penalties discussed above. Potential repayments to CMS, settlements, fines or exclusion for a Stark violation or alleged violation could have a material adverse impact on a hospital.

CMS has established a voluntary self-disclosure program under which hospitals and other entities may report Stark violations and seek a reduction in potential refund obligations. However, the program is relatively new and therefore it is difficult to determine at this point in time whether it will provide significant monetary relief to hospitals that discover inadvertent Stark law violations. Ascension or its affiliates may make self-disclosures under this program as appropriate from time to time.

State Fraud and Abuse Laws. The Commonwealth’s Medicaid Fraud and Abuse Control Law (the “Medicaid Fraud Control Act”) prohibits the submission of false or fraudulent claims to Pennsylvania’s Medical Assistance (Medicaid) program. The Medicaid Fraud Control Act prohibits soliciting, receiving, offering or paying any remuneration in connection with the referral of services or merchandise for which payment may be made in whole or in part under the state medical assistance program. For a first conviction, the person is guilty of a felony of the third degree and subject to a maximum penalty of a $15,000 fine and seven (7) years imprisonment for each violation. As ordered by the court, a convicted person shall pay the Commonwealth an amount not to exceed three (3) times the amount of excess benefits or payments and is ineligible to participate in the medical assistance program for five (5) years from the date of conviction. Violation of the Medicaid Fraud Control Act may also lead to exclusion from the Medicaid program.

The Pennsylvania Whistleblower Law provides protection from discrimination and retaliation to any person who witnesses or has evidence of wrongdoing or waste while employed by a public body (or any body which is funded in any amount by or through the Commonwealth) and who makes a good faith report of the wrongdoing or waste, verbally or in writing, to one of the person’s superiors, to an agent of the employer or to an appropriate authority. No employer may discharge, threaten or otherwise discriminate or retaliate against an employee regarding the employee’s compensation, terms, conditions, location or privileges of employment because the employee, or a person acting on behalf of the employee, makes a good faith report or is about to report, verbally or in writing, to the employer or appropriate authority an instance of wrongdoing or waste.

The potential imposition of large monetary penalties, criminal sanctions, and the significant costs of mounting a defense, create serious pressures to settle on providers who are targets of false claims actions or investigations. Therefore, an action under the Medicaid Fraud Control Act could have a material adverse financial impact on the Hospital, regardless of the merits of the case.

Under current Pennsylvania law, physicians (and other practitioners of the healing arts) are required to disclose to patients any referral to a facility where the physician has a financial interest, and must advise the patient that he or she retains the freedom to choose among any recommended facilities. Providers participating in the Medicaid program may not refer a Medicaid recipient to an independent laboratory, pharmacy, radiology or other ancillary medical service in which the practitioner or professional corporation has an ownership interest.

Insurance Fraud. 18 Pa. Cons. Stat. § 4117(a) prohibits a person’s or entity’s submission of false or misleading claims for payment or approval by an insurance company, and allows the Commonwealth to recover substantial damages from persons or entities that knowingly present or cause to be presented a false or misleading claim for payment or approval by an insurance company. Any person or entity that violates the statute may be liable for, among other things, a penalty of $5,000 for the first violation, $10,000 for the second violation, and $15,000 for each subsequent violation. In addition to or as an alternative to the civil sanctions provided in the statute, the Attorney General may bring a criminal action under other applicable statutes.

False Claims. 62 P.S. § 1407(a) prohibits submission of duplicate or misleading claims and submission of claims for services or equipment not rendered by the provider. Violation of 62 P.S. § 1407 may lead to termination of the provider agreement and a civil penalty of up to three times the amount of excess benefits or payments plus legal interest from the date the violation or violations occurred. For a first conviction, the person is guilty of a felony of the third degree and subject to a maximum penalty of a $15,000 fine and seven (7) years imprisonment for each violation. The mere allegation of such a violation, if such violation were found to have occurred, or any sanctions imposed, could have a material adverse effect upon the operations and financial condition of the Hospital.

29 Review of Outlier Payments. CMS is reviewing health care providers that are receiving large proportions of their Medicare revenues from outlier payments. Health care providers found to have obtained inappropriately high outlier payments will be subject to further investigation by the CMS Program Integrity Unit and potentially the Office of Inspector General. Management does not believe that any potential review of the Hospital would materially adversely affect the Hospital’s results of operations.

Patient Records and Patient Confidentiality. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) addresses the confidentiality of individuals’ health information. Disclosure of certain broadly defined protected health information is prohibited unless expressly permitted under the provisions of the HIPAA statute and regulations or authorized by the patient. HIPAA’s confidentiality provisions extend not only to patient medical records, but also to a wide variety of health care clinical and financial settings where patient privacy restrictions often impose new communication, operational, accounting and billing restrictions. These add costs and create potentially unanticipated sources of legal liability.

On January 25, 2013, DHHS issued comprehensive modifications to the existing HIPAA regulations to implement the requirements of the HITECH Act (defined below), commonly known as the “HIPAA Omnibus Rule.” The HIPAA Omnibus Rule became effective on March 26, 2013, and covered entities were required to be in compliance by September 23, 2013 (though certain requirements have a longer timeframe). Key aspects of the HIPAA Omnibus Rule include, but are not limited to: (i) a new standard for what constitutes a breach of protected health information, (ii) establishing four levels of culpability with respect to civil monetary penalties assessed for HIPAA violations, (iii) direct liability of business associates for certain violations of HIPAA, (iv) modifications to the rules governing research, (v) stricter requirements regarding non-exempt marketing practices, (vi) modification and re- distribution of notices of privacy practices, and (vii) stricter requirements regarding the protection of genetic information. Any violation of the HIPAA Omnibus Rule could have a material adverse effect on the financial condition of the Hospital.

Criminal penalties will be enforced against persons who obtain or disclose personal health information without authorization. DHHS also performs periodic audits of health care providers and group health plans to ensure that required policies under the HITECH Act are in place. Finally, individuals harmed by violations will be able to recover a percentage of monetary penalties or a monetary settlement based upon methods to be established by DHHS for this private recovery within three years of the passage of the HITECH Act.

The Office for Civil Rights (“OCR”) is the administrative office that is tasked with enforcing HIPAA. OCR has stated that it has now moved from education to enforcement in its implementation of the law. Recent settlements of HIPAA violations for breaches involving lost or misappropriated data have reached millions of dollars. Any breach of HIPAA, regardless of intent or scope, may result in penalties or settlement amounts that are material to a covered health care provider or health plan.

Additionally, OCR began random audits of covered entities and business associates in 2016. OCR has stated the audits will be primarily compliance improvement in nature, but if serious compliance issues are identified, OCR may initiate a separate compliance review to further investigate which may result in settlements and fines.

Business Associates. Under existing HIPAA regulations, covered entities must include certain required provisions in their contractual relationships with organizations that perform functions on their behalf which involve use or disclosure of protected health information. These organizations are called business associates, and have been indirectly regulated by HIPAA through those contractual obligations. The HITECH Act and the final rules promulgated thereunder provide that all of the HIPAA security administrative, physical, and technical safeguards, as well as security policies, procedures, and documentation requirements now apply directly to all business associates. In addition, the HITECH Act makes certain privacy provisions directly applicable to business associates. These changes are significant because business associates will now be directly regulated by DHHS for those requirements, and as a result, will be subject to penalties imposed by DHHS and/or state attorneys general. Likewise, to the extent a business associate is deemed to be an agent of the covered entity under the Federal common law, the covered entity will be liable for the breaches of the business associate.

The HITECH Act. Provisions in the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), enacted as part of the Recovery Act, increase the maximum civil monetary penalties for violations of HIPAA and grant enforcement authority of HIPAA to state attorneys general. The HITECH Act also (i)

30 extends the reach of HIPAA beyond “covered entities,” (ii) imposes a breach notification requirement on HIPAA covered entities, (iii) further limits certain uses and disclosures of individually identifiable health information, and (iv) restricts covered entities’ marketing communications.

The breach notification obligation, in particular, may expose covered entities such as hospitals to heightened liability. Under the HITECH Act, in the event of a data privacy breach, covered entities are required to notify affected individuals and the federal government. If more than 500 individuals are affected by the breach, (1) the covered entity must also notify the media and (2) the federal government posts a description of the breach on its website. These reporting obligations increase the risk of government enforcement as well as class action lawsuits, especially if large numbers of individuals are affected by a breach.

The HITECH Act also established programs under Medicare and Medicaid to provide incentive payments for the “meaningful use” of certified electronic health record technology (“CEHRT”). Medicare and Medicaid EHR incentive programs provide incentive payments to eligible professionals and eligible hospitals for demonstrating meaningful use of CEHRT. See APPENDIX B – Notes to Consolidated Financial Statements – “Electronic Health Records Incentive Program” regarding payments received by the Hospital relating to CHERT. Health care providers demonstrate their meaningful use of CEHRT by utilizing the CEHRT to meet objectives specified by CMS and by reporting on specified clinical quality measures. Hospitals and physicians who have not satisfied the performance and reporting criteria for demonstrating meaningful use will have their Medicare payments significantly reduced. Additionally, beginning in 2014, the federal government began auditing hospitals’ and providers’ records related to their attestation of being “meaningful users” of CEHRT in order to obtain the incentive payments. A hospital or provider that fails the audit has a limited opportunity to appeal. Ultimately, hospitals or providers that fail on appeal must repay any incentive payments they received through these programs.

Security Breaches and Unauthorized Releases of Personal Information. Federal, state and local authorities are increasingly focused on the importance of protecting the confidentiality of individuals’ personal information, including patient health information. Many states, including Pennsylvania, have enacted laws requiring businesses to notify individuals of security breaches that result in the unauthorized release of personal information. The public nature of security incidents exposes health organizations to increased risk of individual or class action lawsuits from patients or other affected persons, in addition to government enforcement. Failure to comply with restrictions on patient privacy or to maintain robust information security safeguards, including taking steps to ensure that contractors who have access to sensitive patient information maintain the confidentiality of such information, could consequently damage a health care provider’s reputation and materially adversely affect business operations.

International Classification of Diseases, 10th Revision Coding System. In 2009, CMS published the final rule adopting the International Classification of Diseases, 10th Revision coding system (“ICD-10”), requiring health care organizations to implement ICD-10. On October 1, 2015 implementation of ICD-10 became effective. ICD-10 provides a common approach to the classification of diseases and other health problems, allowing the United States to align with other nations to better share medical information, diagnosis, and treatment codes.

Exclusions from Medicare or Medicaid Participation. The government may exclude a health care provider from Medicare/Medicaid program participation if it is convicted of a criminal offense relating to the delivery of any item or service reimbursed under Medicare or a state health care program, any criminal offense relating to patient neglect or abuse in connection with the delivery of health care, fraud against any federal, state or locally financed health care program or an offense relating to the illegal manufacture, distribution, prescription, or dispensing of a controlled substance. The government also may exclude individuals or entities under certain other circumstances, such as an unrelated conviction of fraud, or other financial misconduct relating either to the delivery of health care in general or to participation in a federal, state or local government program. Exclusion from the Medicare/Medicaid program means that a health care provider would be decertified from program participation and no program payments can be made. Any health care provider exclusion could be a materially adverse event. In addition, exclusion of health care organization employees under Medicare or Medicaid may be another source of potential liability for hospitals or health systems based on services provided by those excluded employees.

Administrative Enforcement. Administrative regulations may require less proof of a violation than do criminal laws, and, thus, health care providers may have a higher risk of imposition of monetary penalties as a result of administrative enforcement actions.

31 Civil Monetary Penalties Law. The federal Civil Monetary Penalties 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 under Medicare, Medicaid and other federal health care programs. A hospital that participates in arrangements known as “gainsharing” by paying a physician to limit or reduce services to Medicare fee-for-service beneficiaries also could be subject to CMPL penalties. A health care provider that provides benefits to Medicare or Medicaid beneficiaries that such provider knows or should know are likely to induce the beneficiaries to choose the provider for their care also could be subject to CMPL penalties. The CMPL authorizes imposition of a civil money penalty and treble damages. The ACA also amended the CMPL laws to establish various new grounds for exclusion and civil monetary penalties, as well as increased penalty thresholds for existing civil monetary penalties.

Health care providers may be found liable under the CMPL even when they did not have actual knowledge of the impropriety of their action. Knowingly undertaking the action is sufficient. Ignorance of the Medicare regulations is no defense. The imposition of civil money penalties on a health care provider could have a material adverse impact on the provider’s financial condition.

EMTALA. The Emergency Medical Treatment and Active Labor Act (“EMTALA”) is a federal civil statute that requires hospitals to treat or conduct a medical screening for emergency conditions and to stabilize a patient’s emergency medical condition before releasing, discharging or transferring the patient. A hospital that violates EMTALA is subject to civil penalties of up to $50,000 per offense and exclusion from the Medicare and Medicaid programs. In addition, the hospital may be liable for any claim by an individual who has suffered harm as a result of a violation.

Management is not aware of any pending or threatened claim, investigation, or enforcement action regarding patient transfers that, if determined adversely to the Hospital, would have a material adverse impact on the Hospital’s financial condition.

Environmental Laws and Regulations. Health facilities are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations. These include but are not limited to: air and water quality control requirements; waste management requirements; specific regulatory requirements applicable to asbestos and radioactive substances; requirements for providing notice to employees and members of the public about hazardous materials handled by or located at the health facility; and requirements for training employees in the proper handling and management of hazardous materials and wastes.

Health facilities may be subject to requirements related to investigating and remedying hazardous substances located on their property, including such substances that may have migrated off the property. Typical hospital operations include the handling, use, storage, transportation, disposal and discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants and contaminants. As such, hospital operations are particularly susceptible to the practical, financial and legal risks associated with the environmental laws and regulations. Such risks may result in damage to individuals, property or the environment; may interrupt operations and increase their cost; may result in legal liability, damages, injunctions or fines; and may result in investigations, administrative proceedings, civil litigation, criminal prosecution, penalties or other governmental agency actions; and may not be covered by insurance.

The Hospital’s operations, as well as the Hospital’s purchases and sales of facilities, also are subject to compliance with various other environmental laws, rules and regulations. The Hospital anticipates that compliance with such environmental laws and regulations will not materially affect the Hospital’s business, financial condition or results of operations. Management is not aware of any pending or threatened claim, investigation or enforcement action regarding environmental issues or any instance of contamination that, if determined adversely to the Hospital, would have a material adverse impact on the Hospital’s financial condition.

Enforcement Activity. Enforcement activity against health care providers has increased, and enforcement authorities have adopted aggressive approaches. In the current regulatory climate, it is anticipated that many hospitals and physician groups will be subject to an audit, investigation or other enforcement action regarding the health care fraud laws mentioned above.

32 Enforcement authorities are often in a position to compel settlements by providers charged with or being investigated for false claims violations by withholding or threatening to withhold Medicare, Medicaid and similar payments or to recover higher damages, assessments or penalties by instituting criminal action. In addition, the cost of defending such an action, the time and management attention consumed, and the facts of a case may dictate settlement. Therefore, regardless of the merits of a particular case, a hospital could experience materially adverse settlement costs, as well as materially adverse costs associated with implementation of any settlement agreement. Prolonged and publicized investigations could be damaging to the reputation and business of a health care organization, regardless of outcome.

Certain acts or transactions may result in violation or alleged violation of a number of the federal health care fraud laws described above, and therefore penalties or settlement amounts often are compounded. Generally these risks are not covered by insurance.

Uncompensated Care

Although the Hospital attempts to assure payment or reimbursement for most of the care it renders, it provides a substantial amount of uncompensated care to indigents. Obligations to provide uncompensated care can arise from laws and regulations that may require the Hospital to provide care without regard to a patient’s ability to pay for such care. Increased unemployment or other adverse economic conditions could increase the proportion of patients who are unable to pay all or any of the costs of their care.

While the ACA has nationally reduced uncompensated care by providing coverage to the indigent and assuring access to insurance by medically high-risk individuals, such coverage is dependent on the continued availability of federal and state funding, which could be curtailed in the future in response to growing budget deficits at all governmental levels. The continued availability, comprehensiveness of coverage and adequacy of reimbursement for care for the indigent and disabled cannot be assured in the future.

Medical Care Availability and Reduction of Error Act. The Medical Care Availability and Reduction of Error Act (the “Mcare Act”) is a Pennsylvania state law that established a fund within the state Treasury to ensure reasonable compensation for persons injured due to medical negligence. Money in the fund is used to pay claims against participating health care providers and eligible entities for losses or damages awarded in medical professional liability actions in excess of basic insurance coverage. Participation in the Mcare Fund is mandatory for most Pennsylvania licensed health care providers.

The Mcare Act also includes significant patient safety initiatives, professional liability tort reforms, professional liability insurance reforms, and administrative requirements. Under the Mcare Act, hospitals are required to develop and implement patient safety plans, appoint patient safety officers, form patient safety committees, and engage in mandatory reporting of serious events, incidents, and infrastructure failures in the hospital. Furthermore, hospitals are required to provide written notice to patients affected by serious events. Failure to comply with the patient safety requirements of the Mcare Act can result in administrative fines of $1,000 per day and could significantly affect the financial condition of the Hospital.

Certain Matters Relating to Enforceability of Obligations

With certain exceptions, the facilities of the Hospital are not general-purpose facilities and are not likely to be suitable for industrial or commercial use. Consequently, it could be difficult to find a buyer or lessee for such facilities and, in the event of the institution of bankruptcy proceedings; the estate in bankruptcy may not realize the amount of the outstanding Bonds from the disposition of such facilities.

The practical realization of value upon any default will depend upon the exercise of various remedies specified in the Bond Indenture and the Loan Agreement. These and other remedies may, in many respects, require judicial actions, which are often subject to discretion and delay. The various legal opinions to be delivered concurrently with the delivery of the 2017A Bonds will contain customary qualifications as to the enforceability of the various legal instruments by limitations imposed by state and federal laws, rulings and decisions affecting remedies and by bankruptcy, reorganization, fraudulent conveyances, or other laws affecting the enforcement of creditors’ rights generally.

33 There exists statutory authority in Pennsylvania for a court to dissolve a nonprofit corporation or undertake supervision of its affairs on various grounds, including a finding that such corporation is insolvent. Moreover, pursuant to the common law and statutory power to enforce charitable trusts and to see that charitable funds are applied to their intended uses, the Attorney General of the Commonwealth may commence legal proceedings to dissolve a nonprofit corporation acting contrary to its charitable purposes or to restrain actions inconsistent with the charitable use of such funds or which render such nonprofit corporation unable to discharge its chartable functions. Such actions may arise on a court’s own motion or pursuant to a petition of the attorney general or such other persons who have interest different than those of the general public. Such charitable trust laws may limit the obligations of the Hospital.

Bankruptcy

The rights and remedies of the owners of the 2017A Bonds are subject to various provisions of the federal Bankruptcy Code. If the Hospital were to file a petition for relief under the Bankruptcy Code, its revenues and certain of its accounts receivable and other property, created or otherwise acquired after the filing of such petition would not be subject to the security interest of the Trustee. The filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding to enforce a lien upon or to otherwise exercise control over its property. If the bankruptcy court so ordered, the property of the Hospital, including accounts receivable and proceeds thereof, could be used for the financial rehabilitation of the Hospital despite the security interest of the Trustee therein. While the interest created pursuant to the Bond Indenture, is adequately protected before the collateral may be used by the Hospital, such protection could take the form of a replacement lien on assets of the Hospital acquired or created after the bankruptcy petition is instituted. The rights of the Trustee to enforce such liens and security interests against the Hospital could be delayed during the pendency of the rehabilitation proceeding.

Other Factors

Additional factors that may affect future operations of the Hospital to an extent that cannot be determined at this time include the following:

(i) Adverse labor actions that could result in a substantial reduction in revenues without corresponding decreases in cost; (ii) Reduced demand for hospitalization or other services arising from future medical and scientific advances; (iii) Efforts by insurers and governmental agencies to limit the cost of hospital services and to reduce utilization of inpatient hospital facilities by such means as preventive medicine, improved occupational health and safety, and outpatient care; (iv) Availability of nurses, other qualified health care technicians and personnel; (v) Continued increase in assessments and premiums paid by the Hospital and members of its medical staff for professional malpractice insurance which have a material adverse effect on the financial condition of the Hospital or cause certain physicians to retire from the medical staff or reduce their activities; and (vi) Inability of the Hospital to obtain future governmental approvals to undertake projects necessary to remain competitive as to rates and charges as well as quality and scope of care.

LITIGATION

As a condition of settlement for the 2017A Bonds, the Authority will deliver a certificate stating that there is no litigation, of any nature, pending or threatened against the Authority to restrain or enjoin the issuance, sale, execution or delivery of the 2017A Bonds.

As a condition of settlement for the 2017A Bonds, the Hospital will deliver a certificate stating that there is no litigation, of any nature, pending or threatened against the Hospital to restrain or enjoin the issuance, sale, execution or delivery of the 2017A Bonds.

As a condition of settlement for the 2017A Bonds, the County will deliver a certificate stating that there is no litigation, of any nature, pending or threatened against the County to restrain or enjoin the issuance, sale, execution or delivery of the County Guaranty.

34 LEGAL MATTERS

The issuance and delivery of the 2017A Bonds is subject to delivery of the unqualified approving legal opinion of Stevens & Lee, P.C., Scranton, Pennsylvania, Bond Counsel. Certain legal matters will be passed upon for the Authority by The Law Offices of John Martin, Esquire, Honesdale Pennsylvania, Solicitor to the Authority. Certain legal matters will be passed upon for the Hospital by Howell & Howell, counsel to the Hospital. Certain legal matters will be passed upon for the County by Lee C. Krause, Esq., Solicitor to the County. Certain legal matters will be passed upon for the Underwriters by Hall Render Killian Heath & Lyman, P.C., as Underwriters’ counsel.

Bond Counsel states in its opinion issued with respect to the 2017A Bonds that (i) they have not been engaged to verify nor have they independently verified, the accuracy, completeness or truthfulness of any statements, certifications, information or financial statements set forth in the Preliminary Official Statement, dated August 24, 2017 (the “Preliminary Official Statement”) or the Official Statement, dated ______, 2017 (the “Official Statement”), or otherwise used in connection with the offer and sale of the 2017A Bonds or set forth in or delivered by Hospital, the County or Authority, and (ii) they express no opinion with respect to whether the Hospital, the County or the Authority in connection with the sale of the 2017A Bonds or the preparation of the Preliminary Official Statement or the Official Statement, have made any untrue statement of a material fact or omitted to state a material fact necessary in order to make any statement made therein not misleading.

The various legal opinions to be delivered concurrently with the delivery of the 2017A Bonds express the professional judgement of the attorneys rendering the opinion as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of that expression of professional judgement, of the transaction opined upon, or of the future performance of the parties to the transaction. In addition, the rendering of an opinion does not guarantee the outcome of any legal dispute that may arise out of the transaction.

TAX EXEMPTION AND OTHER TAX MATTERS

Federal Tax Laws

Numerous provisions of the Internal Revenue Code of 1986, as amended (the “Code”), affect the issuers of state and local government bonds, such as the Authority, and impair or restrict the ability of the Authority to finance projects on a tax-exempt basis. Failure on the part of the Authority or the Hospital to comply with any one or more of such provisions of the Code, or any regulations under the Code, could render interest on the 2017A Bonds includable in the gross income of the owners thereof for purposes of federal income tax retroactively to the date of issuance of the 2017A Bonds. Among these provisions are more restrictive rules relating to: (a) investment of funds treated as proceeds of the 2017A Bonds; (b) the advance refunding of tax-exempt bonds; and (c) the use of proceeds of the 2017A Bonds to benefit private activities. In addition, under the Code, the Authority is required to file an information return with respect to the 2017A Bonds and, if applicable, to “rebate” to the federal government certain arbitrage profits on an ongoing basis throughout the term of the issue constituting the 2017A Bonds. Bond Counsel has not undertaken to determine (or to inform any person) whether any action taken (or not taken) or events occurring (or not occurring) after the date of issuance of the 2017A Bonds may affect the tax status of interest on the 2017A Bonds.

Other provisions of the Code affect the purchasers and holders of certain state and local government bonds such as the 2017A Bonds. Prospective purchasers of the 2017A Bonds should be aware that: (i) Section 265 of the Code denies a deduction for interest on (a) indebtedness incurred or continued to purchase or carry certain state or local government bonds, such as the 2017A Bonds, or, (b) in the case of a financial institution, that portion of a financial institution’s interest expense allocated to interest on certain state or local government bonds, such as the 2017A Bonds, unless the issuer of the state or local government bonds designates the bonds as “qualified tax-exempt obligations” for the purpose and effect contemplated by Section 265(b)(3)(B) of the Code; (ii) certain corporations must take into account interest on certain state or local government bonds, such as the 2017A Bonds, in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations; (iii) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B)(1) of the Code reduces the deduction for loss reserves by 15% of the sum of certain items, including interest and amounts treated as such on certain state or local government bonds, such as the 2017A Bonds; (iv) interest on certain state or local government bonds, such as the 2017A Bonds, earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code, (v) if a Subchapter S corporation has passive investment income (which passive investment income will include interest on

35 state and local government bonds such as the 2017A Bonds) exceeding 25% of such Subchapter S corporation’s gross receipts and if such Subchapter S corporation has Subchapter “C” earnings and profits, then interest income derived from state and local government bonds, such as the 2017A Bonds, may be subject to federal income tax under Section 1375 of the Code; and (vi) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining gross income, receipts or accruals of interest on certain state or local government bonds such as the 2017A Bonds.

[Original Issue Discount / Original Issue Premium]

[Certain of the 2017A Bonds have been offered at a discount (“original issue discount”) equal generally to the difference between public offering price and principal amount. For Federal income tax purposes, original issue discount on a 2017A Bond accrues periodically over the term of the 2017A Bond as interest with the same tax exemption and alternative minimum tax status as regular interest. The accrual of original issue discount increases the holder’s tax basis in the 2017A Bond for determining taxable gain or loss from sale or from redemption prior to maturity. Holders should consult their tax advisers for an explanation of the accrual rules.]

[Certain of the 2017A Bonds have been offered at a premium (“original issue premium”) over their principal amount. For Federal income tax purposes, original issue premium is amortizable periodically over the term of a 2017A Bond through reductions in the holder’s tax basis for the 2017A Bond for determining taxable gain or loss from sale or from redemption prior to maturity. Amortizable premium is accounted for as reducing the tax-exempt interest on the 2017A Bond rather than creating a deductible expense or loss. Holders should consult their tax advisers for an explanation of the amortization rules.]

Proposed Federal Tax Legislation

Proposals to alter or eliminate the exclusion of interest on tax-exempt bonds from gross income for some or all taxpayers have been made in the past and may be made again in the future. Future legislation, if enacted into law, or clarification of the Code may cause interest on the 2017A Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislation or clarification of the Code may also affect the market price for, or marketability of, the 2017A Bonds. PROSPECTIVE PURCHASERS OF THE 2017A BONDS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING ANY PROPOSED FEDERAL TAX LEGISLATION AS TO WHICH BOND COUNSEL EXPRESSES NO OPINION.

The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the 2017A Bonds for federal income tax purposes. It is not binding on the IRS or the courts.

Bond Counsel’s engagement with respect to the 2017A Bonds ends with the issuance of the 2017A Bonds.

Tax Exemption

In the opinion of Bond Counsel, assuming continuing compliance by the Authority with certain certifications and agreements relating to the use of Bond proceeds and covenants to comply with provisions of the Code and any applicable regulations thereunder, now or hereafter enacted, interest on the 2017A Bonds is not includable in the gross income of the holders of the 2017A Bonds under Section 103(a) of the Code and interest on the 2017A Bonds is not an item of tax preference for purposes of the federal individual and corporate alternative minimum taxes, except as described under the caption “Federal Tax Laws” above. The tax exemption described above does not extend to corporations required to include interest on the 2017A Bonds in the calculation of alternative minimum taxable income within the meaning provided in Section 56 of the Code. Other provisions of the Code will affect certain purchasers and holders of the 2017A Bonds. See “Federal Tax Laws” above.

In the opinion of Bond Counsel under the laws of the Commonwealth, the 2017A Bonds and interest on the 2017A Bonds shall be free from taxation for State and local purposes within the Commonwealth, but this exemption does not extend to gift, estate, succession or inheritance taxes or any other taxes not levied or assessed directly on the 2017A Bonds or the interest thereon. Under the laws of the Commonwealth, profits, gains or income derived from

36 the sale, exchange or other disposition of the 2017A Bonds shall be subject to State and local taxation within the Commonwealth.

The Authority and the Hospital will issue their respective certifications regarding the facts, estimates and circumstances in existence on the date of delivery of the 2017A Bonds and regarding the anticipated use of the proceeds of the 2017A Bonds. The Authority and the Hospital will certify that, on the basis of the facts, estimates and circumstances in existence on the date of issuance of the 2017A Bonds, the Authority and the Hospital do not reasonably expect to use the proceeds of the 2017A Bonds in a manner that would cause the 2017A Bonds to be or become “arbitrage bonds” or “private activity bonds” as those terms are defined in Section 148 and Section 141 of the Code.

THE ABOVE SUMMARY OF POSSIBLE TAX CONSEQUENCES IS NOT EXHAUSTIVE OR COMPLETE. ALL PURCHASERS OF THE 2017A BONDS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE POSSIBLE FEDERAL, STATE AND LOCAL INCOME TAX CONSEQUENCES OF OWNERSHIP OF THE 2017A BONDS. ANY STATEMENTS REGARDING TAX MATTERS HEREIN CANNOT BE RELIED UPON BY ANY PERSON TO AVOID TAX PENALTIES.

Regulations, Future Legislation

Under the provisions of the Code, the Treasury Department is authorized and empowered to promulgate regulations implementing the intent of Congress under the Code, which could affect the tax-exemption and/or tax consequences of holding tax- exempt obligations, such as the 2017A Bonds. In addition, legislation may be introduced and enacted in the future which could change the provisions of the Code relating to tax-exempt bonds of a state or local government unit, such as the Authority, or the taxability of interest in general.

No representation is made or can be made by the Authority, or any other party associated with the issuance of the 2017A Bonds as to whether or not any other legislation now or hereafter introduced and enacted will be applied retroactively so as to subject interest on the 2017A Bonds to federal income taxes or so as to otherwise affect the marketability or market value of the 2017A Bonds.

EACH PURCHASER OF THE 2017A BONDS SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING ANY CHANGES IN THE STATUS OF PENDING OR PROPOSED FEDERAL TAX LEGISLATION.

CONTINUING DISCLOSURE UNDERTAKING

The Authority has determined that no financial or operating data concerning the Authority is material to any decision to purchase, hold or sell the 2017A Bonds and the Authority will not provide any such information. The Hospital and the County have undertaken all responsibilities for continuing disclosure to Bondholders, and the Authority shall have no liability to the Holders of the 2017A Bonds or any other person with respect to such disclosure.

The Hospital and the County have covenanted for the benefit of the holders of the 2017A Bonds to provide certain financial information, including audited financial statement and operating data relating to the Hospital and the County, respectively, by not later than December 31st following the end of each fiscal year of the Hospital and not later than June 30th following the end of each fiscal year of the County, commencing with the fiscal year ending June 30, 2017 for the Hospital and December 31, 2017 for the County (collectively, the “Annual Report”). In addition the Hospital and the County have covenanted to provide notices of the occurrence of certain enumerating events. The Annual Report will be filed by the Hospital and the County with the Municipal Securities Rulemaking Board (the “MSRB”) through its Electronic Municipal Market Access (“EMMA”) system in an electronic format as prescribed by the MSRB, either directly or indirectly through a designated agent. The notices of material events will be filed by the Hospital or the County with the MSRB through its EMMA system in an electronic format as prescribed by the MSRB.

The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in APPENDIX G – Proposed Form of Joint Continuing Disclosure Agreement. These covenants have been made in order to assist the Underwriters in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the “Rule”).

37 The Continuing Disclosure Agreement contains provisions regarding amendment, default and remedies for failure to perform thereunder. A copy of the Continuing Disclosure Agreement is on file at the office of the Bond Trustee.

The Hospital and the County reserve the right to terminate their respective obligations to provide annual financial information and notices of material events, as set forth above, in and when the Hospital or the County no longer remains as an “obligated person” with respect to the 2017A Bonds within the meaning of the Rule. The Hospital and the County acknowledge their respective undertakings pursuant to the Rule described under this heading is intended to be for the benefit of the holders of the 2017A Bonds and shall be enforceable by the holders of Bonds; provided that the Bondholders’ right to enforce the provisions of this undertaking shall be limited to a right to obtain specific enforcement of the Hospital’s or the County’s obligation under the Continuing Disclosure Agreement and any failure by either the Hospital or the County to comply with the provisions of the Continuing Disclosure Agreement shall not be an event of default with respect to the Bonds or the Bond Indenture, the Agreement, or the Master Indenture.

During the past five (5) years, the Hospital has complied with all prior written undertakings under the Rule to provide ongoing disclosure of annual financial information and notice of material events affecting its securities, with the following exceptions: certain audited financial statements, unaudited financial statements and/or operating data, and certain rate change notices were not posted timely to EMMA. The Hospital will continue to provide ongoing disclosure of annual financial information and notice of material events affecting its securities by filing with the MSRB through EMMA System in the future.

During the past five (5) years, the County has complied with all prior written undertakings under the Rule to provide ongoing disclosure of annual financial information and notice of material events affecting its securities with the following exceptions: certain audited financial statements and unaudited financial statements and/or operating data were not posted timely to EMMA, and the County has failed to file certain notices of changes to the ratings of bond insurers. The County will continue to provide ongoing disclosure of annual financial information and notice of material events affecting its securities by filing with the MSRB through its EMMA system in the future.

RATING

S&P Global Ratings (“S&P”) has assigned the 2017A Bonds a rating of “AA-.” Such rating reflects only the view of such organization and any desired explanation of the significance of such rating should be obtained from the rating agency furnishing the same, at the following address: S&P Global Ratings, 55 Water Street, New York, New York 10041. There is no assurance that such rating will remain for any given period of time or that it may not be lowered or withdrawn entirely by the rating agency if in its judgment circumstances so warrant. Any such downward change in or withdrawal of such rating may have an adverse effect on the market price of the 2017A Bonds.

UNDERWRITING

The Underwriters have agreed, subject to certain conditions, to purchase the 2017A Bonds from the Authority at an aggregate price of $______(representing the par amount of the 2017A Bonds, less Underwriters’ discount of $______, plus [net] original issue premium/minus [net] original issue discount of $______) plus accrued interest, if any, from the dated date of the 2017A Bonds to the date of settlement on the 2017A Bonds. The Underwriters’ obligations are subject to certain conditions precedent; however, the Underwriters will be obligated to purchase all such Bonds if any such Bonds are purchased. The 2017A Bonds may be offered and sold to certain dealers (including dealers depositing such Bonds into investment trusts) at prices lower than such public offering prices, and such public offering prices may be changed, from time to time, by the Underwriters.

Piper Jaffray & Co. has entered into a Distribution Agreement (the “Distribution Agreement”) with Charles Schwab & Co., Inc. (“CS&Co.”) for the retail distribution of certain securities offerings, including the 2017A Bonds, at the original issue prices. Pursuant to the Distribution Agreement, CS&Co. will purchase 2017A Bonds from Piper Jaffray & Co. at the original issue price less a negotiated portion of the selling concession applicable to any of the 2017A Bonds that CS&Co. sells.

The Underwriters and their 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 affiliates have, from

38 time to time, performed, and may in the future perform, various financial advisory and investment banking services for the Institution, for which it received or will receive customary fees and expenses.

In the ordinary course of its various business activities, the Underwriters and their 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 its own account and for the accounts of its 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 Institution.

The Underwriters and their 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.

INDEPENDENT AUDITORS

The consolidated financial statements for Wayne Memorial Health System, Inc. as of and for the years ended June 30, 2016 and 2015, included in APPENDIX B to this Official Statement, have been audited by BKD, LLP independent auditors, as stated in their report appearing thereon appearing in APPENDIX B to this Official Statement.

Wayne Memorial Health System, Inc. did not request that BKD, LLP perform any updating procedures subsequent to November 3, 2016, the date of its audit report, on the consolidated financial statements.

The financial statements of the County of Wayne, Pennsylvania for the year ended December 31, 2016, included in APPENDIX D to this Official Statement, have been audited by Brian T. Kelly, CPA & Associates, LLC, independent auditors, as stated in their report appearing therein.

UNAUDITED FINANCIAL INFORMATION

The unaudited financial information for the period ended June 30, 2017 presented in APPENDIX A to this Official Statement has been prepared by management of the Hospital in accordance with generally accepted accounting principles and is believed by management of the Hospital to be consistent with the audited financial statements included in APPENDIX B to this Official Statement. This information should be read in conjunction with the audited consolidated financial statements and related notes included in APPENDIX B to this Official Statement. The Hospital has not requested and no independent accounting firm has performed any accounting procedures with respect to such financial information.

MISCELLANEOUS

The Hospital has furnished all information herein relating to the Hospital. Any statements herein involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact.

The summaries or descriptions of provisions of the 2017A Bonds, the Loan Agreement, the Bond Indenture, the Master Indenture, the 2017A Note, the County Guaranty and all references to other materials not purporting to be quoted in full, are only brief outlines of some of the provisions thereof and do not purport to summarize or describe all of the provisions thereof. Reference must be made to the aforesaid documents for a full and complete statement of the provisions thereof.

All information, estimates and assumptions herein have been obtained from officials of the Hospital, other governmental bodies, trade and statistical services, and other sources which are believed to be reliable; but no representations whatsoever are made that such estimates or assumptions are correct or will be realized. So far as any statements herein involve matters of opinion, whether or not expressly so stated, they are intended as such and not representations of fact.

Use of the words “shall,” “will,” “must,” or other words of similar import or meaning in summaries of documents or law in this Official Statement to describe future events or continuing obligations is not intended as a representation that such event will occur or such obligations will be fulfilled, but only that the document or law requires or contemplates such event to occur or such obligation to be fulfilled.

39 The Authority and the Hospital have authorized the distribution of this Official Statement.

WAYNE COUNTY HOSPITAL AND HEALTH FACILITIES AUTHORITY Wayne County, Pennsylvania

By: Chairman, Scott Rickard

WAYNE MEMORIAL HOSPITAL Wayne County, Pennsylvania

By: Chief Financial Officer, Michael Clifford

40 APPENDIX A

Wayne Memorial Hospital [ THIS PAGE INTENTIONALLY LEFT BLANK ] GENERAL

Wayne Memorial Hospital (the “Hospital”) operates a non-profit, general community hospital with 98 licensed medical/surgical beds and 14 acute inpatient physical rehabilitation beds. The Hospital provides a broad range of inpatient and outpatient services, including a hospice and hospital-based Home Health Service. The Hospital also offers diagnostic laboratory services to physician offices throughout its service area, via a courier service. The Hospital is located in Honesdale, Wayne County, Pennsylvania, approximately 30 miles northeast of Scranton, Pennsylvania.

The Hospital was chartered as the Wayne County Hospital Association in 1896. On August 11, 1919, the name was changed to the Wayne County Memorial Hospital Association, and the original hospital facility opened one year later. A larger facility was opened at the present location on October 11, 1951. Four major renovation and construction programs have occurred subsequently. In 1963, there was an addition of 24 beds, and in 1969, a 56-bed extended care facility and new ancillary service areas were constructed. This latter area opened on July 1, 1971. In 1980, a new four-story patient wing was constructed replacing most acute care patient rooms and providing additional space for various support facilities including a new surgical suite and intensive care/coronary care unit. At that same time, much of the 1951 and 1971 facilities were renovated. The Hospital’s name was again changed or modified on January 23, 1991 to Wayne Memorial Hospital, Inc. In 1994, a new three-story Outpatient and Ancillary Services Building containing 33,500 square feet was constructed. This building contains space for expanded laboratory and radiology areas, same day surgical unit, a chemotherapy clinic and an endoscopy suite. Parking space was also provided via a two-tiered parking garage to allow easy access for the outpatient services located in the new building. All areas of the Hospital, excluding the 1980 Construction Project commonly known as The Propst Pavilion, were partially or completely renovated as part of this project as well. In 1997 and into 1998, the hospital renovated the hospital lobby, converting it to new surgical operating and recovery facilities. The Operating Rooms were also expanded with the construction of new space. Current office space at that time was converted into a new lobby and entryway. Four of the buildings are three stories, and one of the buildings is four stories. The hospital also constructed a three-story addition that contained approximately 30,000 square feet that was occupied in October 2005. The first floor of this addition houses a new and expanded Emergency Department. The second floor contains space for Hospital and Community Meeting Rooms and a Sleep Lab as well as space for future expansion of Inpatient and Ancillary areas. The third floor houses the 14 bed Acute Inpatient Physical Rehabilitation unit. The existing hospital facilities located in the Honesdale business district consist of five attached buildings, all of steel and masonry construction with a total of 141,100 gross square feet. The 2017 project will add 80,766 square feet in a new patient tower that will connect to the existing third and fourth floors of the hospital. These two floors will house 25 inpatient private rooms on each floor. These beds are replacements for beds that were put into service in 1980 and will not increase bed capacity. The addition will also contain a fifth floor shelled space for future expansion and a penthouse for building services equipment. The addition will be built on piers allowing for traffic circulation and parking underneath and to conform to existing topography. The project will also renovate 45,033 square feet in portions of the existing buildings from the basement to the fourth floor.

The Hospital is a member of an affiliated group of corporations, all of which have as a common goal the efficient delivery of health services to the Hospital’s service area. Wayne Memorial Health System, Inc. (the “Health System”) is the controlling entity. The Board of Trustees of the Health System is also the Board of Trustees of the Hospital and appoints or approves the Boards of Wayne Memorial Long Term Care, Inc. (the “Nursing Home”) which is operating a 121-bed nursing home doing business as Wayne Woodlands Manor in Waymart, Pennsylvania; and Wayne Memorial Hospital Foundation, Inc. (the “Foundation”). The Foundation is involved with fund raising and investment of those funds and other health related activities on behalf of the Health System and the non-profit members of the affiliated group. The Foundation owns 99.0% of the common stock of Wayne Health Services, Inc., a Pennsylvania for-profit corporation, engaged in the sales and leasing of durable medical equipment, retail pharmacy and real estate management. In addition, the Foundation owns one-third of the issued and outstanding common stock of Pike County Cancer Consortium, Inc., a Pennsylvania non-profit corporation, which in turn possesses a 75.0% interest in Upper Delaware Valley Cancer Center Associates, a Pennsylvania general partnership, which has historically operated a free-standing cancer treatment center in Matamoras, Pike County, Pennsylvania. The Cancer Center recently suspended operations.

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ACCREDITATION, APPROVALS, AND MEMBERSHIPS

The Hospital holds memberships in the American Hospital Association, the Hospital and Health Systems Association of Pennsylvania, and the Hospital Council of Northeastern Pennsylvania.

The Hospital is licensed by the Pennsylvania Department of Health and meets all of the requirements for participation in the Federal Medicare and Pennsylvania Medicaid programs. The Hospital also participates with Highmark Blue Cross of Pennsylvania and is a provider of services under several managed care contracts, although none of these contracts are on a per capita, per member per month or risk basis.

BOARD OF TRUSTEES

The Hospital’s operations are directed by a Board of Trustees, which conducts its business affairs (including management of the business, property, and funds) and establishes its policies. Under the Hospital’s by- laws, the Board of Trustees shall consist of not more than twenty appointed members who serve a maximum of three consecutive full four-year terms. Regular meetings of the Board of Trustees are held bi-monthly.

The standing committees of the Board of Trustees include: an Executive Committee; a Resource Management Committee; a Governance Committee; and a Professional Affairs Committee. The Board by Resolution has the authority to appoint special committees to conduct such business as is necessary that does not fall under the purview of the standing committees.

The Executive Committee consists of: the Chair; First and Second Vice-Chairs; Treasurer; Secretary; the Executive Director; and three other members of the Board of Trustees. The Executive Committee has the power to transact business during the period between Board meetings.

The Board of Trustees of Wayne Memorial Hospital

Final Term Member Name Position Occupation Expires Dirk Mumford Chairperson Retired 2019 Hugh Rechner 1st Vice Chairperson Attorney 2026 Joann Hudak 2nd Vice Chairperson School Administrator 2024 Frank Borelli Treasurer Retired 2024 Joseph Harcum Member Real Estate Developer 2021 Wendell Hunt Member Retired 2025 Susan Mancuso Secretary Retired 2024 Matthew Meagher Member Attorney 2022 Julie Seiler Member Furniture Store Co-owner 2021 Ron Schmalzle Member Business Owner 2026

Ex-Officio Members* James Labar Member Wayne Memorial Long Term Care, Chair Milton Roegner Member Wayne Memorial Health Foundation, Chair Martha Wilson Member Chair Community Advisory Board Carol Sturm Member Wayne Memorial Hospital Auxiliary, President William Dewar III, M.D. Member Chief-of-Staff Denise Viola, M.D. Member President, Medical Staff James Arscott, M.D. Member Vice President, Medical Staff

* Ex-Officio members vote by virtue of being Chairs of Affiliate Boards or Officers of the Hospital medical staff. A-2

ADMINISTRATIVE STAFF

David Hoff, Executive Director. Mr. Hoff has been with the Hospital since August 2001 when he was appointed the Executive Director. Mr. Hoff earned a Bachelor of Science Degree in Psychology from the University of Michigan, a Master of Health Administration from Ohio State University and a Master of Business Administration from the Eastern Michigan University. He came to the hospital from Iron County Community Hospitals, Inc. in Iron River, Michigan, where he served as the Executive Director of that organization. He has held administrative positions in hospitals and healthcare systems in both urban and rural settings, both large and small, in Michigan and Kansas before coming to Wayne Memorial. Mr. Hoff is a diplomat in the American College of Healthcare Executives.

James Pettinato, R.N., M.S., Director of Nursing. Mr. Pettinato has been in his current position with the Hospital since April 2010. He had served as a Nurse Manager at the Hospital previously from October 2006 through January 2009. His nursing experience has been mostly in critical care settings including Intensive Care Units, Emergency Departments and Telemetry Units. He graduated from Marywood College in Scranton, Pennsylvania in 1990 with a Bachelor of Science degree in Nursing and obtained a Masters in Health Services Administration in 2005 also from Marywood University. Jim is very active in pre-hospital care (ambulance services) and maintains a number of certifications in this regard as an instructor and instructor trainer for the American Health and Safety Institute for life saving programs to the general public and health care professionals.

Michael Clifford, Director of Finance. Mr. Clifford is the Hospital’s Director of Finance, having served in that position since January 1978. Mr. Clifford received his Bachelor of Science Degree in Data Processing and Accounting from King’s College in Wilkes-Barre, Pennsylvania. He is a member and past president of the Healthcare Financial Management Association of Northeast Pennsylvania. Prior to coming to the Hospital, he was an auditor for Blue Cross in Delaware and in South Carolina.

John Conte, Director of Facility Service. Mr. Conte is the Hospital’s Director of Facility Service, having served in that position since December 1987. Mr. Conte received his Bachelor of Science degree in Electrical Engineering Technology from SUNY Institute of Technology. Prior to joining the Hospital, he was employed by General Electric Corp. as a manager within the plant engineering department. He is a member of the Pennsylvania Society for Hospital Engineers, the American Society for Hospital Engineers, and the Association for Facility Engineers. He also serves on the advisory board at Johnson Technical Institute for its Biomedical Engineering Program.

HOSPITAL PERSONNEL AND EMPLOYEE RELATIONS

As of June 30, 2017, the Hospital had approximately 800 full and part-time employees.

Employees in the Laboratory, Radiology, Dietary, Housekeeping, and Maintenance Departments, Licensed Practical Nurses and Nursing Assistants are represented by the SEIU Local 668 of Scranton, Pennsylvania. Registered Nurses are represented by the OPEIU. The original collective bargaining agreement for the SEIU was signed in January, 1973. The original collective bargaining agreement for the OPEIU was negotiated with the PNA union and was signed in November, 1975. The current collective bargaining agreement with SEIU was negotiated during the winter of 2014 and expires on January 27, 2018. The current agreement with OPEIU was negotiated during November of 2016 and expires December 11, 2020. Head Nurses are not members of the bargaining unit. Both contracts, in the opinion of the Hospital, represent fair, equitable, and competitive wages and fringe benefits. No other employees are represented by a union.

It is the Hospital’s opinion that wages and fringe benefits of all employees are consistent and competitive with other hospitals of similar size and scope in Northeastern Pennsylvania.

MEDICAL STAFF

The Hospital’s Medical Staff is organized to include an active staff and a courtesy staff. The active Medical Staff consists of physicians who regularly admit patients and who have unlimited admitting privileges at the Hospital. The courtesy Medical Staff consists of physicians who are members of the active Medical Staff and who

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admit only a limited number of patients each year. The Hospital instituted a Hospitalist concept on January 1, 2007. Most inpatients are admitted under the care of five hospitalist physicians. The majority of the hospital’s medical staff switched from active staff to courtesy staff shortly after this change since they will only be admitting a limited number of patients in the future, their patients requiring hospital admission will be referred to the hospitalist.

Any physician who is licensed to practice in the Commonwealth of Pennsylvania and who practices medicine within the general geographic area served by the Hospital may apply for active staff privileges subject to the approval of the Credentials Committee of the Medical Staff and the Hospital Board of Trustees.

A profile of the Hospital’s Medical Staff (including active and courtesy only) by status and specialty as of June 30, 2017 is presented below: Active Courtesy Total Family Practice 0 9 9 Surgery 314 Internal Medicine 11 7 18 Obstetrics & Gynecology 20 2 Ophthalmology 011 Orthopedic Surgery 21 3 Pathology 1 1 2 Pediatrics 3 5 8 Radiology 101 Urology 101 Anesthesia 5 0 5 Allergist 0 0 0 Gastroenterology 033 Emergency Medicine* 5 3 8 Neurology 101 Infectious Disease 0 1 1 Otolaryngology 1 0 1 Endocrinology 000 Psychiatry 0 1 1 Cardiology 314 Dental Surgery 011 Hematology 1 0 1 Podiatry* 8 0 8 Pulmonology 101 Physiatry 1 5 6 Nephrology 044 Radiation Oncology 0 1 1 Dermatology 0 0 0 Rheumatology 0 0 0 Hospitalists** 11 0 11 Total 61 45 106

* Emergency Physicians and Podiatrists do not admit patients. ** Hospitalists specialize in Family Medicine or Internal Medicine but are only listed as Hospitalists. ______Source: Hospital records

Medical Staff Leadership Chief of Staff William R. Dewar III, MD President Denise Viola, DO Vice President James Arscott, DO

Over 95.0% of the Hospital’s active Medical Staff was Board Certified or Eligible as of June 30, 2017. Most inpatients are admitted under the care of the 11 Hospitalist physicians or mid-level practitioners.

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EMPLOYEES

The Hospital currently employs 803 people, of whom 441 are full-time employees and 362 are part-time employees. The Hospital provides compensation and a full range of employee benefit programs which management of the Hospital believes are competitive with other hospitals in the area. These benefits include retirement plans, health insurance, group life insurance, paid time off, short and long term disability insurance, and tuition assistance. Management of the Hospital characterizes its relationship with its employees as good.

EDUCATIONAL PROGRAMS

The Hospital participates in providing clinical experience to medical students from The Geisinger Commonwealth School of Medicine in Scranton, PA as well as the Wright Center for Graduate Medical Education also in the Scranton Area. The Hospital is also a site and sponsor of the Luzerne County Community College Nursing School program. The Hospital and College started the program in 2010 and graduated its first class in 2012. New classes form in even numbered years. In addition, the Wayne Memorial Health System Community Advisory Board has been conducting a community needs assessment on a bi-annual basis. The findings of this assessment are used to determine priorities for practitioner recruitment as well as to determine needs to provide educational support for “hard-to-find” practitioners. From time to time, these have included: Physical Therapists; Occupational Therapists; Nurse Practitioners; Physician Assistants; Nurse-Midwives and Family Practice Physicians. The Affordable Care Act (ACA) requires a Community Health Needs Assessment every three years. The IRS has implemented this requirement through revisions of its form 990 and that form’s filing instructions.

The Hospital participates in the Job Training Partnership Act (JTPA) program for training of nurse aides and youths for seasonal employment, as well as working with the Emergency Medical Services of Northeastern Pennsylvania in the training of emergency medical technicians. The Hospital also cooperates with the Allied Health Careers Program of the Wallenpaupack Area High School in providing vocational education for high school students leading toward a nurse’s aide certification.

SERVICE AREA

The Hospital’s primary service area is the central portion of Wayne County, including Honesdale, the County seat. The rest of the County is included in the secondary service area as are portions of Pike, Lackawanna, Susquehanna, and other Pennsylvania counties, as well as portions of counties in New York State.

The admissions which arise from other than the service area are primarily a result of temporary increases in the service area populations arising from tourist, vacation, and second homes activities within the service area.

Primary Service Area Wayne County, PA Northern Lackawanna County, PA

Secondary Service Areas Sullivan County, NY Pike County, PA Remainder of Lackawanna County, PA ______Source: Hospital records

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COMPETITION

The following table sets forth information regarding hospitals located in the area surrounding the Hospital:

Comparative Analysis of Surrounding Hospitals

Hospital Acute Care Beds Distance (a)

Wayne County, PA: Wayne Memorial 98 --

Lackawanna County, PA: Geisinger – Community Medical Center 248 32 Commonwealth Health Moses Taylor 217 32 Regional Hospital of Scranton 192 32

Susquehanna County, PA: Barnes Kasson (Acute) 25 37

______Source: Data obtained from publically available data believed to be accurate. (a) Approximate road miles from Wayne Memorial Hospital.

The following table sets forth information with respect the Inpatient Utilization in the hospitals located in the area surrounding the Hospital:

Hospital 2014 2015 2016

Wayne County, PA: Wayne Memorial Hospital 3,669 3,838 3,583

Lackawanna County, PA: Geisinger – Community Medical Center 11,685 12,077 12,342 Commonwealth Health Moses Taylor 11,132 11,400 11,086 Regional Hospital of Scranton 8,573 8,588 8,263

Susquehanna County, PA: Barnes Kasson (Acute) 636 629 739 ______Source: Data obtained from publically available data believed to be accurate.

THE PROJECT

The project will replace beds that were put into service in 1980 with beds in private rooms. Fifty private rooms will replace the 1980 beds in a five story building addition containing 80,776 square feet. The space for the first two floors will be taken up by piers, parking and room for traffic flow to conform to the existing topography. The third and fourth floors will house 25 private rooms each. The fifth floor will contain shelled space that will be used for future expansion. The penthouse will top the fifth floor and house building services equipment. 45,033 square feet of existing space from the basement to the fourth floor will also be renovated.

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STATEMENT OF OPERATIONS

The following are excerpts from the statement of operations of the Hospital, for the years ended June 30, 2015 and 2016 and unaudited 2017. The 2015 and 2016 excerpts are from the consolidated financial statements that have been audited by independent certified public accountants. The 2017 excerpts are from management’s data prior to audit and prior to final closing of the books for the year, and are therefore unaudited. These excerpts should be read in conjunction with the other financial statements and notes submitted separately.

Statement of Operations June 30, UNAUDITED Pro Forma 2015 2016 2017 1 UNRESTRICTED REVENUES, GAINS AND OTHER SUPPORT: Net patient service revenues less provision for uncollectible accounts $77,202,417 $81,280,950 $83,238,796 Other operating revenues 1,911,990 1,828,649 956,058 Total: $79,114,407 $83,109,599 $84,194,854 EXPENSES: Salaries and wages $31,321,793 $33,354,158 $34,448,096 Supplies and expenses 30,056,351 35,814,782 34,238,083 Employee benefits 7,674,097 9,218,303 11,432,380 Depreciation & amortization 3,192,669 3,530,318 3,962,869 Interest 569,389 529,241 469,708 Professional fees 2,228,982 2,355,297 3,499,037 Total: $75,043,281 $84,802,099 $88,050,173

OPERATING INCOME (LOSS) 4,071,126 (1,692,500) (3,855,319) OTHER INCOME (EXPENSE) 1,559,405 1,227,464 4,682,970 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENSE $5,630,531 $(465,036) $827,651 ______(1) Fiscal Year 2017 is from management’s data prior to audit and prior to final closing of the books for the year.

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SOURCES OF REVENUE AND THIRD PARTY REIMBURSEMENT PROGRAMS

Sources of Patient Revenue

Payments to the Hospital are made on behalf of certain patients by federal and state governments under Medicare and Medicaid programs, and other payors, including commercial insurance and self-pay. A percentage breakdown by source of gross patient revenue for the Hospital is presented below:

Payor 2014 2015 2016 2017 Medicare 47% 52% 51% 51% Medicaid 14% 14% 17% 17% Commercial 22% 22% 22% 21% Managed Care 9% 6% 5% 5% Self-Pay and Other 8% 6% 5% 6% Total 100% 100% 100% 100% ______Source: Hospital Records

Most commercial insurance plans reimburse their insureds or make direct payments to hospitals at established or contracted rates. Patients carrying such insurance are generally required to pay the Hospital for any deductibles and or coinsurance if the hospital accepts assignment of their insurance benefits. The hospital does participate contractually and also accepts assignment of insurance benefits for most available insurance plans whether they be group plans sponsored by employers or others, or individual plans.

The federal Medicare program reimburses the Hospital under a prospective payment diagnostic related group (DRG) reimbursement system, which generally pays less than its charges, in accordance with the current Medicare principles of reimbursement. Medicare payments are subject to review and audit by the Center for Medicare and Medicaid Services (CMS) through fiscal intermediaries or Medicare Administrative Contractors (MAC). This program which began in 1966 and is the largest payor for services provided by the hospital has revised its payments policies, practices and methodologies constantly. These changes will continue into the future, perhaps at a more significant pace and with a more significant impact.

Blue Cross group insurance plans are now available in a countless number of options and configurations. The hospital does participate with all Blue Cross plans and is paid for acute inpatient services on a DRG basis and a fixed percentage of charges for outpatient services. The Blue Cross contracts were negotiated several years ago and roll over from year to year unless either party gives notice to renegotiate. The contracts are considered fair by both parties and a renegotiation is not expected in the near future.

Medicaid payments are subject to review and audit by the Commonwealth of Pennsylvania through the Auditor General’s Office. Inpatient payments to hospitals are based upon a DRG prospective reimbursement system. Outpatient payments are based upon a fee for service fixed rate schedule which pays less than cost. The Medical Assistance program will be changing to a HMO type payment system at various times in different portions of the state.

The Blue Cross, Medicare and Medicaid Contracts or programs provide no specific reimbursement to the Hospital for payments under the Loan Agreement.

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UTILIZATION STATISTICS AND SUMMARY FINANCIAL INFORMATION

Utilization Statistics

The following table summarizes utilization statistics for the Hospital:

HISTORIC UTILIZATION Fiscal Year ended June 30,

2015 2016 2017

Adult and pediatric admissions 3,381 3,366 3,141 Adult and pediatric patient days12,894 11,588 10,509 Average length of stay (days) 3.8 3.4 3.3 Occupancy percentage % (a) 39.3 35.2 32.0 Ancillary department services: Operating Room 3,673 3,648 3,256 Laboratory 127,538 123,068 113,700 Radiology (b) 9,005 9,107 8,825 Physical Therapy 26,323 24,407 21,582 Occupational Therapy 20,626 18,977 19,221 Speech Therapy & Audiology 1,435 1,612 1,549 EKG & EEG 3,713 3,809 3,806 Emergency Room visits 2,171 1,979 1,864 Outpatient: Emergency Room visits 19,302 20,130 20,096 Ancillary department services: Laboratory 582,585 607,831 616,866 Radiology (b) 64,643 67,088 67,074 Physical Therapy 24,246 27,404 31,786 Occupational Therapy 9,804 8,785 10,538 Speech Therapy & Audiology 2,007 2,018 1,997 EKG & EEG 10,483 10,824 11,122 Same Day Surgery 1,981 2,137 1,844 Home Health Visits 16,154 16,429 16,238 ______Source: Hospital records (a) Percentage of occupancy based on 71 set-up and staffed medical/surgical beds, 8 ICU/CCU beds and 11 obstetrical beds. (b) Includes Ultrasound, Nuclear Medicine, MRI, CT & PET Scanning Services.

Summary Financial Information

The following condensed Statements of Revenues and Expenses and Balance Sheets for each of the fiscal years ending June 30, 2015, 2016 and proforma 2017, have been provided by Hospital management.

The unaudited statements for the fiscal year ending June 30, 2017, include those routine adjustments, consisting of normal recurring accruals, which management considers necessary for a fair presentation of the results of operations on a monthly basis. A number of year end closing entries have not been made as the information to do so is currently being compiled. Audited Operating results for the year ended June 30, 2017, will vary from the information shown here.

This summary should be read in conjunction with the financial statements and related notes appearing in Appendix B of this Official Statement.

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Historical and Pro Forma Capitalization

The table below represents the Hospital’s historical and pro forma capitalization. The table was prepared from information included with the audited financial statements included in Appendix B.

Historical and Pro Forma Capitalization (Dollars in 000s) June 30, UNAUDITED Pro Forma 2014 2015 2016 2017 ¹

Long term debt, net of current portion $ 21,998 $ 20,282 $ 17,917 $ 15,497

Total capitalization $ 66,242 $ 70,942 $ 68,850 $ 70,617 Debt to Capitalization Ratio 25% 22% 21% 18% ______(1) Fiscal year 2017 is from management’s data prior to audit and prior to final closing of the books for the year.

Historical and Pro Forma Liquidity

The table below sets forth the Hospital’s days cash on hand for the periods indicated.

Historical and Pro Forma Liquidity (Dollars in 000s) June 30, UNAUDITED Pro Forma 2014 2015 2016 2017 ²

Cash and cash equivalents $ 7,077 $ 10,702 $ 3,079 $ 4,283 Assets whose use is limited, internally designated 54,069 55,821 55,672 55,392 Total cash and investments $ 61,146 $ 66,523 $ 58,751 $ 59,675

Operating Expenses(1) 68,841 71,851 81,272 84,087 Average Daily Operating Expense 189 197 222 230

Days Cash on Hand 324 338 265 259 ______(1) Includes interest expenses and excludes depreciation and amortization

(2) Fiscal year 2017 is from management’s data prior to audit and prior to final closing of the books for the year.

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Historical and Pro Forma Debt Service Coverage

The following table sets forth, for the fiscal years ended June 30, 2015, 2016, and pro forma 2017 the Hospital’s income available to pay debt service for those years as derived from the combined financial statements of the Hospital set forth in Appendix B. The table includes for those same years the Hospital’s pro forma maximum aggregate annual debt service on the Bonds and the Prior Bonds, and the extent to which the income available to pay debt service of the Hospital would have provided coverage of the pro forma maximum aggregate annual debt service on such outstanding bonds.

Historical and Pro Forma Debt Service Coverage (Dollars in 000s) June 30, UNAUDITED Pro Forma 2015 2016 2017 ²

Excess of revenues over expenses $ 5,631 $ (465) $ 828

Add: Depreciation and amortization 3,193 3,530 3,963 Add: Interest expense 569 529 470 Income Available for Debt Service $ 9,393 $ 3,594 $ 5,261

Pro Forma maximum aggregate annual debt service ¹ $ 2,765 $ 2,765 $ 2,765 Coverage of pro forma maximum aggregate annual debt service 3.40x 1.30x 1.90x ______(1) Includes capital leases and loan payable.

(2) Fiscal year 2017 data comes from unaudited internally prepared financial statements before final closing for the year.

MANAGEMENT DISCUSSION OF THE STATEMENT OF REVENUES AND EXPENSES AND CHANGES IN FUND BALANCE

The three-year period spanning fiscal years 2015 through fiscal 2017 has been a period marked by continued growth in net operating revenues for the Hospital, though the fiscal 2015 growth was most notable or significant. Wayne Memorial was designated as a Sole Community Hospital effective October 1, 2013. This is a special reimbursement status accorded to rural community hospitals that meet certain criteria designated by Medicare. This special designation allows Wayne Memorial to be paid at its hospital specific rates from a base period rolled forward and updated for inflation versus the Medicare Federal rates for inpatient services. The designation also gives Wayne Memorial a 7.1% increase in the outpatient Medicare rate paid for outpatient services. Fiscal 2015 was the first full year this designation was in effect. It will remain in effect so long as travel times between Wayne and its closest like hospital remain outside of the times required by the Medicare program to be designated a Sole Community Hospital. This designation and an increase in inpatient and outpatient volumes in fiscal year 2015 were responsible for a 10.5% increase in net revenue compared to fiscal 2014. Expenses were relatively flat compared to increases in revenue in fiscal 2015, increasing 4.4% compared to fiscal 2014. Fiscal 2016 saw the lowest increase in net revenue during this three year period at 0.5% compared to fiscal 2015, with volumes being very comparable to fiscal 2015. Expenses increased by 13.1% overall in fiscal 2016. Employee Benefits, supplies and other expenses and depreciation expense were the major contributors to this overall increase. The increase in Employee Benefits was primarily due to an increase in our self-insured health insurance program where a number of larger claims within our stop loss limits were incurred. The increase in supplies and other expenses was due mainly to an increase in fees paid to locum tenens hospitalists that were engaged for a six month period while a contract was finalized with our regular hospitalist group. The increase in depreciation expense was due to the addition of a cardiac catheterization lab that was opened in June 2016, the last month of our fiscal year.

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Fiscal 2017 saw a 2.4% increase in net revenues even though inpatient discharges were down compared to the prior year and we struggled with the loss of a couple of our full time surgeons. We were able to recruit general surgeons to fill vacancies that were filled by locum tenens for part of the year when the full time surgeons left. The increase in net revenue was due largely to the opening of the cardiac catheterization lab in June 2016 just before the start of fiscal 2017. Expenses increased 3.8% in fiscal 2017 compared to fiscal 2016 with significant increases in employee benefits, professional fees and depreciation expense. The increase in employee benefits expense was again due to self-insured health insurance. When additional large claims within the stop loss retention amounts were incurred. Wayne Memorial joined a group of 12 to 15 similar hospitals in Pennsylvania in a Health Insurance Administrative Services Organization (ASO) where cost and risk are shared on a limited basis to take advantage of the larger group of insured lives. Our health insurance cost began flowing through the ASO effective for claims dates of services from July 1, 2017 and thereafter. Professional Fees increased due to the new hospitalist contract and also the subsidy paid to the emergency room physicians firm. Depreciation expense increased due to the full year effect of the cardiac catheterization lab (half year depreciation convention), the addition of a heliport in preparation to become a level four trauma center, and information technology infrastructure spending.

The Hospital supported its clinical affiliate, Wayne Memorial Community Health Centers, during this three year period in both its primary, or in scope, services and its specialty, or out of scope, services. Management believes going forward the support required for the primary or in scope services will no longer be necessary as the organization has been able to develop self-sustaining services that support its mission and allow for expansion funded by its own operations. Wayne Memorial Community Health Centers continues to expand primary care services in Wayne and Pike counties in Pennsylvania and has also provided significant services that will also be expanding in northern Lackawanna County, Pennsylvania. The Hospital participated in the Medicare Shared Savings Program (MSSP) as a member of an Accountable Care Organization (ACO) together with a tertiary provider and others over the last three years and is in the process of determining its go forward plans in the various ACO tracks available.

Operating results were positive in fiscal 2015 but turned to a loss position in 2016 and are expected to be negative when 2017 is reported. Total results after adding non-operating income (investment income) to operating results were positive in fiscal 2015 and are expected to be positive when reported for fiscal 2017. Total results for fiscal year 2016 were negative as reported.

BUDGETING PROCEDURE

The Hospital prepares an annual operating budget. The preparations for the budget are directed by the Administrative Directors. They conduct meetings with all Department Managers, with the Hospital’s Medical Staff providing input to the Department Managers through the Medical Staff Committee structure. Both the operating budget and the capital budget are then reviewed by an Administrative Committee composed of the Hospital’s Administrative Directors, including the Executive Director. The budget is then presented to and reviewed by the Resource Management Committee of the Board of Trustees at several meetings during the months of May and June. The budget is then presented with the Resource Management Committee’s recommendations at the regular June meeting of the Hospital’s full Board of Trustees, for its approval.

BILLING AND COLLECTION PROCEDURE

The Hospital has instituted a process to collect payment for services, or for patients to obtain a credit card to secure payment for services, at the time of registration for services in conjunction with our “Payment Navigation Initiative” whereby patient deductible and coinsurance amounts and / or charges for services are estimated, based upon the latest information available from many insurers or Hospital resources. The Hospital has rolled this process out at its main campus and will be extending it to off campus sites as time permits. The process has helped the hospital increase upfront collections from the patients it serves. Patients are provided with an itemized statement of their account subsequent to discharge if a self-pay patient, and upon request, if payment is expected from insurance. Balance forward statements are sent at 30-day intervals thereafter for a period of 150 days. If this is not successful and if there is no response within a maximum of 150 days, the account is turned over to one of two collection agencies utilized by the Hospital. These agencies utilize the usual collection agency procedures, and legal action is initiated only upon the written authorization of the Hospital.

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Non-scheduled outpatients and emergency department patients of the Hospital are registered at the time of service. Registration and admission personnel use similar processes as appropriate in the care setting.

INSURANCE CONSIDERATIONS

General Liability Insurance

The Hospital joined a Risk Retention Group (RRG) of some 30 homogeneous hospitals in Pennsylvania to obtain General and Professional Liability Insurance. The name of the RRG is Community Hospital Alternative For Risk Transfer (CHART). CHART provides primary Liability Coverage and Excess Policy Coverage to its member hospitals. CHART began in 2001 providing services only in Pennsylvania and now provides services in Pennsylvania, West Virginia and New York to some 45 hospitals. It has grown at a very consistent and deliberate pace.

The Hospital currently carries general public liability insurance for bodily injury and property damage liability in the amount of $1,000,000 per occurrence and $3,000,000 aggregate with no deductible. In addition, the Hospital carries a comprehensive automobile liability policy with a bodily injury limit of $1,000,000 and property damage limit of $1,000,000. The above limits are provided on an occurrence basis with the current policy period of January 1, 2017 to December 31, 2017. In addition to the above coverages, the Hospital carries a $10,000,000 umbrella policy with the same policy term.

Professional Liability Insurance Coverage

The Hospital maintains primary basic insurance coverage in compliance with the limits stated in the Commonwealth of Pennsylvania Medical Care Availability and Reduction of Error Act (Act 2002-13) and has ongoing claims and risk management programs in accordance with the requirements of Act No. 2002-13 (Act 13). Statutory Excess coverage is provided through the Commonwealth of Pennsylvania Mcare fund. The Hospital also provides other insurance coverage for Property, Directors and Officers, Excess Workers Compensation and General Liability with limits that are deemed reasonable and customary for health care providers of comparable size and condition.

Mcare Fund

Act No. 2002-13 created the Medical Care Availability and Reduction of Error Fund (the “Mcare Fund”), a contingency fund to pay awards for losses or damages against a health care provider as a consequence of certain professional liability actions brought under Act 13 to the extent the same exceed the health care provider’s basic insurance coverage required under the act. The Mcare Fund replaced the Pennsylvania Medical Professional Liability Catastrophe Loss Fund. The statutory limit of liability for the Mcare Fund for any health care provider (except hospitals) is currently $1,000,000 and $3,000,000 per annual aggregate. Act 13 requires each hospital, currently, to insure its liability by either purchasing professional liability insurance or electing a self-insurance program in the amount of $1,000,000 per incident and $4,000,000 per annual aggregate. The Hospital has purchased the underlying insurance required by Act 13. In addition, the Hospital has purchased excess liability insurance policies in the amount of $10,000,000.

The Mcare Fund and its predecessor have been funded through the use of mandatory assessments collected in addition to the primary premiums paid by each health care provider. The assessments collected, however, have been insufficient to completely fund the expected claims payable from the Mcare Fund, and as a result substantial unfunded liabilities exist. It is unclear how or if the unfunded liabilities will ultimately be funded. Legislative proposals have been and continue to be made recommending privatization or elimination of the Mcare Fund, and these proposals include, or have included, a variety of methods to handle the unfunded liabilities. There can be no assurance that additional Mcare Fund assessments or substantial additional premium charges will not be required, nor can there be any assurance that there will be funds for the Mcare Fund to discharge all of the potential liabilities of the hospital.

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LITIGATION AFFECTING THE HOSPITAL

The Hospital advises that there is no litigation currently occurring, threatened, or to its knowledge forthcoming in any way that would materially affect its financial position.

[END OF APPENDIX A]

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APPENDIX B

Financial Statements for the Hospital [ THIS PAGE INTENTIONALLY LEFT BLANK ]

[ THIS PAGE INTENTIONALLY LEFT BLANK ]

APPENDIX C

Description of Wayne County and Financial Factors [ THIS PAGE INTENTIONALLY LEFT BLANK ]

DESCRIPTION OF THE COUNTY

Wayne County (the “County”) was established in 1798 and is a sixth class county located in the northeast corner of Pennsylvania and bordering the State of New York. Its county seat is the Borough of Honesdale. Wayne County is in the Appalachian Plateaus province which although not mountainous, is undulating with elevations ranging from 1,000 to 2,000 feet. From Honesdale, the County Seat, Scranton is approximately 21 miles to the south. Binghamton, New York is approximately 68 miles to the north, and Wilkes-Barre is approximately 41 miles to the southwest.

The County is comprised of 28 local municipalities (6 Boroughs and 22 Second Class Townships). The County consists of 763 square miles or 488,265 acres of land. Wayne County is bounded by New York State on the north, the Delaware River on the east, Pike and Monroe Counties on the south, and Susquehanna and Lackawanna Counties on the west.

The area is well known for its scenic beauty, natural as well as man-made resorts, and recreational facilities. Recently, the efforts of Wayne County travel industries have been directed at changing the tourist trade from a “summer months” to a “four seasons” operation to accommodate the ever-increasing number of people interested in winter sports. Some of the area’s major features are: Lake Wallenpaupack, located at a 1,200 foot elevation and having a 52 mile shoreline and a 15 mile long, 3 mile wide, 5,700 acre body of water; Bingham park in Hawley, Wayne County; Promised Land State Park; and numerous vacation cottages, family resorts, boat marinas, ski resorts and honeymoon resorts. Several of the major resorts and inns in the Lake Wallenpaupack area, which provide year-round facilities, include the Tanglewood Motor Lodge, the Capri Motel and Marina, the Inn at Woodloch Pines, Lukans and Cove Haven. In addition to attracting vacationers, the area’s natural ruggedness attracts many hunters and anglers.

COUNTY BORROWING CAPACITY AND DEBT STATEMENT

The County’s borrowing capacity is governed by the Local Government Unit Debt Act (the “Debt Act”). Under the Debt Act, the County has no legal limitation on debt of any classification approved by a majority of its electors at a general or special election held in accordance with the provisions of the Debt Act. The Debt Act does place the following limitations upon the outstanding principal amount of that portion of the County’s nonelectoral and lease rental debt which is not subsidized or self-liquidating (as those terms are defined in the Debt Act):

(1) Nonelectoral debt – 300 percent of its borrowing base.

(2) Aggregate lease rental debt and nonelectoral debt – 400 percent of its borrowing base

(3) Additional debt limit (under Section 202(d) of the Debt Act where the County has assumed County-wide responsibility for hospitals and other public health services, air and water pollution control, flood control, environmental protection, water distribution and supply systems, sewerage and refuse collection and disposal systems, education, highways, public transportation or port operations) – additional 100% of its borrowing base.

Calculation of Borrowing Base

The County’s borrowing base is the arithmetic average of the “total revenues” (as defined in the Debt Act), less certain deductions, received by the County in the three most recently completed fiscal years. The borrowing base shown below reflects audited numbers for 2014, 2015 and 2016. The County’s current borrowing base is calculated below:

Total Revenues for Last Three Complete Fiscal Years $122,965,287 Borrowing Base = Average of the Total Net Revenues for Three-Year Period $40,988,429

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The borrowing capacity of the County is calculated below, as required by the Debt Act.

A. NON-ELECTORAL DEBT Computation of Net Non-Electoral Debt a. Outstanding Principal ...... $18,215,000 b. Less: Deductions ...... 0 c. Net Non-Electoral Debt ...... $18,215,000

Computation of Non-Electoral Borrowing Capacity a. Debt Limit – 300% Borrowing Base...... $122,965,287 b. Less: Net Non-Electoral Debt...... 18,215,000 c. Current Non-Electoral Borrowing Capacity...... $104,750,287

B. LEASE RENTAL DEBT Computation of Net Lease Rental Debt a. Outstanding Principal (1) ...... $50,340,000 b. Less: Deductions ...... 0 c. Net Lease Rental Debt ...... $50,340,000

Computation of Lease Rental Borrowing Capacity a. Debt Limit – 400% Borrowing Base...... $163,953,716 b. Less: Combined Net Non-Electoral and Net Lease Rental Debt (1) 68,555,000 c. Current Lease Rental Borrowing Capacity ...... $95,398,716

(1) Includes the Bonds being issued hereby and previous debt guaranteed by the County as described more fully on page C-9.

COUNTY POST EMPLOYMENT PROGRAMS

Employees’ Retirement Plan

The County sponsors and administers a single-employer defined benefit pension plan covering all eligible employees of the County. The plan provides retirement, disability and death benefits to plan members and their beneficiaries. Act 96 of 1971, as amended, cited as the County Pension Law, provides for the creation, maintenance and operation of this plan.

Participants are required to contribute 7% of annual covered salary. The County is required to contribute at an actuarially determined rate. Per Act 96 of 1971, as amended, contributions requirements of the plan members and the County are established and may be amended by the General Assembly of the Commonwealth of Pennsylvania. Administrative costs may be financed through investment earnings.

The actuarially determined contribution for 2016 was $609,199 based on an actuarial valuation using the entry age normal actuarial cost method. The plan's ratio of actuarial value of assets to actuarial accrued liability for benefits (the “Funded Ratio”) as of the most recent actuarial valuation date, December 31, 2016, was 100.76%. As of that date, the actuarial accrued liability was $52,501,149, and the actuarial value of assets was $52,902,227, resulting in an unfunded actuarial accrued liability (“UAAL”) of $(401,078). The Funded Ratio was 94.93 percent as of December 31, 2015. The following table shows the Schedule of Funding Progress for the County’s pension plan:

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Actuarial Actuarial Accrued UAAL as % Value of Liability Unfunded Covered of Covered Assets (AAL) AAL (UAAL) Funded Ratio Payroll Payroll

12/31/12 $ 38,510,225 $ 42,256,503 $ 3,746,278 91.13% $ 12,852,543 29.1% 12/31/13 45,137,593 44,587,957 (549,636) 101.23% 13,532,691 (4.1)% 12/31/14 48,101,118 47,584,291 (516,827) 101.09% 14,176,955 (3.6)% 12/31/15 50,839,488 50,204,181 (635,307) 101.27% 15,007,026 (4.2)% 12/31/16 52,902,227 52,501,149 (401,078) 100.76% 14,970,209 (2.7)%

For more information, see Note 11 in the County’s Audited Financial Statement for the Year Ended December 31, 2016 in Appendix D hereto.

TAXING AUTHORITY AND PROCEDURES OF THE COUNTY

The County Commissioners fix, by resolution, the rate of taxation for each year. No tax for general county purposes in sixth class counties, exclusive of the requirements for the payment of rentals to any municipal authority, shall in any one year exceed the rate of 25 mills on every dollar of adjusted valuation. Upon petition of the County Commissioners to the Court of Common Pleas and upon good cause shown, the court may order a rate of not more than five (5) additional mills to be levied. Tax for payments of rentals to any municipal authority shall not exceed the rate of ten mills on every dollar of adjusted valuation and shall be in addition to the 25 mills limitation for general county purposes. The County also is empowered by law to levy an annual ad valorem tax on taxable real property without limit as to rate for purposes of paying interest and principal on debt of the County incurred pursuant to the Local Government Unit Debt Act. Additional special purpose tax levies are also authorized under the County Code.

The County is also empowered by the County Code to levy a per capita tax not in any one year to exceed $5.00 for county purposes. The per capita tax is levied on all persons subject to taxation for County purposes. The County may, by ordinance or resolution, exempt any person whose total income is less than $10,000 per annum from the per capita tax. The County does not currently have a per capita tax.

The County Code also gives the County Commissioners the power to levy an occupation tax not in any one year to exceed 20 mills on the assessed value of each occupation, but provides that no tax shall be levied or collected for county purposes on offices and posts of profits, or on professions, trades and occupations at the same time during which a per capita tax is levied and collected for county purposes.

The County’s fiscal year begins January 1. The County is legally required to adopt its budget and determine the tax rate on or before December 31 prior to commencement of the budget year, and customarily issues tax bills on or about February 15. Funds needed for expenditures before the receipt of tax payments have generally been obtained by temporary loans in anticipation of taxes as authorized by Pennsylvania law.

The County’s tax assessors maintain all real property assessments in the County and return those assessments, prior to the year of levy, to an assessment board appointed by the Board of Commissioners. The general County tax is levied against these assessments and the revenues from such tax are used for general operations of the County and for payment of principal of and interest on the debt of the County.

On December 1, 2016, a final budget for 2017 was adopted by the Board of Commissioners. A County- wide reassessment was completed during the 2004 calendar year. The millage for 2017 was levied at 3.71 mills. 3.33 mills were allocated for general purposes and 0.38 mills were allocated for debt purposes. The total County millage of 3.71 mills (a property owner would pay $3.71 per $1,000 of assessed valuation) is based on County assessed valuation and is based on 100% property market values as of January 1, 2004.

Real Estate Taxes: Real estate taxes for the County are billed by the tax collectors in each of the 28 municipalities in the County. Accounts paid within the discount period (prior to May 31st) get a 2% discount.

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Accounts paid between June 1st and July 31st pay the full amount. Accounts paid after July 31st are charged a five percent penalty. By February 28th of the following year, lien sheets are filed against all delinquent accounts with the County Tax Claim Bureau.

LABOR RELATIONS

Presently there are approximately 400 full time employees and 85 part time employees of the County. Some of the County’s employees are represented by various unions including: approximately 80 correction officers, 42 clerical staff, and 15 Probation and Domestic Relations Officers.

DEMOGRAPHIC CHARACTERISTICS

The following tables provide population trends, age, and housing indices for the County and the Commonwealth.

Population

2010 2000 1990 Wayne County 52,822 47,722 39,944 Commonwealth 12,702,379 12,281,054 11,881,643

Age Composition (2010)

Under 18 as 65 or Over as Under 18 % 65 or Over % Wayne County 10,042 19.01 10,028 18.98 Commonwealth 2,792,155 21.98 1,959,307 15.42

Occupied Housing (2010)

Occupied Percent Owner- Total Housing Occupied Occupied Percent Housing Units (1) Housing Housing Owner Units Units Occupied Wayne County 31,653 20,625 65.16 16,656 80.76 Commonwealth 5,567,315 5,018,904 90.15 3,491,722 69.57

Source: The Pennsylvania State University Data Center

The Region

Formerly a region of small manufacturing, canal transports, lumbering, and farming, the present focal point of the area’s economic life is Lake Wallenpaupack with its related resort and vacation enterprises. Lake Wallenpaupack, the second largest lake in Pennsylvania, was man-made by Pennsylvania Power & Light. Construction was completed in 1926. Before that, only a stream flowed through the beautiful valley. The local Leni Lenapi Indian tribe called the stream “Wallenpaupack” which means “the stream of swift and slow water.”

Recreation Activity

Tourism and recreation constitutes one of the area’s major industries. There are over 200 hotels, motels and camps in Wayne County and more than half are open year-round. Among the several factors contributing to the continuing growth in Wayne County’s tourism and recreation industries are: (1) the sizeable population concentrations of the eastern seaboard “megalopolis”, (2) the development of high-speed, limited access highways serving the area, (3)

C-4 the development of a “four-season industry pattern” as a result of the growth of convention business and the increasing popularity of and availability of outdoor recreation opportunities year-round.

Larger resorts in the Northern Pocono Region include Mt. Airy Casino Resort, Kalahari Resorts & Conventions, Cove Haven Resort, Woodloch Resort & The Lodge at Wood loch and Shawnee Inn and Golf Resort.

Transportation

Major highways in Wayne County are Interstate 380 & 84, U.S. Route 6 and Pennsylvania Route 191. Interstate 81 and New York Route 17 are located near Wayne County and play an important role in the overall transportation framework of the County. The County is crossed by US Route 6 which goes through Honesdale East- West and State Route 191 which goes North - South. Other major state routes are Pa. Routes 196, 371, 296, 370, 590 and 652. Interstate 84 crosses the southern portion of the County providing access to Scranton and Interstate 81 to the west and southern New York State and New England to the east.

Rail service is provided in Hawley and Honesdale by the Stourbridge Railroad. All airports in Wayne County are privately owned. The largest of these airports being the Cherry Ridge Airport in Cherry Ridge Township and Spring Hill Airpark in Sterling Township.

Utilities

Honesdale Gas Company and UGI Penn Natural Gas Inc. supply natural gas to Wayne County residents. Electricity is supplied by Pennsylvania Power & Light Co. and Penelec and telephone service by Verizon, AT&T, South Canaan Telephone, NEP Datavision, Blue Ridge Cable and Adams Cable.

There are several small private and public water systems as well as regional sewage treatments systems throughout the County. Water and sewer services are provided to most residents in the County by the use of on-site wells and septic systems. Others are provided sewer service by the Central Wayne Regional Authority and the Hawley Area Authority and water by Aqua PA.

Higher Education

There are four institutions of higher learning in the area. Marywood College, with a total enrollment of approximately 3,000 students, and the University of Scranton, with a total enrollment of 5,100 students, provide 4-year undergraduate and also graduate education. Keystone College, with a total enrollment of approximately 1,600 provides 4-year and 2-year undergraduate degrees. Lackawanna College, with a total enrollment of 1,200 students, provides two-year and four-year undergraduate degrees and has a campus in Hawley.

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THE ECONOMY

Trends in Wayne County Labor Market Area Employment and Unemployment

The trend in total employment rates in Wayne County, compared with the same rates for Pennsylvania and the United States, since 2005, is shown as follows:

Wayne County Civilian Labor Total Percentage Year Force Employment Unemployed PA U.S. 2005 24,300 23,300 4.3 4.7 4.9 2006 24,900 23,900 3.9 4.6 4.5 2007 25,000 23,900 4.3 4.3 4.8 2008 25,200 23,400 7.0 6.4 7.1 2009 24,700 22,700 8.1 8.5 9.7 2010 24,900 22,900 8.0 8.1 9.1 2011 25,400 23,700 6.9 7.2 8.3 2012 26,300 24,300 7.7 7.9 7.6 2013 25,300 23,700 6.3 6.2 6.5 2014 24,000 22,800 5.2 4.6 5.4 2015 22,200 21,200 4.8 4.1 4.8 2016 22,100 20,800 5.8 4.8 4.5 2017 (April) 21,900 20,400 6.5 5.1 4.6

Source: Center for Workforce Information and Analysis, Pennsylvania Dept. of Labor and Industry

Largest Employers in the Area

Employer Business Type

PA State Government State Correctional Institution Wayne County Memorial Hospital Association Hospital Federal Government Government Wayne County Commissioners Government Wayne Highlands School District Public School Wal-Mart Associates Inc. Retail Western Wayne School District Public School Weis Markets, Inc. Retail Human Resources Center Inc. Non-Profit Corporation Wayne County Community Health Medical

Source: Center for Workforce Information & Analysis – 4th Quarter 2016.

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TAX REVENUES OF THE COUNTY

Ten Largest Taxpayers in the County

The ten largest real estate taxpayers in the County and the 2017 assessed valuation of their real estate are as follows:

Taxpayer Business Assessed Value

The Dime Bank Banking $11,894,600 Mark HM Association LP Retail Plaza 8,953,500 Samhaven Lake LLC Parcel 8,404,300 Wal-Mart Real Estate Business Trust Retail 7,907,000 Union Lake Hotel Co. Inc. Hotel Resort 7,598,200 Acadia Realty Trust Retail 7,587,400 Corpuel, Peter R. & Kathleen Summer Camp 7,506,300 RRSC Inc. Camp Trails End 6,681,100 WCB Realty Corp. Real Estate 6,672,000 Honesdale National Bank Banking 6,161,200 Total: $79,365,600

Source: County Officials

Market and Assessed Values of Real Property

Market and assessed values of real property in the County, as reported by the Pennsylvania State Tax Equalization Board are listed below. Wayne County had a reassessment in 2005 to 100% of January 1, 20014 market value.

Year Market Valuation Assessed Valuation Ratio

2005 $4,622,366,000 $4,605,015,090 99.62 2006 4,251,433,600 4,724,223,180 111.12 2007 4,353,056,093 4,807,565,750 110.44 2008 5,142,638,150 4,893,795,305 95.16 2009 5,227,243,760 4,965,752,855 94.99 2010 5,769,026,495 5,083,560,005 88.12 2011 5,816,532,275 5,131,662,515 88.23 2012 6,031,958,136 5,164,339,175 85.61 2013 6,067,133,644 5,198,569,235 85.68 2014 6,005,574,362 5,222,141,975 86.96 2015 6,025,814,642 5,243,487,395 87.02 2016 5,902,126,768 5,188,811,545 87.91 2017 (1) 5,815,767,578 5,215,775,652 89.68

Source: Pennsylvania State Tax Equalization Board (1) Source: County Officials, unavailable from STEB

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Local Tax Rates for Fiscal Year 2017

Real Estate (mills)

Wayne County – General Fund ...... 3.3300 Wayne County – Debt Service ...... 0.3800

Source: County Officials

Tax Collection Record

Tax notices are due for mailing to taxpayers at the beginning of February each year. A discount of 2% is allowed on all property taxes paid within the time period as shown below. After the discount period expires a two- month period is allowed for payment of taxes at par. Taxes paid after this time are subject to a 5% penalty. Local tax collectors submit a list of names of all taxpayers that have not paid their current real estate taxes to the Tax Claim Bureau of Wayne County on January 1 of the following calendar year. The County’s real property tax collection on real estate are set forth below.

February 15 ...... Levy Date April 1 to May 31 ...... 2% discount period June 1 to July 31 ...... Face payment period August 1 to December 31 ...... 5% Penalty period January 15 ...... Lien Date

Collections Current & Total Tax Rate Current As % of Prior Years Delinquent Collections Year (Mills) Levy Collections Levy Collections Collections As % of Levy 2005 2.120 N/A $8,938,127 N/A $841,854 $9,779,981 N/A 2006 2.786 N/A 11,903,661 N/A 638,440 12,542,101 N/A 2007 2.786 N/A 12,281,263 N/A 844,786 13,126,049 N/A 2008 3.160 N/A 14,110,226 N/A 768,439 14,878,665 N/A 2009 3.160 N/A 14,628,930 N/A 938,833 15,567,763 N/A 2010 3.560 N/A 16,011,206 N/A 936,519 16,947,725 N/A 2011 3.560 17,967,380 16,677,875 92.82 970,575 17,648,450 98.20 2012 3.560 18,124,696 16,671,325 91.98 1,142,804 17,814,129 98.30 2013 3.710 18,997,546 17,587,968 92.58 1,100,505 18,688,473 98.30 2014 3.710 19,110,825 17,676,045 92.97 1,284,679 19,051,724 99.60 2015 3.710 19,146,654 17,755,961 92.74 1,254,715 19,010,676 99.30 2016 3.710 19,278,476 17,993,682 93.33 1,078,386 19,072,068 99.00 2017 (1) 3.710 19,295,975 17,666,253 91.55 1,139,176 18,805,429 97.46

(1) Estimated

Source: County Officials

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DEBT SUMMARY AND RELATED INFORMATION

Condition of County Financing

General Obligation Date of Issue Long Term Debt Outstanding

Series of 2015 2015 $11,795,000 Series of 2012 2012 $6,420,000

Total: (1) $18,215,000

Guaranteed: Date of Issue Amount Outstanding Line of Credit Note of 2004 Wayne Economic (Revised 2010) $500,000 Development Corporation

Wayne Memorial Hospital and 2012 $7,130,000 Health Facilities Authority 2012 A $2,975,000 2013 $5,215,000 2017A $34,520,000

Total: (2) $50,340,000

(1) County’s General Obligation Debt (2) Debt Guaranteed by the County. Includes the Bonds issued hereby.

Financial Factors and Ratios

STEB Market Valuation of Real Estate 2016 $5,902,126,768 STEB Assessed Valuation of Real Estate 2016 $5,188,811,545 Ratio of Assessed to Market Value 87.91%

Population: 2010 U.S. Census 52,822 Market Valuation of Real Estate Per Capita $111,736 Assessed Valuation of Real Estate Per Capita $98,232

Bonded Indebtedness

County General Obligation $18,215,000 County Guaranteed Obligations 50,340,000 Total Obligations $68,555,000

Ratio of Total Obligations to: Market Valuation of Real Estate 1.16% Assessed Valuation of Real Estate 1.32% Population $1,298

C-9

[ THIS PAGE INTENTIONALLY LEFT BLANK ] APPENDIX D

County of Wayne, Financial Statements [ THIS PAGE INTENTIONALLY LEFT BLANK ] COUNTY OF WAYNE, PENNSYLVANIA

FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 & INDEPENDENT AUDITORS’REPORT & ADDITIONAL INFORMATION [ THIS PAGE INTENTIONALLY LEFT BLANK ] TABLE OF CONTENTS

PAGE

INDEPENDENT AUDITORS’REPORT………………………………………….. 1

MANAGEMENT’S DISCUSSION AND ANALYSIS……….…………………………….. 4

BASIC FINANCIAL STATEMENTS:

GOVERNMENT-WIDE FINANCIAL STATEMENTS:

STATEMENT OF NET POSITION ...... 11

STATEMENT OF ACTIVITIES ...... 12

FUND FINANCIAL STATEMENTS:

BALANCE SHEET –GOVERNMENTAL FUNDS ...... 13

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION ...... 14

STATEMENT OF REVENUES,EXPENDITURES AND CHANGE IN FUND BALANCES –GOVERNMENTAL FUNDS ...... 15

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES ...... 16

STATEMENT OF FIDUCIARY NET POSITION –FIDUCIARY FUNDS ...... 17

STATEMENT OF CHANGES IN FIDUCIARY NET POSITION ...... 18

COMBINING STATEMENT OF NET POSITION –DISCRETELY PRESENTED COMPONENT UNITS ...... 19

COMBINING STATEMENT OF ACTIVITIES –DISCRETELY PRESENTED COMPONENT UNITS ...... 20

NOTES TO FINANCIAL STATEMENTS...... 21 COUNTY OF WAYNE,PENNSYLVANIA TABLE OF CONTENTS DECEMBER 31, 2016

PAGE

REQUIRED SUPPLEMENTARY INFORMATION:

SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS 49 (UNAUDITED) ......

SCHEDULE OF COUNTY CONTRIBUTIONS AND INVESTMENT RETURNS (UNAUDITED) .. 50

NOTES TO REQUIRED SUPPLEMENTARY INFORMATION –DEFINED BENEFIT PENSION PLAN (UNAUDITED) ...... 51

STATEMENT OF REVENUES,EXPENDITURES AND CHANGE IN FUND BALANCES – BUDGET AND ACTUAL –GENERAL FUND AND LIQUID FUELS FUND (UNAUDITED) ... 52

SUPPLEMENTARY INFORMATION:

COMBINING STATEMENTS –GOVERNMENTAL FUNDS:

HUMAN SERVICES FUND:

COMBINING BALANCE SHEET ...... 53

COMBINING STATEMENT OF REVENUES,EXPENDITURES, AND CHANGES IN FUND BALANCES ...... 54

NONMAJOR GOVERNMENT FUNDS:

DESCRIPTION OF FUNDS ...... 55

COMBINING BALANCE SHEET ...... 56

COMBINING STATEMENT OF REVENUES,EXPENDITURES, AND CHANGES IN FUND BALANCES ...... 58

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 opinions.

Opinions

In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the aggregate discretely presented component units, each major fund and the aggregate remaining fund information of the County of Wayne, Pennsylvania as of December 31, 2016, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As described in Note 17 to the financial statements, the County has restated the net position of its governmental activities to reflect a change in accounting method for calculating and reporting member pension contributions. Our opinion is not modified with respect to this matter.

- 2 - Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis on pages 4 through 10, the schedule of funding progress, schedule of changes in net pension liability and related ratios and schedule of county contributions and investment returns for the County’s defined benefit pension plan on pages 49 through 51, and the budgetary comparison information for the General and Liquid Fuels Funds on page 52, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County’s basic financial statements. The combining and individual Human Services and nonmajor fund financial statements on pages 53 through 59 are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The combining and individual Human Services and nonmajor fund financial statements are the responsibility of management and were derived from, and relate directly to, the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual Human Services and nonmajor fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole.

Honesdale, Pennsylvania June 21, 2017 - 3 - County of Wayne, Pennsylvania Management’s Discussion and Analysis (Unaudited)

This Management’s Discussion and Analysis (“MD&A”) is intended to provide a narrative overview and analysis of the financial activities of the County for the year ended December 31, 2016. The County’s financial performance is discussed and analyzed within the context of the financial statements and the disclosures that follow.

Financial Highlights

2016 was a relatively stable year for County finances. Management and oversight by Department Heads as well as regular communication with our Fiscal staff, allowed the County to recognize a modest increase to our Unrestricted Net Position. Timing differences and changes in funding processes at the Commonwealth level accounted for some of the specific increases and decreases in revenue and expenses as well as cash balances and Due from Other Governments. Human Services Block Grant participation for several of the Human Service departments provided the County with the ability to shift dollars within approved programs and funding guidelines to match needed consumers with available funds and helped to offset overall Commonwealth funding reductions received. Fiscal responsibility in cost monitoring allowed the County to absorb normal personnel cost increases as well as the continued cost shifts from Federal and State sources. Employee benefit costs have remained stable and below estimates with regular review of benefit and plan design options.

Overview of the Financial Statements

This discussion and analysis is intended to serve as an introduction to the County’s basic financial statements. The County’s basic financial statements comprise three components: 1) government- wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

Government-Wide Financial Statements

The government-wide financial statements are designed to provide readers with a broad overview of the County’s finances, in a manner similar to a private-sector business.

The statement of net position presents information on all of the County’s assets and liabilities, and deferred outflows and inflows of resources. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the County is improving or deteriorating.

The statement of activities presents information showing how the County’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave).

Both of the government-wide financial statements distinguish functions of the County that are principally supported by taxes and intergovernmental revenues (governmental activities). The governmental activities of the County include general government, public safety, public works, human services, culture and recreation, conservation and development.

- 4 - County of Wayne, Pennsylvania Management’s Discussion and Analysis (Unaudited)

The government-wide financial statements include not only the County itself, but also the Wayne Conservation District, Wayne County Redevelopment Authority, and the Wayne County Hospital and Health Facilities Authority, all legally separate entities for which the County is financially accountable. Financial information for these discretely presented component units are reported in a separate column on the government-wide financial statements. Separately issued financial statements may be obtained from the County’s Commissioners office.

The government-wide financial statements can be found on pages 11 and 12 of this report.

Fund Financial Statements

A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The County, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the County can be divided into two categories: governmental funds and fiduciary funds.

Governmental Funds

Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

The County maintains fifteen individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, Capital Projects Fund, and Human Services Funds, all of which are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation captioned “Other Governmental Funds”. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report.

The County adopts an annual appropriated budget for its General Fund and Liquid Fuels Fund on a modified accrual basis. A budgetary comparison statement has been provided for these funds to demonstrate compliance with the budgets. The statement can be found on page 52.

The basic governmental fund financial statements can be found on pages 13 and 15 of this report.

- 5 - County of Wayne, Pennsylvania Management’s Discussion and Analysis (Unaudited)

Fiduciary Funds

The County accounts for its agency funds and pension trust fund as fiduciary funds. The basic fiduciary fund financial statements can be found on pages 17 and 18 of this report.

General Fund Budgetary Highlights

The General Fund expenditure budget for fiscal year 2016 was approximately $28.6 million. The largest variance (decrease) came from Intergovernmental revenues due to lower than projected usage of Children & Youth funding from the Commonwealth of Pennsylvania.

Actual expenditures in general government were lower due to pension savings and health insurance cost reductions. Some increases in Probation personnel costs and Corrections staff in the public safety area were offset by grant funds to assist with new alternative sentencing programs and charges for services for housing of out-of-county prisoners.

The General Fund budget complied with financial policies approved by the Commissioners. The budgetary comparison statement can be found on page 52.

Notes to the Financial Statements

The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 21-48 of this report.

Other Information

The combining statements referred to earlier in connection with government fund types are presented immediately following the notes to the financial statements. Combining and individual fund statements and schedules can be found on pages 53 through 59 of this report.

Government-Wide Financial Analysis

As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the County, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources at December 31, 2016 by $ 23,939,889.

- 6 - County of Wayne, Pennsylvania Management’s Discussion and Analysis (Unaudited)

County’s Condensed Statement of Net Position Governmental Activities Percent 2016 2015 Change

Current assets $ 16,553,069 $ 15,737,307 5.2 Capital assets, net 33,259,395 32,940,539 1.0 Other assets 924,976 514,498 79.8

Total assets $ 50,737,440 $ 49,192,344 3.1

Deferred outflows of resources $ 2,555,305 $ 4,722,332 (45.9)

Current liabilities $ 9,388,768 $ 9,131,638 2.8 Long-term liabilities 19,318,503 23,160,048 (16.6)

Total liabilities $ 28,707,271 $ 32,291,686 (11.1)

Deferred inflows of resources $ 645,585 $ - >100.0

Net Position: Invested in capital assets, net of related debt $ 13,717,559 $ 12,160,303 12.8 Restricted 2,112,311 1,970,036 7.2 Unrestricted 8,110,019 7,492,651 8.2

Total net position $ 23,939,889 $ 21,622,990 10.7

An increase in cash and cash equivalents resulted in Block Grant funds that were advanced to the County to assist general fund hits due to funding delays by the Commonwealth. Liability decreases result from annual bond principle reductions and a change in the presentation of the net pension liability as described in Note 17. Deferred outflows and inflows of resources are related to the GASB 68 Pension reporting as described in Note 11.

- 7 - County of Wayne, Pennsylvania Management’s Discussion and Analysis (Unaudited)

Governmental Activities Percent 2016 2015 Change

Program revenues: Charges for services $ 7,970,976 $ 6,119,373 30.2 Operating grants and contributions 14,211,694 14,243,951 (0.2) Capital grants and contributions 501,023 1,304,562 (61.6)

General revenues: Real estate and other taxes 19,427,487 19,328,766 .5 Grants and contributions not restricted to specific programs 225,660 71,540 >100.0 Investment earnings and rent 96,153 96,567 (0.4) Miscellaneous 312,104 274,862 13.5

Total revenues 42,745,097 41,439,621 3.2

Expenses, Governmental activities 41,287,222 38,960,003 6.0

Change in net position 1,457,875 2,479,618 (41.2)

Net position, original, January 1 21,622,990 18,035,092

Restatement 859,024 1,108,280

Net position, restated – January 1 22,482,014 19,143,372

Net assets – December 31 $ 23,939,889 $ 21,622,990

In 2016 the biggest changes were in restricted and unrestricted grant revenue. In 2015, several bridge projects were completed with corresponding revenue from State and Federal sources recorded that did not reoccur. As well changes in revenue recognition/funding from the Commonwealth resulted in an increase in charges for services, primarily due to Medicaid expansion in Pennsylvania and how many services are now funded, especially in Behavioral Health and Transportation areas.

Financial Analysis of the Major Funds

General Fund

Both revenues and expenditures of the General Fund totaled approximately $28.0 million for the year ended December 31, 2016. Real estate tax revenue continues to be the most significant revenue source for the county consisting of 68% of the total revenue of the General Fund. Continued monitoring of budget to actual expenditures throughout the year and an 18 month cash flow plan have helped to provide increased controls over financial management and provided for effective budgeting and cash management. The County continues to search for grants and other revenue sources to assist in offsetting operational expenses to avoid a real estate tax increase.

- 8 - County of Wayne, Pennsylvania Management’s Discussion and Analysis (Unaudited)

Capital Projects

The Capital Projects Fund had expenditures of approximately $46,000 with the largest expenditures coming from the purchase of agricultural easements. Fund balance was approximately $495,000 at December 31, 2016 and is restricted for the acquisition and construction of capital assets in future periods. The funds are planned for several maintenance and repair projects which are included in the long range capital budget.

Human Services

The Human Services Fund accounts for revenues received for social services in the County. These services include aging, transportation, behavioral and developmental programs/early intervention, and drug and alcohol prevention and treatment. As Commonwealth funding continues to decrease year after year more expenditure shifts to the County have occurred. The County will continue to participate in the Human Services Block Grant Program which provides the County with the flexibility to re-allocate dollars within approved line-items to better meet the needs of consumers within our County as need arises.

Other Governmental Funds

The Other Governmental Funds revenues are derived from specific sources and are designated for specific uses. Such funds, primarily Commonwealth of Pennsylvania and federal grants, are restricted by law or other formal action to expenditure for specific purposes. Total fund balance in these funds decreased by $53,000. A significant portion of these funds are restricted for liquid fuels projects such as bridge rehabilitation and maintenance as well as 911 program expenditures.

Capital Assets

As of December 31, 2016, the County’s investment in capital assets, net of accumulated depreciation, was approximately $33.2 million. Additional information on the County’s capital assets can be found in Note 6 on pages 34 and 35 of this report.

Long-Term Debt

As of December 31, 2016, the County’s net general obligation bonded debt of approximately $18.75 million is well below the legal limit. Additional information on the County’s long-term debt can be found at Note 7 on pages 35 and 36 of this report.

Economic Condition and Outlook

The County has been diligent in budgeting and forecasting as well as monitoring expenditure levels. But continued issues with levels of Commonwealth funding and budget impasse and delays have a direct effect on the cash flow of the county and as well its ability to provide necessary and mandated services and programs.

- 9 - County of Wayne, Pennsylvania Management’s Discussion and Analysis (Unaudited)

The County has been successful in shifting cost centers to comply with changes in federal and state financing sources, but unrest in the Federal and State legislature is of concern. Cuts proposed in 2017 budgets at the Federal and State levels may require the County to provide mandated services without reimbursement or to consider cuts to programs and services to maintain financial operations at a fiscally responsible level. The County is investing in infrastructure and other economic development programs so we can be attractive to new business ventures and responsive to the needs of new and current residents. Progressive planning with our community partners and continued and frequent dialogue with our local legislative representatives has opened doors to funding and programs that were not available in prior years. Current dependency on real estate taxes for 68% of revenues can only increase with additions to the property rolls. Economic development and growth for the work force and as well the tax base is key to continued success. Stable management in county departments, stable real estate tax rates and continued support from all elected officials will enhance future growth and stable economic conditions for the County.

Requests for Information

Questions concerning any of the information provided in this report or requests for additional information, including component unit financial statements, should be addressed to the Chief Clerk in the County’s Commissioners’ office at 925 Court Street, Honesdale, PA 18431.

- 10 - COUNTY OF WAYNE, PENNSYLVANIA

STATEMENT OF NET POSITION DECEMBER 31, 2016 GOVERNMENTAL COMPONENT ACTIVITIES UNITS

ASSETS & DEFERRED OUTFLOWS OF RESOURCES Current assets: Cash and cash equivalents$ 10,520,613 $ 3,434,687 Taxes receivable, net 1,645,857 Due from other governments 3,761,372 31,081 Other receivables 608,640 16,148,001 Other current assets 16,587 16,345

Total current assets 16,553,069 19,630,114

Noncurrent assets: Investments 30,382 1,434,806 Net pension asset 399,427 Capital assets 33,259,395 Assets held for capital projects 495,167

Total assets 50,737,440 21,064,920

DEFERRED OUTFLOWS OF RESOURCES 2,555,305 54,699

Total assets and deferred outflows of resources $53,292,745 $21,119,619

LIABILITIES, DEFERRED INFLOWS OF RESOURCES & NET POSITION Current liabilities: Accounts payable $ 995,648 $ 84,942 Demand note payable 15,189 Current maturities of bonds payable 1,415,000 Current portion of long-term debt 2,285,860 Accrued salaries and benefits and related payables 729,671 1,504 Unearned revenue 5,931,295 Current portion of capital lease obligation 101,138 Current portion of compensated absences 143,645 Accrued interest 72,371 259,959

Total current liabilities 9,388,768 2,647,454

Noncurrent liabilities: Bonds payable 17,343,942 Long-term debt 17,701,746 Capital lease obligation 681,756 Compensated absences payable 1,292,805 Net pension liability 93,015

Total liabilities 28,707,271 20,442,215

DEFERRED INFLOWS OF RESOURCES 645,585 1,029

NET POSITION: Investment in capital assets, net of related debt 13,717,559 Restricted 2,112,311 869,758 Unrestricted 8,110,019 (193,383)

Total net position 23,939,889 676,375

Total liabilities, deferred inflows of resources & net position $53,292,745 $21,119,619

See Notes to Financial Statements

- 11 - COUNTY OF WAYNE, PENNSYLVANIA

STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2016 NET (EXPENSE) REVENUES PROGRAM REVENUES AND CHANGES IN NET POSITION CHARGES OPERATING CAPITAL FOR GRANTS AND GRANTS AND GOVERNMENTAL COMPONENT FUNCTIONS/PROGRAMS EXPENSES SERVICES CONTRIBUTIONS CONTRIBUTIONS ACTIVITIES UNITS

Primary Government: General government $(10,124,661) $ 1,182,751 $ 23,135 $ (8,918,775) Judicial (3,103,739) 671,769 681,030 (1,750,940) Public safety(6,951,346) 2,195,379 525,140 (4,230,827) Public works (648,461) 203,956 57,085$ 501,023 113,603 Human services (16,469,043) 3,693,298 12,884,489 108,744 Culture and recreation (837,623) 15,417 (822,206) Conservation and development (854,137) 8,406 40,815 (804,916) Interest on long-term debt (558,742)(558,742) Unallocated depreciation expenses (1,739,470) (1,739,470)

Total primary government (41,287,222) 7,970,976 14,211,694 501,023 (18,603,529)

Component Units: Wayne County Hospital and Health Facilities Authority(519,920) $ (519,920) Wayne Conservation District (833,258) 82,669 1,288,791 538,202 Wayne County Redevelopment Authority (317,672) 63,583 223,235 (30,854)

Total Component Units $ (1,670,850) $ 146,252 $ 1,512,026 $ - (12,572)

General revenues: Taxes: Property taxes 19,034,012 Excise taxes 393,475 Grants and contributions not restricted to specific programs 225,660 Unrestricted investment earnings and rent 96,153 521,978 Miscellaneous income 312,104 10,799

Total general revenues 20,061,404 532,777

Change in net position 1,457,875 520,205

Net position, beginning, as previously reported 21,622,990 156,170

Restatement 859,024

Net position, beginning, as restated 22,482,014 156,170

Net position, ending $ 23,939,889 $ 676,375

See Notes to Financial Statements

- 12 - COUNTY OF WAYNE, PENNSYLVANIA

BALANCE SHEET - GOVERNMENTAL FUNDS DECEMBER 31, 2016 MAJOR FUNDS OTHER GENERAL CAPITAL HUMAN GOVERNMENTAL FUND PROJECTS SERVICESFUNDS TOTAL

ASSETS

Cash and cash equivalents$ 3,257,440 $ 495,167 $ 5,127,367 $ 2,135,806 $ 11,015,780 Investments 30,382 30,382 Taxes Receivable, net 1,645,857 1,645,857 Due from other governments 2,137,731 1,224,458 399,183 3,761,372 Due from other funds 539,443 539,443 Other receivables 490,248 320 19,026 99,046 608,640 Other current assets 16,587 16,587

TOTAL $ 8,087,306 $ 495,487 $ 6,370,851 $ 2,664,417 $ 17,618,061

LIABILITIES, DEFERRED INFLOWS AND FUND BALANCES

LIABILITIES: Accounts payable $ 543,429 $ 354,176 $ 98,043 $ 995,648 Due to other funds 539,443 539,443 Unearned revenue 5,347,762 583,533 5,931,295 Accrued salaries and benefits and related payables 729,671 729,671

Total liabilities 1,273,100 6,241,381 681,576 8,196,057

DEFERRED INFLOWS OF RESOURCES, Unavailable revenue - property taxes 1,519,127 1,519,127

FUND BALANCES: Non-spendable 16,587 16,587 Restricted 129,470 1,982,841 2,112,311 Assigned$ 495,487 495,487 Unassigned 5,278,492 5,278,492

Total fund balances 5,295,079 495,487 129,470 1,982,841 7,902,877

TOTAL $ 8,087,306 $ 495,487 $ 6,370,851 $ 2,664,417 $ 17,618,061

See Notes to Financial Statements

- 13 - COUNTY OF WAYNE, PENNSYLVANIA

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31, 2016

Total fund balances - governmental funds$ 7,902,877

Amounts reported for governmental activities in the statement of net position are different because:

Capital assets used in governmental activities are not current financial resources and are not reported in the funds. 33,259,395

Taxes receivable will not be collected soon enough to pay for current period's expenditures and therefore are deferred in the funds. 1,519,127

Accrued interest payable is included in the statement of net position. (72,371)

The net pension asset and related net deferred outflows and inflows of resources are not current financial resources and are not reported in the funds 2,309,147

Long-term liabilities, which are not due and payable in the current period, and therefore are not reported in the governmental funds, include: Bonds payable (18,758,942) Capital lease obligations (782,894) Compensated absences (1,436,450)

Total net position - government activities $23,939,889

See Notes to Financial Statements

- 14 - COUNTY OF WAYNE, PENNSYLVANIA

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2016

MAJOR FUNDS OTHER TOTAL GENERAL CAPITAL HUMAN GOVERNMENTAL GOVERNMENTAL FUNDS PROJECTS SERVICES FUNDS FUNDS

REVENUES: Property taxes$ 19,072,068 $ 19,072,068 Excise taxes $393,475 393,475 Licenses and permits 9,265 9,265 Intergovernmental 5,812,601$ 50,075 $ 10,961,873 922,889 17,747,438 Charges for services 2,842,692 8,406 859,805 1,441,747 5,152,650 Investment earnings and rent 89,221 638 1,616 4,678 96,153 Miscellaneous 268,145 13,595 18,844 11,520 312,104

Total revenues 28,093,992 72,714 11,842,138 2,774,309 42,783,153

EXPENDITURES: Current: General government 9,902,003 2,500 9,904,503 Judicial 2,817,905 405,529 3,223,434 Public safety 5,924,968 1,393,143 7,318,111 Public works 573,286 242,697 815,983 Human services 5,714,281 11,646,933 17,361,214 Culture and recreation 366,983 470,640 837,623 Conservation and development 722,914 40,815 763,729 Debt service 1,993,414 1,993,414 Capital outlay 46,396 46,396

Total expenditures 28,015,754 46,396 11,646,933 2,555,324 42,264,407

EXCESS OF REVENUES OVER EXPENDITURES 78,238 26,318 195,205 218,985 518,746

OTHER FINANCING SOURCES (USES): Proceeds of capital lease obligations 266,979 266,979 Transfers in 271,915 50,000 321,915 Transfers out (50,000) (271,915) (321,915)

Total other financing sources (uses) 488,894 50,000 - (271,915) 266,979

NET CHANGE IN FUND BALANCES 567,132 76,318 195,205 (52,930) 785,725

FUND BALANCE (DEFICIT), BEGINNING 4,727,947 419,169 (65,735) 2,035,771 7,117,152

FUND BALANCE, ENDING $ 5,295,079 $ 495,487 $ 129,470 $ 1,982,841 $ 7,902,877

See Notes to Financial Statements

- 15 - COUNTY OF WAYNE, PENNSYLVANIA

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2016

Total net change in fund balances - governmental funds$ 785,725

Amounts reported for governmental activities in the statement of activities are different because:

Capital asset additions are reported as expenditures in the funds 2,058,326

Depreciation expense on capital assets is reported in the statement of activities (1,739,470)

Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. This amount is the net change in revenue accrued between the prior and current year (38,056)

Issuance of long-term obligations provides current financial resources in the funds (266,979)

Repayment of bonds payable and capital leases uses current financial resources and are reported in the funds but not the statement of activities 1,450,363

Establishment of an allowance for doubtful collections on a long-term note receivable does not use current financial resources, but is recognized in the statement of activities (94,000)

Amortization of bond discounts (4,393)

Amortization of bond premiums 59,409

Change in accrued interest on bonds payable 4,656

Change in compensated absences (13,544)

Change in net pension asset and related deferred outflows and inflows of resources (744,162)

Change in net position of governmental activities $ 1,457,875

See Notes to Financial Statements

- 16 - COUNTY OF WAYNE, PENNSYLVANIA

STATEMENT OF FIDUCIARY NET POSITION - FIDUCIARY FUNDS DECEMBER 31, 2016

PENSION TRUST AGENCY FUND FUND

ASSETS

CASH AND CASH EQUIVALENTS$ 537,027 $ 1,536,912

INVESTMENTS, AT FAIR VALUE 49,305,598

TOTAL $49,842,625 $1,536,912

LIABILITIES AND NET POSITION

ESCROW LIABILITIES $1,536,912

NET POSITION RESTRICTED FOR PENSIONS $49,842,625

See Notes to Financial Statements

- 17 - COUNTY OF WAYNE, PENNSYLVANIA

STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2016 PENSION TRUST FUND

ADDITIONS: Contributions: Plan members$ 1,495,184 County 609,199

Total contributions 2,104,383

Investment income (loss): Interest and dividends 1,070,788 Realized gain on sale of investments 616,959 Less investment expenses (181,849) Net appreciation in fair value of investments 2,012,542

Total investment income 3,518,440

Total additions 5,622,823

DEDUCTIONS: Retirement allowance 2,187,215 Refunds of contributions 858,046 Administrative expenses 31,100

Total deductions 3,076,361

CHANGE IN NET POSITION 2,546,462

NET POSITION, BEGINNING 47,296,163

NET POSITION, ENDING $49,842,625

See Notes to Financial Statements

- 18 - COUNTY OF WAYNE, PENNSYLVANIA

COMBINING STATEMENT OF NET POSITION - DISCRETELY PRESENTED COMPONENT UNITS DECEMBER 31, 2016 WAYNE COUNTY HOSPITAL AND HEALTH WAYNE WAYNE COUNTY FACILITIES CONSERVATION REDEVELOPMENT AUTHORITY DISTRICT AUTHORITY TOTAL

ASSETS & DEFERRED OUTFLOWS OF RESOURCES Current assets: Cash and cash equivalents$ 2,549,935 $ 869,758 $ 14,994 $ 3,434,687 Due from other governments 31,081 31,081 Other receivables 16,130,218 17,783 16,148,001 Other current assets 16,345 16,345

Total current assets 18,680,153 869,758 80,203 19,630,114

Investments 1,434,806 1,434,806

Total assets 20,114,959 869,758 80,203 21,064,920

DEFERRED OUTFLOWS OF RESOURCES 54,699 54,699

Total assets & deferred outflows of resources $20,114,959 $ 869,758 $ 134,902 $21,119,619

LIABILITIES, DEFERRED INFLOWS OF RESOURCES & NET POSITION Current liabilities: Accounts payable $ 84,942 $ 84,942 Salaries and wages and related payables 1,504 1,504 Demand note payable 15,189 15,189 Current portion of long-term debt$ 2,235,000 50,860 2,285,860 Accrued interest payable 259,959 259,959

Total current liabilities 2,494,959 152,495 2,647,454

Long-term debt 17,620,000 81,746 17,701,746 Net pension liability - 93,015 93,015

Total liabilities 20,114,959 327,256 20,442,215

DEFERRED INFLOWS OF RESOURCES 1,029 1,029

NET POSITION: Restricted$ 869,758 869,758 Unrestricted (193,383) (193,383)

Total net position - 869,758 (193,383) 676,375

Total liabilities, deferred inflows of resources & net position $20,114,959 $ 869,758 $ 134,902 $21,119,619

See Notes to Financial Statements

- 19 - COUNTY OF WAYNE, PENNSYLVANIA

COMBINING STATEMENT OF ACTIVITIES - DISCRETELY PRESENTED COMPONENT UNITS DECEMBER 31, 2016 WAYNE COUNTY HOSPITAL AND HEALTH WAYNE WAYNE COUNTY FACILITIES CONSERVATION REDEVELOPMENT AUTHORITYDISTRICT AUTHORITY TOTAL

REVENUES: Charges for services$ 82,669 $ 63,583 $ 146,252 Intergovernmental revenue 1,288,791 223,235 1,512,026 Investment and rental income$ 519,920 2,038 20 521,978 Other 2,252 8,547 10,799

Total revenues 519,920 1,375,750 295,385 2,191,055

EXPENDITURES: Conservation and development 833,258 317,672 1,150,930 Debt service 519,920 519,920

Total expenditures 519,920 833,258 317,672 1,670,850

CHANGE IN NET POSITION - 542,492 (22,287) 520,205

Net position, beginning - 327,266 (171,096) 156,170

Net position, ending $ - $ 869,758 $ (193,383) $ 676,375

See notes to financial statements

- 20 - COUNTY OF WAYNE,PENNSYLVANIA

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting methods and procedures adopted by the County of Wayne, Pennsylvania (the “County”) conform to accounting principles generally accepted in the United States of America as applied to governmental entities. The following notes to the financial statements are an integral part of the County’s financial statements.

FINANCIAL REPORTING ENTITY

The County was established under the laws of the Commonwealth of Pennsylvania in 1798 and operates as a sixth-class county under the County Code. As required by accounting principles generally accepted in the United States of America, the financial statements of the reporting entity include those of the County (the primary government) and its component units. The component units, discussed in Note 2, are included in the County’s reporting entity because of the significance of their operational or financial relationships with the County.

GOVERNMENT-WIDE FINANCIAL STATEMENTS

The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. The primary government is reported separately from certain legally separate component units for which the primary government is financially accountable.

The statement of activities demonstrates the degree to which the direct expenses of a given function or segments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues.

Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements.

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MEASUREMENT FOCUS,BASIS OF ACCOUNTING,AND FINANCIAL STATEMENT PRESENTATION

The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

FUND FINANCIAL STATEMENTS

Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the County considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting.

Property taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the County.

The County reports the following major governmental funds:

The General Fund is the County’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.

The Capital Projects Fund is maintained to account for the financial resources expended to acquire assets of a relatively permanent nature.

The Human Services Fund (a major special revenue fund) accounts for the operations of the County’s Area Agency on Aging, Drug and Alcohol Commission, Transportation Program and Behavioral and Developmental Programs and Early Intervention Department.

Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than special assessments, expendable trusts, or major capital projects) that are legally restricted to specified purposes. The County reports the following nonmajor governmental funds:

- 22 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

Liquid Fuels, Wayne County Redevelopment, 911, Probation, Hazardous Material Response, Block Grant, Solid Waste, District Attorney/Drug Abuse, Domestic Relations, Hotel Excise Tax Fund, Act 13 Fund, and County Records Improvement Fund.

The County’s Fiduciary Fund accounts for the Pension Trust Fund and the Agency Fund. The Pension Trust Fund accounts for assets held by the County as trustee for individuals currently or previously employed by the County. The Agency Fund accounts for assets held by the County in a custodial or agent function.

As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between the County’s Human Services Fund and various other functions of the County. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned.

ALLOCATION OF INDIRECT EXPENSES

The County does not allocate indirect costs, including depreciation.

BUDGETARY DATA

An operating budget is adopted each year by the County Commissioners for the General Fund and Liquid Fuels Fund on the modified accrual basis of accounting.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and highly liquid investments with a maturity of three months or less which are all carried at cost.

INVESTMENTS AND FAIR VALUE MEASUREMENTS

The County categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are other significant observable inputs; and Level 3 are significant unobservable inputs.

Investments consist of mutual funds, common and preferred stock, corporate bonds, U.S. government and U.S. government agency debt, and certificates of deposit in the Pension Trust and District Attorney/Drug Abuse funds. Certificates of deposit are stated at amortized cost, which approximates fair value. All other investments are stated at fair value based on quoted market prices (Level 1).

- 23 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

INTERFUND TRANSACTIONS

The County frequently incurs transactions between its funds for operations. Accordingly, appropriate interfund receivables or payables have been established to the extent that certain interfund transactions have not been paid or received as of December 31, 2016.

CAPITAL ASSETS

General capital assets result from expenditures in the governmental funds and are reported in the governmental activities column of the government-wide statement of net assets but are not reported in the fund financial statements.

All capital assets are stated at cost or estimated cost, net of accumulated depreciation. Donated capital assets are reported at their fair value at date of receipt. The County maintains a capitalization threshold of $5,000. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset’s life are not.

General infrastructure assets acquired prior to December 31, 2005 consist of bridges and values are estimated based on historical cost using deflated replacement cost. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets’ lives are not capitalized.

Capital assets are depreciated using the straight-line method over the following estimated useful lives:

Estimated Useful Asset Class Lives

Infrastructure 50 years Land improvements 20 years Buildings and improvements 20 - 40 years Furniture and equipment 5 - 20 years

DEFERRED OUTFLOWS AND DEFERRED INFLOWS OF RESOURCES

The statement of net position reports separate sections for deferred outflows of resources and deferred inflows of resources. Deferred outflows of resources, which are reported after total assets, are defined by GASB as a consumption of net position that applies to future periods. The expense is recognized in the applicable future period(s). Deferred inflows of resources, which are reported after total liabilities, are defined by GASB as an acquisition of net position that applies to future periods. The revenue, or reduction of expense, is recognized in the applicable future period(s). Transactions are classified as deferred outflows of resources or deferred inflows of resources only when specifically prescribed by GASB standards. - 24 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

The County is required to report the following as deferred outflows of resources and deferred inflows of resources:

x Unavailable revenue – property taxes, which represents the portion of taxes receivable that does not meet both the measurable and available criteria for recognition in the current period in the governmental funds balance sheet. In subsequent periods, when both revenue recognition criteria are met, the unavailable revenue is removed as a deferred inflow of resources and the revenue is recognized.

x For defined benefit pension plans: the difference between expected (actuarial) and actual experience and the net difference between projected (actuarial) and actual earnings on pension plan investments.

ESCROW LIABILITIES

Escrow liabilities represent amounts that are held by the County primarily for items such as undistributed fees, fines and costs held by row offices, bail collections, proceeds from sheriff’s sales, child support collections, various taxes, fees and licenses and taxes to be distributed to municipalities and school districts.

UNEARNED REVENUE

The County reports unearned revenue on its financial statements. Unearned revenue arises when the County receives resources before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualifying expenditures or when cash is received prior to the provision of services. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for unearned revenue is removed and revenue is recognized.

COMPENSATED ABSENCES

County employees are granted vacation and sick leave in varying amounts based on their length of employment. Vacation leave is earned by employees on a yearly basis. Employees may carry over a maximum of twenty days of vacation to the following year. Sick leave is earned by employees on a yearly basis and may be accumulated. Upon termination, prison employees are compensated at a rate of $50 per day to a maximum of 112.5 days. All other employees are compensated at a rate of $40 per day to a maximum of 100 days. Unused vacation leave is accumulated at the employee’s daily pay rate.

- 25 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

SELF-INSURANCE

The County is self-insured for health care claims. At December 31, 2016, the County carried a stop loss policy limiting its liability for any one specific claim to $185,000 per year. The County’s maximum annual reimbursement for aggregate claims is $5,400,860. The County accounts for its self-insurance activity in its General Fund. All health care costs are budgeted for and recorded as general government expenditures and are not allocated to the County’s various departments.

GOVERNMENT FUND BALANCE CLASSIFICATIONS

In accordance with Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, the County classifies its governmental fund balances as follows:

x Non-spendable – includes fund balance amounts that cannot be spent either because it is not in spendable form or because of legal or contractual constraints.

x Restricted – includes fund balance amounts that are constrained for specific purposes which are externally imposed by providers, such as creditors or amounts constrained due to constitutional provisions or enabling legislation.

x Committed – includes fund balance amounts that are constrained for specific purposes that are internally imposed by the County through formal action of the County’s “highest level of decision-making authority” which do not lapse at year-end. The Board of Commissioners is its highest level of decision-making authority, and the Board commits funds through resolutions.

x Assigned – includes fund balance amounts that are constrained for specific purposes that are internally imposed by the County, but not through formal action of the Board.

x Unassigned – includes fund balance within the General Fund which has not been classified within the above mentioned categories and negative fund balances in other governmental funds

RESTRICTED NET POSITION/FUND BALANCES

In governmental funds when an expenditure is incurred that can be paid using either restricted or unrestricted resources, the County’s policy is generally to first apply the expenditure toward restricted fund balance and then to other, less restrictive classifications.

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When both restricted and unrestricted resources are available for use, the County’s policy is to use restricted resources first, then unrestricted as needed.

USE OF ESTIMATES

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

NEW ACCOUNTING PRONOUNCEMENTS

In February 2015, the GASB issued its Statement No. 72, Fair Value Measurement and Application. This Statement defines fair value and addresses accounting and financial reporting issues related to fair value measurements. It also provides guidance for determining a fair value measurement for financial reporting purposes and for applying fair value to certain investments and disclosures related to all fair value measurements. The adoption provided enhanced disclosures related to investments.

In August 2015, the GASB issued its Statement No. 77, Tax Abatement Disclosures. This Statement requires governments that enter into tax abatement agreements to disclose certain information about the taxes being abated. The adoption resulted in new disclosure of such agreements entered into by the County at Note 16.

2. REPORTING ENTITY

In accordance with the guidance contained in Governmental Accounting Standards Board (“GASB”) Statement 14, The Financial Reporting Entity, as amended by GASB Statements No. 39, Determining Whether Certain Organizations Are Component Units – an amendment of GASB Statement No. 14 and No. 61, The Financial Reporting Entity: Omnibus – an amendment of GASB Statements No. 14 and No. 34, the County has evaluated all related entities (authorities, commissions and affiliates) for the possible inclusion in the financial reporting entity.

The component units discussed below are included in the County’s reporting entity because of the significance of financial and operational relationships with the County.

BLENDED COMPONENT UNIT

The Wayne County Agricultural Land Preservation (“WCALP”) board was created by the County to select farms for the County’s agricultural easement program. - 27 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

Since the County implements the program and accounts for all of the financial transactions, the WCALP has been blended into the County’s financial statements within its Capital Projects Fund.

DISCRETELY PRESENTED COMPONENT UNITS

Component units that are not blended as part of the primary government are discretely presented, which entails reporting component unit financial data in a column separate from the financial data of the primary government to emphasize that they are legally separate from the County. The following component units are discretely presented in the accompanying financial statements:

x Wayne Conservation District x Wayne County Redevelopment Authority x Wayne County Hospital and Health Facilities Authority

The Wayne Conservation District (“WCD”), an entity legally separate from the County, was created to promote protection, conservation and sustainable use of natural resources of the County through education and public awareness. The WCD is governed by a board appointed by the County Commissioners and a Commissioner sits on the board. In addition, the WCD is not independent of the County with regards to financial accountability.

The Wayne County Redevelopment Authority (“WCRA”), an entity legally separate from the County, was created to provide community redevelopment, rehabilitation and weatherization assistance to low-income families, individuals and other eligible citizens in the County. The WCRA is governed by a board appointed by the County Commissioners.

The Wayne County Hospital and Health Facilities Authority (“WCHHFA”), an entity legally separate from the County, was created by a resolution passed by the County Commissioners and has elected a June 30 fiscal year-end. In addition, all of the WCHHFA’s debt is guaranteed by the County.

Complete financial statements for the individual component units can be obtained from their respective administrative offices as follows:

x Wayne Conservation District 648 Park Street Honesdale, Pennsylvania 18431

x Wayne County Redevelopment Authority c/o Wayne County 925 Court Street Honesdale, Pennsylvania 18431 - 28 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

x Wayne County Hospital and Health Facilities Authority c/o Wayne Memorial Hospital 601 Park Street Honesdale, Pennsylvania 18431

All separately published audit reports of the component units are available for public inspection in the Office of the County Commissioners.

RELATED ORGANIZATIONS

The following organizations are considered to be related organizations of the County because of their relationship and mutual interest. The County appoints members to the organization’s governing boards but does not impose its will or have significant financial accountability for these organizations. The organizations are as follows:

x Lake Wallenpaupack Watershed Management District x Wayne Industrial Development Authority x Private Industry Council, Pocono Counties SDA #15 x South Wayne County Water and Sewer Authority x Wayne County Library Alliance x Wayne County Planning Commission x Wayne County Housing Authority

3. DEPOSITS WITH FINANCIAL INSTITUTIONS AND INVESTMENTS

Under the County Administrative Code, the County is authorized to invest its funds in the following:

x United States Treasury bills.

x Short-term obligations of the United States government or its agencies or instrumentalities.

x Savings accounts or time deposits, other than certificates of deposit, or share accounts of institutions having their principal place of business in the Commonwealth of Pennsylvania and insured by the Federal Deposit Insurance Corporation (FDIC) or other like insurer.

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x Obligations of the United States or any of its agencies or instrumentalities backed by the full faith and credit of the United States, the Commonwealth of Pennsylvania, or any agencies or instrumentalities backed by the full faith and credit of the Commonwealth of Pennsylvania, or of any political subdivision of the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the political subdivision.

x Certificates of deposit purchased from institutions having their principal place of business in or outside the Commonwealth of Pennsylvania which are insured by the FDIC or other like insurer. For any amounts in excess of the insured maximum, such deposits must be collateralized by a pledge or assignment of assets pursuant to Act No. 72 of the General Assembly of the Commonwealth of Pennsylvania. Certificates of deposit may not exceed 20% of a bank’s total capital surplus or 20% of a savings and loan’s or savings bank’s assets net of its liabilities.

x Commercial paper and prime commercial paper meeting certain requirements.

In addition, the County Administrative Code provides that a pension or retirement fund may make any investment authorized by 20 PA C.S. 73 (relating to fiduciary investments).

DEPOSITS WITH FINANCIAL INSTITUTIONS

CUSTODIAL CREDIT RISK

Deposits are exposed to custodial credit risk if they are not covered by depository insurance. The County does not have a policy for custodial credit risk. At December 31, 2016, the bank balance of the County’s deposits with financial statements, including cash equivalents and certificates of deposit, was $14,111,220 compared to the carrying amount of $13,120,101. The difference is caused by items in-transit and outstanding checks. $11,847,334 of the County’s deposits was exposed to custodial credit risk and was uninsured and collateralized by securities pledged by the financial institutions for such funds but not in the County’s name in accordance with the collateralization provisions of Commonwealth of Pennsylvania Act 72 of 1971, as amended.

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INVESTMENTS

As of December 31, 2016, the County’s investments are carried at fair market value (Level 1) and consist of the following:

Pension Trust Fund Maturities Fair Value

Common and preferred equity securities $ 24,431,485 Corporate bonds and notes 1-47 years 8,015,556 Equity mutual funds 7,172,461 U.S. government agency obligations 3-30 years 4,292,875 U.S government obligations 2-10 years 3,913,549 Certificates of deposit 3-5 years 1,353,509 Municipal bonds 1-2 years 126,163

Total $ 49,305,598

CUSTODIAL CREDIT RISK

For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the County will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The County does not have a formal deposit policy for custodial credit risk. The County’s pension investments are held by Wayne Bank in accounts separate and apart from the assets of the financial institution. According to the brokerage, “customer securities are legally the property of customers – they are not on Wayne Bank’s balance sheet and are not exposed to Wayne Bank’s creditors. Under the SEC’s customer protection rule, customers’ securities must be segregated from Wayne Bank’s proprietary securities”. The securities are held in central depositories with the record of ownership reflected on a book entry basis. The account is held in the name of the Wayne County Employees’ Retirement Board.

CREDIT RISK

Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a credit rating by a nationally recognized organization.

- 31 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

The County’s investments in debt securities of governmental funds and the Pension Trust fund had the following credit ratings at December 31, 2016:

Investment Rating %

Corporate bonds Aaa/AAA 15.62% Corporate bonds Aa/AA 9.63% Corporate bonds A 18.90% Corporate bonds Baa 5.59% U.S. government agency obligations Aaa/AAA 26.80% U.S. government obligations Aaa/AAA 22.68% Municipal bonds & notes Aa 0.78%

Totals 100.00%

The County’s investment policy targets a maximum of 60% equity and 40% fixed income securities with a 5% leeway above or below the targeted percentages and specifies that all bonds must be rated at least “investment grade” by at least one of the Nationally Recognized Statistical Ratings Organizations (i.e., Moody’s, Standard & Poor’s, or Fitch).

CONCENTRATION OF CREDIT RISK

Concentration of credit risk is the risk of loss attributed to the magnitude of the County’s investment in a single issuer. The County has no investment policy that would place a limit on the amount the County may invest in any one issuer.

INTEREST RATE RISK

Interest rate risk is the risk that changes in market rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The County does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates.

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FOREIGN CURRENCY RISK

Foreign currency risk is the risk that changes in the foreign exchange rate that will adversely affect the fair value of an investment. There are currently no investments in securities exchanged in foreign denominations. The County does not have a formal policy for foreign currency risk.

4. REAL ESTATE TAXES

The County’s tax on real estate, as levied by the Board of County Commissioners, was 3.30 mills for general county purpose ($3.30 per $1,000 of assessed valuation) and .41 mills for debt service ($.41 per $1,000 of assessed valuation) for the year ended December 31, 2016. The schedule for real estate taxes levied for each fiscal year is as follows:

February 15 Levy Date April 1 – May 31 2% discount period June 1 – July 31 Face payment period August 1 - December 31 5% penalty period January 15 Lien date

Delinquent real estate taxes receivable at December 31, 2016 amounted to $1,645,857. The amount of taxes receivable is reported net of an allowance for doubtful collections of $371,013.

5. NOTES RECEIVABLE

In January 2014, the County advanced the WCRA $100,000 for working capital purposes. The advance is non-interest bearing with monthly payment of $1,500 due beginning in April 2015.

The following summarizes the changes in notes receivable in 2016:

BALANCE BALANCE JANUARY 1, DECEMBER 31, 2016 INCREASES DECREASES 2016

WCRA $ 94,000 $ - $ - $ 94,000

- 33 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

Scheduled maturities of notes receivable are as follows:

Year ending December 31,

2017 $ 43,500 2018 18,000 2019 18,000 2020 14,500

Total $ 94,000

The Authority has not made a payment on the note since April 2015. The County has determined that repayment of the outstanding amount is unlikely in the near term and has reserved the entire amount as uncollectible at December 31, 2016

6. CAPITAL ASSETS

The changes in the County’s capital assets in 2016 are summarized as follows:

BALANCE BALANCE JANUARY 1, TRANSFERS/ TRANSFERS/ DECEMBER 31, 2016 ACQUISITIONS DISPOSITIONS 2016

Governmental activities: Capital assets not being depreciated: Land $ 699,827 $ 699,827 Conservation easements 1,273,818 $ 40,000 1,313,818 Construction in progress 1,529,370 173,130 $ (1,702,500) -

Total capital assets not being depreciated 3,503,015 213,130 (1,702,500) 2,013,645

Capital assets being depreciated: Site improvements 610,951 12,000 622,951 Buildings and improvements 30,101,082 605,325 30,706,407 Furniture and equipment 7,654,699 941,208 (545,960) 8,049,947 Assets under capital lease 1,466,685 286,663 1,753,348 Infrastructure 8,170,785 1,702,500 ______9,873,285

Total capital assets being depreciated 48,004,202 3,547,696 (545,960) 51,005,938

- 34 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

Less accumulated depreciation for: Site improvements (293,188) (22,810) (315,998) Buildings and improvements (9,647,990) (751,016) (10,399,006) Furniture and equipment (6,160,968) (512,920) 545,960 (6,127,928) Assets under capital lease (806,676) (102,002) (908,678) Infrastructure (1,657,856) (350,721.5) ______(2,008,578)

Total accumulated depreciation (18,566,678) (1,739,470) 545,960 (19,760,188)

Total capital assets being depreciated, net 29,437,524 1,808,226 - 31,245,750

Governmental activities capital assets, net $ 32,940,539 $ 2,021,356 $ (1,702,500) $ 33,259,395

7. LONG-TERM OBLIGATIONS

During 2012, the County issued $7,200,000 of general obligation bonds to advance refund a portion of the Series 2007 general obligation bonds. These bonds are due in varying annual installments plus interest at rates ranging from 2.00% to 3.30% with final maturity scheduled for 2027. Principal due in 2017 is $400,000.

During 2015, the County issued $13,470,000 of general obligation bonds to currently refund the Series 2010 general obligation bonds. These bonds are due in varying annual installments plus interest at rates ranging from 1.00% to 5.00% with final maturity scheduled for 2026. Principal due in 2017 is $1,015,000.

The following is a summary of changes in bonds payable:

BALANCE BALANCE JANUARY 1, DECEMBER 31, 2016 INCREASES DECREASES 2016

Series of 2012 $ 6,820,000 $ (400,000) $ 6,420,000 Series of 2015 12,770,000 ______(975,000) 11,795,000

Total 19,590,000 - (1,375,000) 18,215,000

Bond premiums 653,501 (59,409) 594,092 Bond discounts (54,543) ______4,393 (50,150)

Total $20,188,958 - $(1,430,016) $18,758,942

Total interest paid on these bonds in 2016 was $616,218.

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The following summarizes the County’s future debt service requirements on general obligation debt as of December 31, 2016:

Year ending December 31, Principal Interest Total

2017 $ 1,415,000 $ 578,967 $ 1,993,967 2018 1,450,000 540,518 1,990,518 2019 1,495,000 501,167 1,996,167 2020 1,530,000 460,568 1,990,568 2021 1,585,000 406,805 1,991,805 2022-2026 8,810,000 1,153,265 9,963,265 2027 1,930,000 63,690 1,993,690

Total $18,215,000 $3,704,980 $21,919,980

8. CAPITAL LEASE OBLIGATIONS

The County entered into a capital lease for energy conservation equipment. The lease agreement requires sixty payments of $32,848 at varying intervals through September 2025.

The County also entered into various capital lease obligations for vehicles. The leases require varying monthly payments through 2021.

The following is a summary of changes in capital lease obligations in 2016:

Balance, January 1, 2016 $ 591,278

Increase 266,979 Decrease (75,363)

Balance, December 31, 2016 $ 782,894

The County makes its capital lease payments from the General Fund.

- 36 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

The following is a summary of future minimum lease payments required under this capital lease along with the present value of the net minimum lease payments as of December 31, 2016:

Year ending December 31: Amount

2017 $ 132,379 2018 132,380 2019 132,380 2020 132,379 2021 99,337 2022-2025 262,787

Total minimum lease payments 891,642

Less amounts representing interest 108,748

Present value of net minimum lease payments 782,894

Less current portion 101,138

Long-term portion $ 681,756

Total interest paid on this capital lease in 2016 was $23,376.

9. SHORT-TERM BORROWINGS

The County issued a $2,500,000 tax and revenue anticipation note in 2016 that bore interest at a rate of .83%. The County did not draw on the note in 2016.

- 37 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

10. COMPENSATED ABSENCES

The changes in the County’s compensated absences in 2016 are summarized as follows:

Balance, January 1, 2016 $ 1,422,906

Increase 1,650,802

Decrease (1,637,258)

Balance, December 21, 2016 1,436,450

Less current portion 143,645

Long term compensated absences $ 1,292,805

The County generally pays its compensated absences from the General Fund.

11. EMPLOYEES’RETIREMENT PLAN

The County sponsors and administers a single-employer defined benefit pension plan covering all eligible employees of the County. Act 96 of 1971, as amended, cited as the County Pension Law, provides for the creation, maintenance, and operation of this plan. Management of the plan is vested in the County’s Retirement Board, which consists of the three elected County commissioners, the County Treasurer and the Chief Clerk.

Membership of the plan consisted of the following for the 2016 measurement period:

Inactive plan members or beneficiaries currently receiving benefits 193 Inactive plan members entitled to but not yet receiving benefits 29 Active plan members 412

Total 634

Number of participating employers 1

- 38 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

The entry age actuarial cost method is used to determine the annual required contribution (“ARC”) for the plan. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. A schedule of funding progress, which is required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Information regarding the plan can be obtained from the County. The plan does not issue separate financial statements but is contained in the County’s financial statements as a Pension Trust Fund.

BENEFITS PROVIDED

The plan provides retirement, disability and death benefits to retirees and their beneficiaries. Retirement benefits for plan members are calculated as a percentage of the member’s highest 3-year average salary times the member’s years of service depending on class basis. Plan members with 20 years of service are eligible to retire at age 55. Plan members that have attained age 60 are also eligible to retire. All plan members are eligible for disability benefits after 5 years of service if they are disabled while in service and are unable to continue as a county employee. Disability retirement benefits are equal to 25% of the highest average salary at the time of retirement. Death benefits for a member who dies with 10 years of service prior to retirement is the total present value of the member’s retirement paid in a lump sum. A plan member who leaves County service with less than 5 years of service may withdraw his or her contributions, plus any accumulated interest.

On an ad hoc basis, cost-of-living adjustments to each member’s retirement allowance shall be reviewed at least once every three years subsequent to the member’s retirement date. The adjustment, should the County elect to give one, is a percentage of the change in the Consumer Price Index.

- 39 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation for the 2016 measurement period (see the discussion of the pension plan’s investment policy) are summarized in the following table:

Long-Term Expected Asset Class Real Rate of Return

Domestic Equity 5.4 - 6.4% International Equity 5.5 - 6.5 Fixed Income 1.3 - 3.3 Real Estate 4.5 - 5.5 Cash 0.0 - 1.0

DISCOUNT RATE

The discount rate used to measure the total pension liability was 7.5 percent. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that County contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

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CHANGES IN NET PENSION LIABILITY

The following table shows the changes in the total pension liability, the plan fiduciary net position (i.e. fair value of plan assets) and the net pension liability as of the measurement date:

Change in Net Pension Liability Increase (Decrease) Plan Net Total Fiduciary Pension Pension Net Liability/ Liability Position (Asset) (a) (b) (a) – (b)

Balances at December 31, 2015 $47,160,737 $47,296,163 $ (135,426)

Changes for the year: Service cost 2,128,831 2,128,831 Interest 3,504,575 3,504,575 Difference between expected and actual experience (305,683) (305,683) Changes of assumptions Contributions – employer 609,199 (609,199) Contributions – member 1,495,184 (1,495,184) Net investment income 3,509,635 (3,509,635) Benefit payments (3,045,262) (3,045,262) - Plan administrative expenses (31,100) 31,100 Other changes ______8,806 (8,806)

Net changes 2,282,461 2,546,462 (264,001)

Balances at December 31, 2016 $49,443,198 $49,842,625 $ (399,427)

- 41 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

SENSITIVITY OF THE NET PENSION LIABILITY (ASSET) TO CHANGES IN THE DISCOUNT RATE

The following presents the net pension liability of the County, calculated using the discount rate of 7.5 percent, as well as what the County’s net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.5 percent) or 1-percentage-point higher (8.5 percent) than the current rate:

1% Current 1% Decrease Discount Increase (6.5%) Rate (7.5%) (8.5%)

Net pension liability (asset) $4,197,213 $(399,427) $(4,600,063)

CONTRIBUTIONS

An actuarially determined contribution is recommended by the plan actuary. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by plan members during the year, with an additional amount to finance an unfunded accrued liability. For the 2016 measurement period, the active member contribution rate was 7.0 percent of annual pay, and the County average contribution rate was 4.06 percent of annual payroll.

INVESTMENTS

INVESTMENT POLICY

The pension plan’s policy in regard to the allocation of invested assets is established and may be amended by the Retirement Board by a majority vote of its members. It is the policy of the Board to pursue an investment strategy that reduces risk through the prudent diversification of the portfolio across a broad selection of distinct asset classes. The following was the Retirement Board’s asset allocation policy for the 2016 measurement period:

Asset Class Target Percentage

Domestic Equity 45-60% International Equity 5-15% Fixed Income 35-45% Real Estate 0% Cash and Equivalents 0-10%

- 42 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

CONCENTRATIONS

The pension plan did not hold any investments in any one organization that represent 5 percent or more of the pension plan’s fiduciary net position at December 31, 2016

RATE OF RETURN

For the 2016 measurement period, the annual money-weighted rate of return (loss) on pension plan investments, net of pension plan investment expense, was 7.77 percent. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested.

NET PENSION LIABILITY(ASSET)

The components of the net pension liability of the County for the 2016 measurement period were as follows:

Total pension liability $ 49,443,198 Plan fiduciary net position 49,842,625

County’s net pension liability (asset) $ (399,427)

Plan’s fiduciary net position as a percentage of the total pension liability 100.81%

The total pension liability was determined by an actuarial valuation for the 2016 measurement period at January 1 and rolled forward to December 31 using the following actuarial assumptions, applied to all periods included in the measurement:

Inflation 3.0 percent Salary increases 4.5 percent, average, including inflation Investment rate of return 7.5 percent, net of pension plan investment expense, including inflation

Mortality rates were based on RP-2013 Annuitant and Non-Annuitant Mortality Tables for Males and Females with no projected improvement.

The actuarial assumptions used in the valuation for the 2016 measurement period were based on past experience under the plan and reasonable future expectations which represent the best estimate of anticipated experience under the plan. An actuarial experience study was performed in 2016; however, no modifications were made to assumptions as a result. - 43 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

No ad hoc postemployment benefit changes were included in the future liability.

PENSION LIABILITIES,PENSION EXPENSE,DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS

At December 31, 2016, the County reported a net pension asset of $399,427. The net pension asset was measured as of December 31, 2016 and the total pension liability used to calculate the net pension asset was determined by rolling forward the total pension liability as of December 31, 2015 to December 31, 2016.

For the year ended December 31, 2016, the County recognized pension expense of $1,353,361. At December 31, 2016, the County reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Deferred Outflows Inflows of Resources of Resources

Net difference between projected and actual experience $ (645,585) Net difference between projected and actual investment earnings $ 2,555,305 ______

Total $ 2,555,305 $ (645,585)

Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

YEAR ENDING DECEMBER 31 Amortization

2017 $ 704,267 2018 704,267 2019 704,266 2020 (147,023) 2021 (56,057)

TOTAL $1,909,720

For the 2016 measurement period, the County had no outstanding amount of contributions to the pension plan required for the year ended December 31, 2016.

- 44 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

12. INTERFUND BALANCES/TRANSFERS

The composition of interfund balances as of December 31, 2016 is as follows:

Due To Due From

Governmental funds: General Fund $ 539,443 Human Services $ 539,443

The Human Services Fund owed the General Fund $539,443 to reimburse various expenses, net of grant funds received by the General Fund, annual appropriations, and local matching funds for various grant programs.

Interfund transfers for the year ended December 31, 2016 are as follows:

Transfers In Transfers Out

Solid Waste Fund $ 150,000 Block Grant Fund 100,000 Probation Fund 21,915 Capital Projects Fund $ 50,000 General Fund 271,915 ___50,000

Total $ 321,515 $ 321,515

The Solid Waste Fund transferred $150,000 to the General Fund for future expenditures. The Block Grant Fund transferred $100,000 to the General Fund to reimburse costs incurred in prior periods. The Probation Fund transferred $21,915 to the General Fund to pay certain operating costs of the Probation Department in accordance with an order from the County’s President Judge. The General fund transferred $50,000 to the Capital Projects Fund to provide for future capital improvements.

13. COMMITMENTS AND CONTINGENCIES

The County is involved, from time to time, in various lawsuits. In the opinion of the County, these matters either are adequately covered by insurance or will not have a material effect on the County’s financial statements.

- 45 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

The County participates in both state and federally assisted grant programs. These programs are subject to program compliance audits by the grantors or their representatives. The County is potentially liable for any expenditures which may be disallowed pursuant to the terms of these grant programs. The County is not aware of any material items of noncompliance which would result in the disallowance of a program expenditure.

The County has guaranteed various bonds issued by the Wayne County Hospital and Health Facilities Authority, which is a discretely presented component unit of the County, in accordance with the Commonwealth of Pennsylvania Local Government Unit Debt Act. The bonds are due in varying annual installments plus interest through 2027. The amount outstanding on the bonds is $17,620,000 at December 31, 2016. In the event that the Authority is unable make a payment, the County will be required to make that payment.

The County self-insures its obligation for health insurance. By doing so, the County is exposed to certain risks of losses associated with these types of transactions. No provision has been made in the accompanying financial statements for claims that have been incurred but not reported. An estimate of the amount representing potential claims is not known.

14. RISK MANAGEMENT

The County is exposed to various risks of loss related to torts; theft of, damage to, and destruction of, assets; errors and omissions; injuries to employees; and natural disasters.

PUBLIC ENTITY RISK POOLS

The County participates in the Pennsylvania Counties Workers’ Compensation Trust (“PCOMP”), a public entity risk pool program administered by the County Commissioners Association of Pennsylvania. The County pays an annual premium to PCOMP for workers’ compensation coverage. The PCOMP agreement provides that the pool will be self-sustaining through member premiums. The pooling agreement allows for the pool to make additional assessments to make the pool self-sustaining; however, this has not been necessary. PCOMP publishes its own financial report, which can be obtained through its offices, P.O Box 60769, Harrisburg, PA 17106- 0769 (Attn: John Sallade, Managing Director, Insurance Programs).

- 46 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

The County participates in the Pennsylvania Counties Risk Pool (“PCoRP”), a public entity risk pool program of the County Commissioners Association of Pennsylvania (“CCAP”). The County pays an annual premium to PCoRP for its property insurance coverage. The agreement for the formation of PCoRP provides that the pool will be self-sustaining through member premiums and will reinsure through commercial insurance for claims in excess of $250,000 for each insured event. The pooling agreement allows for the pool to make additional assessments to make the pool self- sustaining; however, this has not yet been necessary. PCoRP publishes its own financial report, which can be obtained through its offices, P.O. Box 60769, Harrisburg, PA, 17106-0769 (Attn: John Sallade, Managing Director, Insurance Programs).

15. FUND BALANCE CLASSIFICATIONS

The County presents its governmental fund balances by level of constraint in the aggregate on its balance sheet – governmental funds. The individual specific purposes of each constraint are presented below:

Human Other General Services Governmental Fund Fund Funds Total

Non-spendable for, Inventory $ 16,587 $ 16,587

Restricted for, Grant programs ______$ 129,470 $ 1,982,841 2,112,311

Total $ 16,587 $ 129,470 $ 1,982,841 $ 2,128,898

16. TAX ABATEMENTS

The County enters into property tax abatements with local property owners under the Keystone Opportunity Expansion Zone and Keystone Opportunity Improvement Zone Act of 1998 (the “Act”). The Act authorizes political subdivisions to apply to the Pennsylvania Department of Community and Economic Development (DCED) for designation of an area within the respective political subdivision as a Keystone Opportunity Expansion Zone granting exemptions, deductions, abatements or credits from all taxes identified in the Act. The County abated property taxes totaling $1,624 in 2016 under this program

- 47 - COUNTY OF WAYNE,PENNSYLVANIA NOTES TO FINANCIAL STATEMENTS

17. RESTATEMENT

Net position of the governmental activities was increased by $859,024 at January 1, 2016 to reflect a change in the method of calculating service cost relative to the County’s total pension liability. The net pension liability reported at December 31, 2015 was decreased by $2,663,473 and the net difference between expected and actual experience was increased by $1,804,449. The County feels that the change more accurately reflects projected future cash flows from its defined benefit pension plan.

18. PENDING CHANGES IN ACCOUNTING PRINCIPLES

In March 2016, the GASB issued its Statement No. 82, Pension Issues – an Amendment of GASB Statement No. 67, No. 68 and No. 73. This Statement addresses issues regarding the presentation of payroll-related measures in required supplementary information, the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes and the classification of payments made by employers to satisfy employee contribution requirements. GASB Statement No. 82 will be effective for the County’s calendar year 2017 financial statements.

In November 2016, the GASB issued its Statement No. 83, Certain Asset Retirement Obligations. This Statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for asset retirement obligations. GASB Statement No. 86 will be effective for the County’s 2019 financial statements.

In January 2017, the GASB issued its Statement No. 84, Fiduciary Activities. This Statement establishes criteria for identifying fiduciary activities for accounting and financial reporting purposes and how they should be reported. GASB Statement No. 86 will be effective for the County’s 2019 financial statements.

In May 2017, the GASB issued its Statement No. 86, Certain Debt Extinguishment Issues. This Statement is intended to improve consistency in accounting and financial reporting for: in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources are placed in an irrevocable trust for the sole purpose of extinguishing debt; prepaid insurance on debt that is extinguished; and notes to financial statements for debt that is defeased in substance. GASB Statement No. 86 will be effective for the County’s 2018 financial statements.

The County has not yet determined the effects of the adoption of the aforementioned GASB Statements on its financial statements.

- 48 - COUNTY OF WAYNE, PENNSYLVANIA

REQUIRED SUPPLEMENTARY INFORMATION - DEFINED BENEFIT PENSION PLAN SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED)

2016 2015 2014

Total pension liability: Service cost $2,128,831 $ 2,009,536 $ 1,893,048 Interest 3,504,575 3,282,781 3,126,998 Changes of benefit terms 685,900 - Differences between expected and actual experience (305,683) (575,881) (279,572) Changes of assumptions -- Benefit payments, including refunds of member contributions (3,045,262) (2,555,351) (2,320,546)

Net change in pension liability 2,282,461 2,846,985 2,419,928 Total pension liability, beginning 47,160,737 44,313,752 41,893,824

Total pension liability, ending (a) $ 49,443,198 $ 47,160,737 $ 44,313,752

Plan fiduciary net position: Contributions, employer $609,199 $ 639,153 $ 1,233,818 Contributions, member 1,495,184 1,419,172 1,325,434 Net investment income 3,509,635 (861,758) 2,937,320 Benefit payments, including refunds of member contributions (3,045,262) (2,555,351) (2,320,546) Administrative expense (31,100) (18,600) (18,605) Other 8,806 378,533 -

Net change in fiduciary net position 2,546,462 (998,851) 3,157,421 Plan fiduciary net position, beginning 47,296,163 48,295,014 45,137,593

Plan fiduciary net position, ending (b) $ 49,842,625 $ 47,296,163 $ 48,295,014

County's net pension liability, ending (a-b) $ (399,427) $ (135,426) $ (3,981,262)

Plan fiduciary net position as a percentage of the total pension liability 100.81% 100.29% 108.98%

Covered employee payroll $15,007,026 $ 14,176,955 $ 13,532,691

County's net pension liability as a percentage of covered employee payroll -2.7% -1.0% (14.5)% - 49 - COUNTY OF WAYNE, PENNSYLVANIA

REQUIRED SUPPLEMENTARY INFORMATION - DEFINED BENEFIT PENSION PLAN SCHEDULE OF COUNTY CONTRIBUTIONS AND INVESTMENT RETURNS (UNAUDITED)

2016 2015 2014

SCHEDULE OF COUNTY CONTRIBUTIONS

Actuarially determined contribution$ 609,199 $ 576,091 $ 547,918

Contributions in relation to the actuarially determined contribution 609,199 639,153 1,233,818

Contribution deficiency (excess) $ - $ (63,062) $ (685,900)

Covered employee payroll$ 15,007,026 $ 14,176,955 $ 13,532,691

Contributions as a percentage of covered employee payroll 4.06% 4.51% 9.12%

SCHEDULE OF INVESTMENT RETURNS

Annual money-weighted rate of return, net of investment expense 7.77% (0.61)% 7.03%

See Notes to Required Supplementary Information

- 50 - COUNTY OF WAYNE,PENNSYLVANIA

NOTES TO REQUIRED SUPPLEMENTARY INFORMATION – DEFINED BENEFIT PENSION PLAN (UNAUDITED)

Valuation date January 1

Actuarially determined contribution rates are calculated as of January 1, one year prior to the end of the fiscal year in which contributions are reported.

Methods and assumptions used to determine contribution rates:

Actuarial cost method Entry age Amortization method Level dollar Remaining amortization period 15 years Asset valuation method Fair market value Inflation 3.0% Salary increases 4.5% average, including inflation Investment rate of return 7.5%, net of pension plan investment expense, including inflation Retirement age Age 60 or 55 with 20 years’ service Mortality 2013 RP Annuitant and Non-Annuitant Mortality Tables for males and females with no projected improvement

As a result of the restatement identified in Note 17 to the financial statements, 2014 and 2015 amounts were restated to reflect the method for calculating service cost in 2016.

- 51 - COUNTY OF WAYNE, PENNSYLVANIA

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE - BUDGET AND ACTUAL - GENERAL AND LIQUID FUELS FUND (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 2016 GENERAL FUND LIQUID FUEL FUND ORIGINAL ORIGINAL ANDVARIANCE AND VARIANCE FINALFAVORABLE FINAL FAVORABLE BUDGET ACTUAL(UNFAVORABLE) BUDGET ACTUAL (UNFAVORABLE)

REVENUES: Taxes$ 18,856,458 $ 19,072,068 $ 215,610 Licenses and permits 10,000 9,265 (735) Intergovernmental revenues 6,479,326 5,812,601 (666,725)$393,314 115,000 $$ 278,314 Charges for services 2,679,872 2,842,692 162,820 Interest and rent 69,300 89,221 19,921 250 703 453 Miscellaneous 205,000 268,145 63,145

Total Receipts 28,299,956 28,093,992 (205,964) 115,250 394,017 278,767

EXPENDITURES: General government 10,828,180 9,902,003 926,177 Judicial 2,987,651 2,817,905 169,746 Public safety 5,366,219 5,924,968 (558,749) Public works 621,914 573,286 48,628 167,000 194,176 (27,176) Human services 5,674,290 5,714,281 (39,991) Culture and recreation 367,585 366,983 602 Conservation and development 737,762 722,914 14,848 Debt service 2,000,717 1,993,414 7,303

Total expenditures 28,584,318 28,015,754 568,564 167,000 194,176 (27,176)

(DEFICIENCY) EXCESS OF REVENUES OVER EXPENDITURES (284,362) 78,238 362,600 (51,750) 199,841 251,591

OTHER FINANCING SOURCES (USES): Proceeds from capital lease obligations 266,979 266,979 Transfers in 250,000 271,915 21,915 Transfers out (125,000) (50,000) 75,000

Total other financing sources (uses), net 125,000 488,894 363,894 - - -

NET CHANGE IN FUND BALANCES (159,362) 567,132 726,494 (51,750) 199,841 251,591

FUND BALANCE, BEGINNING 159,362 4,727,947 4,568,585 308,076 284,142 (23,934)

FUND BALANCE, ENDING $ - $ 5,295,079 $ 5,295,079 $ 256,326 $ 483,983 $ 227,657

See Notes to Financial Statements

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COMBINING BALANCE SHEET- HUMAN SERVICES FUND DECEMBER 31, 2016 TOTAL AREA DRUG HUMAN AGENCY AND SERVICES ON AGING TRANSPORTATION ALCOHOL BDP/EIELIMINATIONS FUND

ASSETS

Cash and Cash Equivalents$ 2,484,740 $ 2,642,627 $ 5,127,367 Due from Other Funds 2,050,919$ 1,201,323 $ 416,004 1,182,354$ (4,850,600) - Due from Other Governments 832,518 235,482 156,458 1,224,458 Other Receivables 4,868 7,831 6,327 19,026

TOTAL $ 5,373,045 $ 1,201,323 $ 659,317 $ 3,987,766 $ (4,850,600) $ 6,370,851

LIABILITIES AND FUND BALANCES

LIABILITIES: Accounts payable$ 187,828 $ 166,348 $ 354,176 Due to other funds 3,564,174$ 868,831 957,038$ (4,850,600) 539,443 Unearned revenue 1,432,444 182,387 $ 659,317 3,073,614 5,347,762

Total liabilities 5,184,446 1,051,218 659,317 4,197,000 (4,850,600) 6,241,381

FUND BALANCE, Restricted 188,599 150,105 - (209,234) 129,470

Total fund balance (deficit) 188,599 150,105 - (209,234) - 129,470

TOTAL $ 5,373,045 $ 1,201,323 $ 659,317 $ 3,987,766 $ (4,850,600) $ 6,370,851

See Notes to Financial Statements

- 53 - COUNTY OF WAYNE, PENNSYLVANIA

COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - HUMAN SERVICES FUND FOR THE YEAR ENDED DECEMBER 31, 2016 TOTAL AREA DRUG HUMAN AGENCY AND SERVICES ON AGING TRANSPORTATION ALCOHOL BDP/EI FUND

REVENUES: Intergovernmental $ 3,418,327 $ 2,248,895 $ 795,913 $ 4,498,738 $ 10,961,873 Charges for services 743,886 50,943 64,976 859,805 Investment earnings 4 5 352 1,255 1,616 Miscellaneous 1,500 17,344 18,844

Total revenues 4,163,717 2,317,187 861,241 4,499,993 11,842,138

EXPENDITURES, Human services 4,175,988 2,122,425 861,241 4,487,279 11,646,933

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (12,271) 194,762 - 12,714 195,205

FUND BALANCES (DEFICIT), BEGINNING 200,870 (44,657) (221,948) (65,735)

FUND BALANCES (DEFICIT), ENDING $ 188,599 $ 150,105 $ - $ (209,234) $ 129,470

See Notes to Financial Statements

- 54 - COUNTY OF WAYNE,PENNSYLVANIA

DESCRIPTION OF NONMAJOR GOVERNMENTAL FUNDS

Liquid Fuels Fund: To account for the maintenance of County bridges and roads. Financing is provided by the County’s share of state gasoline taxes.

Wayne County To account for housing rehabilitation of qualified homeowners. Redevelopment Fund: Financing is provided primarily from federal grants.

911 Fund: To account for the operations of the County’s emergency communication department.

Probation Fund: To account for fees collected by the County’s Probation Department and disbursed at the discretion of the President Judge of the County

Hazardous Material To account for the operations of the County’s hazardous material Response Fund: response program.

Block Grant Fund: To account for the operations of various County social services programs. Funding is a combination of state and federal grants.

Solid Waste Fund: To account for administration fees collected by the County from municipal landfills

District Attorney/ To account for funds received in connection with the seizure of Drug Abuse Fund: illegal drugs. These funds can be used for proceedings relating to the use of drugs at the discretion of the District Attorney.

Domestic Relations To account for the revenue earned relating to the County’s Fund: supervision and collection of court ordered domestic relation payments. Financing is provided primarily from federal grants.

Hotel Excise Tax To account for the collection and disbursement of the County’s Fund: hotel excise tax.

Act 13 Fund: To account for the County’s unconventional gas well impact fee program.

County Records To account for funds received and expended to manage the Improvement: County’s records management needs.

- 55 - COUNTY OF WAYNE, PENNSYLVANIA

COMBINING BALANCE SHEET- NONMAJOR GOVERNMENT FUNDS DECEMBER 31, 2016 WAYNE LIQUID COUNTY HAZMAT BLOCK FUELREDEVELOPMENT 911 PROBATION RESPONSE GRANT

ASSETS

Cash and Cash Equivalents$ 486,166 $ 275 $ 22,206 $ 156,870 $ 10,273 $ 129,381

Investments

Due from Other Governments 317,912

Other Receivables 4,122 10,113

TOTAL $ 486,166 $ 275 $ 340,118 $ 160,992 $ 20,386 $ 129,381

LIABILITIES AND FUND BALANCES

LIABILITIES: Accounts payable$ 2,183 Unearned revenue

Total liabilities 2,183

FUND BALANCE, Restricted 483,983 $ 275 $ 340,118 $ 160,992 20,386 $ 129,381

TOTAL $ 486,166 $ 275 $ 340,118 $ 160,992 $ 20,386 $ 129,381

See Notes to Financial Statements

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COMBINING BALANCE SHEET- NONMAJOR GOVERNMENT FUNDS DECEMBER 31, 2016 DISTRICT ATTORNEY/ HOTEL COUNTY SOLID DRUG DOMESTIC EXCISE RECORDS WASTE ABUSE RELATIONS TAX ACT 13IMPROVEMENT TOTAL

ASSETS

Cash and Cash Equivalents$ 109,197 $ 47,032 $ 592,068 $ 105,025 $ 440,887 $ 36,426 $ 2,135,806

Investments 30,382 30,382

Due from Other Governments 81,271 399,183

Other Receivables 12,735 70,574 1,502 99,046

TOTAL $ 121,932 $ 77,414 $ 673,339 $ 175,599 $ 440,887 $ 37,928 $ 2,664,417

LIABILITIES AND FUND BALANCES

LIABILITIES: Accounts payable $ 377 $ 91,458 $ 4,025 $ 98,043 Unearned revenue 583,533 583,533

Total liabilities 583,910 91,458 4,025 681,576

FUND BALANCE Restricted $ 121,932 $ 77,414 89,429 84,141 436,862 $ 37,928 1,982,841

TOTAL $ 121,932 $ 77,414 $ 673,339 $ 175,599 $ 440,887 $ 37,928 $ 2,664,417

See Notes to Financial Statements

- 57 - COUNTY OF WAYNE, PENNSYLVANIA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2016 WAYNE LIQUID COUNTY HAZMAT BLOCK FUELSREDEVELOPMENT 911 PROBATION RESPONSE GRANT

REVENUES Excise taxes Intergovernmental$ 393,314 $ 40,815 $ 20,271 Charges for services $1,276,145 54,036$ 10,663 Investment earnings 703 1 754 210 7$ 336 Miscellaneous

Total revenues 394,017 40,816 1,276,899 74,517 10,670 336

EXPENDITURES General government . Judicial Public safety 1,387,643 5,500 Public works 194,176 8,036 Culture and recreation Conservation and development 40,815

Total expenditures 194,176 40,815 1,387,643 5,500 8,036 -

(DEFICIENCY) EXCESS OF REVENUES OVER EXPENDITURES 199,841 - 1 - (110,744) 69,017 2,634 336

OTHER FINANCING USES, Transfers in Transfers out (21,915) (100,000)

NET CHANGE IN FUND BALANCES 199,841 1 (110,744) 47,102 2,634 (99,664)

FUND BALANCE, BEGINNING 284,142 274 450,862 113,890 17,752 229,045

FUND BALANCES, ENDING $ 483,983 $ 275 $ 340,118 $ 160,992 $ 20,386 $ 129,381

See Notes to Financial Statements

- 58 - COUNTY OF WAYNE, PENNSYLVANIA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2016 DISTRICT ATTORNEY/ HOTEL COUNTY SOLID DRUG DOMESTIC EXCISE RECORDS WASTE ABUSE RELATIONS TAX ACT 13 IMPROVEMENT TOTAL

REVENUES: Excise taxes $ 393,475 $ 393,475 Intergovernmental$ 35,500 $ 325,279 $922,889 107,710 Charges for services$ 83,625 $17,278 1,441,747 Investment earnings 547 140 657 245 1,034 44 4,678 Miscellaneous 11,520 11,520

Total revenues 84,172 47,160 325,936 393,720 108,744 17,322 2,774,309

EXPENDITURES: General government 2,500 2,500 Judicial 48,914 356,615 405,529 Public safety 1,393,143 Public works 40,485 242,697 Culture and recreation 470,640 470,640 Conservation and development 40,815

Total expenditures - 48,914 356,615 470,640 40,485 2,500 2,555,324

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 84,172 (1,754) (30,679) (76,920) 68,259 14,822 218,985

OTHER FINANCING USES, Transfers out (150,000) (271,915)

NET CHANGE IN FUND BALANCES (65,828) (1,754) (30,679) (76,920) 68,259 14,822 (52,930)

FUND BALANCE, BEGINNING 187,760 79,168 120,108 161,061 368,603 23,106 2,035,771

FUND BALANCES, ENDING $ 121,932 $ 77,414 $ 89,429 $ 84,141 $ 436,862 $ 37,928 $ 1,982,841

See Notes to Financial Statements

- 59 - [ THIS PAGE INTENTIONALLY LEFT BLANK ] APPENDIX E

Summary of Principal Documents [ THIS PAGE INTENTIONALLY LEFT BLANK ] DEFINITIONS OF CERTAIN TERMS

The following are definitions of certain terms used in the Loan Agreement, the Bond Indenture, the County Guaranty and the Master Indenture.

"Administrative Expenses" shall mean all expenses of the Authority which are properly chargeable as administrative expenses: (a) fees and expenses of the Bond Trustee; and (b) fees and expenses of the Authority's professional advisors reasonably necessary and fairly attributable to any Project, including without limiting the generality of the foregoing, fees and expenses of Architects, Consultants, Independent public Accountants or Counsel.

"Architect" shall mean an Independent architect, engineer or firm of architects or engineers which is appointed by an Obligated Issuer for the purpose of passing on questions relating to the design and construction of any particular facility, has all licenses and certifications necessary for the performance of such services and has a favorable reputation for skill and experience in performing similar services in respect of facilities of a comparable size and nature; provided that, if appointed for the purposes of the Master Indenture, such Architect is not unsatisfactory to the Master Trustee and, if appointed for the purposes of the Bond Indenture, such Architect is not unsatisfactory to the Bond Trustee.

"Balloon Indebtedness" shall mean any Long Term Indebtedness other than a Demand Obligation, more than 25% of the principal amount of which is payable in the same Fiscal Year (after taking into account all scheduled mandatory redemptions or prepayments payable over the life of the indebtedness).

"Bond Insurance Policy" shall mean (a) the 2012 Bond Insurance Policy, when used with respect to the 2012 Bonds, (b) the 2012 A Bond Insurance Policy, when used with respect to the 2012 A Bonds, or (c) the 2013 Bond Insurance Policy, when used with respect to the 2013 Bonds.

"Bond Insurer" shall mean (a) the 2012 Bond Insurer, when used with respect to the 2012 Bonds, (b) the 2012 A Bond Insurer, when used with respect to the 2012 A Bonds or (c) the 2013 Bond Insurer, when used with respect to the 2013 Bonds.

"Bonds" shall mean the 2017 Bonds, the 2012 Bonds, the 2012 A Bonds, and the 2013 Bonds, together with any "Additional Bonds" issued under the Bond Indenture.

"Capital Additions" shall mean all property or interests in property, real, personal and mixed, (a) which constitute additions, improvements or extraordinary repairs to or replacements of all or any part of the Hospital Facilities, (b) which are acquired or constructed by or for the Authority or the Hospital after the date of the Bond Indenture, and (c) the Cost of which is properly capitalized under generally accepted accounting principles.

"Consultant" shall mean an Independent consulting firm which is appointed by an Obligated Issuer for the purpose of passing on questions relating to the financial affairs, management or operations of one or more Obligated Issuers of the entire Obligated Group and has a favorable reputation for skill and experience in performing similar services in respect of entities of a comparable size and nature; provided that, if appointed for the purposes of the Master Indenture, such Consultant is not unsatisfactory to the Master Trustee and, if appointed for the purposes of the Bond Indenture, such Consultant is not unsatisfactory to the Bond Trustee. If any Consultant's report or opinion is required to be given with respect to matters partly within and partly without the expertise of any Consultant, such Consultant may rely upon the report or opinion of another Consultant possessing the necessary expertise.

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"Cost of Issuance Subaccount" shall mean the special subaccount to be established within the Construction Fund for payment of costs of issuance relating to the 2017 Bonds.

"Credit Facility" shall mean an unconditional irrevocable letter of credit, a line of credit which is revocable only upon the insolvency of the Obligated Issuer for whose account the line is established, a guaranty or an indemnity or surety insurance policy or bond which is issued (a) in favor of the holder of any Demand Obligation for the purpose of providing a source of funds for the payment of all or any portion of an Obligated issuer's payment obligations under the Demand Obligation, and (b) by a bank, trust company, savings and loan association or other institutional lender, insurance company or surety company not unsatisfactory to the Master Trustee.

"Debt Service Requirements" shall mean, for any specified period, (a) the amounts payable as lease rentals in respect of any or all Long Term Indebtedness in the form of capitalized leases, (b) the amounts payable to any holder or to the Master Trustee in respect of the principal of any or all Master Indenture Obligations issued under the Master Indenture as Long Term Indebtedness (including scheduled mandatory redemptions of principal) and the interest on such Master Indenture Obligations, and (c) the amounts payable to any or all holders of Long Term Indebtedness other than capitalized leases and Master Indenture Obligations (or to any trustee or paying agent for such holders) in respect of the principal of such Long Term Indebtedness (including mandatory redemptions or prepayments of principal) and the interest on such Long Term Indebtedness; provided, however, that the amounts deemed payable in respect of interest shall not include interest on any Long Term Indebtedness which is funded from the proceeds thereof, and that the foregoing shall be subject to adjustment and recalculation as and to the extent permitted or required by the Master Indenture and described under "THE MASTER INDENTURE - Additional Long Term Indebtedness."

"Demand Obligation" shall mean any Long Term Indebtedness which is subject to repurchase or repayment as to principal upon demand by the holder thereof, including any indebtedness which is payable upon demand within 365 days from the date of incurrence, provided that the Master Trustee has received a certified copy of a Credit Facility under which funds are available for the payment of the principal of the Demand Obligation, and provided further that:

(1) the Credit Facility is issued in an amount equal to the principal amount of the Demand Obligation being incurred, subject to reduction for principal payments made in respect of the Demand Obligation; and

(2) the Related Financing Documents shall provide that, if the Credit Facility is scheduled to expire prior to the final maturity date of the Demand Obligation and is not renewed or replaced at least 30 days prior to the scheduled expiration date, the amount available thereunder shall be drawn down prior to its expiration and immediately applied to the payment of the remaining principal balance of the Demand Obligation.

"Existing Notes" shall mean the 2012 Note, the 2012 A Note, the 2013 Note, and the 2017 Note issued under the Master Indenture to secure the 2012 Bonds, the 2012 A Bonds, the 2013 Bonds, and the 2017 Bonds, respectively.

"Financial Advisor" shall mean an Independent investment banking or financial advisory firm which is appointed by an Obligated Issuer for the purpose of passing on questions relating to the availability and terms of specified types of Long Term indebtedness for an Obligated Issuer, is actively engaged in and has a favorable reputation for skill and experience in underwriting or providing financial advisory services in respect of similar types of Long Term Indebtedness incurred by entities of a comparable size and nature, and is not unsatisfactory to the Master Trustee.

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"Fiscal Year" shall mean the annual accounting year of the Hospital, which currently begins on July 1 of each year.

"Government Obligations" shall mean obligations of, or obligations the timely payment of the principal of and interest on, which are unconditionally guaranteed by the United States of America.

"Guaranty" shall mean any obligation issued under the Master Indenture by an obligated issuer, under the terms of which the Obligated Issuer guarantees in any manner, whether directly or indirectly, any obligation for the payment of money of any person other than a member of the Obligated Group.

"Hospital Facilities" shall mean all interests in property whether real or personal, tangible or intangible, now owned or hereafter acquired by the Hospital and wherever situated.

"Independent" shall mean, with respect to any Person, one which is not and does not have a partner, director, officer, member or substantial stockholder who is a member of the Board of any Obligated Issuer or Affiliate, or an officer or employee of an Obligated issuer or Affiliate; provided that the fact that a Person is retained regularly by or transacts business with an Obligated Issuer or Affiliate shall not, in and of itself, cause such Person to be deemed an employee of the Obligated issuer or Affiliate for the purposes hereof for the purposes of the foregoing, a Person shall be deemed to be an "Affiliate" if it controls or is controlled by an Obligated Issuer or if both are controlled by the same third party, as set forth below: (a) one Person shall be deemed to control another if it owns more than 50% of the outstanding voting stock of or other equity interests in the other, or it has the power to elect more than 50% of the governing body of the other; and (b) such control may be exercised by one Person over another directly, indirectly through control over a third party, or jointly with one or more controlled third parties.

"Independent Public Accountant" shall mean an Independent accounting firm which is appointed by an Obligated Issuer for the purpose of examining and reporting on or passing on questions relating to the financial statements of one or more Obligated Issuers or the entire Obligated Group, has all certifications necessary for the performance of such services, has a favorable reputation for skill and experience in performing similar services in respect of entities of a comparable size and nature provided that, if appointed for the purposes of the Master Indenture, such Independent Public Accountant is not unsatisfactory to the Master Trustee and, if appointed for the purposes of the Bond Indenture, such Accountant is not unsatisfactory to the Bond Trustee.

"Insurance Consultant" shall mean an Independent firm of insurance agents, brokers or consultants which is appointed by an Obligated Issuer for the purpose of reviewing and recommending insurance coverages for the facilities and operations of one or more Obligated issuers or of the entire Obligated Group and has a favorable reputation for skill and experience in performing such services.

"Insured Bonds" means the 2012 Bonds, the 2012 A Bonds, and the 2013 Bonds.

"Investment Securities" shall mean and include:

(a) Government Obligations;

(b) direct and general obligations of any state within the United States of America or any political subdivision thereof, provided that at the time of purchase such obligations are rated in either of the two highest rating categories by Moody's Investors Service, Inc. or by Standard & Poor's Corporation;

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(c) Bonds, debentures, notes or other evidences of indebtedness issued by any of the following agencies: Federal Financing Bank; Federal Home Loan-Bank System; Export-Import Bank of the United States; Farmers Home Administration; or the Government National Mortgage Association;

(d) negotiable and non-negotiable certificates of deposit which are issued by the Bond Trustee, banks, trust companies or savings and loan associations, provided that (i) any such certificate must (to the extent insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation) be continuously secured by Government Obligations which meet certain market value requirements set forth in the Bond Indenture and the Master Indenture, (ii) the Bond Trustee must have a security interest in all collateral which is perfected in the manner permitted or required under applicable law, free and clear of claims of third parties, and (iii) if the value of the collateral falls below the required level the Bond Trustee is required to withdraw the amount on deposit and, to the extent necessary to realize such amount, to liquidate the collateral;

(e) repurchase agreements having a term of not in excess of 30 days for Government Obligations with a Qualified Financial Institution (which may include the Bond Trustee) provided that (i) any such repurchase agreement must be continuously secured by Government Obligations which meet certain market value requirements set forth in the Bond Indenture and the Master Indenture, (ii) the Bond Trustee must have a security interest in the collateral which is perfected in the manner permitted or required under applicable law, free and clear of claims of third parties, and (iii) if the value of the collateral falls below the required level, the Bond Trustee is required to accelerate the repurchase obligations of the seller and, to the extent necessary to realize the full amount of such repurchase obligations, to liquidate the collateral;

(f) investment agreements with a Qualified Financial Institution (which may include the Bond Trustee) provided that (i) any such investment agreement must be continuously secured by Government Obligations which meet certain market value requirements set forth in the Bond Indenture and the Master Indenture, (ii) the Bond Trustee must have a security interest in the collateral which is perfected in the manner permitted or required under applicable law, and (iii) if the value of the collateral falls below the required level, the Bond Trustee is required to withdraw the amount invested and, to the extent necessary to realize such amount, to liquidate the collateral;

(g) shares or certificates in any short term investment fund rated in the highest rating category by either Moody's Investors Service, Inc. or by Standard & Poor's Corporation which is maintained by the Bond Trustee and invests solely in Government Obligations; and

"Long Term Indebtedness" shall mean all obligations of any Obligated Issuer (or, as the context requires, the entire Obligated Group) for the payment of money to any Person other than an Obligated Issuer, including any Obligations issued under the Master Indenture, whether due and payable in all events or upon the performance of work, possession of property or satisfaction of other specified conditions, except:

(a) Short Term Indebtedness and Non-Recourse Indebtedness;

(b) Current obligations payable out of current revenues, including current payments for the funding of pension plans and contributions to self-insurance programs;

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(c) Obligations under contracts for supplies, services and pensions, allocable to the current operating expenses of future years in which the supplies are to be furnished, the services rendered or the pensions paid; and

(d) Rentals payable under leases which are not properly capitalized under generally accepted accounting principles.

"Master Indenture Obligations" or "Obligations" shall mean any Notes or Guaranties issued by the Hospital pursuant to the Master Indenture.

"Maximum Annual Debt Service Requirements" shall mean, as of the date of calculation, the highest annual Debt Service Requirements payable during the then current or any succeeding Fiscal Year over the remaining term of all Obligations issued under the Master Indenture.

"2012 Bond Insurance Policy" shall mean the bond insurance policy issued by the 2012 Bond Insurer.

"2012 Bond Insurer" shall mean Assured Guaranty Municipal Corp.

"2012 Bonds" shall mean the bonds designated Wayne County Hospital and Health Facilities Authority County Guaranteed Hospital Revenue Refunding Bonds (Wayne Memorial Hospital Project), Series of 2012.

"2012 Note" shall mean the promissory note in the principal amount equal to the aggregate principal amount of the 2012 Bonds delivered by the Hospital to the Trustee, as assignee of the Authority, to secure the 2012 Bonds.

"2012 Bonds Account of the Debt Service Reserve Fund" shall mean the separate, segregated account within the Debt Service Reserve Fund created under the Bond Indenture, so designated which is established pursuant to the Sixth Supplemental Trust Indenture.

"2012 Reserve Fund Requirement" shall mean an amount equal to one-half the Maximum Annual Debt Service Requirements on the 2012 Bonds.

"2012 A Bond Insurance Policy" shall mean the bond insurance policy issued by the 2012 A Bond Insurer.

"2012 A Bond Insurer" shall mean Assured Guaranty Municipal Corp.

"2012 A Bonds" shall mean the bonds designated Wayne County Hospital and Health Facilities Authority County Guaranteed Hospital Revenue Refunding Bonds (Wayne Memorial Hospital Project), Series A of 2012.

"2012 A Note" shall mean the promissory note in the principal amount equal to the aggregate principal amount of the 2012 A Bonds delivered by the Hospital to the Trustee, as assignee of the Authority, to secure the 2012 A Bonds.

"2012 A Bonds Account of the Debt Service Reserve Fund" shall mean the separate, segregated account within the Debt Service Reserve Fund created under the Bond Indenture, so designated which is established pursuant to the Seventh Supplemental Trust Indenture.

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"2012 A Reserve Fund Requirement" shall mean an amount equal to one-half the Maximum Annual Debt Service Requirements on the 2012 A Bonds.

"2013 Bond Insurance Policy" shall mean the bond insurance policy issued by the 2013 Bond Insurer.

"2013 Bond Insurer" shall mean Assured Guaranty Municipal Corp.

"2013 Bonds" shall mean the bonds designated Wayne County Hospital and Health Facilities Authority County Guaranteed Hospital Revenue Refunding Bonds (Wayne Memorial Hospital Project), Series of 2013.

"2013 Note" shall mean the promissory note in the principal amount equal to the aggregate principal amount of the 2013 Bonds delivered by the Hospital to the Trustee, as assignee of the Authority, to secure the 2013 Bonds.

"2013 Bonds Account of the Debt Service Reserve Fund" shall mean the separate, segregated account within the Debt Service Reserve Fund created under the Bond Indenture, so designated which is established pursuant to the Eighth Supplemental Trust Indenture.

"2013 Reserve Fund Requirement" shall mean an amount equal to one-half the Maximum Annual Debt Service Requirements on the 2013 Bonds.

"2017 Bonds" shall mean the bonds designated Wayne County Hospital and Health Facilities Authority County Guaranteed Hospital Revenue Bonds (Wayne Memorial Hospital Project), Series A of 2017.

"2017 Note" shall mean the promissory note in the principal amount equal to the aggregate principal amount of the 2017 Bonds delivered by the Hospital to the Trustee, as assignee of the Authority, to secure the 2017 Bonds.

"2017 Bonds Account of the Debt Service Reserve Fund" shall mean the separate, segregated account within the Debt Service Reserve Fund created under the Bond Indenture, so designated which is established pursuant to the Ninth Supplemental Trust Indenture.

"2017 Reserve Fund Requirement" shall mean an amount equal to one-half the Maximum Annual Debt Service Requirements on the 2017 Bonds.

"Nonoperating Revenues" shall mean, for any Fiscal Year, all nonoperating revenues of any one or more Obligated Issuers for such period or, as the context requires, of the entire Obligated Group, except for gifts, grants, bequests, donations, other similar contributions, other amounts constituting nonoperating revenues under generally accepted accounting principles, and the income from the foregoing, to the extent that such amounts are unavailable for the payment of Debt Service Requirements as a result of restrictions imposed by the donor or maker at the time of their making or applicable laws and regulations in effect from time to time. In the event that the fiscal year of any Obligated Issuer ends on a date other than June 30, the Nonoperating Revenues of such Obligated Issuer during its fiscal year ending within any Fiscal Year under consideration shall be deemed to be its Nonoperating Revenues for such Fiscal Year. The Nonoperating Revenues of any one or more Obligated Issuers or, as the context requires, of the entire Obligated Group, for any specified period other than a Fiscal Year shall be the Nonoperating Revenues of such Obligated Issuer or Issuers or the Obligated Group, as the case may be during such period.

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"Non-Recourse Indebtedness" shall mean any indebtedness as to the payment of which the holder has no claim for any payments in respect thereof against the general credit of any Obligated Issuer or against any properties or revenues other than the properties or revenues subject to the liens or security interests granted pursuant to the Master Indenture.

"Note" shall mean any Note issued by an Obligated Issuer to evidence Long Term Indebtedness incurred pursuant to the terms of the Master Indenture.

"Obligated Group" shall mean all Obligated Issuers.

"Obligated Issuer" shall mean (a) the Hospital or any other Person which has become an Obligated Issuer in accordance with the provisions of the Master Indenture, whether or not such Person has issued any Obligations under the Master Indenture, and (b) when used in respect of any particular Master Indenture Obligation or other indebtedness, shall mean the issuer thereof.

"Obligations" or "Master Indenture Obligations" shall mean Notes and Guaranties issued under the Master Indenture.

"Officer's Certificate" shall mean a certificate signed by the Chairman, Vice Chairman, President or any Vice President of one or more members of the Obligated Group. When an Officer's Certificate is required under the Master Indenture to set forth matters relating to all members of the Obligated Group, such Officer's Certificate shall be signed by the Chairman, Vice Chairman, President or any Vice President of each Obligated Issuer.

"Operating Revenues" shall mean, for any Fiscal Year or other specified period, all operating revenues of any one or more Obligated Issuers for such period or, as the context requires, of the entire Obligated Group, before deduction of operating expenses, but after deduction of (a) contractual allowances and discounts, (b) provision for free care and doubtful accounts, and (c) any operating revenues attributable to the ownership or operation of any properties securing Non-Recourse Indebtedness. In the event that the fiscal year of any Obligated Issuer ends on a date other than June 30, the Operating Revenues of such Obligated Issuer during its fiscal year ending within any Fiscal Year under consideration shall be deemed to be its Operating Revenues for such Fiscal Year. The Operating Revenues of any one or more Obligated Issuers or, as the context requires, of the entire Obligated Group, for any specified period other than a fiscal Year shall be the Operating Revenues of such Obligated Issuer or Issuers or the obligated Group, as the case may be during such period.

"Person" shall mean an individual, a corporation, a partnership, an association, a joint stock company, a joint venture, a trust, an unincorporated organization or a government or any agency or a political subdivision thereof.

"Pledged Revenues" shall mean the payments received or receivable by the Authority from the Hospital pursuant to the Loan Agreement, or under or on account of the 2012 Note, the 2012 A Note, the 2013 Note, the 2017 Note, and all income and receipts on the funds (except the Rebate Fund) held by the Bond Trustee under the Bond Indenture.

"Project" shall mean and include the 2017 Project and any other acquiring, holding, constructing, improving, operating, owning and leasing (either in the capacity of lessor or lessee) of any Capital Addition, all or any portion of the costs (including costs of completion) of which are paid or payable from the proceeds of any series of Bonds or from other moneys deposited into the Construction Fund.

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"Qualified Financial Institution" shall mean:

(a) a bank, trust company, national banking association or corporation subject to registration with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956 whose unsecured obligations or uncollateralized long-term debt obligations have been assigned a rating within the three highest rating categories by either Moody's Investors Service. Inc. or Standard & Poor's Corporation or which has issued a letter of credit, contract, agreement or surety bond in support of debt obligations which have been so rated and whose deposits are insured by the Federal Deposit Insurance Corporation; and

(b) a dealer in government bonds which reports to, trades with and is recognized as a primary dealer by a Federal Reserve Bank and which is a member of the Securities Investors Protection Corporation, and whose unsecured obligations or uncollateralized long-term debt obligations have been assigned a rating within the two highest categories by either Moody's Investors Service, Inc. or Standard & Poor's Corporation.

"Related Financing Documents" shall mean:

(a) in the case of any Note, (i) all documents pursuant to which the proceeds of the Note are made available to an Obligated issuer, the payment obligations evidenced by the Note are created and any security for the Note (if permitted under the Master Indenture) is granted, and (ii) all documents creating any additional payment or other obligations on the part of an Obligated Issuer which are executed in favor of the Noteholder in consideration of the Note proceeds being loaned or otherwise made available to the Obligated Issuer or, if a Credit Facility has been issued in support of the Obligated Issuer's obligations under the Note, executed in favor of the issuer thereof in consideration of such issuance;

(b) in the case of any Guaranty, all documents creating the indebtedness being guaranteed pursuant to the Guaranty and providing for the loan or other disposition of the proceeds of the indebtedness and all documents pursuant to which any security for the Guaranty (if permitted under the Master Indenture) is granted; and (c) in the case of any indebtedness other than Notes or Guaranties, all documents relating thereto which are of the same nature and for the same purpose as the documents described in clauses (a) and (b) above.

"Reserve Fund Requirement" means an amount equal to one-half of the Maximum Annual Debt Service Requirements on the 2012 Bonds, the 2012 A Bonds, the 2013 Bonds, and the 2017 Bonds outstanding as of the date of determination and such amount as may be required by a supplemental indenture pursuant to which a series of Additional Bonds is issued.

"Revenues Available for Debt Service" shall mean, for any Fiscal Year, the sum of the following for any one or more Obligated Issuers or, as the context requires, the entire Obligated Group: (a) the excess of (i) all Operating Revenues and Nonoperating Revenues received during the period under consideration over (ii) all operating and nonoperating expenses incurred during such period (other than expenses incurred in respect of the ownership or operation of properties securing Non-Recourse Indebtedness); plus (b) expenses incurred or recognized during the period under consideration in respect of (i) the interest on Long Term Indebtedness, (ii) the amortization of financing charges attributable to Long Term Indebtedness and (iii) depreciation and other non-cash charges attributable to the ownership or operation of all properties (other than properties securing Non-Recourse Indebtedness). Revenues Available for Debt Service shall not include any gains resulting from advance refunding of Long Term Indebtedness, termination of pension funds or other extraordinary gains. In the event that the fiscal year of any Obligated Issuer ends on a date other than June 30, the Revenues Available for Debt Service of such

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Obligated Issuer for its fiscal year ending within any Fiscal Year under consideration shall be deemed to be its Revenues Available for Debt Service for such Fiscal Year. The Revenues Available for Debt Service of any one or more Obligated issuers or, as the context requires, of the entire Obligated Group, for any specified period other than a Fiscal Year shall be the Revenues Available for Debt Service of such Obligated Issuer or Issuers or the Obligated Group, as the case may be during such period.

"Short Term Indebtedness" shall mean any obligation for the repayment of moneys borrowed from a Person other than an Obligated Issuer which matures not later than 365 consecutive days after it is incurred and any obligation for the repayment of borrowed moneys which is payable upon demand within such period at the option of the holder; provided that the term Short Term Indebtedness shall not be deemed to include any Demand Obligations or Non-Recourse Indebtedness.

"Variable Rate Indebtedness" shall mean any Long Term Indebtedness, the rate of interest on which is subject to change prior to maturity.

SUMMARY OF CERTAIN PROVISIONS OF THE LOAN AGREEMENT, BOND INDENTURE, MASTER INDENTURE AND COUNTY GUARANTY

The following are summaries of certain provisions of the Loan Agreement, Bond Indenture, Master Indenture and County Guaranty. These summaries should not be regarded as full statements of the documents themselves, or of the portions summarized. Reference is made to the documents in their entireties, copies of which are on file at the principal corporate trust office of the Bond Trustee for the complete statements of the provisions thereof.

THE LOAN AGREEMENT

The Loan Agreement between the Authority and the Hospital provides that the Authority shall loan the net proceeds of the 2017 Bonds for application toward the costs of the 2017 Project.

Payments

The Hospital shall pay the following sums under the Loan Agreement;

(a) In monthly installments on or before the twentieth day of each month such amounts as are necessary, together with other available funds, to provide for the payment of the principal of and interest on the Bonds next becoming due; and

(b) From time to time, such additional amounts as are required to provide for the payment of the Authority Administrative Expenses incurred in connection with any Project an such additional amounts as are required to make up any deficiency which may occur in any of the funds established under the Bond Indenture, including the Debt Service Reserve Fund and Construction Fund.

All payments received from the Master Trustee under the terms of any Obligations issue under the Master Indenture in connection with the issuance of any Bonds shall be credited against the foregoing payment obligations.

In lieu of the portion of the payments in respect of the principal of the Bonds, the Hospital, or at its direction the Authority or the Bond Trustee, may purchase Bonds of the term next becoming due at maturity or upon mandatory redemption and present such Bonds to the Bond Trustee for cancellation.

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The Hospital shall also pay or cause to be paid all taxes, including but not limited to income, profits, or property taxes, which may now or hereafter be imposed by the United States of America, any state or municipality or any political subdivision thereof, and other assessments, fees or charges as set forth in the Loan Agreement, except that the Hospital may withhold such payments whey the validity of such taxes and assessments is being contested in good faith and neither the Hospital, Facilities nor any income therefrom or interest therein is in any immediate danger of being attached or lost.

Permitted Indebtedness

The Hospital shall be permitted to incur Long Term Indebtedness, Short Term Indebtedness and Non-Recourse Indebtedness in the manner and subject to the conditions and limitations contained in the Master Indenture; provided, however, that the County shall receive a copy of all Certificates relating to such indebtedness required to be delivered pursuant to the Master Indenture. Any indebtedness so incurred may be secured to the extent permitted by the Master Indenture. At the option of the Hospital, Long Term Indebtedness may be evidenced by Master Indenture Obligations; provided that any Long Term Indebtedness shall be required to be evidenced by such Master Indenture Obligations if the proceeds thereof are provided through the issuance by the Authority of any Bonds under the Bond Indenture or any bonds under other indentures which are payable from payments under the Loan Agreement, as supplemented in connection with such issue.

Compliance with Master Indenture

The Hospital shall comply at all times with the applicable provisions of the Master Indenture. Upon request, it shall furnish to the Authority and the Bond Trustee any documents, reports or certificates required to be furnished to the Master Trustee pursuant to the Master Indenture. For a description of certain of the Hospital's Obligations as an Obligated Issuer under the Master Indenture, see "THE MASTER INDENTURE" in this Appendix.

Insurance

The Hospital covenants to provide and maintain continuously the following types of insurance:

(1) Insurance against loss and/or damage to the Hospital Facilities under a policy or policies in form and amount covering such risks as are ordinarily insured against by similar hospitals, including without limiting the generality of the foregoing, fire, lightning and uniform standard extended coverage endorsements;

(2) Business interruption insurance in an amount sufficient to pay the salaries and expenses of key employees required for the operation of the Hospital Facilities during such period or periods not exceeding twelve (12) months as the Hospital Facilities, when damaged or destroyed by one of the hazards insured against by the insurance provided for above, are under reconstruction, rebuilding or repair and until replaced in usable condition for the Hospital;

(3) Public liability insurance, landlord's liability insurance and comprehensive automobile liability insurance;

(4) A policy or policies of medical liability and malpractice insurance with limits not less than the basic coverage, if any, required under applicable Pennsylvania law;

(5) Fidelity bonds or insurance coverage on all officers and employees of the Hospital who collect or have custody of or access to revenues, receipts, income or any funds of the Hospital;

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(6) Workers' Compensation and employer's liability insurance meeting the Hospital's statutory obligations;

(7) Boiler and machinery coverage (direct damage and use and occupancy) on a replacement cost basis where deemed advisable by the Insurance Consultant, or when required by ordinance or law; and

(8) Excess liability insurance covering risks insured against under the policies specified in paragraphs (3) and (4) above, such excess liability insurance to provide coverage in such amounts as may be recommended by the Insurance Consultant in excess of the applicable limits per occurrence and in the aggregate of the policies specified in paragraphs (3) and (4).

All policies and bonds required above shall provide that coverage shall not be reduced or cancelled without ten (10) days prior written notice to the Authority and the Bond Trustee.

The Hospital covenants to furnish to the Authority and the Bond Trustee, concurrently with the delivery thereof to the Master Trustee, all reports of the Insurance Consultant which are required to be prepared with respect to the Hospital's insurance coverages pursuant to the Master Indenture. See "THE MASTER INDENTURE-Insurance" in this Appendix.

Additional Covenants of the Hospital

The Hospital covenants to keep accurate records and books of account with respect to its financial condition and operations and annually have made an examination of its financial statements by an Independent Public Accountant. A copy of such financial statements and the Independent Public Accountant's report thereon shall be delivered to the Authority and the Bond Trustee.

The Hospital shall operate and maintain the Hospital Facilities in compliance with all applicable laws, ordinances, rules, regulations and orders of all regulatory bodies having jurisdiction. The Hospital shall not take any action which would cause the Hospital Facilities to be in violation of such laws or ordinances. Notwithstanding the foregoing, the Hospital shall be permitted to contest in good faith and by appropriate proceedings the legality or reasonableness of any such standards, or the imposition of any such standards upon it with respect to the Hospital Facilities, so long as the operation of the Hospital Facilities or the receipt of income therefrom would not be materially adversely affected by reason thereof.

The Hospital shall pay, or cause to be paid, all taxes, assessments, or other municipal or governmental charges lawfully imposed upon the Hospital or the Hospital Facilities or upon the revenues derived from the Hospital Facilities, and, except as permitted under the Loan Agreement, will not suffer to be created or to exist any lien or charge thereon except the liens permitted under the Loan Agreement.

The Hospital will take, or cause to be taken, all actions that may be required of the Hospital for the interest on the 2017 Bonds to be and remain excluded from the gross income of the holders for federal income tax purposes, and shall not take any actions which would adversely affect that exclusion under the provisions of federal income tax laws that apply to the 2017 Bonds. In addition, the Hospital covenants to comply with the Rebate Requirement as defined in the Bond Indenture.

Events of Default and Remedies

Events of Default under the Loan Agreement shall include the following: (a) if the Hospital fails to make any principal or interest payment required by the Loan Agreement; (b) if the Hospital fails to pay any other payment or deposit required by the Loan Agreement within 15 days of the due date thereof;

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(c) if the Hospital fails to perform any of its other covenants under the Loan Agreement and such failure continues for 60 days after the Authority or the Bond Trustee gives the Hospital notice thereof; provided, however, that if such performance requires work to be done, actions to be taken, or conditions to be remedied, which by their nature cannot reasonably be done, taken or remedied, as the case may be, within such 30-day period, no Event of Default shall be deemed to have occurred or to exist if, and so long as, the Hospital shall commence such performance within such 30-day period and shall diligently and continuously prosecute the same to completion; or (d) if any "Event of Default" occurs and is continuing under the Master Indenture; or (e) if an event of default occurs under the Bond Insurance Policy. If any of the foregoing occurs and is continuing, then the Authority (or the Bond Trustee as its assignee) shall be entitled upon notice to the Hospital, to terminate the Loan Agreement, and to exercise such additional rights and remedies as may be provided in the Loan Agreement or may exist at the time at law or in equity; provided that no such action may be taken until and unless an "Event of Default" under the Master Indenture shall have occurred, and that the taking of any or all actions against the Hospital or its properties shall be subject to the conditions and limitations set forth in the Master Indenture.

If upon any default by the Authority under the Bond Indenture, or by the Hospital under the Loan Agreement, the Bond Trustee may, and, at the written direction of the holders of 25% in principal amount of the Bonds then outstanding or the Bond Insurer, shall, by notice in writing to the Authority, declare the principal of the then outstanding Bonds immediately due and payable under the Indenture, and if such acceleration is not annulled as provided therein, then there shall become immediately due and payable under the Loan Agreement as then current damages of the Authority an amount equal to all amounts then due and payable by the Authority under the Bond Indenture.

Amendments and Supplements

The Hospital and the Authority may from time to time enter into any amendments and supplements as shall not adversely affect rights of or the security of the Bondholders only for the following purposes of (a) curing any ambiguity, defect or omission in any amendment thereto; (b) reflecting a change in applicable law; (c) adding to the rights, remedies, powers or security of the Authority under the covenants or agreements of the Hospital contained therein or surrendering any right or power presented therein to the Hospital or conferred upon the Hospital; or (d) providing for the issuance of Additional Bonds or bonds under trust indentures other than the Bond Indenture as permitted by the Loan Agreement. All other amendments and supplements must be approved by the Bond Trustee and by the Bondholders in the same manner and to the same extent as is set forth below under "THE BOND INDENTURE - Amendments and Supplements."

THE BOND INDENTURE

Pledge and Assignment

Under the Bond Indenture, the Authority pledges to the Bond Trustee all of its right, title and interest in and to the Loan Agreement, all funds and accounts established under the Bond Indenture and the Pledged Revenues and grants a security interest in the Existing Notes and the 2017 Note to secure the payment of the Bonds and the performance and observance of the Authority's covenants under the Bond Indenture.

Moneys from time to time in the Construction Fund, the Revenue Fund, the Redemption Fund, the Debt Service Fund and the Debt Service Reserve Fund established under the Bond Indenture shall be held by the Bond Trustee, in trust, for the benefit of holders of Bonds as set forth in the Bond Indenture, and shall be secured and applied as provided in the Bond Indenture.

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Construction Fund

The Bond Trustee has established a Construction Fund for the payment of costs of Projects involving construction or renovations to be paid from the proceeds of any Additional Bonds or from insurance proceeds, condemnation awards (or similar sums) in accordance with the Loan Agreement. The Construction Fund shall consist of the amounts deposited therein. The Bond Trustee shall establish a Costs of Issuance Subaccount in the Construction Fund. Amounts deposited therein will be used to pay the costs of issuance in connection with the 2017 Bonds.

Upon receipt of a completion certificate as provided in the Bond Indenture, the balance in the Construction Fund shall be transferred by the Bond Trustee to the Revenue Fund to be used thereafter to reduce the Hospital's next payments due under the Loan Agreement or, if the Hospital shall so direct, to the Redemption Fund.

Revenue Fund

All amounts payable by the Hospital under the Loan Agreement and any and all other moneys received by the Bond Trustee in connection with the Hospital Facilities, shall be deposited by the Bond Trustee in the Revenue Fund. The Bond Trustee's fees and expenses shall be paid annually from amounts on deposit in the Revenue Fund. The Bond Trustee shall transfer sums from the Revenue Fund to other Funds in the amounts and at the times required under the Bond Indenture to provide in such Funds the amounts necessary for the purposes thereof.

Debt Service Fund

The Bond Trustee has established a Debt Service Fund for the payment of the principal or redemption price of and interest on all outstanding Bonds.

Debt Service Reserve Fund

The Bond Trustee has established a Debt Service Reserve Fund into which the Bond Trustee has deposited an amount equal to one-half of the Maximum Annual Debt Service Requirements on the 2012 Bonds, the 2012 A Bonds, and the 2013 Bonds. In connection with the issuance of the 2017 Bonds, the Bond Trustee shall establish a 2017 Bonds Account in the Debt Service Reserve Fund into which there shall be deposited an amount equal to the 2017 Reserve Fund Requirement. In connection with the issuance of any Additional Bonds, the balance in the Debt Service Reserve Fund shall be increased to an amount equal to the Reserve Fund Requirement on all Bonds then to be outstanding including the Additional Bonds then being issued, which increase shall be made at settlement for the Additional Bonds; provided that, in the case of Additional Bonds issued to finance Projects involving construction or renovations, the balance in the fund may be increased from the first available revenues after required payments have been made into the Debt Service Fund over the period, if any, for which interest on the Additional Bonds is funded from the proceeds thereof. The amount of any withdrawal to cure a deficiency in the Debt Service Fund shall be restored in no more than twelve equal, consecutive, monthly installments, each payable on the last business day if the month, commencing with the month in which the withdrawal is made; provided that, if any withdrawal is made and, prior to the restoration of the amount withdrawn, an additional withdrawal is made, such additional withdrawal shall be restored in equal monthly installments over the remainder of the restoration period for the initial withdrawal.

Moneys on deposit in the Debt Service Reserve Fund shall be used to cure deficiencies in the Debt Service Fund. Subject to the provisions of the Bond Indenture described below under "Investment of Funds," excess moneys in the Debt Service Reserve Fund may be transferred to the Revenue Fund and

E-13 applied as a credit against amounts next becoming due under the Loan Agreement payable in respect of the principal of the Bonds, the interest thereon or both. During the twelve month period preceding the final maturity date of any particular series of Bonds, the amount on deposit on the Debt Service Reserve Fund and allocable to such series of Bonds shall also be available for such transfers to the Debt Service Fund, unless such transfers will cause the amount allocable to all other series of Bonds to be less than the Reserve Fund Requirement thereon.

If any deposit made in connection with the issuance of Additional Bonds under the Bond Indenture consists in whole or in part of borrowed funds, such borrowed funds may, if authorized under the supplemental indenture to the Bond Indenture providing for the issuance of the Additional Bonds, be deposited into a separate, segregated account within the Debt Service Reserve Fund, provided that all accounts within the Fund shall be held for the benefit of all Bondholders and that the aggregate amount on deposit in all such accounts shall meet the requirements of the foregoing paragraphs. Any supplemental indenture providing for the establishment of such separate accounts may contain such further provisions as may be necessary or appropriate for the proper administration of such accounts, including provisions establishing priorities for the application of amounts on deposit in the various accounts (including investment income) for the purposes set forth in the Bond Indenture.

Redemption Fund

The Bond Trustee has established a Redemption Fund into which it shall deposit such amounts as are required or permitted to be deposited therein pursuant to the provisions of the Bond Indenture, including, but not limited to, moneys left in the Construction Fund upon completion of Projects and certain proceeds of condemnation or insurance awards. Moneys in the Redemption Fund shall be applied to the Optional or Extraordinary Redemption of Bonds pursuant to the Bond Indenture.

Rebate Fund

The Bond Trustee has established a Rebate Fund for the payment of all amounts required to be rebated to the United States Government pursuant to the Internal Revenue Code of 1986, as amended.

Investment or Deposit of Funds

All moneys on deposit in any Fund established under the Bond Indenture shall be considered trust funds, shall not be subject to lien or attachment and shall, except as provided in the Bond Indenture, be deposited in the commercial department of the Bond Trustee, until or unless invested or deposited as provided below. All deposits in the commercial department of the Bond Trustee shall, to the extent not insured and to the extent permitted by law, be fully secured as to both principal and interest by Government Obligations, or if not so permitted, then secured as provided by law.

All investments shall constitute Investment Securities and shall mature, or be subject to repurchase, withdrawal without penalty or redemption at the option of the holder on or before the dates on which the amounts invested are reasonably expected to be needed for the purposes of the Bond Indenture. Without limiting the generality of the foregoing, at least 100% of the principal amount of the Investment Securities on deposit in the Debt Service Reserve Fund shall mature or be subject to repurchase, withdrawal or redemption as aforesaid within 5 years of the date of purchase.

All investments shall be made at the direction of the Hospital. No investments shall be made, which would cause the Bonds to become "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended, and the applicable regulations promulgated thereunder.

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The principal of the Investment Securities and the interest, income and gains received in respect thereof shall be applied as follows: (a) unless otherwise provided in the supplemental Indenture relating thereto, during the construction period for any Project, all interest, income and profits received in respect of the Investment Securities or upon the sale or other disposition thereof shall (after deduction of any losses) be retained in or transferred to the Construction Fund and, after the completion of such construction, shall be retained in or transferred to the Revenue Fund: and (b) whenever any other transfer or payment is required to be made from any particular Fund, such transfer or payment shall be made from such combination of maturing principal, redemption or repurchase prices, liquidation proceeds and withdrawals of principal as the Bond Trustee deems appropriate for such purpose, after taking into account such factors as future transfers or payments from the Fund in question, the reinvestment opportunities for maturing principal, the current yield on any Investment Securities to be redeemed, withdrawn or sold, and any penalties, gains or losses to be realized upon any such redemption, withdrawal or sale.

Neither the Authority nor the Bond Trustee shall be accountable for any depreciation in the value of the Investment Securities or any losses incurred upon any authorized disposition thereof.

Valuation of Funds

The Bond Trustee shall value the assets in each of the Funds established under the Bond Indenture as of July 1 of each year, after taking into account all transfers or payments then required to be made from each Fund. As soon as practicable after each such date of valuation, the Bond Trustee shall furnish to the Authority and the Hospital a report of the status of each Fund as of such date. The Bond Trustee shall also advise the Hospital and the Master Trustee at such time of the amount then available in the Revenue Fund as a credit against future deposits, such credit to be applied in equal amounts in each month prior to the next valuation date. In computing the assets of any Fund or Account, investments and accrued interest thereon shall be deemed a part thereof, except as described under "Investment or Deposit of Funds" above. Such investments shall be valued at the face value or the current market value thereof, whichever is the lower, or at the redemption price thereof, if then redeemable at the option of the holder except that investment of moneys held in the Debt Service Reserve Fund shall be valued at current market value.

Additional Bonds

The Authority may issue one or more series of Additional Bonds from time to time to pay the cost of undertaking or completing a Capital Addition and the cost of refunding all or a portion of the outstanding Bonds of any one or more series or all of any particular Long Term Indebtedness other than Bonds.

The Bond Trustee shall authenticate and deliver such Additional Bonds at the request of the Authority, but only upon compliance with requirements described herein under the heading "THE MASTER INDENTURE - Additional Long Term Indebtedness" and upon delivery to the Bond Trustee of:

(a) A Master Indenture Obligation or Obligations in a principal amount equal to the aggregate principal amount of the Additional Bonds, the payment terms of which are sufficient to provide for the payment of the principal or redemption price of and interest on the Additional Bonds, together with all documents delivered pursuant to the Master Indenture in connection with the issuance of such Master Indenture Obligations.

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(b) An opinion or opinions of counsel to the effect that (i) the Additional Bonds have been duly issued for a permitted purpose under the Bond Indenture, (ii) all regulatory consents or approvals required to be obtained for the issuance of the Additional Bonds have been obtained, (iii) the issuance of the Additional Bonds and execution and delivery of related documents will not constitute a breach or default on the part of the Authority or the Hospital under their respective Articles of Incorporation and By-laws, any applicable laws or regulations, court orders or rulings of regulatory bodies to which the Authority or the Hospital is subject or any agreements to which the Authority or Hospital is a party or to which their properties are subject, (iv) all documents delivered by the Authority and the Hospital in connection with the issuance of the Additional Bonds have been duly and validly authorized, executed and delivered and such execution and delivery and all other actions taken by the Authority and the Hospital in connection with the issuance of the Additional Bonds have been duly authorized by all necessary corporate actions, and (v) all conditions precedent to the issuance of the Additional Bonds pursuant to the Bond Indenture have been satisfied.

(i) if a Capital Addition with an estimated cost in excess of 10% of the Hospital's Operating Revenues for the preceding Fiscal Year is to be financed, an Architect's certificate or report: (A) stating that the construction and renovation work included in the Capital Addition can be undertaken and completed in accordance with sound architectural and engineering practices and that all necessary plans and specifications therefore have been approved by the Architect and all regulatory bodies whose approval is required; (B) stating that all permits and approvals then required to be in effect for the construction and renovation work included in the Capital Addition have been obtained and no facts or circumstances are known to the Architect which would prevent the timely issuance of all other necessary permits and approvals; and (C) setting forth in reasonable detail the items of cost or estimated cost relating to the construction or renovation work included in the Capital Addition and stating that such items of cost are reasonable;

(ii) a Hospital Certificate: (A) setting forth in reasonable detail the costs of the Capital Addition, including the items of cost set forth in the Architect's Certificate described above, equipment costs, financing costs and other related fees and expenses; and (B) demonstrating the adequacy for the payment of all such costs of the additional Bond proceeds, together with other available funds deposited with the Bond Trustee and the investment income reasonably expected to be earned on such proceeds and other available funds; and

(iii) an opinion or opinions of Counsel: (A) stating that the Hospital has duly and validly authorized, executed and delivered the construction contracts, if any, for the Capital Addition; (B) stating that the Authority has acquired or will acquire good and marketable title to or a valid and enforceable leasehold interest in all property to be acquired or constructed as part of the Capital Addition, subject only to Permitted Encumbrances (which opinion may be given in reliance upon a title insurance policy issued by a reputable title insurance company); and (C) to the same effect, with respect to permits and approvals, as the Architect's certificate or report described in subparagraph (i) above.

(d) In the case of any Additional Bonds issued for the purpose of a refunding:

(i) executed counterparts of such documents as are necessary or appropriate for the purposes of the refunding, including, if appropriate, an escrow agreement providing for the

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deposit and application of funds for the refunding and irrevocable instructions with respect to any required redemption of refunded Bonds or other Long Term Indebtedness;

(ii) certified resolutions of the Authority and the Hospital authorizing the refunding and the taking of all necessary actions in connection therewith; and

(iii) an Authority Certificate and a Hospital Certificate setting forth in reasonable detail the costs of the refunding and demonstrating the adequacy for the payment of such costs by the Additional Bond proceeds, together with other available funds then on deposit with the Bond Trustee and the investment income reasonably expected to be earned on such proceeds and other available funds. Unless all refunded Bonds or other Long Term Indebtedness are to be redeemed or otherwise retired on the date of settlement for the Additional Bonds, such schedules, verified as to mathematical accuracy by an Independent Public Accountant or consultant, as are necessary to demonstrate the adequacy of funds deposited for the refunding and the income thereon for the purpose of paying, when due, the principal or redemption price of and interest on the refunded Bonds or other Long Term Indebtedness.

Covenants of the Authority

The Authority covenants, among other things, promptly to pay, but only from Pledged Revenues, the principal of the Bonds and interest thereon.

The Authority shall not, without the consent of the Bond Trustee, amend the Loan Agreement so as to affect adversely the Authority's ability to perform its covenants under the Bond Indenture or change the amounts payable under the term of the Loan Agreement or the security interest created by the Bond Indenture, except as permitted by the terms of the Loan Agreement, the Bond Indenture and the Master Indenture.

The Authority covenants that the proceeds of the Bonds will not be used in a manner which would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code and all applicable regulations thereunder.

The Authority covenants that it shall take, or cause to be taken, all actions that may be required of the Authority for the interest on the 2017 Bonds to be and remain excluded from the gross income of the holders for federal income tax purposes, and shall not take any actions which would adversely affect that exclusion under the provisions of federal income tax laws that apply to the 2017 Bonds.

Defeasance

When interest on, and principal or redemption price (as the case may be) of, all Bonds have been paid, or there shall have been deposited with the Bond Trustee an amount, evidenced by moneys or "escrowed obligations" (as defined below) the principal of and interest on which, when due, will provide sufficient moneys to fully pay the Bonds at the maturity date or date fixed for redemption thereof, as well as all other sums payable under the Bond Indenture by the Authority, the right, title and interest of the Bond Trustee shall thereupon cease and the Bond Trustee, on demand of the Authority, shall release the Bond Indenture and shall execute such documents to evidence such release as may be reasonably required by the Authority and, shall turn over to the Authority or to such person, body or authority as may be entitled to receive the same all balances remaining in any funds established under the Bond Indenture. For the purposes hereof, "escrowed obligations" shall include (a) Government Obligations and (b) obligations described in subparagraph (b) under the caption "Investment Securities."

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Deposit of Funds for Payment of Bonds

Moneys deposited with the Bond Trustee pursuant to the foregoing which remain unclaimed four (4) years after the date payment thereof becomes due shall, upon request of the Authority, if the Authority is not at the time to the knowledge of the Bond Trustee in default with respect to any covenant in the Bond Indenture or the Bonds contained, be paid to the Authority; and the holders of the Bonds for which the deposit was made shall thereafter be limited to a claim against the Authority; provided, however, that the Bond Trustee, before making payment to the Authority, may, at the expense of the Hospital, cause a notice to be published stating that the moneys remaining unclaimed will be returned to the Authority after a specified date, such notice to be published in a newspaper or newspapers published at least once a day, six days a week, and generally circulated in the County of Wayne, Pennsylvania and in the City of New York, New York.

Defaults and Remedies

Events of Default, as defined in the Bond Indenture, include, among others, the following:

(a) if payment of any installment of interest on the Bonds is not made when it becomes due and payable; or

(b) if payment of the principal or redemption price of any Bond is not made when it becomes due and payable at maturity or upon call for redemption; or

(c) if there is a default under the Loan Agreement or any amendment or supplement thereto or any other default thereunder, and such default gives the Authority the right to terminate the Loan Agreement; or

(d) if the Authority fails to comply with any provision of the Act or for any reason is rendered incapable of fulfilling its obligations under the Bond Indenture or thereunder; or

(e) if the Authority defaults in the due and punctual performance of any other covenant in the Bonds or in the Bond Indenture and such default continues for thirty (30) days after written notice requiring the same to be remedied shall have been given to the Authority and the Hospital by the Bond Trustee, which may give such notice in its discretion and shall give such notice at the written request of the holders of not less than 25% in principal amount of Bonds then outstanding; provided, however, that if such performance requires work to be done, actions to be taken, or conditions to be remedied, which by their nature cannot reasonably be done, taken or remedied, as the case may be, within such thirty (30) day period, no Event of Default shall be deemed to have occurred or exist if and so long as the Authority shall commence such performance within such thirty (30) day period and shall diligently and continuously prosecute the same to completion; or

(f) if there is a default under the Bond Insurance Policy.

The Bond Trustee shall notify the Authority and the Hospital of the occurrence of any Event of Default. In addition, the Bond Trustee shall notify the Master Trustee of such occurrence if it constitutes an "Event of Default" under the Master Indenture; provided, however, that no such notice shall be given unless (i) directed or consented to by the Bond Insurer except that no such direction or consent shall be required if the Bond Insurer is in default under the Bond Insurance Policy or (ii) directed by the holders of at least 25% in aggregate principal amount of all outstanding Bonds.

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If any Event of Default has occurred and is continuing, the Bond Trustee may, and upon written request of the holders of 25 % in principal amount of the Bonds then outstanding or the Bond Insurer (unless the Bond Insurer is in default under the Bond Insurance Policy) shall, by notice in writing to the Authority, declare the principal of all Bonds then outstanding immediately due and payable, and upon such declaration the said principal, together with interest accrued thereon, shall become due and payable immediately at the place of payment provided therein, anything in the Bond Indenture or in the Bonds to the contrary notwithstanding; provided, however, that no such declaration shall be made if the Hospital cures such Event of Default prior to the date of the declaration and that no such declaration shall be made until and unless an "Event of Default" has occurred under the Master Indenture. Unless the Bond Insurer is in default under the Bond Insurance Policy, no such declaration shall apply to the Insured Bonds unless directed or consented to by the Bond Insurer.

If after the principal of the Bonds has been so declared to be due and payable, all arrears of interest upon the Bonds (and interest on overdue installments of interest at the maximum rate permitted by law or 1% over the interest rate on the respective Bonds, whichever is lesser) are paid by the Authority, and the Authority also performs all other things in respect of which it may have been in default and pays the reasonable charges of the Bond Trustee, the Bondholders, and any trustee appointed under the Act, including reasonable attorney's fees, then, and in every such case, the Bond Trustee may annul such declaration and its consequences and such annulment shall be binding upon the Bond Trustee and upon all holders of Bonds; but no such annulment shall extend to or affect any subsequent default or impair any right or remedy consequent thereon.

If any Event of Default has occurred and is continuing the Bond Trustee, before or after declaring the principal of the Bonds immediately due and payable, (a) may enforce each and every right granted to the Authority under the Loan Agreement and all other agreements and contracts and any amendments or supplements thereto, and (b) insofar as such right may be lawfully conferred upon the Bond Trustee, may, by its agents or attorneys, with or without process of law, enter upon and take and maintain possession of all or any part of the Hospital Facilities and may hold, manage and operate such Hospital Facilities and collect the amounts payable by reason of such operation.

Following an Event of Default, any moneys on deposit in any Fund or Account established under the Bond Indenture and certain other moneys received by the Bond Trustee under the Bond Indenture or the Master Indenture shall be applied:

First: to the payment of the costs of the Bond Trustee, including counsel fees, any disbursements of the Bond Trustee with interest thereon and its reasonable compensation;

Second: to the payment of all interest then due on outstanding Bonds or, if the amount available before the payment of interest is insufficient for such purpose, to the payment of interest ratably in accordance with the amount due in respect of each Bond; and

Third: to the payment of the outstanding principal amount of all Bonds or, if the amount available for the payment of principal is insufficient for such purpose, to the payment of principal ratably in accordance with the amount due in respect of each Bond.

The surplus, if any, shall be paid to the Authority or the person lawfully entitled to receive the same or as a court of competent jurisdiction may direct.

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Limitations on Actions by Bondholders

The holders of a majority in principal amount of the Bonds outstanding under the Bond Indenture shall have the right to direct the method and place of conducting all remedial proceedings by the Bond Trustee in accordance with law and the provisions of the Bond Indenture, provided that the Bond Trustee may decline to follow any such direction which in its opinion would be unjustly prejudicial to Bondholders not parties to such direction.

No Bondholder shall have any right to pursue any remedy under the Bond Indenture unless (a) the Bond Trustee shall have been given written notice of an Event of Default, (b) the holders of at least 25% in principal amount of the Bonds then outstanding shall have requested the Bond Trustee, in writing, to exercise the powers with respect to remedies granted under the Bond Indenture or to pursue such remedy in its or their name or names, (c) the Bond Trustee shall have been offered indemnity satisfactory to it against costs, expenses and liabilities, and (d) the Bond Trustee shall have failed to comply with such request within a reasonable time.

Amendments and Supplements

The Authority and the Bond Trustee may enter into supplements to the Bond Indenture, without the consent of the Bondholders, for one or more of the following purposes: (a) to set forth any or all of the matters in connection with the issuance of Additional Bonds; (b) to add additional covenants of the Authority or to surrender any right or power conferred upon the Authority by the Bond Indenture; or (c) to cure any ambiguity or to cure, correct or supplement any defective provision of the Bond Indenture in such manner as shall not be inconsistent with the Bond Indenture and shall not impair the security thereof or adversely affect the Bondholders.

Other supplements to the Bond Indenture may be entered into upon the consent and approval of the holders of not less than 51% in aggregate principal amount of all ends then outstanding which would be affected thereby; provided, that (a) no amendment shall be made which adversely affects one or more but less than all series of ends without the consent of the holders of at least 51% of the then outstanding Bonds of each series so affected, (b) no amendment shall be made which affects the rights of some but less than all the outstanding Bonds of any one series without the consent of the holders of 51% of the Bonds so affected, and (c) no amendment which alters the interest rates on any Bonds, the maturities, interest payment dates or redemption provisions of any Bonds, provisions regarding amendment or supplementation, or the security provisions of the Bond Indenture may be made without the consent of the holders of all outstanding Bonds adversely affected thereby.

THE MASTER INDENTURE

Each Note or series of Notes, and each Guaranty, will be issued pursuant to the Master Indenture and will entitle each holder thereof to the protection of the covenants, restrictions and other obligations imposed upon the Hospital and each Obligated Issuer by the Master Indenture. Such Notes and Guarantee will be general obligations of the Hospital and each Obligated Issuer, secured by a pledge of any amounts on deposit in the Revenue Fund established pursuant to the Master Indenture as described below under "Revenue Fund."

Revenue Fund

The Master Trustee has established and maintains a Revenue Fund into which the Obligated Issuers shall deposit on the first day of each month the following amounts in respect of the principal (including mandatory redemptions) and interest payable under the terms of each Note and each Guaranty:

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(i) in the case of payments due on a monthly basis or more frequently than on a monthly basis, an amount equal to the sum of payments becoming due on or before the first day of the next succeeding month, (ii) in the case of payments due more frequently than on a monthly basis, an amount equal to the sum of the payments becoming due on or before the first day of the next succeeding month, and (iii) in the case of payments due less frequently than on a monthly basis, equal amounts which are necessary to accumulate the payment next becoming due prior to the due date thereof, provided that quarterly deposits shall be permitted if authorized under the applicable supplement to the Master Indenture and that the period during which deposits are to be accumulated pursuant to this clause (iii) shall not exceed 12 months unless a longer period is approved by nationally recognized bond counsel.

On or before the date of any redemption of Obligations (other than scheduled mandatory redemptions), the Obligated Issuers shall deposit in the Revenue Fund the amount necessary to provide for the payment of the redemption or prepayment price then becoming due.

In the case of any Guaranty in respect of which the Master Trustee has received a required notice of nonpayment from the Holder pursuant to the Master Indenture, the Obligated Issuers shall deposit in the Revenue Fund the amount due thereunder on or before the due date thereof.

Moneys held in the Revenue Fund shall be invested and reinvested in Investment Securities which mature or are redeemable at the option of the holder not later than such times as shall be required to provide moneys needed to make payments or transfers therefrom.

Rate Covenant

Each Obligated Issuer shall conduct and maintain its operations in such manner as is necessary in each Fiscal Year to provide (a) funds sufficient to pay all of its operating and nonoperating expenses and all other payments or deposits required to be made by it under the terms of any applicable Related Financing Documents, and (b) Revenues Available for Debt Service which, together with such revenues of the other Obligated Issuers, are at least equal to 110% of the Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group.

If the Revenues Available for Debt Service of the Obligated Group are less than the amount required above in any Fiscal Year, the Obligated Group shall immediately engage the services of a Consultant for the purpose of examining and reporting on the revenues and expenses of each Obligated Issuer and the entire Obligated Group. Each report so prepared shall contain recommendations as to such actions as the Consultant deems to be reasonably necessary in order to increase the Revenues Available for Debt Service of the Obligated Group to the above-required levels in the future, taking into account the extent to which any particular Obligated Issuer or Issuers may be prevented from increasing its Revenues Available for Debt Service under any existing contracts or applicable laws or regulations. Each such report shall be delivered to the Master Trustee immediately upon receipt from the Consultant. No Event of Default shall be deemed to have occurred under the Master Indenture as a result of failure to realize Revenues Available for Debt Service in the amounts required above in any Fiscal Year, provided that (a) the Revenues Available for Debt Service realized by the Obligated Group during such Fiscal Year were at least equal to 100% of the Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group, (b) a Consultant is engaged for the purposes specified in this paragraph, and (c) upon receipt of the Consultant's report, the Obligated Issuers make good faith efforts to implement such recommendations of the Consultant as are applicable to their operations and financial affairs, to the extent permitted by applicable laws and regulations and to negotiate such future contracts as will permit full implementation of such recommendations.

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Permitted Encumbrances

No Obligated Issuer will create or suffer to be created or exist upon any property nom owned or hereafter acquired by it any mortgage or other lien, security interest or other similar right of interest, servitude, easement, right-of-way, license, encumbrance, irregularity or defect in title, cloud on title, restriction, reservation or covenant running with the land, other than Permitted Encumbrances, which shall include the following:

(a) liens arising by reason of good faith deposits with any Obligated Issuer in connection with tenders, leases of real estate, bids of contracts (other than contracts for the payment of money), deposits by any Obligated Issuer to secure public or statutory obligations, or to secure or it lieu of, surety, stay or appeal bonds, and deposits a security for the payment of taxes or assessments or other similar charges;

(b) any lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license, or to enable any Obligated issues to maintain self-insurance or to participate in any funds established to cover any insurance risk or it connection with worker's compensation, unemployment insurance, old age pensions or other social security, or to share in the privileges or benefits required for institutions participating in suet arrangements;

(c) any judgment lien against any Obligated Issuer so long as (i) the finality of such judgment is being contested in good faith and execution thereon is stayed or (ii) in the absence of such a contest and stay, neither the pledge and security interest of the Indenture nor any property of the Obligated Issuer will be materially impaired or subject to material loss or forfeiture;

(d) 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 (i) terminate such right, power, franchise, grant, license or permit, provided that the exercise of such right would not materially impair the use of such property for its intended purpose or materially and adversely affect the value thereof, or (ii) purchase, condemn, appropriate or recapture, or designate a purchaser of such property;

(e) 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 and laborers for work or services performed or materials furnished in connection with such property, (i, which are not due and payable or are not delinquent or (ii) the amount or validity of which are being contested in good faith and on which execution is stayed or (iii) the existence of which will not impair the pledge and security interest of the Master Indenture or subject any property of an Obligated issues to material loss or forfeiture;

(f) any lease which, in the judgment of the Obligated Issuer whose property is subject thereto, is reasonably necessary or appropriate for or incidental to the proper and economical operation of such property, taking into account the nature and terms of the lease and the nature and purposes of the property subject thereto;

(g) easements, rights-of-way, restrictions and other minor defects, encumbrances, and irregularities in the title to any property which do not materially impair the use of such property for its intended purpose or materially and adversely affect the value thereof;

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(h) rights reserved to or vested in any municipality or public authority to control or regulate any property or to use such property in any manner, which rights do not materially impair the use of such property for its intended purposes or materially and adversely affect the value thereof;

(i) any lien or security interest existing on the date of the Master Indenture and permitted thereunder to remain in effect, provided that no lien or security interest so described or the indebtedness secured thereby may be extended or renewed (which terms shall not apply to the filing of continuation statements under the Uniform Commercial Code) or modified to spread to any property not subject to such lien or security interest on the date of the Master Indenture, except to the extent that such lien or security interest, as so extended, renewed or modified could have been granted or created under any provision of the Master Indenture;

(j) any "lien" granted pursuant to the Master Indenture as described below under "Security for Indebtedness" or any similar lien affecting the properties and revenues of an Obligated Issuer on the date of its becoming a member of the Obligated Group, if such lien could have been granted as of such date pursuant to the Master Indenture; and

(k) any leasehold interest granted by an Obligated Issuer to a state, a political subdivision of a state, the District of Columbia or any department, agency, authority or instrumentality of the foregoing in connection with a financing or refinancing transaction pursuant to which the lessee has issued its bonds, notes or other similar obligations or has obtained any government grants and has made the net proceeds thereof available to the Obligated Issuer as rental payments under the lease, provided that (i) the term of the lease has a stated expiration date not later than 30 days after the stated maturity date of any bonds, notes or other obligations issued as aforesaid or the date by which the Obligated Issuer is required to repay to the lessee the full amount of any grant so obtained and any interest thereon charged by the lessee, and such term is subject to sooner termination upon payment (or provision for payment) by the Obligated Issuer of all sums payable by the lessee in respect of its bonds, notes or other obligations so issued or to the lessee in respect of any grant so obtained and all fees payable to and expenses incurred by the lessee in connection with the transaction, (ii) concurrently with the execution of any such lease, the lessee subleases the leased premises to the Obligated Issuer pursuant to a sublease which provides for the payment by the Obligated Issuer of sublease rentals in the amounts and at the times required for the payment of the sums described in clause (i) above, are which further provides that the Obligated Issuer shall be entitled to exclusive possession of the leased premises for so long as it is not in default of its rental payment and other obligations under the sublease and that any right of the lessee to dispossess the Obligated Issuer and to relet the leased premises to another party shall be limited to the remaining term of the lessee's leasehold, and (iii) the Obligated Issuer's rental payment and other obligations under any sublease described in clause (ii) above are secured by liens on any properties and revenues of the Obligated Issuer only to the extent permitted under the Master Indenture.

Additional Long Term Indebtedness

General Provisions. Any Obligated Issuer shall be permitted to incur additional Long Term Indebtedness upon delivery to the Master Trustee of certain required items including, among other things, certificates and certified resolutions of the Obligated Issuer and opinions of counsel, the contents of which are fully described in the Master Indenture, to which reference is made for more complete details, and either:

(a) an Officer's Certificate demonstrating and concluding that (i) for any period of 12 consecutive months during the 18 months immediately preceding the incurrence of the Long

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Term Indebtedness, the Revenues Available for Debt Service of the Obligated Group were at least equal to 150% of the Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group outstanding during such year and the Long Term Indebtedness to be incurred; or

(b) the following certificates or reports: (i) an Independent Public Accountant's certificate or report which demonstrates and concludes that, for any period of 12 consecutive months during the 18 months immediately preceding the incurrence of the Long Term Indebtedness, the Revenues Available for Debt Service of the Obligated Group were at least equal to 110% of the Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group outstanding during such 12 month period, and (ii) a Consultant's certificate or report (unless the principal amount of Long Term Indebtedness to be incurred does not exceed 15% of the Operating Revenues of the Obligated Group for any period of 12 consecutive months during the 18 months immediately preceding such incurrence, in which case an Officer's Certificate may be substituted therefor) which demonstrates and concludes that, for any period of 12 consecutive months during the 18 months immediately following the incurrence of the Long Term Indebtedness (or, in the case of any Long Term Indebtedness incurred to finance any construction, including renovations, following the completion of such construction), the Revenues Available for Debt Service of the Obligated Group are projected or forecasted to be at least equal to 120% of the Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Group outstanding during such 12 month period; provided that the required percentages under this subparagraph (b) shall be reduced to 100% for any 12 month period during which, in the written opinion of a Consultant, the Obligated Group has been or shall be prevented by applicable laws and regulations from realizing Revenues Available for Debt Service in the amounts otherwise required by this subparagraph, and upon the incurrence of the Long Term Indebtedness proposed to be issued, the aggregate principal amount of Long Term Indebtedness of the Obligated Group (excluding Guaranties) will not exceed 80% of the current value of the property, plant and equipment (exclusive of properties securing Non-Recourse Indebtedness) of the Obligated Group immediately upon the incurrence of such Long Term Indebtedness, such valuation to be made on the basis (consistently applied) of either the net book value of such property, plant and equipment, as set forth in the financial statements of the Obligated Group, or the appraised value thereof, as set forth in writing by qualified appraiser not unsatisfactory to the Master Trustee. The provision in the Master Indenture summarized above in this clause (b) is being amended in connection with the issuance of the 2017 Bonds. See “THE MASTER INDENTURE – Amendments to the Master Indenture” in this Appendix E for a discussion of the amendment to the provision in the Master Indenture summarized above.

The foregoing certificates or reports shall not be required in the case of: Long Term Indebtedness incurred to complete any construction (including renovations) initially financed with other Long Term Indebtedness for which such certificates or reports were previously delivered; Long Term Indebtedness incurred for refunding purposes, if such refunding will not increase the Obligated Group's Maximum Annual Debt Service Requirements by more than 15%; or other Long Term Indebtedness in a principal amount which, when added to the outstanding principal amount of similar Long Term Indebtedness incurred since the most recent delivery of the certificates or reports described above, does not exceed 15% of the Operating Revenues of the Obligated Group for any period of 12 consecutive months during the 18 months immediately preceding the incurrence of the Long Term Indebtedness in question.

The Debt Service Requirements on certain forms of Long Term Indebtedness shall be determined as follows:

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Balloon Indebtedness. The Debt Service Requirements on Balloon Indebtedness shall be determined as follows:

(a) For the purpose of determining whether the Balloon Indebtedness may be incurred pursuant to the Master Indenture, the Obligated Issuer thereof shall deliver to the Master Trustee an Officer's Certificate setting forth the Debt Service Requirements on the Balloon Indebtedness for each Fiscal Year, including such year or years in which 25% or more of the principal amount of the Balloon Indebtedness is due (each such year being herein referred to as a "balloon payment year" and the principal amount payable in any such balloon payment year being herein referred to as a "balloon payment"). The Debt Service Requirements reflected in such Officer's Certificate shall be used for the purposes of meeting the Requirements described above under "Additional Long Term Indebtedness-General Provisions," unless the Obligated Issuer shall have delivered to the Master Trustee a Financial Advisor's certificate or report which: (i) states that, in the signer's opinion, Long Term Indebtedness other than Balloon Indebtedness is then reasonably available to the Obligated Issuer in an amount equal to the principal amount of the Balloon Indebtedness and describes in reasonable detail the considerations upon which such opinion is based, including, without limitation thereto, current market conditions, the purpose of the financing and the credit of the Obligated Issuer; and (ii) sets forth in reasonable detail the estimated Debt Service Requirements reasonably available to the Obligated Issuer on the assumed Long Term Indebtedness described above, if amortized on a level debt service basis over a term not to exceed 25 years from the date of incurrence. If such a Financial Advisor's certificate or report is issued, the Debt Service Requirements on the Balloon Indebtedness for any balloon payment year shall be deemed to be equal to the amount shown in the Financial Advisor's certificate or report for such year. The Debt Service Requirements on the Balloon Indebtedness for any other Fiscal Year shall be deemed to be the higher of the amount shown for such year in the Officer's Certificate described above or in the Financial Advisor's certificate or report.

(b) For the purpose of any other required calculation of the Debt Service Requirements on any outstanding Balloon Indebtedness, such Debt Service Requirements shall be recalculated in the same manner as provided in subparagraph (a) above, taking into account all revisions required by the following:

(i) the Obligated Issuer shall deliver to the Master Trustee a revised Officer's Certificate prepared with respect to the remaining Debt Service Requirements on the Balloon Indebtedness in the manner described in subparagraph (a) above; and

(ii) if the recalculation is to be based on the estimated Debt Service Requirements on an assumed Long Term Indebtedness as described in subparagraph (a) above, the Obligated Issuer shall deliver to the Master Trustee a revised certificate or report of a Financial Advisor with respect to the remaining term of the assumed indebtedness, such certificate or report to be prepared in the manner set forth in subparagraph (a), taking into account all principal payments made and other changes in circumstances as of the date of the recalculation.

Demand Obligations. The Debt Service Requirements on Demand Obligations shall be determined for all purposes hereunder as follows:

(a) The Obligated Issuer of the Demand Obligation shall deliver to the Master Trustee an Officer's Certificate (i) stating the earliest date on which such demand Obligation is subject to redemption or repurchase at the option of the holder thereof, and (ii) setting forth the Debt Service Requirements which would be applicable to such Demand Obligation under the terms of the Related Financing Documents if such demand Obligation were tendered for redemption or

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repurchase on the date specified in clause (i) and redeemed or repurchased with amounts made available under a Credit Facility. Except as provided below, the Debt Service Requirements determined in accordance with clause (ii) above shall be deemed to be the Debt Service Requirements on the Demand Obligation.

(b) The Obligated Issuer of the Demand Obligations may deliver to the Master Trustee a Financial Advisor's certificate or report which: (a) states that, in the signer's opinion, Long Term Indebtedness other than Demand Obligations is then reasonably available to the Obligated Issuer in an amount equal to the principal amount of the Demand Obligations and describes in reasonable detail the considerations upon which such opinion is based, including, without limitations thereto, current market conditions, the purpose of the financing and the credit of the Obligated Issuer; and (b) sets forth in reasonable detail the estimated Debt Service Requirements reasonably available to the Obligated issuer on the assumed Long Term Indebtedness, if amortized on either a level principal or a level debt service basis over a term not to exceed 25 years from the date of incurrence. The Debt Service Requirement on the Demand Obligations for any Fiscal Year shall be deemed to be equal to the amount shown in the Financial Advisor's certificate or report delivered pursuant to this subparagraph.

Variable Rate Indebtedness. For the purpose of determining the Debt Service Requirements on any Variable Rate Indebtedness, the interest rate thereon shall be calculated as follows:

(a) For the purpose of determining whether any Variable Rate Indebtedness may be incurred, the Debt Service Requirements thereon shall be deemed to include interest at the rate in effect on the date of incurrence.

(b) For the purpose of any other required calculation of the Debt Service Requirements on any outstanding Variable Rate Indebtedness, such indebtedness shall be deemed to bear interest at a rate equal to the higher of (i) the rate in effect as of the date of calculation, or (ii) the weighted average rate for the twelve month period ending on the date of calculation (or the portion thereof during which the Variable Rate Indebtedness was outstanding).

Guaranties. The Debt Service Requirements on any Long Term Indebtedness in the form of a Guaranty shall be determined as follows:

(a) The Debt Service Requirements on any Guaranty of indebtedness which is a limited obligation of the Person incurring such indebtedness, payable solely from the proceeds of the indebtedness, additional funds provided by the Obligated Issuer under the Guaranty or the Related Financing Documents and investment income on such proceeds and additional funds, shall be deemed equal to 100% of the debt service Requirements on the indebtedness being guaranteed.

(b) The Debt Service Requirements on all other guaranties shall be deemed equal to:

(i) 100% of the debt service requirements on the guaranteed indebtedness, if either (A) an Obligated Issuer has made any payment in respect of the debt service requirements on the guaranteed indebtedness within the 12 months immediately preceding the date of the calculation, or (B) the revenues available for debt service of the primary obligor for the period under consideration were or are projected or forecasted to be less than 110% of its maximum annual debt service requirements;

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(ii) 50% of the debt service requirements on the guaranteed indebtedness, if the primary obligor's revenues available for debt service for the period under consideration were or are protected or forecasted to be at least equal to 110 % (but less than 150%) of its maximum annual debt service requirements;

(iii) 20% of the debt service requirements on the guaranteed indebtedness, if the primary obligor's revenues available for debt service for the period under consideration were or are projected or forecasted to be at least equal to 150% of its maximum annual debt service requirements.

(iv) The Debt Service Requirements on any Guaranty or Guaranties executed in connection with the purchase, lease or use of a mobile CT Scanner in an amount not to exceed $900,000 shall be equal to 0% of the debt service requirements on the guaranteed indebtedness.

For the purposes of the foregoing, the debt service requirements on any indebtedness being guaranteed and the revenues available for debt service and maximum annual debt service requirements of the primary obligor of any such indebtedness shall be calculated in the same manner as specified in the Master Trust Indenture for the calculation of Debt Service Requirements, Revenues Available for Debt Service and Maximum Annual Debt Service Requirements and, in connection with each such calculation, the Obligated Issuer of the guaranty shall provide the Master Trustee with such documents as would have been required if the indebtedness had been directly incurred by the Obligated Issuer.

Short Term Indebtedness

Each Obligated Issuer may incur Short Term Indebtedness from time to time, provided that the principal amount of any Short Term Indebtedness to be incurred, when added to the then outstanding principal amount of all Short Term Indebtedness of the Obligated Group and the principal payments (including mandatory redemptions or prepayments) included in the calculation of the Debt Service Requirements on all Long Term Indebtedness of the Obligated Group during the ensuing twelve month period, shall not exceed 10% of the Operating Revenues of the Obligated Group for any period of 12 consecutive months during the 18 months immediately preceding such incurrence. For at least 20 consecutive days within each Fiscal Year, the Obligated Group shall be required to reduce the aggregate principal amount of all outstanding Short Term Indebtedness to less than 5% of Operating Revenues.

Non-Recourse Indebtedness

Each Obligated Issuer shall be permitted to incur Non-Recourse Indebtedness without limitation as to principal amount and shall not be required to comply with the Requirements described above under "Additional Long Term Indebtedness" in connection with such incurrence; provided that any such Non- Recourse Indebtedness shall be secured in the manner and subject to the limitations described below under "Security for Indebtedness."

Security for Indebtedness

Indebtedness incurred as described above may be secured only by such liens, security interests or other similar rights and interests (hereinafter collectively referred to as "liens") as are permitted below:

Long Term Indebtedness (including Notes and Guaranties), may be secured by liens on: (i) property constituting all or any portion of the property, plant and equipment of an Obligated Issuer if the current value of the property to be so encumbered, together with the current value of all other property then encumbered pursuant to this clause (i) does not exceed 15% of the current value of the property,

E-27 plant and equipment (exclusive of properties securing Non-Recourse Indebtedness) of the Obligated Group, such valuations to be made on the basis (consistently applied) of either the net book value of the property under consideration, as set forth in the financial statements of the Obligated Group, or the appraised value thereof, as set forth in writing by a qualified appraiser not unsatisfactory to the Master Trustee; (ii) revenues derived from the ownership or operation of properties encumbered pursuant to clause (i) above; and (iii) current assets and cash and investments other than current assets which could have been transferred as described below under "Disposition of Assets". At the time any such lien is granted, the Obligated issuer of the Long Term Indebtedness shall deliver to the Master Trustee an Officer's Certificate demonstrating and concluding that the lien is being granted in accordance with the foregoing. No lien which does not meet the foregoing requirements may be granted to secure any Long Term Indebtedness unless a lien of equal or superior rank and priority is granted in favor of the Master Trustee for the benefit of the holders of all Master Indenture Obligations issued and outstanding under the Master Indenture.

Short Term Indebtedness may be secured by liens on current assets of the Obligated Group.

Non-Recourse Indebtedness may be secured by liens on: (i) any real property, fixtures and tangible personal property acquired with the proceeds of the Non-Recourse Indebtedness and any improvements to such property; (ii) any other real property, fixtures and tangible personal property of an Obligated Issuer, provided that such property could have been transferred as described below under "Disposition of Assets"; (iii) revenues derived from the ownership or operation of the property described in clauses (i) and (ii) above; and (iv) gifts, grants, bequests, donations, other similar contributions (or pledges thereof), other amounts constituting nonoperating revenues under generally accepted accounting principles, and the income from the foregoing, if and to the extent required under the Master Indenture to be excluded from any calculation of Nonoperating Revenues. At the time any such lien is to be granted, the Obligated Issuer of the Non-Recourse indebtedness shall deliver to the Master Trustee an Officer's Certificate demonstrating and concluding that the lien is being granted in accordance with the foregoing.

If a Credit Facility is issued in support of any Long Term Indebtedness (including Notes and Guaranties) secured as permitted by the Master Indenture, the Obligated Issuer may grant a lien in favor of the issuer of the Credit Facility which is equal in rank and priority with or subordinate to the lien granted to secure the Long Term Indebtedness.

The foregoing shall not be deemed to prohibit the establishment pursuant to any Related Financing Documents of any funds to be held as security for any indebtedness incurred thereunder by an Obligated Issuer or the exercise of any rights and remedies with respect thereto; provided that any obligation of the Obligated Issuer to make deposits into any such fund may be secured only if and to the extent permitted above.

Disposition of Assets

Current assets, and cash and investments other than current assets, may be transferred if: (i) an Officer's Certificate is delivered to the Master Trustee demonstrating and concluding that (A) the Revenues Available for Debt Service of the Obligated Group for any consecutive period of 12 months during the 18 months immediately preceding the transfer were at least equal to 125% of the Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group, and (B) the sum of the current value of the assets to be transferred and the value (at the time of transfer) of all other assets previously transferred pursuant to this clause (i) (each as set forth in the financial statements of the Obligated Group) will not exceed 50% of the cumulative Revenues Available for Debt Service of the Obligated Group (before addition of interest, amortization of financing charges, depreciation or other non-cash charges) for all Fiscal Years ending after the date hereof, to and including the Fiscal Year

E-28 immediately preceding the transfer; or (ii) a Consultant's certificate or report is delivered to the Master Trustee demonstrating and concluding that the Revenues Available for Debt Service of the Obligated Group for each of the two consecutive 12 month periods immediately following the transfer are projected or forecasted to be at least equal to 150% of the Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group; provided that, in lieu of the foregoing, each Obligated Issuer shall be permitted to make one or more transfers during the course of any one (but not more than one) Fiscal Year if an Officer's Certificate is delivered to the Master Trustee demonstrating and concluding that the value of all assets transferred by such obligated Issuer during such Fiscal Year pursuant to this section (as set forth in the financial statements of the Obligated Issuer at the time of transfer) does not exceed 5 % of the total value of the current assets, and cash and investments other than current assets, of the Obligated Issuer as set forth in its financial statements as of the end of the immediately preceding Fiscal Year. This section shall not apply to any transactions in the ordinary course of business, arms length transactions (or transactions at least as favorable to the Obligated Issuer), or interest bearing or non-interest bearing loans having specified maturities of 60 months or less (provided that such loans are not forgiven or extended).

Property constituting all or any portion of an Obligated Issuer's property, plant and equipment may be transferred if: (a) the transfer involves only property which secures Non-Recourse Indebtedness; (b) the transfer involves only property which is retired or replaced in the ordinary course of business; (c) an Officer's Certificate is delivered to the Master Trustee demonstrating and concluding that the current value of the property to be transferred, together with the value (at the time of transfer) of all other property transferred during the then current Fiscal Year pursuant to this clause (c), does not exceed 5% of the current value of the property, plant and equipment (exclusive of properties securing Non-Recourse Indebtedness) of the Obligated Group immediately before the transfer in question, such valuations to be made on the basis (consistently applied) of either the net book value of the property under consideration, as set forth in the financial statements of the Obligated Group, or the appraised value thereof, as set forth in writing by qualified appraisers not unsatisfactory to the Master Trustee; (d) a Consultant's certificate or report is delivered to the Master Trustee demonstrating and concluding that (i) immediately following such transfer the conditions described under "Additional Indebtedness-General Provisions" would be met for the incurrence of one dollar of Long Term Indebtedness, and (ii) either (A) assuming such transfer was made at the beginning of any period of 12 consecutive months during the immediately preceding 18 months, the ratio for such 12 month period of Revenues Available for Debt Service to Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group would not have been reduced by reason of such transfer by more than 35% nor to less than 110%, or (B) the ratio of Revenues Available for Debt Service to the Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group for each of the two consecutive 12 month periods immediately following the transfer in question is projected or forecasted to be (1) at least equal to 120% and not less than 65% of such ratio for any period of 12 consecutive months during the 18 months immediately preceding such transfer, or (2) higher than such ratio would have been if such property were not transferred; or (e) an Officer's Certificate is delivered to the Master Trustee demonstrating and concluding that such property has become (or is reasonably expected within the next succeeding 24 months to become) obsolete, worn out or unprofitable, and that such transfer will not impair the structural soundness, efficiency or economic value of the property, plant and equipment of the Obligated Issuer remaining after such transfer.

Property may be released from the lien of any Related Financing Documents executed in connection with the Note or Notes issued pursuant to the Master Indenture hereof and the Hospital may lease or mortgage such property and may grant a security interest in the revenues generated thereby to secure Long Term Indebtedness not to exceed $3,000,000, which indebtedness may be fixed or Variable Rate Indebtedness.

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Notwithstanding the above, current assets, and cash and investments other than current assets may be transferred annually to Wayne Memorial Health System, Inc. or one of its not-for-profit Affiliates in an amount equal to the greater of (a) the amount by which the Revenues Available for Debt Service for the immediately preceding 12 months exceed 175% of the Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group as evidenced by an Officer's Certificate or (b) $200,000.

Insurance

Each Obligated Issuer will (a) maintain, or cause to be maintained, insurance covering such risks and in such amounts as, in its judgment, is adequate to protect it and its properties and operations, (b) cause such coverages to be reviewed and reported on as to adequacy and acceptability of the insurance carrier by an Insurance Consultant, such reports to be issued (i) in the case of the Hospital, at the time of the execution of the Master Indenture and within 90 days after the end of each Fiscal Year which commences after such execution, and (ii) in the case of each other Obligated Issuer, at the time of its execution of the documents and instruments pursuant to which it has become an Obligated Issuer and within 90 days after the end of each Fiscal Year of such Obligated Issuer which commences after such execution, and (c) upon receipt of each report on the Insurance Consultant, deliver the same to the Master Trustee and obtain or cause to be obtained such additional, alternative or increased coverages as may be recommended therein by the Insurance Consultant. Such coverages shall be obtained and maintained through commercial insurance carriers or captive insurance companies acceptable to the Insurance Consultant or through self-insurance plans which are approved as to adequacy and reported on by the Insurance Consultant or through self-insurance plans which are approved as to adequacy by the Insurance Consultant at the times and for the purposes described above. Notwithstanding the foregoing, each Obligated Issuer shall obtain and maintain or cause to be obtained and maintained such insurance coverages as may be required under the applicable provisions of any Related Financing Documents.

Insurance proceeds and condemnation awards received in respect of any damage to or destruction or condemnation of any property of an Obligated Issuer (other than properties securing Non-Recourse Indebtedness) may be required to be applied to the reconstruction, replacement or repair of the affected property or to the redemption of outstanding Master Indenture Obligations in whole or in part, if either application is determined to be "practicable" and "financially feasible" in the manner set forth in the Master Indenture; provided that neither application of funds will be required if it is determined to be "unnecessary" in the manner set forth in the Master Indenture, in which event such funds shall be available for any lawful purpose of the Obligated Issuer whose property is affected.

Other Covenants of the Obligated Issuers

Each Obligated Issuer covenants, among other things, to procure and maintain all necessary licenses and permits and, accreditations which are necessary or desirable for the maintenance of its properties, conduct of its operations and performance of its obligations under the Master Indenture, to maintain its corporate existence, and to file certain financial information periodically with the Master Trustee.

In addition each Obligated Issuer covenants not to merge with, consolidate into or transfer substantially all its assets to, any person not a member of the Obligated Group unless: (a) the successor corporation (if other than the Obligated Issuer) shall be a corporation organized and existing under the laws of the United States of America or a state thereof and shall expressly assume the due and punctual payment of the principal of, premium, if any, interest on and all other amounts payable in respect of all outstanding Obligations and other indebtedness incurred or permitted to be incurred hereunder, according to their tenor, and the due and punctual performance and observance of all of the covenants and

E-30 conditions of the Master Indenture to be performed or observed by the Obligated Issuer; (b) the Master Trustee shall have received all opinion of counsel stating whether the merger, consolidation, sale or conveyance will adversely affect the tax exempt status, if any, of the Obligated Issuer or successor corporation or of any other member of the Obligated Group under the income tax laws of the United States of America or any jurisdiction or jurisdictions within which it is organized or conducts business; (c) the Obligated Issuer or such successor corporation, as the case may be, immediately after such merger or consolidation, or such sale or conveyance, would not be in default in the performance or observance of any covenant or condition under the Master Indenture and the conditions described above under subparagraphs (a) and (b) of "Additional Long Term Indebtedness - General Provisions" would be met for the incurrence of one dollar of Long Term Indebtedness, taking into account any resulting adverse effect on the tax exempt status of any Obligated Issuer or successor corporation above; (d) if the Obligated Issuer is the successor corporation, such merger, consolidation, sale or conveyance would meet the requirements imposed by the Master Indenture, or if the Obligated Issuer is not the successor corporation, the Master Trustee shall have received a certificate or report of a Consultant demonstrating and concluding that the average of the projected or forecasted ratios of Revenues Available for Debt Service to Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group for each of the two consecutive 12 month periods immediately following such merger, consolidation, sale or conveyance is at least 120%; and (e) there shall have been delivered to the Master Trustee an opinion of nationally recognized bond counsel to the effect that the consummation of such merger, consolidation, sale or conveyance will not adversely affect any applicable exemption from federal income taxation of the interest payable on any outstanding bonds which were previously issued pursuant to and are secured by the Related Financing Documents for any Master Indenture Obligations or other indebtedness incurred or permitted to be incurred hereunder or any similar indebtedness of any successor corporation.

Persons Becoming Obligated Issuers

If at any time the Hospital and any other Persons shall determine that such Person should become an Obligated Issuer under the Master Indenture, the Hospital and such new Obligated Issuer may execute and deliver to the Master Trustee an appropriate instrument, satisfactory to the Master Trustee, containing the agreement of such new Obligated issuer (a) to become an Obligated Issuer under the Master Indenture and thereby subject to compliance with all provisions of the Master Indenture pertaining to an Obligated Issuer, including the performance and observance of all covenants and obligations of an Obligated Issuer under the Master Indenture, and (b) guaranteeing to the Master Trustee and each other member of the Obligated Group that all Notes and Guaranties issued and then outstanding under the Master Indenture will be paid in accordance with the terms thereof and of the Master Indenture, when due.

Each instrument executed and delivered to the Master Trustee in accordance with the preceding paragraph shall be accompanied by an opinion of Counsel (a) to the effect that each such instrument has been duly authorized, executed and delivered by the Hospital and such new Obligated Issuer and constitutes a valid and binding obligation enforceable in accordance with its terms, except as limited by applicable fraudulent conveyance statutes (the potential effects of which shall be set forth in reasonable detail), bankruptcy laws, Insolvency laws and other laws and equitable principles affecting creditors' rights generally, and (b) stating whether such authorization, execution and delivery of instruments by the new Obligated Issuer will adversely affect the tax exempt status, if any, of any Obligated Issuer (including the new Obligated Issuer) under the income tax laws of the United States of America or the jurisdiction or jurisdictions within which it is organized or conducts business. It shall be a condition precedent to the consummation of any transaction involving an instrument to be executed and delivered by the Master Trustee in accordance with the foregoing that immediately upon becoming a member of the Obligated Group, the new Obligated Issuer would not be in default in the performance or observance of a covenant or condition under the Master Indenture and the conditions described in subparagraph (a) or (b) under the heading "Additional Long Term Indebtedness - General Provisions" would be met for the

E-31 incurrence of one dollar of Long Term Indebtedness, taking into account any adverse effect on the tax exempt status of any Obligated Issuer described in clause (b) above, and the Master Trustee receives an opinion of nationally recognized bond counsel to the effect that the consummation of such transaction would not adversely affect any applicable exemption from federal income taxation of the interest payable on any bonds which were previously issued pursuant to and are secured by the Related Financing Documents for any Master Indenture Obligations or other indebtedness incurred or permitted to be incurred hereunder or any similar indebtedness of the new Obligated Issuer.

Upon any Person becoming an Obligated Issuer: (a) such Obligated Issuer may execute and deliver Master Indenture Obligations thereafter issued and any supplement to the Master Indenture thereafter entered into; (b) the computations provided for in any provision of the Master Indenture shall be made on a consolidated or combined basis for the Hospital and each Obligated Issuer in accordance with generally accepted accounting principles consistently applied, with the elimination of material intercompany balances and transactions; and (c) any covenant contained in the Master Indenture obligating any Obligated Issuer to perform any matter with respect to its property or its operations shall be deemed to obligate such Obligated Issuer to perform such matter with respect to property owned by it or its operations.

Defaults and Remedies

The following events are "Events of Default" under the Master Indenture:

(a) failure of any Obligated Issuer (i) to make any payment of principal, redemption price or interest when due under the terms of any Obligation and such failure continues to exist as of the end of any applicable grace period under the terms of the supplement to the Master Indenture authorizing the issuance of such Obligation; or (ii) to make any deposit into the Revenue Fund prior to the earlier of (A) 10 days following the due date of such deposit in accordance with the terms and of any supplement to the Master Indenture, or (B) the date on which any payment from the Revenue Fund is required in respect of any Obligation; or

(b) failure of any Obligated Issuer to observe or perform any covenant or agreement contained in the Master Indenture or any Related Financing Documents for any Obligations for a period of 30 days after written notice of such failure has been given to the members of the Obligated Group the giving of which notice shall be at the discretion of the Master Trustee unless the Master Trustee is requested in writing to do so by the holders of at least 25% in aggregate principal amount of all outstanding Master Indenture Obligations, in which event such notice shall be given; provided, however, that if such observance or performance requires work to be done, actions to be taken, or conditions to be remedied, which by their nature cannot reasonably be done, taken or remedied, within such 30-day period, no Event of Default shall be deemed to have occurred or to exist if, and so long as, the defaulting Obligated Issuer shall commence such observance or performance within such 30-day period and shall diligently and continuously prosecute the same to completion;

(c) default of any Obligated Issuer in the payment of any indebtedness (other than Master Indenture Obligations) or any event of default as defined in any Related Financing Documents under which any such indebtedness may be issued, which default in payment or event of default results in such indebtedness becoming due and payable prior to the date on which it would otherwise become due and payable unless within the time allowed for service of a responsive pleading any proceeding to enforce payment of the indebtedness under the laws governing such proceeding (i) the members of the Obligated Group in good faith commence proceedings to

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contest the existence or payment of such indebtedness, and (ii) sufficient moneys are escrowed with a bank or trust company for the payment of such indebtedness; or

(d) bankruptcy, dissolution, liquidation or reorganization in bankruptcy of any Obligated issuer or other similar events.

If an Event of Default has occurred and is continuing, the Master Trustee may, and If requested by the holders of not less than 25% in aggregate principal amount of all Master Indenture Obligations then outstanding shall, by notice in writing to members of the Obligated Group, declare the principal of all (but not less than all) outstanding Master Indenture Obligations to be immediately due and payable. If all Events of Default other than nonpayment of amounts that have become due as a result in such declaration are remedied, the holders of a majority in aggregate principal amount of all Master Indenture Obligations then outstanding may waive all Events of Default and rescind and annul such declaration of acceleration.

The Master Trustee may institute any actions or proceedings at law or in equity for the collection of the sums due and may collect such sums in the manner provided by law out of the property of the Obligated Group wherever situated.

Modifications

Each Obligated Issuer and the Master Trustee may, without the consent of the holders of the Master Indenture Obligations, enter into amendments or supplement to the Indenture to (a) provide for the issuance of any Notes or Guaranties under the Master Indenture, (b) add additional covenants for the protection of the holders of Master Indenture Obligations, (c) cure any ambiguity or defective provision of the Master Indenture in such manner as is not inconsistent with and does not impair the security of the Master Indenture or adversely affect the holders of Notes of any series or of any Guaranty issued under the Master Indenture, (d) evidence the succession of another corporation to the agreements of any Obligated Issuer, or its successor, under the Master Indenture, (e) qualify the Master Indenture under the Trust Indenture Act of 1939 or under any similar federal statute hereafter, and (f) to provide for the establishment of additional funds and accounts.

Each obligated Issuer and the Master Trustee may, with the consent of the holders of at least 51% in aggregate principal amount of the outstanding Master Indenture Obligations, otherwise amend or supplement the Master Indenture, subject to the provisions contained in the Master Indenture, but no such amendment or supplement will change the principal, premium or interest payable on any Note or Guaranty or the time or currency of payment, or reduce the percentage of Master Indenture Obligations and the holders of which are required to consent to any such amendment or supplement, or permit the preference or priority of any Note or Notes or Guaranty over any other Note or Notes or Guaranty without the consent of the holders of all outstanding Master Indenture Obligations which would be affected thereby.

Amendments to the Master Indenture

(a) The second sentence of Section 9.7 of the Master Indenture relating to the resignation, removal and successor master trustee shall be amended in its entirety to read as follows: "In addition, upon thirty (30) days written notice, the Master Trustee may be removed without cause at the written direction of (i) the Holders of not less than 50% in aggregate principal amount of Obligations then Outstanding, delivered to the members of the Obligated Group and the Master Trustee or (ii) the Hospital if no Event of Default hereunder has occurred and is continuing, delivered to the Master Trustee, and the

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Master Trustee shall, at the expense of the Hospital, promptly give notice thereof in writing to each Holder of an Obligation then Outstanding as provided above."

(b) The third sentence of Section 9.7 of the Master Indenture relating to the resignation, removal and successor master trustee shall be amended in its entirety to read as follows: "In the case of the resignation or removal of the Master Trustee, a successor Master Trustee may be appointed by the Hospital."

(c) The fourth sentence of Section 9.7 of the Master Indenture relating to the resignation, removal and successor master trustee shall be deleted in its entirety.

(d) Section 1.4 of the Master Indenture relating to the application of accounting principles for purposes of the Master Indenture shall be amended to add the following paragraph to such Section:

The financial terms, covenants and reporting requirements set forth in this Indenture are based upon generally accepted accounting principles expected to be applicable to Obligated Issuers at the time of execution and delivery of this Indenture and thereafter. If generally accepted accounting principles applicable to Obligated Issuers at any time differ from those expectations due to changes in generally accepted accounting principles applicable to Obligated Issuers, this Indenture may be amended without notice to or consent of Holders of Obligations so that the operation of such amended financial terms, covenants and reporting requirements under generally accepted accounting principles then applicable to Obligated Issuers is, in the opinion of an Independent Public Accountant, reasonably required to allow the Obligated Issuers to comply with the financial compliance and reporting requirements of this Indenture following such changes to generally accepted accounting principles.

(e) Subparagraph (ii) of Section 4.2(f) of the Original Master Trust Indenture summarized above in clause (b) under the caption “THE MASTER INDENTURE - Additional Long Term Indebtedness – General Provisions” shall hereby be amended in its entirety to read as follows:

(ii) the following certificates or reports: (A) a certificate or report issued by an Independent Public Accountant which demonstrates and concludes that, for any period of 12 consecutive months during the 18 months immediately preceding the incurrence of the Long Term Indebtedness, the Revenues Available for Debt Service of the Obligated Group were at least equal to 110% of the Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group outstanding during such 12 month period, and (B) a certificate or report issued by a Consultant (unless the principal amount of the Long Term Indebtedness to be incurred does not exceed 15% of the Operating Revenues of the Obligated Group for any period of 12 consecutive months during the 18 months immediately preceding such incurrence, in which case an Officer’s Certificate may be substituted therefor) which demonstrates and concludes that for any period of 12 consecutive months during the 18 months immediately following the incurrence of the Long Term Indebtedness (or, in the case of any Long Term Indebtedness incurred to finance any construction, including renovations, following the completion of such construction), the Revenues Available for Debt Service of the Obligated Group are projected or forecasted to be at least equal to 120% of the Maximum Annual Debt Service Requirements on all Long Term Indebtedness of the Obligated Group outstanding during such 12 month period; provided that the required percentages under this subparagraph (ii) shall be reduced to 100% for any 12 month period during which, in the written opinion of a Consultant, the Obligated Group has been or shall be prevented by applicable laws and regulations from realizing Revenues Available for Debt Service in the amounts otherwise required by this subparagraph.

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The foregoing amendments shall be effective immediately upon the execution of the Eleventh Supplemental Master Trust Indenture as to the Holders of the 2017 Note and shall be effective as to all Holders of Obligations Outstanding under the Master Indenture upon receipt of the consent of the Holders of 51% of the aggregate principal amount of Obligations Outstanding under the Master Indenture in accordance with the Master Indenture.

Immediately upon the execution of the Eleventh Supplemental Master Trust Indenture and delivery of the 2017 Bonds, the Holders of the 2017 Note shall be deemed to have consented to the foregoing amendments to the Master Indenture, which shall constitute the required consent of the Holders for the amendments to the Master Indenture to become effective.

THE COUNTY GUARANTY

Under the County Guaranty Agreement, dated as of September 1, 2017 (the "County Guaranty"), the County unconditionally guarantees the full payment of principal of and interest on the 2017 Bonds, and covenants and agrees with the Bond Trustee for the benefit of and the holders of the 2017 Bonds, that if the Authority shall fail to pay the full amount of the principal of and interest on the 2017 Bonds, when due, then the County will pay the full amount of such principal and interest to the Bond Trustee for the benefit of the holders of the 2017 Bonds. For the full and timely payment of the same, the County pledges its full faith, credit and taxing power (which includes ad valorem taxes on all taxable property in the County, presently unlimited as to rate or amount for such purposes) and has covenanted to budget, appropriate and pay, from its tax or other general revenues, in each year the 2017 Bonds are outstanding, amounts for such requirements. Reference should be made to the County Guaranty and the Pennsylvania Local Government Unit Debt Act for a particular statement of the rights and obligations of parties thereunder with respect to such guaranty.

The County Guaranty shall remain in full force until the entire principal or redemption price of and interest on the 2017 Bonds shall have been paid or provided for.

The guaranty of the County, as set forth in the County Guaranty, constitutes lease rental debt of the County under the Pennsylvania Local Government Unit Debt Act. However, this Act provides a procedure for the exclusion from such lease rental debt of the County, for the purpose of establishing the net lease rental debt, to the extent that revenues from the operation of the revenue producing facility are sufficient to pay such debt. The County has taken the necessary steps to apply to the Department of Community and Economic Development for an exclusion of such lease rental debt of the County in the principal amount of the 2017 Bonds and has received an approval of such exclusion from the Department of Community and Economic Development.

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[ THIS PAGE INTENTIONALLY LEFT BLANK ] APPENDIX F

Proposed Form of Opinion of Bond Counsel [ THIS PAGE INTENTIONALLY LEFT BLANK ] STEVENS & LEE LAWYERS & CONSULTANTS 425 Spruce Street Suite 300 Scranton, PA 18503 (570) 343-1827 Fax (570) 343-1892 www.stevenslee.com

September __, 2017

RE: $______Wayne County Hospital and Health Facilities Authority County Guaranteed Hospital Revenue Bonds (Wayne Memorial Hospital Project), Series A of 2017 (the "Bonds")

TO: THE REGISTERED OWNERS OF THE ABOVE-CAPTIONED BONDS

We have acted as Bond Counsel in connection with the issuance by the Wayne County Hospital and Health Facilities Authority (the "Authority") of the above-captioned Bonds under the Municipality Authorities Act of the Commonwealth of Pennsylvania, 53 Pa. C.S. §5601, et. seq., Act 22 of 2001, effective June 19, 2001, which codifies and amends the Municipality Authorities Act of 1945, amended and supplemented (the "Act"). The Bonds are being issued pursuant to the provisions of a Trust Indenture, dated as of July 1, 1993 (the "Original Indenture"), between the Authority and PNC Bank, National Association, predecessor trustee to J. P. Morgan Trust Company, National Association, and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), as amended and supplemented by a First Supplemental Trust Indenture, dated as of April 15, 1994 (the "First Supplemental Indenture"), a Second Supplemental Trust Indenture, dated as of December 1, 1997 (the "Second Supplemental Indenture"), a Third Supplemental Trust Indenture, dated as of June 1, 2003 (the "Third Supplemental Indenture"), a Fourth Supplemental Trust Indenture, dated as of September 15, 2005 (the "Fourth Supplemental Indenture"), a Fifth Supplemental Trust Indenture, dated as of November 1, 2007 (the “Fifth Supplemental Trust Indenture”), a Sixth Supplemental Trust Indenture, dated as of October 1, 2012 (the “Sixth Supplemental Indenture”), a Seventh Supplemental Trust Indenture, dated as of December 1, 2012 (the “Seventh Supplemental Indenture”), an Eighth Supplemental Trust Indenture, dated as of January 1, 2013 (the “Eighth Supplemental Indenture”), and a Ninth Supplemental Trust Indenture, dated as of September 1, 2017 (the “Ninth Supplemental Indenture” and together with the Original Indenture, the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture, the Fourth Supplemental Indenture, the Fifth Supplemental Indenture, the Sixth Supplemental Indenture, the Seventh Supplemental Indenture, and the Eighth Supplemental Indenture, the "Trust Indenture").

Philadelphia  Reading  Valley Forge  Allentown  Harrisburg  Lancaster  Scranton Wilkes-Barre  Princeton  Charleston  New York  Wilmington A PROFESSIONAL CORPORATION

September __, 2017 Page 2

The proceeds of the Bonds will be used by the Authority to finance a project (the "2017 Project") for the benefit of Wayne Memorial Hospital, a Pennsylvania not-for-profit corporation (the "Hospital"), consisting of: (1) financing the acquisition, design, construction, renovation, equipping and furnishing of new facilities and improvements and additions to the existing facilities of the Hospital, including, but not limited to, the acquisition, design, construction, equipping and furnishing of a new 3-story addition to the existing hospital facility; (2) financing parking, site and infrastructure improvements and various other capital improvements to the Hospital's existing facilities and the acquisition of capital equipment for use in or in connection with the facilities of the Hospital; (3) financing the acquisition of certain real property and/or the direct or indirect ownership interest in certain real property; (4) funding capitalized interest on the Bonds and a debt service reserve fund for the Bonds; and (5) paying all or a portion of the costs of issuance of the Bonds.

All capitalized terms used in this opinion and not defined herein shall have the meanings assigned to them in the Trust Indenture unless the context clearly requires otherwise.

The Authority and the Hospital have entered into a Ninth Supplemental Loan Agreement, dated as of September 1, 2017, between the Authority and the Hospital (the “Ninth Supplemental Loan Agreement”), which supplements and amends the Loan Agreement, dated as of July 1, 1993, between the Authority and the Hospital, as previously supplemented by a First Supplemental Loan Agreement, dated as of April 15, 1994, a Second Supplemental Loan Agreement, dated as of December 1, 1997, a Third Supplemental Loan Agreement, dated as of June 1, 2003, a Fourth Supplemental Loan Agreement, dated as of September 15, 2005, a Fifth Supplemental Loan Agreement, dated as of November 1, 2007, a Sixth Supplemental Loan Agreement, dated as of October 1, 2012, a Seventh Supplemental Loan Agreement, dated as of December 1, 2012, and an Eighth Supplemental Loan Agreement, dated as of January 1, 2013 (collectively, the "Loan Agreement"). Pursuant to the Loan Agreement, the Authority has agreed to lend to the Hospital the proceeds received from the sale of the Bonds for the purposes of financing the 2017 Project and the Hospital has agreed, among other things, to make certain loan payments to the Authority in such amounts and at such times as to permit the Authority to pay, among other things, the principal of, premium, if any, and interest on the Bonds when due.

The Hospital's obligations under the Loan Agreement will be secured by, among other things, a Promissory Note, dated September __, 2017 (the "Promissory Note"), issued by the Hospital to the Authority pursuant to a Master Trust Indenture, dated as of October 15, 1986, as supplemented by a First Supplemental Master Indenture, dated as of October 15, 1986, a Second Supplemental Master Indenture, dated as of July 1, 1993, a Third Supplemental Master Indenture, dated as of April 15, 1994, a Fourth Supplemental Master Indenture, dated as of December 1, 1997, a Fifth Supplemental Master Indenture, dated as of June 1, 2003, a Sixth Supplemental Master Indenture, dated as of September 15, 2005, a Seventh Supplemental Master Indenture dated as of November 1, 2007, an Eighth Supplemental Master Indenture, dated as of October 1, 2012, a Ninth Supplemental Master Indenture, dated as of December 1, 2012, a Tenth

September __, 2017 Page 3

Supplemental Master Indenture, dated as of January 1, 2013, and an Eleventh Supplemental Master Indenture, dated as of September 1, 2017 (collectively, the "Master Indenture"), between the Hospital and The Bank of New York Mellon Trust Company, N.A (successor master trustee to J. P. Morgan Trust Company, National Association, PNC Bank, National Association and First Eastern Bank, N.A.), as successor master trustee.

Pursuant to the provisions of the Trust Indenture, the Authority has, among other things, pledged, assigned and granted to the Trustee all of its right, title and interest in and to the Loan Agreement and the Promissory Note (except for certain indemnification rights and rights to be reimbursed for certain costs and expenses that it may incur as provided in the Loan Agreement).

As additional security for the payment of the principal of and interest on the Bonds, the County of Wayne, Pennsylvania, as guarantor (the "County"), has entered into a Guaranty Agreement, dated as of September 1, 2017 (the "Guaranty"), with the Trustee. Pursuant to the Guaranty and Ordinances enacted by the County on March 17, 2016, and July 6, 2017, the County has pledged its full faith, credit and taxing power for its payment obligations under the Guaranty.

The Bonds issued this date are dated, mature and bear interest and are subject to redemption prior to maturity upon the terms and conditions stated therein and in the Trust Indenture. The Bonds are issuable as registered bonds in denominations of $5,000 or any integral multiple thereof.

In our capacity as Bond Counsel, we have reviewed the following:

1. The Act;

2. A certified copy of the Articles of Incorporation of the Authority;

3. Sections 103 and 141 through 150 of the Code and the regulations and rulings promulgated thereunder;

4. The General Certificate of the Authority and all exhibits thereto;

5. The General Certificate of the Hospital and all exhibits thereto;

6. The opinion of John J. Martin, Esquire, in his capacity as solicitor to the Authority;

7. The opinion of Howell & Howell, in its capacity as counsel to Hospital;

8. The opinion of Lee C. Krause, Esquire, in his capacity as solicitor to the County;

September __, 2017 Page 4

9. The General Certificate of the County and all exhibits thereto;

10. The Bond Purchase Agreement among the Authority, the Hospital and Robert W. Baird & Co. Incorporated, as representative of the underwriters named therein (the "Underwriters"), dated ______, 2017;

11. A specimen copy of one of the Bonds;

12. An executed Nonarbitrage Certificate and Compliance Agreement of the Authority delivered this day;

13. An executed Confirmation Certificate of the Hospital delivered this day;

14. An executed Certificate of the Underwriters delivered this day;

15. An executed Certificate Regarding Information Contained in Form 8038 delivered this day;

16. The information return of the Authority on Form 8038 delivered this day;

17. The proceedings of the County filed with the Department of Community and Economic Development of the Commonwealth of Pennsylvania (the "Department") under the provisions of the Local Government Unit Debt Act of the Commonwealth of Pennsylvania (the "Debt Act"), and the Certificate of the Department approving the incurrence of lease rental indebtedness by the County; and

18. Original counterparts or certified copies of the Loan Agreement, the Trust Indenture, the Promissory Note, the Guaranty, the Master Indenture and the other documents, agreements, certificates and opinions delivered at the closing held this day.

Based and in reliance upon the foregoing, our attendance at the closing held this day and subject to the caveats, qualifications, exceptions and assumptions set forth herein, it is our opinion that, as of the date hereof, under existing law:

1. The Authority is a body corporate and politic, validly existing under the laws of the Commonwealth of Pennsylvania (the "Commonwealth"), with full power and authority to execute and deliver the Ninth Supplemental Indenture and the Ninth Supplemental Loan Agreement and to issue and sell the Bonds.

2. The Ninth Supplemental Indenture and the Ninth Supplemental Loan Agreement have each been duly authorized, executed and delivered by the Authority and each such document constitutes the valid and binding obligation of the Authority.

September __, 2017 Page 5

3. The Guaranty has been duly authorized, executed and delivered by the County and constitutes a valid and legally binding obligation of the County enforceable against the County in accordance with its terms.

4. The issuance of the Bonds has been duly authorized by the Authority. The Bonds have been duly and validly authorized, executed and delivered by the Authority and, when duly authenticated by the Trustee, will constitute valid and binding obligations of the Authority.

5. The County has duly guaranteed the payment of the principal of and interest on the Bonds, to the extent provided in the Guaranty, and for such payment has pledged its full faith, credit and taxing power.

6. Under the laws of the Commonwealth, the Bonds and interest on the Bonds shall be free from taxation for state and local purposes within the Commonwealth, but this exemption does not extend to gift, estate, succession or inheritance taxes or any other taxes not levied directly on the Bonds or the interest thereon. Under the laws of the Commonwealth, profits, gains or income derived from the sale, exchange or other disposition of the Bonds are subject to state and local taxation within the Commonwealth.

7. Interest on the Bonds is not includable in gross income under Section 103(a) of the Code.

8. Under the Code, interest on the Bonds held by persons other than corporations (as defined for federal tax purposes) does not constitute an item of tax preference under Section 57 of the Code and thus is not subject to alternative minimum tax for federal income tax purposes.

9. Under the Code, interest on the Bonds held by a corporation (as defined for federal tax purposes) does not constitute an item of tax preference under Section 57 of the Code; however, corporations subject to alternative minimum tax will be required to include, among other things, amounts treated as interest on the Bonds as an adjustment in computing alternative minimum taxable income in the manner provided in Section 56 of the Code.

______

In connection with providing the foregoing opinions, we call to your attention the following:

1. As to questions of fact material to our opinion, we have relied upon the representations, statements, expectations and certifications contained in the documents and other certified proceedings reviewed by us (including, without limitation, certificates, agreements and

September __, 2017 Page 6

representations by the Authority and the Hospital as to the expected use of the proceeds of the Bonds, as to continuing compliance with Section 148 of the Code to assure that the Bonds do not become "arbitrage bonds", as to their expectations with respect to the issuance of additional, tax- exempt obligations within this calendar year and as to the continuance of the Bonds to be "qualified 501(c)(3) bonds" within the meaning of Section 145 of the Code ), without undertaking to verify the same by independent investigation. We have also relied upon the genuineness, authenticity, truthfulness and completeness of all facts, information, representations, and certifications contained in the agreements, certificates, documents, records and other instruments executed and delivered at or in connection with the closing held this day and have assumed compliance with the state and federal securities laws. We have assumed the genuineness of the signatures appearing upon all the certificates, documents and instruments executed and delivered at the closing held this day. We have also relied, without independent investigation, on the opinion of Howell & Howell, and on the representations and certifications of the Hospital delivered on the date hereof as to, among other things, the continuing status of the Hospital as a 501(c)(3) corporation.

2. In providing the opinions set forth in paragraphs 1, 2 and 4 above, we have relied, without independent investigation, on the opinion of John J. Martin, Esquire, with respect to the matters stated therein.

3. In providing the opinions set forth in paragraphs 3 and 5 above, we have relied, without independent investigation, on the opinion of Lee C. Krause, Esquire, with respect to the matters stated therein.

4. In connection with the opinions set forth in paragraphs 2, 3 and 4 above, we call to your attention that the legality, validity, binding nature and enforceability of the documents referred to therein may be limited by: (a) the availability or unavailability of equitable remedies including, but not limited to, specific performance and injunctive relief; (b) the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws or equitable principles generally affecting creditors' rights or remedies; and (c) the effect of certain laws and judicial decisions limiting on constitutional or public policy grounds any provisions set forth in such documents purporting to waive rights of due process and legal procedure.

5. In providing the opinion set forth in paragraph 7 above, we have assumed continuing compliance by the Authority and the Hospital with requirements of the Code and the applicable regulations thereunder which must be met subsequent to the issuance of the Bonds in order that the interest thereon be and remain excluded from gross income for federal income tax purposes. The Authority and the Hospital have covenanted to comply with such requirements. Failure to comply with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issuance of such Bonds. We further advise you that we have not undertaken to determine (or to inform any person) whether any actions taken (or not

September __, 2017 Page 7

taken) or events occurring (or not occurring) after the date of issuance of the Bonds may affect the tax status of interest on the Bonds.

6. In providing the opinions set forth in paragraphs 8 and 9 above, we have assumed continuing compliance by the Authority and the Hospital with requirements of the Code and applicable regulations thereunder which must be met subsequent to the issuance of the Bonds in order that the interest thereon not constitute an item of tax preference under Section 57 of the Code. Failure to comply with such requirements could cause the interest on the Bonds to constitute an item of tax preference under Section 57 of the Code retroactive to the date of issuance of the Bonds.

7. Except as specifically set forth above, we express no opinion regarding other federal income tax consequences arising with respect to the Bonds, including, without limitation, the treatment for federal income tax purposes of gain or loss, if any, upon the sale, redemption or other disposition of the Bonds prior to the maturity of the Bonds subject to original issue discount and the effect, if any, of certain other provisions of the Code which could result in collateral federal income tax consequences to certain investors as a result of adjustments in the computation of tax liability dependent on tax-exempt interest.

8. The Bonds are special limited obligations of the Authority, payable only out of amounts that may be held by or available to the Trustee under the Trust Indenture and the Loan Agreement, including amounts payable pursuant to the Promissory Note and amounts received by the Trustee from the County pursuant to the Guaranty. The Bonds do not pledge the credit or taxing power of the Commonwealth or any political subdivision thereof, other than the County to the extent provided in the Guaranty. The Authority has no taxing power.

9. We have not been engaged to verify, nor have we independently verified, nor do we herein express any opinion to the registered owners of the Bonds with respect to, the accuracy, completeness or truthfulness of any statements, certifications, information or financial statements set forth in the Preliminary Official Statement dated August ___, 2017 (the "Preliminary Official Statement"), or in the Official Statement dated ______, 2017 (the "Official Statement"), or with respect to any other materials used in connection with the offer and sale of the Bonds.

10. We express no opinion with respect to whether the Authority, the County or the Hospital, in connection with the sale of the Bonds or the preparation of the Preliminary Official Statement or the Official Statement has made any untrue statement of a material fact or omitted to state a material fact necessary in order to make any statements made therein, not misleading. Further, we have not verified, and express no opinion as to the accuracy of, any "CUSIP" identification number which may be printed on any Bond.

11. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings, and court decisions and cover certain matters not directly addressed by such

September __, 2017 Page 8

authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Our engagement as Bond Counsel has concluded with the issuance of the Bonds and we disclaim any obligation to update this letter.

STEVENS & LEE, P.C.

APPENDIX G

Proposed Form of Joint Continuing Disclosure Agreement [ THIS PAGE INTENTIONALLY LEFT BLANK ] JOINT CONTINUING DISCLOSURE AGREEMENT

This Joint Continuing Disclosure Agreement, dated September __, 2017 (the “Disclosure Agreement”), is executed and delivered by the COUNTY OF WAYNE, PENNSYLVANIA (the “County”) and WAYNE MEMORIAL HOSPITAL (the “Hospital”) in connection with the issuance of $______Wayne County Hospital and Health Facilities Authority County Guaranteed Hospital Revenue Bonds (Wayne Memorial Hospital Project), Series A of 2017, dated September __, 2017 (the “Bonds”). The Bonds are being issued pursuant to a Trust Indenture, dated as of July 1, 1993, as previously amended and supplemented and as further amended and supplemented by a Ninth Supplemental Trust Indenture, dated as of September 1, 2017 (collectively, the “Indenture”), between the Wayne County Hospital and Health Facilities Authority (the “Authority”) and The Bank of New York Mellon Trust Company, N.A., as successor trustee (the “Trustee”). Each of the County and the Hospital covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the County and the Hospital for the benefit of the Bondholders and in order to assist the Participating Underwriter in complying with the Rule (hereinafter defined).

SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

"Annual Report" shall mean, any Annual Report provided by the County or the Hospital pursuant to, and as described in, Sections 3 and 4, with respect to the Hospital, and Sections 5 and 6, with respect to the County, of this Disclosure Agreement.

"Bondholders" or "Holders" shall mean the registered owners of the Bonds and, if registered in the name of Cede & Co., through The Depository Trust Company, New York, New York ("DTC"), any Beneficial Owners (as such term is used by DTC to define holders other than nominees) of the Bonds, unless the Rule, or an authoritative interpretation thereof by the Securities and Exchange Commission (the “Commission”) or its staff, does not require this Disclosure Agreement to be for the benefit of such Beneficial Owners.

"Commission" shall mean the Securities and Exchange Commission.

"Dissemination Agent" shall mean any person or entity designated from time to time in writing by the County or the Hospital and which has filed with the County or the Hospital a written acceptance of such designation and of the duties of the Dissemination Agent under this Disclosure Agreement.

"EMMA" shall mean the Electronic Municipal Market Access system as described in 1934 Act Release No. 59062 and maintained by the MSRB for purposes of the Rule as further described in Section 16 hereof.

"Filing" shall mean, as applicable, any Annual Report or Listed Event filing or any other notice or report made public under this Disclosure Agreement made with each

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NRMSIR or the MSRB and the SID, if any, together with a completed copy of a cover sheet in such form acceptable to each NRMSIR, the MSRB or SID, if applicable, describing the event by checking the box in said form when filing pursuant to the pertinent sections of this Disclosure Agreement.

"Listed Events" shall mean any of the events listed in Section 7(a) and Section 8(a) of this Disclosure Agreement.

"MSRB" shall mean the Municipal Securities Rulemaking Board, or any successor thereto for purposes of the Rule. Currently, MSRB’s address, phone number and fax number for purposes of the Rule are:

MSRB c/o CDINet 1900 Duke Street Suite 600 Alexandria, VA 22314 Phone: (703) 797-6000 Fax: (703) 683-1930

"NRMSIR" shall mean any Nationally Recognized Municipal Securities Information Repository recognized for purposes of the Rule and the MSRB, as reflected on the website of the Securities and Exchange Commission at www.sec.gov. As of the date of this Disclosure Agreement, the sole NRMSIR shall be the MSRB, through the operation of EMMA, as provided in Section 16 hereof.

"Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

"Repository" shall mean each NRMSIR and the SID, if any.

"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

"SID" shall mean any public or private state information depositary or entity designated by the Commonwealth of Pennsylvania as a state information depositary for the purpose of the Rule, if any. As of the date of this Disclosure Agreement, no SID has been designated.

SECTION 3. Provision of Annual Reports of the Hospital.

(a) The Hospital shall not later than December 31 following the end of each fiscal year of the Hospital, commencing with the fiscal year ending June 30, 2017, provide directly or through the Dissemination Agent to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. In connection therewith, not later than fifteen (15) Business Days prior to said date, the Hospital shall provide the Annual Report to the Dissemination Agent (if one has been designated by the Hospital under this Disclosure Agreement). The Annual Report may be submitted as a single document or as

G-2 separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the Hospital may be submitted separately from the remainder of the Annual Report when such audited financial statements are available. If the audited financial statements are not submitted as part of the Annual Filing to each Repository pursuant to this Section 3(a), the Hospital shall provide to each Repository such audited financial statements when they are available to the Hospital.

(b) If the Hospital is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the Hospital shall send or cause the Dissemination Agent to send a notice to each NRMSIR and the SID in substantially the form attached as Exhibit A.

(i) determine each year prior to the date for providing the Annual Report the name and address of each NRMSIR and the SID, if any; and

(ii) if a Dissemination Agent has been designated hereunder, file a report with the Hospital certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided.

The Hospital shall promptly file a notice of any change in its fiscal year and the new annual filing date with each NRMSIR and the SID.

(d) If the Dissemination Agent does not receive the Annual Report from the Hospital by the fifteenth Business Day specified in Section 3(a) above, the Dissemination Agent shall provide a written reminder notice to the Hospital with respect to the Hospital’s obligations under Section 3(a) above no later than five (5) Business Days after such fifteenth Business Day.

SECTION 4. Content of Annual Reports of the Hospital. The Hospital Annual Report shall contain or incorporate by reference the following:

(a) the financial statements for the most recent fiscal year, prepared in accordance with generally accepted accounting principles for hospitals and audited in accordance with generally accepted auditing standards;

(b) a summary of the budget for the current fiscal year; and

(c) an update of the information contained in Appendix A to the Official Statement with regard to the Bonds, dated ______, 2017, regarding accreditation, the profile of the Hospital medical staff, utilization information, in-patient admissions, sources of revenue, third party reimbursement or payment programs, and litigation.

Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Hospital or related public entities, which have been submitted to each of the Repositories. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The Hospital shall

G-3 clearly identify each such other document so incorporated by reference. The Hospital reserves the right to modify from time to time specific types of information provided hereunder or the format of the presentation of such information, to the extent necessary or appropriate; provided, however, that any such modification will be done in a manner consistent with the Rule.

SECTION 5. Provision of Annual Reports of the County.

(a) The County shall not later than June 30 following the end of each fiscal year of the County, commencing with the fiscal year ending December 31, 2017, provide directly or through the Dissemination Agent to each Repository an Annual Report which is consistent with the requirements of Section 6 of this Disclosure Agreement. In connection therewith, not later than fifteen (15) Business Days prior to said date, the County shall provide the Annual Report to the Dissemination Agent (if one has been designated by the County under this Disclosure Agreement). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 6 of this Disclosure Agreement; provided that the audited financial statements of the County may be submitted separately from the remainder of the Annual Report when such audited financial statements are available. If the audited financial statements are not submitted as part of the Annual Filing to each Repository pursuant to this Section 5(a), the County shall provide to each Repository such audited financial statements when they are available to the County.

(b) If the County is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the County shall send or cause the Dissemination Agent to send a notice to each NRMSIR and the SID in substantially the form attached as Exhibit B.

(i) determine each year prior to the date for providing the Annual Report the name and address of each NRMSIR and the SID, if any; and

(ii) if a Dissemination Agent has been designated hereunder, file a report with the County certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided.

The County shall promptly file a notice of any change in its fiscal year and the new annual filing date with each NRMSIR and the SID.

(d) If the Dissemination Agent does not receive the Annual Report from the County by the fifteenth Business Day specified in Section 5(a) above, the Dissemination Agent shall provide a written reminder notice to the County with respect to the County’s obligations under Section 5(a) above no later than five (5) Business Days after such fifteenth Business Day.

SECTION 6. Content of Annual Reports of the County. The County Annual Report shall contain or incorporate by reference the following:

(a) a copy of the annual financial report of the County; and

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(b) an update of the information contained in Appendix C to the Official Statement with regard to the Bonds, dated ______, 2017, regarding real estate tax collection, the ten (10) largest taxpayers, outstanding debt of the County, its year-end report of revenues and expenses.

Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the County or related public entities, which have been submitted to each of the Repositories. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The County shall clearly identify each such other document so incorporated by reference. The County reserves the right to modify from time to time specific types of information provided hereunder or the format of the presentation of such information, to the extent necessary or appropriate; provided, however, that any such modification will be done in a manner consistent with the Rule.

SECTION 7. Reporting of Listed Events by the Hospital.

(a) For purposes of this Section 7 the occurrence of any of the following events with respect to the Bonds constitutes a “Listed Event”:

1. Principal and interest payment delinquencies;

2. Nonpayment 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, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax- exempt status of the Bonds, or other material events affecting the tax status of the Bonds;

7. Modifications to rights of securities holders, if material;

8. Bond calls, if material, and tender offers for the Bonds;

9. Defeasances;

10. Release, substitution, or sale of property securing repayment of the securities, if material;

11. Rating changes;

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12. Bankruptcy, insolvency, receivership or similar events of the Hospital;

13. The consummation of a merger, consolidation, or acquisition involving the Hospital or the sale of all or substantially all of the assets of the Hospital, 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;

14. Appointment of a successor or additional trustee or paying agent or the change of name of a trustee or paying agent, if material; and

15. Failure to provide annual financial information as required.

(b) Whenever the Hospital obtains knowledge of the occurrence of a Listed Event set forth in Section 7(a) above with respect to the Bonds, the Hospital shall as soon as possible (with respect to those Listed Events where a determination of materiality by the Hospital is applicable) determine if such event would constitute material information for Holders of the Bonds under applicable federal securities laws.

(c) If (i) a Determination of materiality by the Hospital is not relevant to the obligation to give notice of a Listed Event or (ii) the Hospital determines (with respect to those Listed Events where a determination of materiality by the Hospital is applicable) that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Hospital shall promptly file in a timely manner, not in excess of ten (10) business days after the occurrence of the Listed Event, or cause the Dissemination Agent to so file (if a Dissemination Agent has been designated hereunder) a notice of such occurrence with each NRMSIR and the SID, if any, with a copy to the Trustee.

(d) For purposes of the Listed Events in Section 7(a)(xii), the Hospital and the Dissemination Agent acknowledge the following interpretive note which the Commission has set forth in the Rule: “Note: for the purposes of the event identified in subparagraph (b)(5)(i)(C)(12), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person;”

SECTION 8. Reporting of Listed Events by the County.

(a) For purposes of this Section 8 the occurrence of any of the following events with respect to the Bonds constitutes a “Listed Event”:

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1. Principal and interest payment delinquencies;

2. Nonpayment 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;

7. Modifications to rights of securities holders, if material;

8. Bond calls, if material, and tender offers for the Bonds;

9. Defeasances;

10. Release, substitution, or sale of property securing repayment of the securities, if material;

11. Rating changes;

12. Bankruptcy, insolvency, receivership or similar events of the County;

13. The consummation of a merger, consolidation, or acquisition involving the County or the sale of all or substantially all of the assets of the County, 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;

14. Appointment of a successor or additional trustee or paying agent or the change of name of a trustee or paying agent, if material; and

15. Failure to provide annual financial information as required.

(b) Whenever the County obtains knowledge of the occurrence of a Listed Event set forth in Section 8(a) above with respect to the Bonds and with respect to the obligations of the County relating to the Bonds, the County shall as soon as possible (with respect to those Listed Events where a determination of materiality by the County is applicable)

G-7 determine if such event would constitute material information for Holders of Bonds under applicable federal securities laws.

(c) If (i) a Determination of materiality by the County is not relevant to the obligation to give notice of a Listed Event or (ii) the County determines (with respect to those Listed Events where a determination of materiality by the County is applicable) that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the County shall promptly file in a timely manner, not in excess of ten (10) business days after the occurrence of the Listed Event, or cause the Dissemination Agent to so file (if a Dissemination Agent has been designated hereunder) a notice of such occurrence with each NRMSIR and the SID, if any, with a copy to the Trustee.

(d) For purposes of the Listed Events in Section 8(a)(xii), the County and the Dissemination Agent acknowledge the following interpretive note which the Commission has set forth in the Rule: “Note: for the purposes of the event identified in subparagraph (b)(5)(i)(C)(12), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person;”

SECTION 9. Termination of Reporting Obligation. The County’s and the Hospital's obligations under this Disclosure Agreement shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds.

In the event that any person or entity subsequent to the execution hereof becomes an "obligated person," as such term is defined in the Rule, with respect to the Bonds, the County and the Hospital covenant to use their best effort to cause such obligated person to enter into a written undertaking to comply with the provisions of the Rule or to cause this Disclosure Agreement to be amended and to cause such obligated person to join in the execution of such amendment.

SECTION 10. Dissemination Agent. The County or the Hospital may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The County or the Hospital shall cause the Dissemination Agent appointed hereunder and any successors to execute and deliver an acknowledgment of acceptance of the designation and duties of Dissemination Agent under this Disclosure Statement.

SECTION 11. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the County or the Hospital may amend this Disclosure Agreement,

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and any provision of this Disclosure Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule, as well as any change in circumstances.

SECTION 12. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the County or the Hospital from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the County or the Hospital chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the County or the Hospital shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 13. Default. In the event of a failure of the County or the Hospital to comply with any provision of this Disclosure Agreement, any Bondholder may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the County or the Hospital to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an event of default under the Bonds, the Indenture, the Master Indenture, or the Loan Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the County or the Hospital to comply with this Disclosure Agreement shall be an action to compel performance.

SECTION 14. Duties, Immunities and Liabilities of Dissemination Agent, if other than the County or the Hospital. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the County and the Hospital agree to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the County and the Hospital under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

SECTION 15. Undertaking with Respect to Certain Procedures and Policies. The County and the Hospital agree to begin the process of establishing internal policies and procedures for the purpose of continuing disclosure compliance. Without intending to preclude the adoption of other necessary or useful policies and procedures, a single official of each of the County and the Hospital will be designated with ultimate responsibility for continuing disclosure compliance and will oversee the process of informing and training appropriate deputies and other employees with respect to the County and the Hospital’s continuing disclosure undertakings.

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SECTION 16. EMMA. Filings shall be made to the continuing disclosure service portal provided through EMMA as provided at http://www.emma.msrb.org, or any similar system that is acceptable to the Commission.

SECTION 17. Alternative Filing. Notwithstanding the other provisions of this Disclosure Agreement, any filing under this Disclosure Agreement, and any additional supplements hereto, may be made with such depositories and using such electronic filing systems as may be approved by the United States Securities and Exchange Commission (in lieu of the procedures currently in this Disclosure Agreement).

SECTION 18. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the County, the Hospital, the Trustee, the Dissemination Agent (if any), the Participating Underwriter and the Holders from time to time of the Bonds, and shall create no rights in any other person or entity.

[The remainder of this page intentionally left blank.]

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IN WITNESS WHEREOF, the Hospital and the County have caused this Disclosure Agreement to be duly executed and delivered, all as of the date first above written.

ATTEST: WAYNE MEMORIAL HOSPITAL

______By: Chief Financial Officer Chief Executive Officer

(SEAL)

ATTEST: COUNTY OF WAYNE, PENNSYLVANIA

By: Chief Clerk Commissioner

By: Commissioner

By: Commissioner (SEAL)

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EXHIBIT A1

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Wayne County Hospital and Health Facilities Authority Monroe County, Pennsylvania

Name of Bond Issue: $______Wayne County Hospital and Health Facilities Authority County Guaranteed Hospital Revenue Bonds (Wayne Memorial Hospital Project), Series A of 2017, dated September __, 2017 (the “Bonds”)

Date of Issuance: September __, 2017

NOTICE IS HEREBY GIVEN that the Wayne Memorial Hospital (the "Hospital"), has not provided an Annual Report with respect to the above-named Bonds as required by Section 3 of the Joint Continuing Disclosure Agreement, dated September __, 2017, executed by the Hospital. The Hospital anticipates that the Annual Report will be filed by ______.

Dated: ______

WAYNE MEMORIAL HOSPITAL [OR DISSEMINATION AGENT ON BEHALF OF WAYNE MEMORIAL HOSPITAL] cc: Trustee

1 The substantive content of this notice shall be provided in any applicable notice filing. Appropriate modifications may be made to accommodate the electronic submission format requirements of the EMMA system or other successor electronic filing system.

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EXHIBIT B1

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Wayne County Hospital and Health Facilities Authority Monroe County, Pennsylvania

Date of Issuance: September __, 2017

NOTICE IS HEREBY GIVEN that the County of Wayne, Pennsylvania (the "County"), has not provided an Annual Report with respect to the above-named Bonds as required by Section 5 of the Joint Continuing Disclosure Agreement, dated September __, 2017, executed by the County. The County anticipates that the Annual Report will be filed by ______.

Dated: ______

COUNTY OF WAYNE, PENNSYLVANIA [OR DISSEMINATION AGENT ON BEHALF OF COUNTY OF WAYNE, PENNSYLVANIA]

cc: Trustee

______1 The substantive content of this notice shall be provided in any applicable notice filing. Appropriate modifications may be made to accommodate the electronic submission format requirements of the EMMA system or other successor electronic filing system.

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