Ratings†: Moody’s: Baa2 NEW ISSUE -Book-Entry-Only Standard & Poor’s: BBB In the opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston Massachusetts, Bond Counsel, under existing law, assuming continuing compliance with certain tax covenants and provisions of the Internal Revenue Code of 1986, as amended, interest on the Series B Bonds will not be included in the gross income of the holders of the Series B Bonds for federal income tax purposes. Interest on the Series B Bonds will not constitute a preference item for purposes of computation of the alternative minimum tax imposed on individuals and corporations, although interest on the Series B Bonds will be taken into account in computing the alternative minimum tax applicable to certain corporations. In the opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., income from the Series B Bonds, including any profit made on the sale thereof, is exempt from Massachusetts personal income taxes, and the Series B Bonds are exempt from Massachusetts personal property taxes. For federal and Massachusetts tax purposes, interest includes original issue discount. For a discussion of federal and state tax law matters, see “TAX EXEMPTION” herein.

$113,665,000 MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITIES AUTHORITY Revenue Bonds, Caritas Christi Obligated Group Issue, Series B

Dated: March 15, 2002 Due: July 1, as shown below The Series B Bonds will be issued only as fully registered bonds without coupons, and, when issued, will be registered in the name of Cede & Co., as Bondowner and nominee for The Depository Trust Company (“DTC”), New York, New York. DTC will act as securities depository for the Series B Bonds. Purchases of the Series B Bonds will be made in book-entry form, in the denomination of $5,000 or any integral multiple thereof. Purchasers will not receive certificates representing their interest in the Series B Bonds purchased. So long as Cede & Co. is the Bondowner, as nominee of DTC, references herein to the Bondowners or registered owners shall mean Cede & Co., as aforesaid, and shall not mean the Beneficial Owners of the Series B Bonds. See “THE SERIES B BONDS -- Book-Entry-Only System” herein. Principal of and semiannual interest on the Series B Bonds will be paid by State Street Bank and Trust Company, Boston, Massachusetts, or any successor thereto, as Paying Agent. So long as DTC or its nominee, Cede & Co., is the Bondowner, such payments will be made directly to such Bondowner. Disbursement of such payments to the Direct Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of the Direct Participants and Indirect Participants, as more fully described herein. Interest will be payable on July 1, 2002 and semiannually thereafter on January 1 and July 1 to the Bondowners of record as of the close of business on the fifteenth day of the month preceding such interest payment date. THE SERIES B BONDS ARE SUBJECT TO REDEMPTION PRIOR TO MATURITY, INCLUDING SPECIAL REDEMPTION AT PAR IN CERTAIN CIRCUMSTANCES, AS SET FORTH IN THIS OFFICIAL STATEMENT. The Series B Bonds shall be special obligations of the Massachusetts Health and Educational Facilities Authority (the “Authority”) payable solely from the Revenues (as described herein) of the Authority, including payments to State Street Bank and Trust Company, Boston, Massachusetts, as Trustee (the “Trustee”), for the account of the Authority, by Caritas Christi, St. Elizabeth’s Medical Center of Boston, Inc., Valley Regional Health System, Inc., Holy Family Hospital, Inc., The Carney Hospital, Inc., St. Anne’s Hospital Corporation, Caritas Norwood Hospital, Inc., St. Joseph Nursing Care Center, Inc., and Caritas Good Samaritan Medical Center, Inc. (collectively, the “Obligated Group”) in accordance with the provisions of the Loan and Trust Agreement dated as of July 5, 1994, as amended and supplemented by that certain First Supplemental Loan and Trust Agreement dated as of November 10, 1998, and as further amended and supplemented by that certain Second Supplemental Loan and Trust Agreement dated as of February 12, 2002 (as so amended and supplemented, the “Agreement”), among the Authority, the Obligated Group and the Trustee. Such payments pursuant to the Agreement are a general obligation of the Obligated Group. To secure such payments under the Agreement, the Obligated Group will grant to the Authority a lien on certain of its revenues, as more fully described herein. In addition, St. Elizabeth’s Medical Center of Boston, Inc. will grant to the Trustee a mortgage lien on certain of its real estate to secure all obligations of the Obligated Group under and in respect of the Agreement. Reference is made to this Official Statement for pertinent security provisions of the Series B Bonds. THE SERIES B BONDS SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY POLITICAL SUBDIVISION THEREOF OR A PLEDGE OF THE FAITH AND CREDIT OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY SUCH POLITICAL SUBDIVISION, BUT SHALL BE PAYABLE SOLELY FROM THE REVENUES PROVIDED UNDER THE AGREEMENT. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE SERIES B BONDS. THE ACT DOES NOT IN ANY WAY CREATE A SO -CALLED MORAL OBLIGATION OF THE COMMONWEALTH OF MASSACHUSETTS TO PAY DEBT SERVICE IN THE EVENT OF DEFAULT BY THE OBLIGATED GROUP. THE AUTHORITY DOES NOT HAVE ANY TAXING POWER.

AMOUNTS, MATURITIES, INTEREST RATES AND PRICES OR YIELDS $31,970,000 Serial Bonds Due Interest Due Interest July 1 Amount Rate Yield July 1 Amount Rate Yield

2002 $ 810,000 4.00% 3.00% 2006 $5,485,000 5.750% 4.88% 2003 3,575,000 4.00% 3.22% 2007 5,800,000 5.750% 5.18% 2004 4,955,000 5.00% 3.98% 2008 6,140,000 5.875% 5.39% 2005 5,205,000 5.50% 4.58% $27,880,000 6.50% Term Bonds due July 1, 2012 - Yield 5.86% $32,275,000 6.75% Term Bonds due July 1, 2016 - Yield 6.15% $21,540,000 6.25% Term Bonds due July 1, 2022 - Yield 6.37% (Accrued interest from March 15, 2002 to be added)

The Series B Bonds will be offered when, as and if issued and accepted by the Underwriters, subject to prior sale, to withdrawal or modification of the offer without notice, and to the approval of their legality and certain other matters by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts, Bond Counsel to the Authority. Certain legal matters will be passed upon by The Rogers Law Firm, A Professional Corporation, Boston, Massachusetts, as special counsel to the Obligated Group. Certain legal matters will be passed upon for the Underwriters by their counsel, Choate, Hall & Stewart, Boston, Massachusetts. It is expected that the Series B Bonds will be available for delivery to DTC in New York, New York on or about March 28, 2002. MERRILL LYNCH & CO. MORGAN STANLEY QUICK & REILLY, INC. RAYMOND JAMES & ASSOCIATES, INC. ______† See “Description of Ratings” herein. March 20, 2002 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES B BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

No dealer, broker, salesperson or other person has been authorized by the Authority, the Obligated Group or the Underwriters to give information or to make representations with respect to the Series B Bonds, other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer by any person to sell or the solicitation by any person of an offer to buy, nor shall there by any sale of the Series B Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale.

Certain information contained herein has been obtained from the Obligated Group, The Depository Trust Company and other sources which are believed to be reliable, but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation of the Authority or the Underwriters. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the parties referred to above since the date hereof.

Caritas Christi on behalf of itself and the other members of the Obligated Group has agreed to enter into a Continuing Disclosure Agreement pursuant to which the Obligated Group will provide certain continuing disclosure. The purpose of the Continuing Disclosure Agreement is to assist the Underwriters in complying with Rule 15c2-12 of the Securities and Exchange Commission. See “CONTINUING DISCLOSURE” herein.

TABLE OF CONTENTS Page

INTRODUCTION...... 1 SOURCES OF PAYMENT AND SECURITY FOR THE SERIES B BONDS...... 2 THE AUTHORITY...... 5 THE SERIES B BONDS...... 9 PARITY INDEBTEDNESS...... 15 ADDITIONAL INDEBTEDNESS...... 16 DEBT SERVICE COVERAGE RATIO A ND RATE COVENANTS ...... 16 THE PROJECT...... 16 ESTIMATED SOURCES AND USES OF FUNDS...... 17 PLAN OF REFUNDING...... 17 VERIFICATION OF MATHEMATICAL ACCURACY...... 18 BONDOWNERS’ RISKS...... 18 CONTINUING DISCLOSURE...... 22 TAX EXEMPTION...... 22 LEGALITY OF THE SERIES B BONDS FOR INVESTMENT AND DEPOSIT ...... 24 DESCRIPTION OF RATINGS ...... 24 COMMONWEALTH NOT LIABLE ON THE SERIES B BONDS...... 24 UNDERWRITING...... 24 LEGAL MATTERS...... 25 MISCELLANEOUS...... 25

Appendix A - Letter from the Obligated Group ...... A-1 Appendix B - Financial Statements ...... B-1 Appendix C - Definitions of Certain Terms ...... C-1 Appendix D- Summary of the Agreement...... D-1 Appendix E - Form of Bond Counsel Opinion...... E-1 Appendix F - Form of Continuing Disclosure Agreement...... F-1 MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITIES AUTHORITY 99 SUMMER STREET, BOSTON MASSACHUSETTS 02110

DAVID T. HANNAN, Chairman MARVIN A. GORDON JOHN R. SMITH, Vice Chairman JOHN E. KAVANAGH, III EDWARD P. MARRAM, Ph.D., Secretary JOSEPH G. SNEIDER ROBERT R. FANNING, JR. RINA K. SPENCE ROBERT E. FLYNN, M.D.

MARY R. JEKA, ACTING EXECUTIVE DIRECTOR OFFICIAL STATEMENT Relating To $113,665,000

MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITIES AUTHORITY Revenue Bonds, Caritas Christi Obligated Group Issue, Series B

INTRODUCTION

Purpose of this Official Statement. The purpose of this Official Statement is to set forth certain information concerning the Massachusetts Health and Educational Facilities Authority (the “Authority”), Caritas Christi, St. Elizabeth’s Medical Center of Boston, Inc. (“St. Elizabeth’s”), Valley Regional Health System, Inc., Holy Family Hospital, Inc., The Carney Hospital, Inc., St. Anne’s Hospital Corporation, Caritas Norwood Hospital, Inc., St. Joseph Nursing Care Center, Inc., and Caritas Good Samaritan Medical Center, Inc. (“Good Samaritan”) (each an “Obligated Group Member” and, collectively, the “Obligated Group”) and the $113,665,000 Massachusetts Health and Educational Facilities Authority Revenue Bonds, Caritas Christi Obligated Group Issue, Series B (the “Series B Bonds”) issued under the Loan and Trust Agreement dated as of July 5, 1994, as amended and supplemented by that certain First Supplemental Loan and Trust Agreement dated as of November 10, 1998, and as further amended and supplemented by that certain Second Supplemental Loan and Trust Agreement dated as of February 12, 2002 (as so amended and supplemented, the “Agreement”), among the Authority, the Obligated Group and State Street Bank and Trust Company, Boston, Massachusetts, as trustee (the “Trustee”). The Series B Bonds are to be issued in accordance with the provisions of the Massachusetts Health and Educational Facilities Authority Act, constituting Chapter 614 of the Massachusetts Acts of 1968, as amended and supplemented (the “Act”), and the Agreement. The information contained in this Official Statement is provided for use in connection with the initial sale of the Series B Bonds. The definitions of certain terms used and not defined herein are contained in Appendix C -- “DEFINITIONS OF CERTAIN TERMS.”

Plan of Financing. The proceeds from the sale of the Series B Bonds (including accrued interest on the Series B Bonds to the date of delivery) will be applied, together with other available funds, as follows: (a) an amount equal to the interest accruing on the Series B Bonds from March 15, 2002 to their date of delivery shall be deposited into the Debt Service Fund; (b) an amount representing capitalized interest on the portion of the Series B Bonds allocable to the New Part of the Project (as defined herein) shall be deposited into the Construction Fund; (c) amounts which, together with other money available for the purpose, will refund (i) the Authority’s outstanding Revenue Bonds, Cardinal Cushing General Hospital Issue, Series A (the “Cushing Refunded Bonds”), and (ii) the Authority’s outstanding Revenue Bonds, Goddard Memorial Hospital Issue, Series B (the “Goddard Refunded Bonds” and, together with the Cushing Refunded Bonds, the “Good Samaritan Refunded Bonds”) shall be deposited with the trustees for the Good Samaritan Refunded Bonds; (d) amounts which, together with other money available for the purpose, will refund (i) the Authority’s outstanding Revenue Bonds, Saint Elizabeth’s Hospital of Boston Issue, Series C not previously refunded (the “2002C St. Elizabeth’s Refunded Bonds”), and (ii) the Authority’s outstanding Revenue Bonds, Saint Elizabeth’s Hospital of Boston Issue, Series D and Series E not previously refunded (the “2002 D/E St. Elizabeth’s Refunded Bonds” and, together with the 2002C St. Elizabeth’s Refunded Bonds, the “2002 St. Elizabeth’s Refunded Bonds”) shall be deposited with the trustee for the 2002 St. Elizabeth’s Refunded Bonds; (e) an amount equal to the Debt Service Reserve Fund Initial Deposit for the Series B Bonds shall be deposited into the Debt Service Reserve Fund; (f) the amount (not to include in excess of two percent (2%) of the principal amount of the Series B Bonds) estimated to pay the costs of issuing the Series B Bonds shall be deposited into the Expense Fund; and (f) the balance of such proceeds shall be deposited into the Construction Fund.

A more detailed description of the use of proceeds of the Series B Bonds and other moneys and receipts, including approximate amounts and purposes, is included herein under “THE PROJECT” and “ESTIMATED SOURCES AND USES OF FUNDS.” SOURCES OF PAYMENT AND SECURITY FOR THE SERIES B BONDS

The Authority, each Obligated Group Member and the Trustee shall execute the Agreement, which provides that to the extent permitted by law, it is an absolute and unconditional obligation of each Obligated Group Member. With respect to the Series B Bonds, the Agreement also provides, among other things, that the Obligated Group is obligated to make payments to the Trustee in an amount equal to principal of or sinking fund installments, as the case may be, interest on the Series B Bonds and certain other payments required by the Agreement. The Agreement shall remain in full force and effect until such time as all of the Series B Bonds and the interest thereon have been fully paid or until adequate provision for such payments has been made.

The Agreement requires that the Obligated Group pay to the Trustee, on or before the fifteenth day of each month, an amount equal to one-sixth (1/6) of the interest coming due on the Series B Bonds on the next July 1 or January 1, as the case may be, and one-twelfth (1/12) of the principal (including any sinking fund installments) coming due on the Series B Bonds on the next July 1. Appropriate adjustments shall be made to reflect the date of issue of the Series B Bonds, the accrued interest deposited in the Debt Service Fund, the capitalized interest on the Series B Bonds deposited in the Construction Fund, any earnings on amounts in the Debt Service Fund (to the extent earnings remain in the Debt Service Fund),

2 and any purchase or redemption of the Series B Bonds. The Trustee shall make transfers from the Debt Service Fund and the Construction Fund in amounts and at times necessary to provide for debt service payments on the Series B Bonds.

The Series B Bonds are special obligations of the Authority, equally and ratably secured by and payable from a pledge of and lien on, to the extent provided by the Agreement, the moneys received with respect to all bonds issued under the Agreement by the Trustee for the account of the Authority pursuant to the Agreement, whether such moneys are received as Revenues paid or caused to be paid by the Obligated Group pursuant to the Agreement.

Pursuant to the Agreement, the Authority has previously issued its Revenue Bonds, Valley Regional Health System Issue, Series C (the “Valley Regional Series C Bonds”), currently outstanding in the principal amount of $29,245,000, and its Revenue Bonds, Caritas Christi Obligated Group Issue, Series A (the “Series A Bonds”), currently outstanding in the principal amount of $188,405,000, which will remain outstanding after the issuance of the Series B Bonds and will be secured by the Agreement equally and ratably with the Series B Bonds.

Upon the issuance of the Series B Bonds, Good Samaritan will join the Obligated Group under the Agreement. The Agreement permits additional entities to become Members of the Obligated Group. As an Obligated Group Member, each current Obligated Group Member is, and any future Obligated Group Member would become, jointly and severally liable for the obligations of the Obligated Group under the Agreement. The Agreement provides that as between the Members of the Obligated Group (and without affecting their joint and several liability under the Agreement), each Obligated Group Member shall be primarily responsible for the payment of the debt service relating to the portion of the Series B Bonds, the Valley Regional Serie s C Bonds and the Series A Bonds allocable to projects financed or refinanced for the benefit of such Obligated Group Member, as specified in the Agreement. The Agreement contains provisions permitting the addition, withdrawal, or consolidation of Obligated Group Members under certain conditions. See Appendix D -- “SUMMARY OF THE AGREEMENT” under the headings “Additions to the Obligated Group” and “Withdrawal and Removal from the Obligated Group.” The Agreement contains provisions permitting the issuance of additional debt on a parity with the Series B Bonds, the Valley Regional Series C Bonds and the Series A Bonds and, in limited cases, senior to the Series B Bonds, the Valley Regional Series C Bonds and the Series A Bonds. See “ADDITIONAL INDEBTEDNESS” and Appendix D -- “SUMMARY OF THE AGREEMENT” under the heading “Limitations on Incurrence of Additional Indebtedness.”

As provided in the Agreement, each Obligated Group Member has granted, and each entity admitted to the Obligated Group in the future shall as a condition of such admission grant, to the Authority a lien (the “Lien”) on all of its respective Gross Receipts (subject to the right of any Obligated Group Member to grant a prior lien for certain permitted indebtedness) as security for its obligation to make payments on the Series B Bonds, the Valley Regional Series C Bonds and the Series A Bonds. Each Obligated Group Member represents and warrants in the Agreement that the Lien granted therein is and at all times will be a first lien, subject only to (i) liens permitted by the Agreement, and (ii) non- consensual liens arising by operation of law. The enforcement of the Lien on Gross Receipts may be subject to a preference claim under the Bankruptcy Code and to the exercise of discretion by a court of equity which, under certain circumstances, may have power to direct the use of such receipts to meet expenses of the Obligated Group before paying debt service. In addition, to the extent Gross Receipts include accounts receivable and the proceeds thereof under the Medicare and Medicaid programs, the assignment of such accounts and proceeds to the Authority may violate federal and state regulations and, therefore, may be unenforceable. See “BONDOWNERS’ RISKS” under the heading “Enforceability of Lien on Gross Receipts.”

3 The exercise of remedies with respect to the Series B Bonds, the Valley Regional Series C Bonds and the Series A Bonds and the allocation of proceeds received from any such exercise will be governed by the provisions of the Agreement. See Appendix D -- “SUMMARY OF THE AGREEMENT.”

The Agreement provides for the establishment of a Debt Service Reserve Fund to be funded in an amount equal to the Debt Service Reserve Fund Requirement. Upon the issuance of the Series B Bonds, the Debt Service Reserve Fund will be funded in the amount of approximately $26,132,998.64, including the amount of $9,292,762.27 representing the Debt Service Reserve Fund Initial Deposit for the Series B Bonds. Amounts on deposit in the Debt Service Reserve Fund will be available to make payments on the Series B Bonds, the Valley Regional Series C Bonds, the Series A Bonds and any other bonds hereafter issued under the Agreement should the Obligated Group fail to meet certain debt service or redemption payment obligations relating to such bonds. See Appendix C -- “DEFINITIONS OF CERTAIN TERMS” under the Definitions of “Debt Service Reserve Fund Initial Deposit” and “Debt Service Reserve Fund Requirement” and Appendix D -- “SUMMARY OF THE AGREEMENT” under the heading “Debt Service Reserve Fund.”

In addition to its grant of a Lien on its Gross Receipts, St. Elizabeth’s has granted to the Trustee a mortgage lien on its primary operating campus, the 311-bed hospital facility on approximately 12 acres in the Brighton section of Boston, Massachusetts, owned by St. Elizabeth’s (the “Mortgaged Property”) and all buildings, facilities and improvements thereof (the “Mortgage”) to secure equally and ratably all of the obligations of the Obligated Group under and in respect of the Agreement. The Mortgage does not grant a mortgage lien or security interest in the equipment, furnishings or other tangible personal property on the Mortgaged Property or with respect to any other real or personal property of St. Elizabeth’s or any other Member of the Obligated Group. Upon payment and discharge of all outstanding bonds then outstanding under the Agreement, or when adequate provision has been made for payment therefor as provided in the Agreement, the Trustee will release and cancel the Mortgage. In addition, in the event of the withdrawal of St. Elizabeth's as a Member of the Obligated Group, upon the request of St. Elizabeth's the Trustee will release and cancel the Mortgage upon the granting to the Trustee of a replacement mortgage on the primary revenue-generating facilities of the Member of the Obligated Group responsible for the largest amount of revenues as specified in the audited financial statements of Caritas Christi and its member organizations for the fiscal year immediately preceding the date of such withdrawal or another Member of the Obligated Group reasonably acceptable to the Trustee. See “BONDOWNERS’ RISKS” under the headings “Status of Lien on Mortgaged Property” and “Realization of Value on Mortgaged Property.”

Other than the Mortgage and the Lien on Gross Receipts described above, the Agreement does not create or provide for a mortgage lien or security interest in any real property or tangible personal property of the Obligated Group, but contains restrictions on the creation of certain liens and encumbrances with respect to certain real property of the Obligated Group (the “Restricted Property”) and the Gross Receipts of the Obligated Group, with certain exceptions. See Appendix D -- “SUMMARY OF THE AGREEMENT” under the heading “Limitations on Creation of Liens.” The Restricted Property consists of the primary revenue-generating facilities of each Obligated Group Member (including the Mortgaged Property), as more particularly described in the Agreement. The Agreement also contains provisions permitting transfers of assets to be made upon compliance with certain tests and limiting the amount of certain transfers of assets that may be made by the Obligated Group. See Appendix D -- “SUMMARY OF THE AGREEMENT” under the heading “Sale, Lease or Other Disposition of Property.”

The Series B Bonds and the loan of the proceeds of the Series B Bonds will not constitute a debt or liability of The Roman Catholic Archbishop of Boston, a Corporation Sole, the Roman Catholic Archdiocese of Boston, or any entity affiliated with any of the foregoing entities, other

4 than the members of the Obligated Group. Neither the assets nor the revenues of The Roman Catholic Archbishop of Boston, a Corporation Sole, the Roman Catholic Archdiocese of Boston, or any entity affiliated with any of the foregoing, other than the members of the Obligated Group, are pledged to, nor in any manner, secure the Series B Bonds or any payments or other liabilities under the Agreement.

THE SERIES B BONDS SHALL NOT BE DEEMED TO CONSTITUTE A DEBT, LIABILITY OR MORAL OBLIGATION OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY POLITICAL SUBDIVISION THEREOF, BUT SHALL BE PAYABLE SOLELY FROM THE REVENUES DERIVED BY THE AUTHORITY UNDER THE AGREEMENT. THE AUTHORITY DOES NOT HAVE TAXING POWER. THE AUTHORITY

The Authority is a body politic and corporate and a public instrumentality of The Commonwealth of Massachusetts (the “Commonwealth”) organized and existing under and by virtue of the Act. The purpose of the Authority, as stated in the Act, is essentially to provide assistance for nonprofit public and private institutions for higher education, private nonprofit schools for the handicapped, nonprofit hospitals and their nonprofit affiliates, nonprofit nursing homes and nonprofit cultural institutions in the construction, financing, and refinancing of projects to be undertaken in relation to programs for such institutions.

Authority Membership and Organization

The Act provides that the Authority shall consist of nine members who shall be appointed by the Governor and shall be residents of the Commonwealth. At least two members shall be associated with institutions for higher education, at least two shall be associated with hospitals, at least one shall be knowledgeable in the field of state and municipal finance (by virtue of business or other association) and at least one shall be knowledgeable in the field of building construction. All Authority members serve without compensation, but are entitled to reimbursement for necessary expenses incurred in the performance of their duties as members of the Authority. The Authority shall elect annually one of its members to serve as Chairman, one to serve as Vice Chairman and one to serve as Secretary.

The members of the Authority are as follows:

DAVID T. HANNAN, Chairman; term as member expires July 1, 2006.

Mr. Hannan, a resident of Hingham, is President and Chief Executive Officer of South Shore Hospital and its not-for-profit, tax-exempt parent organization, South Shore Health & Educational Corporation of South Weymouth, Massachusetts. He is a member of the American College of Healthcare Executives, and the American Hospital Association.

JOHN R. SMITH, Vice Chairman; term as member expired July 1, 2000. Mr. Smith will continue to serve until he is reappointed or his successor takes office.

Mr. Smith, a resident of Milford, is President of New England Fiduciary Company, a firm specializing in financial strategies and long-term planning for colleges and universities primarily in the area of student financial aid and physical facilities. He is also Chairman of the Massachusetts Educational Financing Authority; an independent Director of ING Pilgrim Funds and a Trustee of Framingham State College. He had formerly been Vice President and Treasurer of Boston College and Director of the Massachusetts Higher Education Assistance Corporation (now American Student

5 Assistance Corporation). Before coming to Boston College, Mr. Smith was employed by Bendix Corporation and Raytheon Company in executive financial analysis and management positions. He is a Certified Public Accountant.

EDWARD P. MARRAM, Ph.D., Secretary; term as member expires July 1, 2002.

Dr. Marram, a resident of Wayland, is Founder, CEO and Chairman of the Board of GEO- CENTERS, INC., a high-technology, professional services firm, and is currently the Entrepreneur-in- Residence at Babson College. From 1967 to 1975, Dr. Marram was a Manager at EG&G, Inc., from 1965 to 1967, he was a Senior Scientist at AVCO Corporation, and from 1961 to 1965 he was a scientist with ADL, Inc. Dr. Marram’s experience included research and testing work for the Atomic Energy Commission and the Department of Energy’s Nuclear Test Program. His honors and board memberships include Board of Directors, SBANE (Smaller Business Association of New England); Board of Directors, Professional Services Council; College Advisory Council, College of Natural Sciences and Mathematics, University of Massachusetts, Amherst; Chemistry Advisory Group, Tufts University; Steering Committee, Technology Transfer Society, New England Chapter; Massachusetts State Board of Women in Business; Small Business Technology Group of Massachusetts and the New England American Technion Society. Dr. Marram was nominated as a Price-Babson College Fellow and was awarded the Edwin M. Appel Prize for his academic accomplishments. Dr. Marram holds a B.S. in Chemistry and a M.S. degree in Physics from the University of Massachusetts, a Ph.D. in Physical Chemistry from Tufts, and attended the OPM Program at Harvard Business School.

ROBERT R. FANNING, JR.; term as member expires July 1, 2002.

Mr. Fanning, a resident of Boxford, is President Emeritus of Northeast Health Systems, Inc. in Beverly, Massachusetts. He is a Fellow in the American College of Healthcare Executives and is a past Chairman of that organization. Mr. Fanning is also a past chairman of the Massachusetts Hospital Association Board of Trustees. He is an outside Director of Health Care Property Investors, Inc., an equit y-oriented real estate investment trust specializing in health care related facilities. Mr. Fanning is also a Director of the Warren Five Cents Savings Bank. He also serves as a Trustee of Bridgton Academy in North Bridgton, Maine.

ROBERT E. FLYNN, M.D.; term as member expires July 1, 2006.

Dr. Flynn, a resident of Dedham, is the former Chair of the Board of Caritas Christi, a current member of the Board of Governors of Caritas Christi, the former Secretary of Health Care Services for the Archdiocese of Boston, the Past Chairperson of the Massachusetts Hospital Association, and the former Chairman of the Department of Medicine at St. Elizabeth’s Medical Center of Boston. In 1991, Dr. Flynn was named a Distinguished Professor by Tufts University School of Medicine. He is a Trustee of St. Elizabeth’s Medical Center, Good Samaritan Hospice and St. Mary’s Women and Infant’s Center. His current memberships in Medical Societies include the Boston Society of Psychiatry and Neurology, the Massachusetts Medical Society, and the American Medical Association, and he is a Fellow of the American Academy of Psychiatry and Neurology.

Dr. Flynn has abstained from participating in the consideration and actions of the Authority regarding the Project and the Series B Bonds.

MARVIN A. GORDON; term as member expires July 1, 2003.

Mr. Gordon, a resident of Milton, is Chairman of the Board, Chief Executive Officer and Treasurer of Whitehall Companies in Norwood, Massachusetts. From 1994 to 1996, Mr. Gordon served

6 on the Board of Directors of Techniek Development Co. of San Diego, California. He also served as Chairman of the Board of US Trust Norfolk (Milton Bank and Trust) from 1974 to 1976 and as Vice President and Member of the Executive Committee from 1971 to 1974. Mr. Gordon has been actively engaged in non-profit, charitable and civic activities. His affiliations include Treasurer and Chairman of the Finance Committee of Milton Hospital Corporation, President, Milton Fuller Housing Corporation, and Corporator of Curry College. Mr. Gordon has been elected to and appointed to a number of public boards and belongs to several civic associations. Mr. Gordon holds a degree from Harvard College and Harvard Business School.

JOHN E. KAVANAGH, III; term as member expires July 1, 2004.

Mr. Kavanagh, a resident of Ipswich, is President and Chairman of William A. Berry & Son, Inc., one of the oldest construction companies in the country. During his 16 years as President, he has redirected the company’s focus from restoration specia lties to a full-service building and construction management organization, with emphasis on meeting the full range of customer needs: planning, design, construction, operation and maintenance services. Mr. Kavanagh is Chairman of the Board of the North Shore Music Theater, Corporator of Brigham and Women’s Hospital and Partners Healthcare, Corporator of Danvers Savings Bank and a former member of Tufts University Board of Overseers.

JOSEPH G. SNEIDER; term as member expires July 1, 2005.

Mr. Sneider, a resident of Newton, is Chairman and Chief Financial Officer of C&S Candy Co., Inc., in Brockton and Justice of the Peace Commonwealth of Massachusetts. Mr. Sneider served as a trustee of Boston University Medical Center (University Hospital), Boston. Mr. Sneider served as Senior Vice President of Olympic International Bank & Trust of Boston. He has also served on a number of public boards and commissions, and he belongs to several civic associations.

RINA K. SPENCE; term as member expired July 1, 2001. Ms. Spence will continue to serve until she is reappointed or her successor takes office.

Ms. Spence, a resident of Cambridge, is President and Chief Executive Officer of Emily.com, Inc., a health and wellness website for teen girls. She was also the founder of Spence Centers for Women’s Health, a network of comprehensive outpatient health facilities. Prior to Spence Centers for Women’s Health, Ms. Spence served as the president and chief executive of Emerson Hospital for ten years. She was also the founding executive director of the Commonwealth Health Care Corporation, a prepaid managed care plan for health care delivery to Medicaid recipients. Ms. Spence has been actively engaged in the civic life of Boston and its corporate affairs for more than 25 years. Her affiliations include The Partnership and the Wang Center. Ms. Spence is a trustee of Eastern Enterprises and a Director of Berkshire Mutual Life and a Trustee of the State Street Master Trust. Ms. Spence holds a degree from Boston University and Harvard University’s John F. Kennedy School of Government.

Staff and Advisors

MARY R. JEKA, a resident of Somerville, was appointed General Counsel of the Authority on July 9, 2001 and Acting Executive Director of the Authority on December 17, 2001. As Acting Executive Director, she is responsible for managing the Authority’s affairs. Prior to joining the Authority, from 2000 to 2001, Ms. Jeka served as the Vice President for Law and Government Affairs for deNovis, Inc., a start-up healthcare technology company. From 1992 to 2000, she was the General Counsel of the Massachusetts Water Resources Authority. Ms. Jeka also worked for Senator Edward M. Kennedy in Washington D.C., serving as General Counsel to the Senate Labor and Human Resources Committee and

7 as a Legislative Assistant from 1985 to 1992. Ms. Jeka has held a number of legal teaching positions and has practiced in a private law firm. Ms. Jeka holds B.A. and J.D. degrees from Boston College.

MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C., attorneys of Boston, Massachusetts, are serving as Bond Counsel to the Authority and will submit their approving opinion with regard to the legality of the Series B Bonds as provided by the Agreement in substantially the form attached hereto as Appendix E.

PUBLIC FINANCIAL MANAGEMENT, INC. is serving as a financial consultant to the Authority in connection with this financing. The financial consultant advises the Authority in connection with the issuance of its obligations and certain other financial matters.

The Act provides that the Authority may employ such other counsel, engineers, architects, accountants, construction and financial experts, or others as the Authority deems necessary.

Powers of the Authority

Under the Act, the Authority is authorized and empowered, among other things, directly or by and through a participating institution for higher education, a participating school for the handicapped, a participating hospital or hospital affiliate, a participating nursing home or a participating cultural institution as its agent, to acquire real and personal property and to take title thereto in its own name or in the name of one or more participants as its agent; to construct, reconstruct, remodel, maintain, manage, enlarge, alter, add to, repair, operate, lease as lessee or lessor, and regulate any project; to enter into contracts for any or all of such purposes, or for the management and operation of a project; to issue bonds, bond anticipation notes and other obligations, and to fund or refund the same; to fix and revise from time to time and charge and collect rates, rents, fees and charges for the use of and for the services furnished or to be furnished by a project or any portion thereof and to enter into contracts in respect thereof; to establish rules and regulations for the use of a project or any portion thereof; to receive and accept from any public agency loans or grants for or in the aid of the construction of a project or any portion thereof; to mortgage any project and the site thereof for the benefit of the holders of revenue bonds issued to finance such project; to make loans to any participant for the cost of a project or to refund outstanding obligations, mortgages or advances issued, made or given by such participant for the cost of a project; to charge participants its administrative costs and expenses incurred; to acquire any federally guaranteed security and to pledge or use such security to secure or provide for the repayment of its bonds; and to do all things necessary or convenient to carry out the purposes of the Act. Additionally, the Authority may undertake a joint project or projects for two or more participants.

Indebtedness of the Authority

The Authority has heretofore authorized and issued certain series of its revenue bonds for private colleges and universities, private hospitals and their affiliates, community providers, cultural institutions, schools for the handicapped and nursing homes in the Commonwealth. Each series of revenue bonds has been a special obligation of the Authority.

The Authority expects to enter into separate agreements with eligible institutions in the Commonwealth for the purpose of financing projects for such institutions. Each series of bonds issued by the Authority constitutes a separate obligation of the borrowing institution for such series, and the general funds of the Authority are not pledged to any bonds or notes.

8 THE SERIES B BONDS

Pledge of Revenues under the Agreement

Under the Agreement, the Authority assigns and pledges to the Trustee in trust upon the terms of the Agreement (i) all Revenues to be received from each Obligated Group Member or derived from any security provided thereunder and (ii) all rights to receive such Revenues and the proceeds of such rights. The assignment and pledge by the Authority does not include (i) the rights of the Authority pursuant to provisions for consent, concurrence, approval or other action by the Authority, notice to the Authority, or the filing of reports, certificates, or other documents with the Authority; or (ii) the powers of the Authority as stated in the Agreement to enforce the provisions thereof.

Description of the Series B Bonds

The Series B Bonds will be dated March 15, 2002 and will bear interest from such date, payable on July 1, 2002, and on each January 1 and July 1 thereafter at the rates on the cover page hereof and will mature on July 1 of the indicated years and in the principal amounts shown on the cover page hereof.

For the retirement of the Series B Bonds due July 1, 2012, sinking fund installments shall be payable on July 1, 2009 and each July 1 thereafter as follows:

Year Sinking Fund Installment

July 1, 2009 $6,485,000 July 1, 2010 6,925,000 July 1, 2011 7,010,000 July 1, 2012 7,460,000*

*Maturity.

For the retirement of the Series B Bonds due July 1, 2016, sinking fund installments shall be payable on July 1, 2013 and each July 1 thereafter as follows:

Year Sinking Fund Installment

July 1, 2013 $7,650,000 July 1, 2014 8,165,000 July 1, 2015 8,720,000 July 1, 2016 7,740,000*

*Maturity.

9 For the retirement of the Series B Bonds due July 1, 2022, sinking fund installments shall be payable on July 1, 2017 and each July 1 thereafter as follows:

Year Sinking Fund Installment

July 1, 2017 $4,550,000 July 1, 2018 3,570,000 July 1, 2019 3,055,000 July 1, 2020 3,250,000 July 1, 2021 3,450,000 July 1, 2022 3,665,000*

______*Final Maturity.

Subject to the provisions discussed under “THE SERIES B BONDS -- Book-Entry-Only System,” the Series B Bonds are issuable as fully registered bonds without coupons in the minimum denomination of $5,000 or any integral multiple thereof. Principal or redemption premium, if any, of the Series B Bonds will be payable at the principal corporate trust offic e of the Paying Agent, and interest on the Series B Bonds will be paid by check or draft mailed to the registered owner as of the fifteenth day of the month preceding the date on which the interest is to be paid (the “Regular Record Date”) or by wire transfer, as provided in the Agreement.

Principal, Sinking Fund Installments and Interest Requirements

The following table sets forth, for each respective year ending July 1, the amounts required to be made available by the Obligated Group in such year for payment of the principal and sinking fund installments on the Series B Bonds, interest on the Series B Bonds, total debt service on the Series B Bonds, total debt service on the other Parity Indebtedness (as defined under “PARITY INDEBTEDNESS”) and total debt service on all Long-Term Indebtedness.

10 Principal and Sinking Fund Total Debt Total Debt Year Installments on Total Debt Service on Service on Ending the Series B Interest on the Service on the Other Parity Parity July 1 Bonds Series B Bonds Series B Bonds Indebtedness Indebtedness 2002 $ 810,000 $ 2,077,615 $ 2,887,615 $ 21,064,511 $ 23,952,126 2003 3,575,000 7,023,650 10,598,650 21,103,539 31,702,189 2004 4,955,000 6,880,650 11,835,650 21,039,469 32,875,119 2005 5,205,000 6,632,900 11,837,900 21,061,561 32,899,461 2006 5,485,000 6,346,625 11,831,625 21,088,381 32,920,006 2007 5,800,000 6,031,238 11,831,238 21,003,381 32,834,619 2008 6,140,000 5,697,738 11,837,738 19,651,256 31,488,994 2009 6,485,000 5,337,013 11,822,013 18,640,444 30,462,457 2010 6,925,000 4,915,488 11,840,488 17,141,594 28,982,082 2011 7,010,000 4,465,363 11,475,363 16,812,199 28,287,562 2012 7,460,000 4,009,713 11,469,713 16,799,794 28,269,507 2013 7,650,000 3,524,813 11,174,813 16,883,977 28,058,790 2014 8,165,000 3,008,438 11,173,438 16,748,687 27,922,125 2015 8,720,000 2,457,300 11,177,300 15,080,061 26,257,361 2016 7,740,000 1,868,700 9,608,700 10,573,957 20,182,657 2017 4,550,000 1,346,250 5,896,250 14,562,076 20,458,326 2018 3,570,000 1,061,875 4,631,875 15,710,706 20,342,581 2019 3,055,000 838,750 3,893,750 13,120,706 17,014,456 2020 3,250,000 647,813 3,897,813 13,035,081 16,932,894 2021 3,450,000 444,688 3,894,688 9,956,050 13,850,738 2022 3,665,000 229,063 3,894,063 7,264,713 11,158,776 2023 - - - 3,054,875 3,054,875 2024 - - - 3,051,125 3,051,125 2025 - - - 2,069,325 2,069,325 2026 - - - 1,005,250 1,005,250 2027 - - - 1,006,375 1,006,375 2028 - - - 1,004,625 1,004,625

Redemption Provisions

Optional Redemption of Series B Bonds. The Series B Bonds maturing on or before July 1, 2012 are not subject to redemption prior to maturity except as described herein under “THE SERIES B BONDS -- Redemption Provisions -- Special Redemption of Series B Bonds” and – “Optional Ethical Redemption of Series B Bonds.” The Series B Bonds maturing after July 1, 2012 are subject to optional redemption prior to maturity, beginning on July 1, 2012, at the option of the Authority with the written consent of the Obligated Group Agent or by direction of the Obligated Group Agent, as a whole or in part at any time in such order of maturity or sinking fund installments as may be directed by the Obligated Group Agent, at the following redemption prices expressed as percentages of their principal amount, plus accrued interest to the date fixed for redemption:

11 Period During Which Redeemed Redemption Price (Both Dates Inclusive)

July 1, 2012 through June 30, 2013 101% July 1, 2013 and thereafter 100

Mandatory Redemption of Series B Bonds. In addition, the Series B Bonds maturing on July 1, 2012, July 1, 2016 and July 1, 2022 shall be redeemed prior to maturity from sinking fund installments, at their principal amounts without premium as provided for in the Agreement and described under “THE SERIES B BONDS -- Description of the Series B Bonds” herein.

Special Redemption of Series B Bonds. Under the special redemption provisions of the Agreement, the Series B Bonds are subject to redemption at the option of the Obligated Group Agent as a whole or in part at any time in such order of maturities or sinking fund installments as directed by the Obligated Group Agent at their principal amounts, without premium, plus accrued interest to the redemption date, from excess moneys in the Construction Fund established under the Agreement or from certain proceeds of insurance or condemnation received by any Obligated Group Member. See Appendix D--“SUMMARY OF THE AGREEMENT” under the headings “Redemption Fund” and “Insurance and Condemnation Proceeds.”

Optional Ethical Redemption of Series B Bonds. The Series B Bonds are also subject to optional redemption at any time prior to maturity by the Authority, upon the request of the Obligated Group Agent, in whole or in part, from prepayments made by the Obligated Group under the Agreement if the Obligated Group or any Member is, in the opinion of counsel acceptable to the Authority and the Trustee, required or ordered by final legislative, judicial or administrative action of the United States of America or of The Commonwealth of Massachusetts, or any agency, department or subdivision thereof, to operate the Project or any part thereof in a manner which the Board of Governors of the Obligated Group Agent determines, in good faith, to be contrary to the principles or beliefs of the Roman Catholic Church. Any such redemption shall be made at a redemption price equal to the principal amount of each Series B Bond to be redeemed (calculated at the redemption date) plus interest accrued to the redemption date, and, if less than all of the Series B Bonds are redeemed, shall be made in such order of maturity or sinking fund installments as shall be directed by the Obligated Group Agent.

Selection of Series B Bonds. The Series B Bonds to be redeemed shall be selected by the Trustee by lot or in any customary manner of selection as determined by the Trustee. So long as DTC or its nominee is the Bondowner, if less than all of the Series B Bonds of any one maturity shall be called for redemption, the particular Series B Bonds or portions of Series B Bonds of such maturity to be redeemed shall be selected by DTC in such manner as DTC may determine. If a Series B Bond is of a denomination in excess of five thousand dollars ($5,000), portions of the principal amount in the amount of five thousand dollars ($5,000) or any multiple thereof may be redeemed.

Notice of Redemption and Other Notices. So long as DTC or its nominee is the Bondowner, the Authority, the Trustee and the Paying Agent will recognize DTC or its nominee as the Bondowner for all purposes, including notices and voting. Conveyance of notices and other communications by DTC to DTC Participants, by DTC Participants to Indirect Participants, and by DTC Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory and regulatory requirements which may be in effect from time to time.

The Trustee shall give a notice of redemption, which may be conditional on the deposit of the redemption price with the Trustee on or prior to the specifie d redemption date, to the Bondowners not less

12 than 30 days nor more than 45 days prior to the date fixed for redemption. Failure to mail notice to a particular Bondowner, or any defect in the notice to such Bondowner, shall not affect the redemption of any other Series B Bond. So long as DTC or its nominee is the Bondowner, any failure on the part of DTC or failure on the part of a nominee of a Beneficial Owner to notify the Beneficial Owner so affected shall not affect the validity of the redemption.

Effect of Redemption. On the redemption date, the redemption price of each Series B Bond to be redeemed will become due and payable. From and after such date, notice having been properly given and amounts having been made available and set aside for such redemption in accordance with the provisions of the Agreement, notwithstanding that any Series B Bonds called for redemption have not been surrendered, no further interest will accrue on any Series B Bonds called for redemption.

Acceleration

In addition to the foregoing redemption provisions, the Trustee may declare all of the Series B Bonds due and payable at par prior to maturity upon the occurrence of an Event of Default, as defined in the Agreement. See Appendix D -- “SUMMARY OF THE AGREEMENT” under the headings “Default by the Obligated Group” and “Remedies for Events of Default.”

Book-Entry-Only System

The following information has been provided by The Depository Trust Company for use in this Official Statement:

The Depository Trust Company, New York, New York (“DTC”), will act as securities depository for the Series B Bonds. The Series B 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 Series B Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds securities that its participants (“Direct Participants”) deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book- entry changes in Direct Participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The rules applicable to DTC and its Direct and Indirect Participants are on file with the Securities and Exchange Commission.

Purchases of the Series B Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series B Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series B Bond (a “Beneficial Owner”) is in turn to be recorded on the

13 Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are 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 interest in the Series B Bonds are to be accomplished by entries made on the books of Direct or Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interest in the Series B Bonds except in the event that use of the book-entry system for the Series B Bonds is discontinued.

To facilitate subsequent transfers, all Series B 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 Series B Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series B Bonds. DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series B 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.

Redemption notices shall be sent to DTC. If less than all of the Series B 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 such other DTC nominee) will consent or vote with respect to the Series B Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series B Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, redemption premium, if any, and interest payments on the Series B 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 Authority or the Paying Agent on the 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 Paying Agent, the Trustee, the Authority or the Obligated Group, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption premium, if any, and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Paying Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants.

THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTC’S BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE AUTHORITY BELIEVES TO BE

14 RELIABLE, BUT NONE OF THE AUTHORITY, THE OBLIGATED GROUP OR THE UNDERWRITERS TAKE RESPONSIBILITY FOR THE ACCURACY THEREOF.

For every transfer and exchange of the Series B Bonds, the Beneficial Owner may be charged a sum sufficient to cover any tax, fee or other government charge that may be imposed in relation thereto.

Responsibility of Authority, Paying Agent, Trustee and Obligated Group. NONE OF THE AUTHORITY, THE PAYING AGENT, THE TRUSTEE OR THE OBLIGATED GROUP WILL HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO DIRECT PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE PAYMENTS TO OR THE PROVIDING OF NOTICE FOR DIRECT PARTICIPANTS, OR INDIRECT PARTICIPANTS, OR BENEFICIAL OWNERS.

SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE SERIES B BONDS, AS NOMINEE OF DTC, REFERENCES HEREIN TO THE BONDOWNERS OR REGISTERED OWNERS OF SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE SERIES B BONDS.

Certificated Bonds. DTC may discontinue providing its services as securities depository with respect to the Series B Bonds at any time by giving reasonable notice to the Authority or the Trustee. In addition, the Authority may determine that continuation of the system of book-entry transfers through DTC (or a successor securities depository) is not in the best interests of the Beneficial Owners. If for either reason the book-entry-only system is discontinued, Series B Bond certificates will be delivered as described in the Agreement and the Beneficial Owner, upon registration of certificates held in the Beneficial Owner’s name, will become the Bondowner. Thereafter, the Series B Bonds may be exchanged for an equal aggregate principal amount of the Series B Bonds in other authorized denominations and of the same maturity, upon surrender thereof at the principal corporate trust office of the Paying Agent. The transfer of any Series B Bond may be registered on the books maintained by the Paying Agent for such purpose only upon assignment in form satisfactory to the Paying Agent. For every exchange or registration of transfer of the Series B Bonds, the Authority and Paying Agent may make a charge sufficient to reimburse them for any tax or other governmental charge required to be paid with respect to such exchange or registration of transfer, but no other charge may be made to the Bondowner for any exchange or registration of transfer of the Series B Bonds. The Paying Agent will not be required to transfer or exchange any Series B Bond during the notice period preceding any redemption if such Series B Bond (or any part thereof) is eligible to be selected or has been selected for redemption.

In the event that the book-entry-only system is discontinued, principal and redemption premium, if any, will be payable upon surrender of the Series B Bonds at the corporate trust office of the Paying Agent, and interest will be payable semiannually thereafter on each January 1 and July 1 by check or draft mailed to the Bondowners as of the close of business on the Regular Record Date or by wire transfer, as provided in the Agreement. PARITY INDEBTEDNESS

The Series B Bonds will be secured by a lien on the Gross Receipts of the Obligated Group and on the Mortgaged Property on a parity with the Valley Regional Series C Bonds and the Series A Bonds. Upon the issuance of the Series B Bonds, the outstanding principal amount of the Valley Regional Series C Bonds will be $29,245,000 and the outstanding principal amount of the Series A Bonds will be $188,405,000. The Series B Bonds, the Valley Regional Series C Bonds and the Series A Bonds are referred to herein as the “Parity Indebtedness.”

15 ADDITIONAL INDEBTEDNESS

The Agreement permits the Obligated Group to issue, incur, and guarantee other indebtedness on a parity with, and, in certain circumstances, senior to the Lien of the Series B Bonds with respect to the Obligated Group’s Gross Receipts or the Mortgaged Property, subject to certain conditions set forth in the Agreement. For additional information concerning the incurrence of Additional Indebtedness, see Appendix D -- “SUMMARY OF THE AGREEMENT” under the headings “Limitations on Incurrence of Additional Indebtedness,” “Debt Service on Guaranties,” “Debt Service on Balloon Indebtedness and Variable Rate Indebtedness,” and “Limitations on Creation of Liens.” DEBT SERVICE COVERAGE RATIO AND RATE COVENANTS

In the Agreement, the Obligated Group agrees to maintain a ratio of its Net Revenues Available for Debt Service to Total Principal and Interest Requirements (the “Historical Debt Service Coverage Ratio”) at least equal to 1.10 in each Fiscal Year. If the Historical Debt Service Coverage Ratio, as calculated at the end of any Fiscal Year, is less than the required amount, the Obligated Group covenants to retain a Hospital Consultant to prepare a report to be delivered to the Obligated Group, the Trustee, and the Authority making recommendations as to rates and charges and other aspects of management. The Obligated Group agrees to implement such recommendations or file with the Authority and the Trustee its reasons for not following such recommendations. The Obligated Group shall thereafter achieve a ratio of Net Revenues Available for Debt Service to Total Principal and Interest Requirements of at least 1.10, unless the Hospital Consultant certifies that the Obligated Group is prevented from doing so by government restrictions and the ratio actually achieved is at least 1.00. This covenant is subject to limitations, including applicable governmental restrictions, the Obligated Group’s fiduciary obligations and limitations on its legal authority (“Legal Limitations”).

The Obligated Group also agrees in the Agreement, subject to Legal Limitations, to charge and collect rates and charges that together with other available moneys, shall provide moneys sufficient at all times to make any payments required under the Agreement and to comply with its provisions in all other respects, and to satisfy all other obligations of the Obligated Group in a timely fashion. The Obligated Group, subject to Legal Limitations also agrees to charge and collect rates and charges that, together with other available moneys, in each Fiscal Year will produce revenues at least sufficient to meet expenses (excluding from revenues and expenses extraordinary items and the cumulative effect of changes in accounting principles, excluding from revenues income on Irrevocable Deposits, and excluding from expenses depreciation and amortization of bond discount and financing expenses and other noncash items).

For a more complete description, see Appendix D -- “SUMMARY OF THE AGREEMENT” under the heading “Rates and Charges.” THE PROJECT

The Project consists of the following:

(i) the refinancing of certain projects previously financed and refinanced with the Good Samaritan Refunded Bonds and the 2002 St. Elizabeth’s Refunded Bonds (collectively, the “Refunded Bonds”); and

(ii) the financing of the construction, renovation and/or equipping of facilities for the use of certain Members of the Obligated Group (the “New Part of the Project”).

16 Management of the Obligated Group has no reason to believe that any approvals needed in connection with the construction, renovation, equipping and operation of the New Part of the Project will not be obtained on a timely basis.

For further information regarding the Project, see Appendix A--“LETTER FROM THE OBLIGATEDGROUP” under the heading “The Project.” ESTIMATED SOURCES AND USES OF FUNDS

The estimated sources and uses of funds, net of accrued interest are as follows:

Sources of Funds

Principal Amount of Series B Bonds $ 113,665,000.00 Net Original Issue Premium 3,388,996.55 Funds Held for the Refunded Bonds 8,995,635.60

Total Sources of Funds $ 126,049,632.15

Uses of Funds

Deposit to Refunding Trust Funds $ 72,257,639.77 Deposit to Debt Service Reserve Fund 9,292,762.27 Issuance Expenses (including Underwriters’ Discount) 1,365,406.25 Deposit to Construction Fund (including capitalized interest) 43,133,823.86

Total Uses of Funds $ 126,049,632.15

PLAN OF REFUNDING

The Cushing Refunded Bonds, of which $7,800,000 will be outstanding on the date of delivery of the Series B Bonds, will be currently refunded with a portion of the proceeds of the Series B Bonds and other moneys held by the trustee for the Cushing Refunded Bonds (the “Cushing Trustee”), which funds will be deposited with the Cushing Trustee in accordance with a Refunding Trust Agreement dated as of March 28, 2002 among the Authority, Good Samaritan and the Cushing Trustee (the “Cushing Refunding Trust Agreement”). The amount deposited with the Cushing Trustee under the Cushing Refunding Trust Agreement will be invested in non-callable direct or guaranteed obligations of the United States of America (the “Government Obligations”), the principal of and interest on which will be sufficient to pay the principal of, redemption premium, and interest on the Cushing Refunded Bonds until on or about April 18, 2002, when all outstanding Cushing Refunded Bonds will be redeemed.

The Goddard Refunded Bonds, of which $13,400,000 will be outstanding on the date of delivery of the Series B Bonds, will be currently refunded with a portion of the proceeds of the Series B Bonds and other moneys held by the trustee for the Goddard Refunded Bonds (the “Goddard Trustee”), which funds will be deposited with the Goddard Trustee in accordance with a Refunding Trust Agreement dated as of March 28, 2002 among the Authority, Good Samaritan and the Goddard Trustee (the “Goddard Refunding Trust Agreement”). The amount deposited with the Goddard Trustee under the Goddard Refunding Trust Agreement will be invested in Government Obligations, the principal of and interest on which will be sufficient to pay the principal of, redemption premium, and interest on the Goddard Refunded Bonds until on or about April 18, 2002, when all outstanding Goddard Refunded Bonds will be redeemed. 17 The 2002C St. Elizabeth’s Refunded Bonds, of which $7,805,000 will be outstanding on the date of delivery of the Series B Bonds, and the 2002D/E St. Elizabeth’s Refunded Bonds, of which $41,300,000 will be outstanding on the date of delivery of the Series B Bonds, will be currently refunded with a portion of the proceeds of the Series B Bonds and other moneys held by the trustee for the 2002 St. Elizabeth’s Refunded Bonds (the “2002 St. Elizabeth’s Trustee”), which funds will be deposited with the 2002 St. Elizabeth’s Trustee in accordance with a Refunding Trust Agreement, dated as of March 28, 2002 among the Authority, St. Elizabeth’s and the 2002 St. Elizabeth’s Trustee (the “2002 St. Elizabeth’s Refunding Trust Agreement”). The amount deposited with the 2002 St. Elizabeth’s Trustee under the 2002 St. Elizabeth’s Refunding Trust Agreement will be invested in Government Obligations, the principal of and interest on which will be sufficient to pay the principal of, redemption premium, and interest on the 2002C St. Elizabeth’s Refunded Bonds until on or about April 18, 2002, when all outstanding 2002C St. Elizabeth’s Refunded Bonds will be redeemed, and on the 2002D/E St. Elizabeth’s Refunded Bonds until on or about April 11, 2002, when all outstanding 2002D/E St. Elizabeth’s Refunded Bonds will be redeemed. VERIFICATION OF MATHEMATICAL ACCURACY

Chris D. Berens, CPA, P.C. will deliver to the Authority its attestation report verifying the mathematical accuracy of the mathematical computations of the adequacy of the cash and the maturity principal and interest on the Government Obligations deposited in escrow to pay, when due, the principal, interest and call premium payment requirements, if any, of the Refunded Bonds. Chris D. Berens, CPA, P.C. will express no opinion on the assumptions provided to them, nor as to the exclusion from gross income of the interest on the Series B Bonds. BONDOWNERS’ RISKS

Payment of Debt Service

The principal of, redemption premium, if any, and interest on the Series B Bonds are payable solely from the amounts paid by the Obligated Group to the Authority under the Agreement and from amounts which may be paid to the Trustee pursuant to the Agreement. No representation or assurance can be made that revenues will be realized by the Members of the Obligated Group in the amounts necessary to make payments at the times and in the amounts sufficient to pay the debt service on the Series B Bonds.

Future revenues and expenses of each Obligated Group Member will be affected by events and conditions relating generally to, among other things, demand for its services, its ability to provide the services required by patients, physicians’ relationships with each Obligated Group Member and its facilities, management capabilities, the design and success of the Obligated Group Members’ strategic plans, economic developments in the Obligated Group Members’ service area, the Obligated Group Members’ ability to control expenses, maintenance of the Obligated Group Members’ relationships with health maintenance organizations and other payers, competition, rates, costs, third-party payments, legislation, and governmental regulation. Third party payment and charge-control statutes and regulations are likely to change, and unanticipated events and circumstances may occur which cause variations from each Obligated Group Member’s expectations, and the variations may be material.

Enforceability of Lien on Gross Receipts

The Agreement provides that the Obligated Group shall make payments to the Trustee sufficient to pay the Series B Bonds and the interest thereon as the same become due. The obligation to make such

18 payments is secured by a security interest in the Gross Receipts of each Member of the Obligated Group granted to the Authority and assigned by the Authority to the Trustee.

To the extent that Gross Receipts are derived from payments by the federal government under the Medicare or Medicaid program, any right to receive such payments directly may be unenforceable. The Social Security Act and state regulations prohibit anyone other than the individual receiving care or the institution providing service from collecting Medicare and Medicaid payments directly from the federal or state government. In addition, Medicare and Medicaid receivables may be subject to provisions of the Assignment of Claims Act of 1940, which restricts the ability of a secured party to collect accounts directly from government agencies. With respect to receivables and Gross Receipts not subject to the Lien, the Trustee would occupy the position of an unsecured creditor. Counsel to the Obligated Group has not provided an opinion with regard to the enforceability of the Lien on Gross Receipts of the Obligated Group, where such Gross Receipts are derived from the Medicare and Medicaid programs.

In the event of bankruptcy of a Member of the Obligated Group, transfers of property by the bankrupt entity, including the payment of debt or the transfer of any collateral, including receivables and Gross Receipts and the Mortgaged Property, on or after the date which is 90 days (or, in some circumstances, one year) prior to the commencement of the case in bankruptcy court, may be subject to avoidance or recoupment as preferential transfers. Under certain circumstances a court may have the power to direct the use of Gross Receipts to meet expenses of the Member of the Obligated Group before paying the debt service on the Series B Bonds.

Pursuant to the Massachusetts Uniform Commercial Code, a security interest in the proceeds of Gross Receipts may not continue to be perfected if such proceeds are not paid over to the Trustee (or an agent for the Trustee) by a Member of the Obligated Group within twenty days of receipt. A Member of the Obligated Group is obligated to pay over such proceeds within twenty days of receipt only in the event of a failure to make a required payment under the Agreement. If any required payment is not made when due, the Members of the Obligated Group must transfer or pay over immediately to the Trustee any Gross Receipts with respect to which the security interest remains perfected pursuant to law. Any Gross Receipts thereafter received shall upon receipt by a Member of the Obligated Group be transferred to the Trustee without such Gross Receipts being commingled with other funds, in the form received (with necessary endorsements) up to an amount equal to the amount of the missed payment.

The value of the security interest in the Gross Receipts could be diluted by the issuance of Additional Bonds or incurrence of other indebtedness secured on a basis senior to, or equally and ratably with, the Series B Bonds as to the security interest in the Gross Receipts. See “ADDITIONAL INDEBTEDNESS” herein.

Enforceability of Agreement

The current Members of the Obligated Group are the obligors under the Agreement securing the Series B Bonds. Since it is not known which entities, if any, may become additional Members of the Obligated Group, the extent of economic and legal risks that the addition of such entities to the Obligated Group may present to the Bondowners cannot be determined at this time. In addition, the Agreement contains provisions permitting a Member of the Obligated Group to withdraw from the Obligated Group provided that certain conditions are satisfied, and the extent of economic and legal risks that the withdrawal of a Member may present to the Bondowners also cannot be determined at this time. See Appendix D-- “SUMMARY OF THE AGREEMENT” under the heading “Withdrawal from the Obligated Group.”

19 It is possible that the joint and several obligation of an Obligated Group Member to make payments due under the Agreement, or the granting of the Mortgage, in respect of moneys used by another Obligated Group Member may not be valid and enforceable and could be declared void in an action brought by third-party creditors, or by a trustee in bankruptcy in the event of the bankruptcy of the Obligated Group Member from which payment is requested, or by the Massachusetts Attorney General. An obligation may be voided under the federal Bankruptcy Code or under the Massachusetts fraudulent conveyance statute, if (a) the obligation was incurred without receipt by the obligor of “fair consideration” or “reasonably equivalent value,” and (b) the obligor is insolvent or the obligation renders the obligor “insolvent,” as such terms are defined under the applicable statute.

Interpretation by the courts of the tests of “insolvency,” “reasonably equivalent value” and “fair consideration” has resulted in a conflicting body of case law. For example, an Obligated Group Member’s joint and several obligation under the Agreement to make all payments thereunder, including payments in respect of funds used for the benefit of the other Members of the Obligated Group, or the granting of the Mortgage by St. Elizabeth’s, may be held to be a “transfer” which makes such Obligated Group Member “insolvent” in the sense that the total amount due under the Agreement could be considered as causing its liabilities to exceed its assets. Also, one of the Obligated Group Members may be deemed to have received less than “fair consideration” for such obligation because only a portion of the proceeds of the Series B Bonds are to be used to finance facilities occupied or used by such Obligated Group Member. While the Obligated Group Members may benefit generally from the facilities financed from the proceeds of the Series B Bonds for the other Obligated Group Members, the actual cash value of this benefit may be less than the joint and several obligation. The rights under the Massachusetts fraudulent conveyance statutes may be asserted from a period of up to six years from the incurring of the obligations or granting of security under the Agreement or the Mortgage.

In addition, to be enforceable under Massachusetts law, a guarantee by an Obligated Group Member of the debts of another Obligated Group Member (or a pledge of the assets by an Obligated Group Member to secure the debts of another Obligated Group Member) must be in furtherance of the Obligated Group Member’s corporate purposes. Further, some or all of the assets of an Obligated Group Member may be subject to restrictions on use imposed by a donor or 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, particularly if the Obligated Group Member has insufficient assets remaining to carry out its own charitable functions, or if such obligations were issued for purposes inconsistent with or beyond the scope of the charitable purposes for which the Obligated Group Member was organized.

The validity of master trust indentures and other agreements similar to the Agreement has been challenged in jurisdictions outside of Massachusetts. In the absence of clear legal precedent in Massachusetts, there can be no assurance as to the validity and enforceability of the agreement of any Obligated Group Member to make payments due under the Agreement, or as to the validity and enforceability of the Mortgage, to the extent issued for the benefit of another Obligated Group Member.

Status of Lien on Mortgaged Property

All of the bonds issued under the Agreement will be equally and ratably secured by the Mortgage. The Mortgage does not grant a mortgage lien or security interest in the equipment, furnishings or other tangible personal property on the Mortgaged Property or with respect to any other real or personal property of St. Elizabeth’s or any other Member of the Obligated Group. St. Elizabeth’s will covenant not to create any encumbrance on the Mortgaged Property, except that the Mortgaged Property may become subject to any of the permitted liens described in the Agreement. The lien of the Mortgage has not been insured under a title insurance policy. The existence of any lien on the Mortgaged Property

20 having priority over the lien created by the Mortgage may reduce the amount realized by the Trustee in the event of a foreclosure of the Mortgage.

Realization of Value on Mortgaged Property

The Mortgaged Property is not comprised of general purpose buildings and would not generally be suitable for industrial or commercial use. Consequently, it would be difficult to find a buyer or lessee for the Mortgaged Property if it were necessary to foreclose on the Mortgaged Property. Thus, upon any default, it may not be possible to realize the outstanding interest on and principal of the bonds then outstanding under the Agreement from a sale or a lease of the Mortgaged Property.

In addition, in order to operate the Mortgaged Property as a health care facility, a purchaser of the Mortgaged Property at foreclosure sale would under present law have to obtain a determination of need from the Massachusetts Department of Public Health and a license for the facility and would be subject to the provisions of M.G.L. c. 180, sections 8A(c) and (d). The Mortgage does not grant a security interest in the equipment or furnishings at the Mortgaged Property. Therefore, the ability to operate the Mortgaged Property as a health care facility might be affected accordingly.

Furthermore, under applicable federal and Massachusetts environmental statutes, in the event of any past or future releases of pollutants or contaminants on or near the Mortgaged Property, a lien superior to the lien of the Mortgage could attach to the Mortgaged Property to secure the costs of removing or otherwise treating such pollutants or contaminants. Such a lien would adversely affect the Trustee’s ability to realize sufficient amounts to pay the bonds then outstanding under the Agreement in full. Furthermore, in determining whether to exercise any foreclosure rights with respect to the Mortgaged Property, the Trustee may have to take into account the potential liability of any owner of the Mortgaged Property, including an owner by foreclosure, for clean-up costs with respect to such pollutants and contaminants. No environmental assessment of the Mortgaged Property has been made prior to the issuance of the Series B Bonds.

Enforceability of Remedies Generally

The remedies granted to the Trustee or the owners of the Series B Bonds upon an event of default under the Agreement may be dependent upon judicial actions which are often subject to discretion and delay. Under existing law, the remedies specified in the Agreement and the Mortgage may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Series B Bonds will be qualified as to the enforceability of the provisions of the Agreement and the Mortgage by limitations imposed by state and federal laws, rulings and decisions affecting equitable remedies regardless of whether enforceability is sought in a proceeding at law or in equity and by bankruptcy, reorganization, insolvency, receivership or other similar laws affecting the rights of creditors generally.

Tax-Exempt Status of the Series B Bonds

The tax-exempt status of the Series B Bonds is based on the continued compliance with certain provisions of the Internal Revenue Code of 1986, as amended. These covenants relate generally to arbitrage limitations, rebate of certain excess investment earnings to the federal government, restrictions on the amount of issuance costs financed with the proceeds of the Series B Bonds, the tax-exempt status of each Obligated Group Member, and other use, expenditure and investment restrictions. Failure to comply with any of these provisions may result in the treatment of interest on the Series B Bonds as taxable retroactive to the date of issuance. See “TAX EXEMPTION” herein.

21 For a discussion of additional Bondowners’ risks, see Appendix A -- “LETTER FROM THE OBLIGATED GROUP” under the headings “Bondowners’ Risks and Matters Affecting the Health Care Industry” and “Sources of Patient Service Revenue.” CONTINUING DISCLOSURE

The Authority has determined that no financial or operating data concerning the Authority are material to any decision to purchase, hold or sell the Series B Bonds and the Authority will not provide any such information. The Obligated Group has undertaken all responsibilities for any continuing disclosure to Bondowners as described below, and the Authority shall have no liability to the Bondowners or any other person with respect to such disclosures.

The Obligated Group has covenanted for the benefit of Bondowners to provide to the Dissemination Agent (as such term is defined in Appendix F hereto) (i) certain financial information and operating data relating to the Obligated Group by not later than 180 days following the end of the Obligated Group’s fiscal year beginning with the fiscal year ended September 30, 2002 (the “Annual Report”), and to provide notices of the occurrence of certain enumerated events, if material, and (ii) certain quarterly financial information relating to the Obligated Group for the first three fiscal quarters of each fiscal year by not later than 60 days following the end of each of the first, second, and third fiscal quarters and by not later than 120 days after the end of the fourth fiscal quarter of the Obligated Group (the “Quarterly Information”). The Quarterly Information is available to any Bondowner or Beneficial Owner of at least $2,000,000 in principal amount of the Series B Bonds upon request in writing to Steven P. Fischer, Chief Financial Officer of the Obligated Group Representative, at Caritas Christi, 736 Cambridge Street, Brighton, Massachusetts 02135. The Annual Reports and Quarterly Information will be filed on behalf of the Obligated Group with each Nationally Recognized Municipal Securities Information Repository and with the appropriate State Repository (as such terms are defined in Appendix F hereto) if such repository is established. The notices of material events will be filed on behalf of the Obligated Group with the Municipal Securities Rulemaking Board and the State Repository, if any. The specific nature of the information to be contained in the Annual Reports, the Quarterly Information or the notices of material events is set forth in the “FORM OF CONTINUING DISCLOSURE AGREEMENT,” attached hereto as Appendix F. These covenants have been made in order to assist the Underwriters in complying with Rule 15c2-12 promulgated by the Securities and Exchange Commission (the “Rule”).

No Member of the Obligated Group has ever failed to comply in any material respect with any previous undertakings to provide financial information or notices of material events in accordance with the Rule. TAX EXEMPTION

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Bond Counsel, is of the opinion that, under existing law, interest on the Series B Bonds will not be included in the gross income of holders of the Series B Bonds for federal income tax purposes. This opinion is expressly conditioned upon compliance with certain requirements of the Internal Revenue Code of 1986, as amended (the “Code”), which requirements must be satisfied subsequent to the date of issuance of the Series B Bonds in order to assure that interest on the Series B Bonds is and continues to be excludable from the gross income of the holders thereof. Failure to so comply could cause the interest on the Series B Bonds to be included in the gross income of the holders thereof, retroactive to the date of issuance of the Series B Bonds. In particular, and without limitation, those requirements include restrictions on the use, expenditure and investment of proceeds and payment of rebate, or penalties in lieu of rebate, to the United States, subject to certain

22 exceptions. The Authority and the Obligated Group have provided covenants and certificates as to their respective continuing compliance with such requirements.

In the opinion of Bond Counsel, under existing law, interest on the Series B Bonds will not constitute a preference item under section 57(a)(5) of the Code for purposes of computation of the alternative minimum tax imposed on certain individuals and corporations under section 55 of the Code. However, interest on the Series B Bonds will be included in “adjusted current earnings” of corporate holders of the Series B Bonds and therefore will be taken into account under section 56(g) of the Code in the computation of the alternative minimum tax applicable to certain corporations.

Bond Counsel has not opined as to other federal tax consequences of owning the Series B Bonds. However, prospective purchasers should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Series B Bonds or, in the case of a financial institution, that portion of the holder’s interest expense allocated to the Series B Bonds, (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832 (b)(5)(B)(1) reduces the deduction for losses incurred by 15 percent of the sum of certain items, including interest on the Series B Bonds, (iii) interest on the Series B Bonds earned by certain foreign corporations doing business in the United States could be subject to a foreign branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest on the Series B Bonds, may be subject to federal income taxation under section 1375 of the Code for an S Corporation that has Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such S Corporation is passive investment income, (v) section 86 of the Code requires recipients of certain Social Security and Railroad Retirement benefits to take into account in determining gross income receipts or accruals of interest on the Series B Bonds and (vi) receipt of investment income, including interest on the Series B Bonds may, pursuant to section 32(i) of the Code, disqualify the recipient from obtaining the earned income credit otherwise provided by section 32(a) of the Code.

In the opinion of Bond Counsel, under existing statutes, interest on the Series B Bonds, and any profit made on the sale thereof, are also exempt from Massachusetts personal income taxes, and the Series B Bonds are exempt from Massachusetts personal property taxes. Bond Counsel has not opined as to the other Massachusetts tax consequences resulting from owning the Series B Bonds. Prospective purchasers should be aware, however, that the Series B Bonds are included in the measure of Massachusetts estate and inheritance taxes and the Series B Bonds and the interest thereon are included in the measure of Massachusetts corporate excise and franchise taxes. Bond Counsel has not opined as to the taxability of the Series B Bonds, their transfer and the income therefrom, including any profit made on the sale thereof, under the laws of any state other than The Commonwealth of Massachusetts.

In rendering its opinion, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. will rely (i) upon a certificate of the Obligated Group with respect to certain material facts solely within the Obligated Group’s knowledge relating to the Project and the application of the proceeds of the Series B Bonds and (ii) upon the opinion of counsel to the Obligated Group as to certain matters. No assurance can be given that future legislation will not have adverse tax consequences for owners of the Series B Bonds. On the date of delivery of the Series B Bonds, the original purchasers will be furnished with an opinion of Bond Counsel substantially in the form of the “FORM OF BOND COUNSEL OPINION,” attached hereto as Appendix E.

For federal tax purposes, interest includes original issue discount. Original issue discount with respect to a Series B Bond is equal to the excess, if any, of the stated redemption price at maturity of such Series B Bond, over the initial offering price thereof to the public, excluding underwriters and other intermediaries, at which price a substantial amount of all Series Bonds with the same maturity were sold. Original issue discount accrues actuarially over the term of a Series B Bond. Holders should consult their

23 own tax advisers with respect to the computations of original issue discount on such accruals of interest during the period in which any such Series B Bond is held. LEGALITY OF THE SERIES B BONDS FOR INVESTMENT AND DEPOSIT

The Act provides that the Series B Bonds are securities in which all public officers and public bodies of the Commonwealth and its political subdivisions, all Massachusetts insurance companies, trust companies, savings banks, cooperative banks, banking associations, investment companies, executors, administrators, trustees and other fiduciaries may properly and legally invest funds, including capital in their control or belonging to them. The Series B Bonds, under the Act, are securities which may properly and legally be deposited with and received by any Commonwealth or municipal officer or any agency or political subdivision of the Commonwealth for any purpose for which the deposit of bonds or obligations of the Commonwealth is now or may hereafter be authorized by law. DESCRIPTION OF RATINGS

Moody’s Investors Service, Inc. and Standard and Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., will assign the Series B Bonds of “Baa2” and “BBB,” respectively. Such ratings reflect only the views of such organizations and any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Moody’s Investors Service, Inc. 99 Church Street, New York, New York 10007; and Standard & Poor’s, 55 Water Street, New York, New York 10041. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own.

The above ratings are not recommendations to buy, sell or hold the Series B Bonds. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any downward revision or withdrawal of either or both ratings may have an adverse effect on the market price of the Series B Bonds. COMMONWEALTH NOT LIABLE ON THE SERIES B BONDS

The Series B Bonds shall not be deemed to constitute a debt or liability of the Commonwealth or any political subdivision thereof, or a pledge of the faith and credit of the Commonwealth or any such political subdivision, but shall be payable solely from the Revenues derived by the Authority under the Agreement. Neither the faith and credit nor the taxing power of the Commonwealth or of any political subdivision thereof is pledged to the payment of the principal of or the interest on the Series B Bonds. The Act does not in any way create a so-called moral obligation of the Commonwealth or of any political subdivision thereof to any debt service on the Series B Bonds in the event of default by the Obligated Group. The Authority does not have taxing power. UNDERWRITING

The Series B Bonds are being purchased for reoffering by the underwriters listed on the cover hereof, whose representative is Merrill Lynch, Pierce, Fenner & Smith Incorporated, New York, New York (the “Underwriters”), pursuant to a Purchase Contract between the Authority and the Underwriters. The Underwriters will purchase all of the Series B Bonds which are issued if any Series B Bonds are purchased. The obligations of the Underwriters are subject to certain terms and conditions set forth in the Purchase Contract. The Underwriters have agreed to purchase the Series B Bonds at an aggregate

24 discount of $710,406.25, exclusive of original issue discount, from the public offering price of the Series B Bonds set forth on the cover page hereof. The Underwriters may offer and sell the Series B Bonds to certain dealers (including dealers depositing Series B Bonds into investment trusts, certain of which may be sponsored or managed by the Underwriters) and others at prices lower than the public offering prices stated on the cover page hereof. The public offering prices set forth on the cover page hereof may be changed after the initial offering by the Underwriters. LEGAL MATTERS

All legal matters incidental to the authorization and issuance of the Series B Bonds by the Authority are subject to the approval of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts, Bond Counsel, whose opinion approving the validity and tax-exempt status of the Series B Bonds will be delivered with the Series B Bonds. A copy of the proposed form of the opinion of Bond Counsel is attached hereto as Appendix E. Certain legal matters will be passed on for the Obligated Group by its special counsel, The Rogers Law Firm, A Professional Corporation, Boston, Massachusetts. Certain legal matters will be passed on for the Underwriters by their counsel, Choate, Hall & Stewart, Boston, Massachusetts.

There is not now pending any litigation restraining or enjoining the issuance or delivery of the Series B Bonds or questioning or affecting the validity of the Series B Bonds or the proceedings and authority under which they are to be issued. Neither the creation, organization, or existence of the Authority, nor the title of the present members or other officers of the Authority to their respective officers is being contested. See Appendix A with respect to any material litigation affecting the Obligated Group. MISCELLANEOUS

The references to the Act and the Agreement are brief summaries of certain provisions thereof. Such summaries do not purport to be complete, and reference is made to the Act and the Agreement for full and complete statements of such provisions. The agreements of the Authority with the holders of the Series B Bonds are fully set forth in the Agreement, and neither any advertisement of the Series B Bonds nor this Official Statement is to be construed as constituting an agreement with the Bondowners. So far as any statements are made in this Official Statement involving matters of opinion, whether or not expressly so stated, they are intended merely as such and not as representations of fact. Copies of the documents mentioned in this paragraph are on file at the offices of the Authority and of the Trustee.

Information relating to DTC and the book-entry systems described herein under the heading “THE SERIES B BONDS — Book-Entry-Only System” has been furnished by DTC and is believed to be reliable, but none of the Authority, the Obligated Group or the Underwriters make any representations or warranties whatsoever with respect to such information.

Attached hereto as Appendix A is a joint letter from the Obligated Group to the Authority which contains certain information relating to each Member of the Obligated Group and the Project. While the information contained therein is believed to be reliable, the Authority and the Underwriters make no representations or warranties whatsoever with respect to the information contained therein.

Attached hereto as Appendix B are the combined financial statements together with supplemental combining information of Caritas Christi and its member organizations as of and for the years ended September 30, 2000 and 2001 and the independent auditors report of Deloitte & Touche LLP. The combined financial statements of Caritas Christi contain information for entities that are not part of the Obligated Group. 25 The Authority and the Underwriters have relied on the information contained in Appendices A and B.

Appendix C -- “DEFINITIONS OF CERTAIN TERMS” and Appendix D-- “SUMMARY OF THE AGREEMENT have been prepared by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Bond Counsel to the Authority. The proposed form of legal opinion contained in Appendix E has been prepared by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Bond Counsel.

Appendix F contains the Form of Continuing Disclosure Agreement.

All of the Appendices are incorporated herein as an integral part of this Official Statement.

Each Obligated Group Member has reviewed the portions of this Official Statement describing the Obligated Group and the Project under the headings “INTRODUCTION,” “THE PROJECT,” “ESTIMATED SOURCES AND USES OF FUNDS,” “PLAN OF REFUNDING,” “BONDOWNERS RISKS” and “CONTINUING DISCLOSURE,” and has furnished Appendix A and Appendix B to this Official Statement, and has approved all such information for use with this Official Statement. At the closing, each Obligated Group Member will certify that such portions of this Official Statement, except for any projections and opinions contained in such portions, do not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading.

The execution and delivery of this Official Statement by its Acting Executive Director has been duly authorized by the Authority.

MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITIES AUTHORITY

By: /s/ Mary R. Jeka Mary R. Jeka Acting Executive Director

26 APPENDIX A

Letter from the Obligated Group APPENDIX A

Table of Contents

Page

SYSTEM OVERVIEW...... 1 HISTORICAL BACKGROUND AND FORMATION OF CARITAS CHRISTI...... 2 ORGANIZATIONAL STRUCTURE ...... 6 OBLIGATED GROUP ...... 7 AFFILIATED CORPORATIONS (NOT MEMBERS OF OBLIGATED GROUP)...... 10 THE PROJECT...... 11 GOVERNANCE ...... 13 MANAGEMENT OF THE SYSTEM...... 16 SERVICE AREA ...... 19 COMPETITION AND MARKET SHARE...... 21 HOSPITAL AND SKILLED NURSING FACILITY UTILIZATION...... 25 MANAGEMENT’S DISCUSSION OF OBLIGATED GROUP UTILIZATION...... 26 FINANCIAL PERFORMANCE OF THE OBLIGATED GROUP...... 28 MANAGEMENT’S DISCUSSION OF RECENT FINANCIAL PERFORMANCE...... 30 LIQUIDITY AND CAPITALIZATION...... 34 DEBT SERVICE COVERAGE RATIO...... 36 STRATEGIC PLANNING...... 37 SYSTEM INTEGRATION ...... 38 SOURCES OF PATIENT SERVICE REVENUE...... 39 OUTSTANDING INDEBTEDNESS...... 47 EMPLOYEES...... 48 MEDICAL STAFF...... 49 INSURANCE...... 50 LITIGATION...... 51 BONDOWNERS’ RISKS AND MATTERS AFFECTING THE HEALTH CARE INDUSTRY ...... 51 APPENDIX A

March 20, 2002

Massachusetts Health and Educational Facilities Authority 99 Summer Street - Suite 1000 Boston, MA 02110

Dear Members of the Authority:

In connection with the issuance by the Massachusetts Health and Educational Facilities Authority (the “Authority”) of its Revenue Bonds, Caritas Christi Obligated Group Issue, Series B and Series C (the “Bonds”), we are pleased to submit the following information regarding Caritas Christi and its affiliates and other pertinent information for inclusion in the Official Statement of the Authority. As used hereinafter and unless otherwise indicated, all utilization and financial data for any year refer to the fiscal year ended September 30.

SYSTEM OVERVIEW

Caritas Christi is a Massachusetts charitable corporation that controls and oversees an integrated health care delivery network including a tertiary hospital, community-based hospitals, physician groups, and other health care entities, which together provide a comprehensive range of health services to communities throughout eastern Massachusetts, in southern New Hampshire, and in northeastern Rhode Island. Caritas Christi and its controlled affiliates are collectively referred to herein as the “System”.

The System includes six acute care hospitals located throughout eastern Massachusetts: St. Elizabeth’s Medical Center of Boston, Inc. (“St. Elizabeth’s”) in the Brighton section of Boston; The Carney Hospital, Inc. (“Carney”) in the Dorchester section of Boston; Holy Family Hospital, Inc. (“Holy Family”) in Methuen; St. Anne’s Hospital Corporation (“St. Anne’s”) in Fall River; Caritas Norwood Hospital, Inc. (“Caritas Norwood”) in Norwood; and Caritas Good Samaritan Medical Center, Inc. (“Good Samaritan”) in Brockton (each, a “Hospital” and collectively, the “Hospitals”). The Hospitals provide a full range of patient services, including tertiary services at St. Elizabeth’s and medical education at St. Elizabeth’s and Carney, and, as of January 31, 2002, had a licensed bed complement of 1,390 beds (including skilled nursing beds) and 122 newborn bassinets.

A-1 APPENDIX A

In addition to the six acute care hospitals, the System provides health care services at more than fifty other sites in Massachusetts and New Hampshire. These sites include one long-term care facility, St. Joseph Nursing Care Center, Inc. (“St. Joseph”) in the Dorchester section of Boston; a hospice, Good Samaritan Hospice, Inc., which provides services throughout the Boston area and in Norwood and surrounding communities; a women and infants health and human services center, St. Mary’s Women and Infants Center of Dorchester, Inc. (“St. Mary’s”) in the Dorchester section of Boston; an outpatient oncology center in Dartmouth; and approximately fifty physician practice sites in eastern Massachusetts, southern New Hampshire, and northeastern Rhode Island. In addition to the services at these sites, the System provides home care services to patients in the service areas of its six acute care hospitals. The System also operates Labouré College in the Dorchester section of Boston, where students earn associate degrees in nursing and allied health professions.

During 2001, members of the System provided care to 69,201 hospitalized inpatients and 243,812 emergency department patients, generated operating revenue of nearly $854 million, and had total assets of approximately $710 million as of September 30, 2001.

To further its objectives as a System, Caritas Christi has formed an Obligated Group of certain of its members in order to access capital markets. The members of the Obligated Group currently include Caritas Christi, St. Elizabeth’s, Carney, Caritas Norwood, St. Anne’s, Holy Family, St. Joseph, and Valley Regional Health System, Inc. (“Valley Regional”), which is the sole corporate member of Holy Family. In connection with the issuance of the Bonds, Good Samaritan will become a member of the Obligated Group.

HISTORICAL BACKGROUND AND FORMATION OF CARITAS CHRISTI

Caritas Christi was established in 1985 by Bernard Cardinal Law, Roman Catholic Archbishop of Boston, in order to preserve and enhance the Catholic health care ministry in the Roman Catholic Archdiocese of Boston and to respond to the changes in the health care environment. The System originally included three acute care hospitals, St. Elizabeth’s, Cardinal Cushing General Hospital in Brockton, and St. Margaret’s Hospital for Women in the Dorchester section of Boston; a long-term care hospital, St. John of God Hospital, Inc. (“St. John of God”), in the Brighton section of Boston; Good Samaritan Hospice; and other affiliated entities.

The following provides a brief chronology of the development of the System:

• In 1986, Holy Family (formerly Bon Secours Hospital, Inc.) affiliated with Caritas Christi. In 1988, Caritas Christi became the sole member of Valley Regional Health System, Inc., which is itself the sole member of Holy Family.

• In 1992, Caritas Christi entered into a memorandum of understanding to affiliate with St. Anne’s Health Care System, Inc., under which it provided St. Anne’s with administrative and support services. In 1994, St. Anne’s joined the System under an agreement by which Caritas Christi became one of two classes of members of St. Anne’s, with the Dominican Sisters of the Presentation, the religious sponsor of St. Anne’s, being the other class of members. As the Class A members, the Dominican Sisters of the Presentation

A-2 APPENDIX A

reserve the exclusive power to change the philosophy, objectives, or purposes of the corporation. Caritas Christi, as the Class B member, may exercise all powers not conferred on the Class A member, or held jointly by the two classes of members or the Board of Trustees. Joint powers include the powers to amend the articles of organization and the bylaws of the corporation, to dissolve or liquidate the corporation, to approve mergers or consolidations, to approve the conveyance of or granting of any encumbrances on real property assets of the corporation, or to incur indebtedness in excess of $1,000,000.

• In 1993, St. Margaret’s Hospital for Women ceased operation as an acute care hospital and transferred its licensed beds and operations to St. Elizabeth’s in Brighton. At the former site of St. Margaret’s, St. Mary’s operates a health and human services center, including residential services for at-risk women and their children, funded in part through grants and contracts with federal and state agencies.

• In 1993, Cardinal Cushing General Hospital entered into a consolidation agreement with an unrelated hospital (Goddard Memorial Hospital in Stoughton) to create a new not-for- profit corporation, which was ultimately named Good Samaritan Medical Center, Inc. Caritas Christi became one of the two corporate members of the new entity, which was a sponsored affiliate of Caritas Christi until October 1, 1999, when Caritas Christi became its sole corporate member, and the hospital was renamed Caritas Good Samaritan Medical Center, Inc.

• In 1993, St. Joseph, a skilled nursing facility, joined the System.

• In 1997, Por Cristo, a charitable organization providing volunteer health services in Latin America, joined the System.

• Effective February 1, 1997, the System acquired certain assets, liabilities, and business (excluding certain investments and long-term debt) of the former Carney Hospital from the Daughters of Charity National Health System-East. The System has continued to operate a new hospital under the name Carney at the location of the former Carney Hospital.

• Effective November 30, 1997, Caritas Christi acquired, through an affiliation and plan of merger agreement, the controlled affiliates of Neponset Valley Health System, Inc., located in multiple locations south and west of Boston, including two acute care hospitals (Norwood Hospital, Inc. (“Norwood”) and Southwood Community Hospital, Inc. (“Southwood”)), a hospice, three home health agencies, and other related organizations. In 1998, the two acute care hospitals were renamed Caritas Norwood Hospital, Inc. and Caritas Southwood Hospital, Inc. (“Caritas Southwood”). In 1999, the System ceased providing most patient care services at the Caritas Southwood location, and consolidated Caritas Southwood’s licensed beds at Caritas Norwood.

• In 1999, Caritas Christi formed the Obligated Group, comprised of certain members of the System, and issued its Series A bonds to refinance existing long-term indebtedness and finance capital projects at member entities.

A-3 APPENDIX A

• Effective in May, 2000, the System ceased providing long-term care at St. John of God. The St. John of God campus was sold in December, 2001.

Throughout this period, the System continued to develop services to support the operation of its hospitals and related entities. These support organizations include:

• Tailored Risk Assurance Company, Ltd., (“TRACO”), a captive off-shore insurance company formed in 1988 to provide general and professional liability insurance coverage to member hospitals and their physicians;

• Caritas Christi Diagnostic Support Services, Inc., formed in 1988, which provides magnetic resonance imaging services to two System hospitals.

• Caritas Medical Group, Inc., formed in 1991, which employs approximately 250 physicians who practice at System hospitals or in their service areas;

• Physician Practice Support, Inc., established in 1995, a management services organization assisting both affiliated and unaffiliated physicians with billing and collection services, information system access and support, and other practice management services;

• Caritas Christi Network Services, Inc. (“CCNS”), a contracting organization developed in 1998 to provide a means of entering into insurance agreements among System hospitals, affiliated physician groups, and insurers. CCNS has reached agreement with all of the major managed care insurers in Massachusetts on multi-year System-wide contracts involving the six System acute care hospitals and approximately 1,250 physicians.

A-4 APPENDIX A

Caritas Christi member organizations benefit from many other services provided in a centralized or coordinated manner. These include:

• human resource services which include employee benefits provided through System-wide contracts or through the resources of the Roman Catholic Archdiocese of Boston. These services include health, life, disability, and workers compensation insurance, and retirement benefits;

• investment and cash management services through a System-wide commercial banking relationship and pooled short-term and long-term investment management relationships;

• a single, System-wide information system to facilitate information necessary for continued System development, and centralized support of decision support systems and information network development and maintenance;

• managed care contracting services, medical management support, and contract reporting assistance;

• risk management and loss prevention services; and

• materials management opportunities through System-wide purchasing contracts, common membership in a group purchasing organization, and a common distribution services arrangement.

A-5 APPENDIX A

ORGANIZATIONAL STRUCTURE

The following chart illustrates the organizational structure of Caritas Christi and its principal affiliates:

Caritas Christi Organizational Structure* Caritas Christi

AcuteAcute Care Care Non-Acute Physician NetworkSupport ServicesSupport Services

St. Elizabeth’s Caritas Valley Regional St. Joseph Caritas Medical Medical Center, Good Samaritan Christi Health System, Nursing Care Group, Inc. Hospice, Inc. Diagnostic of Boston, Inc. Center, Inc. Inc. Support Services, Inc.

St. Mary’s Caritas Neponset Valley Caritas Holy Family Women & Good Samaritan Tailored Nursing Norwood Hospital, Inc. Infants Center of Medical Practice Risk Association, Inc. Hospital, Inc. Dorchester, Inc. Corporation Assurance Company, Ltd.

The Carney St. Anne’s Carney Medical Caritas Hospital, Inc. Hospital Group, Inc. Christi Corporation Network Key Services, Inc.

Tax-Exempt Affiliate

Caritas Member of Obligated Group Valley Regional Good Samaritan Medical Services Physician Medical Center, Corporation Practice Inc. Taxable Affiliate Support,Inc.

*Only Principal Affiliates are Shown *Only Principal Affiliates are Shown 9

98-10-20:MA ( 9)

A-6 APPENDIX A

OBLIGATED GROUP

Upon the issuance of the Bonds, the Obligated Group will consist of Caritas Christi and the following affiliates: St. Elizabeth’s, Carney, Good Samaritan, Holy Family, Caritas Norwood, St. Anne’s, St. Joseph, and Valley Regional. All of the members of the Obligated Group are Massachusetts charitable corporations. Each is an organization described in section 501(c)(3) of the Internal Revenue Code by virtue of being listed in the Official Catholic Directory and, as such, is covered by the Group Letter Ruling issued to the United States Catholic Conference by the Internal Revenue Service. The members of the Obligated Group accounted for approximately 85% of the System's revenues during 2001 and approximately 90% of the System's assets as of September 30, 2001.

Descriptions of Obligated Group members are as follows:

Caritas Christi

Caritas Christi is the sole corporate member of St. Elizabeth’s, Carney, Good Samaritan, Caritas Norwood, St. Joseph, and Valley Regional (which is the sole corporate member of Holy Family) and is the Class B Member of St. Anne’s. Caritas Christi, through its management and Board of Governors, oversees activity throughout the System, including financial operations, strategic planning, mission fulfillment, and network development. Caritas Christi employs approximately one hundred individuals, including the senior management of each principal System-controlled affiliate.

St. Elizabeth’s Medical Center of Boston, Inc.

St. Elizabeth’s, which was founded in 1872, is an acute care tertiary, teaching, research and community hospital with a licensed capacity of 311 beds (199 medical/surgical and intensive care, 22 obstetrical, 11 substance abuse, 49 psychiatric, and 30 neonatal intensive care), 39 newborn bassinets, and 26 skilled nursing beds. St. Elizabeth’s is a university academic medical center of Tufts University School of Medicine, with 152 residents in training and 269 medical students receiving clinical instruction at the hospital in the academic year which began July 1, 2001. St. Elizabeth’s is located on approximately 12 acres of land in the Brighton section of Boston, Massachusetts, and provides care primarily to residents of the western neighborhoods of Boston and the suburbs to the north and west of Boston. Tertiary services are provided to patients from throughout eastern Massachusetts.

Clinical centers of excellence at St. Elizabeth’s include cardiology and cardiothoracic surgery, neurology, diabetes, gastroenterology, gerontology, renal medicine, pulmonary and critical care, and bone and joint. St. Elizabeth’s was recently ranked a top 100 cardiovascular hospital in the nation, and among the top 25 teaching hospitals, by Solucient (formerly HCIA/Mercer), a company specializing in health care intelligence and benchmark information. The hospital’s St. Margaret’s Center for Women and Infants includes a state-of-the art obstetrical service, a nursery, neonatal intensive care facilities, and coordinated diagnostic and treatment services for women.

A-7 APPENDIX A

Clinical research remains a particular focus at St. Elizabeth’s which, according to the National Institutes of Health (“NIH”), ranked 39th in the nation in 2000 among independent hospitals in the amount of NIH funding received. Current research interests include cardiovascular studies, gastroenterology, neurology, psychiatry, and molecular biology as well as research in cell biology and blood disorders. Current research activity includes pioneering work in gene therapy for the treatment of coronary artery and peripheral vascular disease. The NIH recently awarded St. Elizabeth’s with a multi-year $10.2 million Program Project Grant to pursue research in gene therapy. Total revenue from research activity equaled approximately $6 million in 2001.

The Carney Hospital, Inc.

Carney, including its predecessor, has been in operation since 1869. Carney is a 178-bed (110 medical/surgical and intensive care, 18 pediatric, and 50 psychiatric) acute care community teaching hospital located on approximately 12 acres of land in the Dorchester section of Boston. Carney provides care to residents of the southern neighborhoods of Boston and the nearby communities of Milton, Quincy, Braintree, and Weymouth. Areas of clinical focus at Carney include primary care, cardiology, neurology, inpatient and outpatient psychiatry, and emergency care. Rehabilitative care services are available at Carney, supported by a 27-bed transitional care unit. The Carney ambulatory care program provides primary care services, preventive care, and health education programs.

Carney provides medical education through programs affiliated with Tufts University School of Medicine. Carney’s programs include approximately 45 residents in training with particular emphasis on internal medicine, primary care, and transitional medicine.

Valley Regional Health System, Inc.

Valley Regional, the sole corporate member of Holy Family, was organized to develop, operate, and maintain Holy Family and certain other corporations that provide health-related services in the Holy Family service area. Valley Regional owns the real estate on which Holy Family is located as well as the physical plant and equipment used in its operation, all of which are leased to Holy Family on a long-term basis, as well as other long-term assets.

Holy Family Hospital, Inc.

Holy Family, founded in 1945, is an acute care community hospital that provides a broad range of inpatient, emergency, and ambulatory services to residents of northeastern Massachusetts and southern New Hampshire. The hospital operates 218 licensed beds (132 medical/surgical and intensive care, 20 pediatric, 23 obstetrical, and 43 psychiatric), 21 skilled nursing beds, and 28 newborn bassinets. The hospital is located on approximately 68 acres of land in Methuen, Massachusetts, approximately two miles south of the New Hampshire border, with convenient access to the major interstate highways that serve the area. The hospital serves as a regional referral center for oncology services, including radiation therapy; for neurological and neurosurgical services; and in behavioral medicine, including both inpatient hospitalization and, through an affiliated corporation, community-based outpatient mental health services.

A-8 APPENDIX A

Caritas Norwood Hospital, Inc.

Caritas Norwood, established in 1919, is an acute care community hospital with 227 licensed beds (153 medical/surgical and intensive care, 20 obstetrical, 6 pediatric, and 48 psychiatric), 24 skilled nursing beds, and 28 newborn bassinets. The hospital is located on approximately 9 acres of land near the center of the Town of Norwood, Massachusetts, which is approximately 20 miles southwest of Boston. The hospital’s service area is convenient to all of the major highways serving the region. Caritas Norwood provides a wide variety of clinical services, including cardiology, gastroenterology, laparoscopic surgery, neurosurgery, obstetrics, pediatrics, and primary care.

St. Anne’s Hospital Corporation

St. Anne’s, established in 1906, is an acute care community hospital licensed for 135 beds (103 medical/surgical and intensive care and 32 pediatric beds) and 16 skilled nursing beds. The hospital is located on approximately 5.4 acres of land in Fall River, Massachusetts, approximately 60 miles south of Boston, and 15 miles east of Providence, Rhode Island. The hospital offers a broad range of inpatient and outpatient diagnostic and therapeutic services to residents of southeastern Massachusetts and northeastern Rhode Island, with specialized programs in pediatrics, diabetes, and cancer care. St. Anne’s is an area leader in cancer care through its comprehensive oncology program. St. Anne’s provides medical and radiation oncology services at the hospital site, and radiation therapy services through a joint venture at an additional site in Dartmouth, Massachusetts. The hospital provides a variety of ambulatory services at the Fall River site, including community-based pediatric specialty clinics and substance abuse treatment programs.

Caritas Good Samaritan Medical Center, Inc.

Good Samaritan, formed in 1993 as the result of the consolidation of Cardinal Cushing General Hospital and Goddard Memorial Hospital, is an acute care community hospital licensed for 207 beds, (150 medical/surgical and intensive care, 6 pediatric, 16 obstetrical, 16 psychiatric, and 19 substance abuse), and 27 newborn bassinets. The hospital is located on approximately 42 acres of land on the northwest side of Brockton, Massachusetts, adjacent to and with immediate access to Route 24, a major multi-lane state highway connecting Boston to communities to its south. The hospital provides a wide array of inpatient and ambulatory services to residents of southeastern Massachusetts. Good Samaritan provides a full range of clinical services, including cardiology, surgery, gastroenterology, ambulatory services, obstetrics, Level II nursery, pediatrics, and primary care, and has an active emergency department which treated nearly 54,000 patients in 2001.

St. Joseph Nursing Care Center, Inc.

St. Joseph is a 123-bed skilled nursing facility, constructed in 1953 and extensively renovated in 1990, located in the Dorchester section of Boston.

The Bonds and the loan of the proceeds of the Bonds will not constitute a debt or liability of the Roman Catholic Archbishop of Boston, a Corporation Sole, the Roman Catholic Archdiocese of Boston, or any entity affiliated with any of the foregoing entities, other than

A-9 APPENDIX A the members of the Obligated Group. Neither the assets nor the revenues of the Roman Catholic Archbishop of Boston, a Corporation Sole, the Roman Catholic Archdiocese of Boston, or any entity affiliated with any of the foregoing, other than the members of the Obligated Group, are pledged to, nor in any manner, secure the Bonds or any payments or other liabilities under the Loan and Trust Agreement.

AFFILIATED CORPORATIONS (NOT MEMBERS OF OBLIGATED GROUP)

The following corporations are controlled affiliates of entities within the Obligated Group, but are not members of the Obligated Group. Neither the assets nor the revenues, if any, of these corporations are pledged to secure the Bonds or other obligations of the Obligated Group. Only principal affiliates are listed.

The operations of certain affiliated corporations which are not members of the Obligated Group have been financially supported through asset transfers from Obligated Group members (see “System Integration”).

Non-Acute Care

• Good Samaritan Hospice, Inc., located in the Brighton section of Boston, provides care for terminally-ill individuals in their homes or in skilled nursing facilities. St. Mary’s Women and Infants Center of Dorchester, Inc., located in the Dorchester section of Boston, provides shelter, residential treatment, health care, education, and support services to pregnant young women and to young women with children. On average, 120 women, children, and infants are housed in the residential programs for at- risk women and children.

• Neponset Valley Nursing Association, Inc. provides home care services to patients in the service area of Caritas Norwood. Norfolk-Bristol Homemaker Services, Inc. provides homemaker services to patients in the same area.

Physician Network

• Caritas Medical Group, Inc. employs physicians who provide primary care and specialty medical care at System hospitals and in community settings throughout eastern Massachusetts.

• Physician Practice Support, Inc. provides management, information system, billing, and collection services to physician practices, including those of physicians in Caritas Medical Group, Inc.

• Caritas Christi Network Services, Inc. negotiates and monitors managed care contracts for System hospitals and affiliated physicians.

A-10 APPENDIX A

Support Services

• Tailored Risk Assurance Company, Ltd. is an offshore captive insurance company, which provides professional and general liability insurance to System hospitals and other System entities, employed physicians, and private physicians on the medical staffs of System hospitals.

• Labouré College is a co-educational college, located in the Dorchester section of Boston adjacent to Carney, which offers associate degree and certificate programs exclusively in the fields of allied health and nursing.

• Caritas Christi Diagnostic Support Services, Inc. operates diagnostic imaging services at two System hospitals.

• Por Cristo is a medical services organization dedicated to meeting the medical needs of the poor in Latin America.

THE PROJECT

The Project consists of two primary components: refinancing of certain existing indebtedness of members of the Obligated Group, and financing of facility renovation and expansion projects and equipment acquisition at System hospitals.

Refinancing of Certain Existing Indebtedness - The Project anticipates the refinancing of the following existing long-term indebtedness of the Obligated Group members (see “Existing Indebtedness”).

• The obligations with respect to the Authority’s Revenue Bonds, Saint Elizabeth’s Hospital of Boston Issue, Series C, D, and E, originally used to refinance long-term debt related to previous projects.

• The obligations with respect to the Authority’s Revenue Bonds, Goddard Memorial Hospital Issue, Series B, originally used to refinance a project previously owned by Goddard Memorial Hospital, and to refinance long-term debt related to a previous project.

• The obligations with respect to the Authority’s Revenue Bonds, Cardinal Cushing General Hospital Issue, Series A, originally used to finance renovation of facilities and equipment acquisition, and to refinance long-term debt related to a previous project.

Financing Renovation Projects and Equipment Acquisition - The Project also includes the following projects of Obligated Group hospitals:

• Renovation of facilities and equipment acquisition at Holy Family, including the construction of an addition to house an expanded operating suite, a new ambulatory surgical center, an expanded obstetrics unit and newborn nursery, an increased diagnostic testing area, and an expanded cafeteria.

A-11 APPENDIX A

• Projects at Good Samaritan including renovation and expansion of its emergency department, expansion and equipping of imaging services, creation of a cardiac catheterization laboratory, and other facility renovation and equipment acquisition, including an addition to the main hospital structure.

• Expanding and equipping a facility at a site in Foxboro, Massachusetts owned by Caritas Norwood to house the radiation oncology service of Caritas Norwood, which is currently operated at the Caritas Southwood location.

• Renovation of facilities and equipment acquisition at St. Elizabeth’s, including projects to expand the hospital’s capacity in its cardiology, orthopedic, and gastroenterology services.

• Constructing and equipping a cardiac catheterization laboratory at St. Anne’s.

• Funding of additional facility renovation and equipment acquisition at Obligated Group hospitals.

A-12 APPENDIX A

GOVERNANCE

The Members of Caritas Christi are the Chairman of Caritas Christi, who ex-officio is the Roman Catholic Archbishop of Boston, and such other persons as the Chairman shall appoint from time to time. The number of Members may vary from time to time but there shall always be at least three Members. At present there are five Members, including the Chairman. The Members have certain exclusive reserved powers, including the power to amend the Articles of Organization and by-laws of Caritas Christi and to approve the exercise of any power Caritas Christi may have as a member or stockholder of any other corporation or as a participant in any partnership, joint venture or other entity to amend the articles of organization, by-laws or other organizational document or documents of such corporation, partnership, joint venture or other entity. In addition, Caritas Christi may not take certain actions unless they have been approved by the Members, including the conveyance of, or the granting or the creation of any encumbrances on, any real property assets of Caritas Christi and approving Caritas Christi’s exercise of any right of approval it may have with respect to other corporations regarding the conveyance or the granting or creation of an encumbrance on any real property assets of such corporation or the unbudgeted advance or expenditure of assets of such corporation, or the incurring of any indebtedness, other than indebtedness secured by real property assets, any of which exceeds $3,000,000.

The governing body of Caritas Christi is the Board of Governors, which is presently comprised of twelve individuals elected on a rotating basis by the Members of Caritas Christi, plus the Chair of the Board, the Vice Chairman, and the President and Chief Executive Officer, ex- officio. Non-ex-officio Governors are elected for three-year terms, and may serve any number of terms, but may not serve for more than nine consecutive years.

The policy-making powers of Caritas Christi are vested in the Board of Governors, who have charge, control and management of the policies, property, affairs and funds of Caritas Christi, subject to the reserved powers of the Members. In addition, the Board of Governors of Caritas Christi has and may exercise all the powers of each member of the Obligated Group, subject to restrictions imposed by law or the Articles of Organization and the by-laws of each member of the Obligated Group. The Board of Trustees of each direct provider member of the Obligated Group is responsible for overseeing limited activities consistent with and subject to the administrative direction of, and the budget approved by, Caritas Christi, including matters relating to: (a) quality of health care services, (b) fund-raising, (c) community needs and benefits, (d) credentialing of the Medical Staff, (e) the liaison with Caritas Christi on Medical Staff matters, and (f) other operational activities delegated to it by Caritas Christi. Caritas Christi, directly or indirectly, exercises similar powers with respect to its Affiliated Corporations which are not members of the Obligated Group.

Each member of the Obligated Group, as well as the other corporations affiliated with Caritas Christi which are not members of the Obligated Group, other than St. Anne’s, are under Canon Law part of the public juridic person that is the Roman Catholic Archdiocese of Boston. Accordingly, the patrimonial goods of each of the institutions constitute ecclesiastical goods and are subject to Canonical discipline with respect to alienation and extraordinary administration. In accordance with Canon Law, the alienation of and extraordinary administration with respect to ecclesiastical goods requires that certain Canonical approvals be obtained. Although St. Anne’s

A-13 APPENDIX A is not part of the public juridic person that is the Roman Catholic Archdiocese of Boston, its patrimonial goods are similarly subject to Canonical discipline with respect to alienation and extraordinary administration.

The Board of Governors have established the following committees: Finance, Mission and Catholic Identity, Nominating, and Compensation.

A-14 APPENDIX A

As of February 28, 2002, the Board of Governors of Caritas Christi consisted of the following persons:

Term Expires at Member the Annual Meeting in Principal Affiliation

John E. Drew ex-officio President, Drew Management Chair of the Board and Development Co., and World Trade Center, Boston

John J. Remondi 2002 Managing Director, Vice Chair of the Board Fidelity Capital

Most Reverend Walter J. Edyvean ex-officio Vicar General, Moderator of the Curia Vice Chairman & Treasurer Archdiocese of Boston

Michael F. Collins, M.D. ex-officio President and Chief President and Chief Executive Officer Executive Officer, Caritas Christi

Hon. John E. Fenton, Jr. 2002 Former Dean, Suffolk University Law School

Sr. Joanna Fernandes, O.P. 2003 Provincial Superior, Dominican Sisters of The Presentation

Laurence T. Flynn 2003 Principal, Livingston & Haynes, P.C.

Robert E. Flynn, M.D. 2004 Physician, former President of Caritas Christi

Coleman J. Foley 2003 Former Senior Vice President, Fleet Bank

Philip C. Haughey 2002 President, The Haughey Company

John D. Kelleher 2003 Former Senior Vice President, Shaw’s Supermarkets, Inc.

Kenneth F. MacDonnell, M.D. 2002 Chair, Department of Medicine, St. Elizabeth’s Medical Center

Peter J. Manning 2003 Vice Chairman, FleetBoston Financial

William K. O’Brien 2004 Former Global Managing Partner, PricewaterhouseCoopers, LLP

Claudina Quinn 2002 Chair of the Board, St. Mary’s Women and Infants Center of Dorchester, Inc.

A-15 APPENDIX A

Caritas Christi has adopted a Conflict of Interest policy which requires each member of the Board of Governors to avoid activities, agreements, business investments or interests, or other situations that could be construed as either in conflict with the interests of Caritas Christi or as an interference with their duty to serve Caritas Christi to the best of their ability. Each Governor completes an annual statement disclosing any potential area of conflict and a summary of conflicts is provided to the full Board of Governors. The policy sets forth the procedure to be implemented at a meeting when a Governor has a potential conflict.

In relation to the issuance of the Bonds, Robert E. Flynn, M.D., a Member of Caritas Christi, a member of the Board of Governors of Caritas Christi, and the immediate past Chair of the Board of Caritas Christi, is a member of the Board of Directors of the Authority. Dr. Flynn has abstained from all Authority votes related to the issuance of the Bonds.

MANAGEMENT OF THE SYSTEM

The operations of Caritas Christi are managed by the President and Chief Executive Officer, the Executive Vice President, and a team of Senior Vice Presidents (including the Presidents of the Hospitals). The Senior Vice Presidents report to the President and Chief Executive Officer. Other Vice Presidents and Directors report to members of the management team.

Biographical information for the President and Chief Executive Officer, Executive Vice President, and Senior Vice Presidents of the System is presented below.

Michael F. Collins, M.D., age 46, has been President and Chief Executive Officer of Caritas Christi since 1994, and serves as Secretary for Health Care Services for the Archdiocese of Boston. Dr. Collins also served as the President of St. Elizabeth’s Medical Center from 1994 to 2001. Dr. Collins is a Clinical Professor of Medicine at Tufts University School of Medicine, is board certified in Internal Medicine, and is a Fellow of the American College of Physicians. Dr. Collins joined Caritas Christi in 1986, serving as Vice President for Government and Medical Affairs until 1991, when he was named Senior Vice President, which position he held until assuming his current position. He served as Associate Dean for Government and Medical Affairs, and previously Assistant Dean, of Tufts University School of Medicine from 1986 to 1994. Previously, Dr. Collins was Assistant Dean of Patient Care Resources for Texas Tech University Health Sciences Center School of Medicine in Lubbock, Texas. Dr. Collins received his medical training at St. Elizabeth’s Hospital, his Medical degree from Tufts University School of Medicine, and his Bachelor of Arts degree from the College of the Holy Cross. Dr. Collins serves in numerous local and national leadership roles, including as the Chair of the Board of Trustees of the Catholic Health Association of the United States, as a member of the Board of Trustees and the Executive Committee of the Massachusetts Hospital Association, and as a member of the Board of the Massachusetts Business Roundtable and Jobs for Massachusetts. Recently, Dr. Collins was elected Vice Chair of the Board of Trustees of the College of the Holy Cross, and will succeed to Chair of the Board in July 2002. Dr. Collins is a member of the Executive Council of the Tufts University School of Medicine.

Lawrence E. McManus, age 48, has been Executive Vice President of Caritas Christi since 1994, and previously served as the System’s Senior Vice President and Chief Financial Officer

A-16 APPENDIX A from 1991 to 1994. Mr. McManus worked at Deloitte & Touche LLP in Boston from 1984 to 1991, and was named a Partner in the firm’s audit practice in 1987. Previously, Mr. McManus was Director of Finance at the Massachusetts Eye and Ear Infirmary, and an auditor with Alexander Grant and Company. Mr. McManus earned a Bachelor of Science degree and a Master’s degree in Health Administration from the University of Massachusetts at Amherst. A certified public accountant, Mr. McManus is a member of the American Institute of Certified Public Accountants, the Massachusetts Society of Certified Public Accountants (“MSCPA”), and is a former Chairman of the MSCPA Hospital Committee. Mr. McManus is a former President of the Massachusetts Chapter of the Healthcare Financial Management Association (“HFMA”), is a Fellow of HFMA, and was recently appointed to the National Advisory Council of the HFMA National Board of Directors.

Steven P. Fischer, age 48, has been Senior Vice President and Chief Financial Officer of the System since January 1998. Previously, he was employed as Senior Vice President and Chief Financial Officer at Holy Family Hospital from 1988 to 1998. From 1985 to 1988, he served as Vice President for Financial Services at Milton Hospital in Milton, Massachusetts. From 1979 to 1985, he worked in a series of financial positions, and ultimately as Controller, at St. Elizabeth’s Hospital. Mr. Fischer received a Bachelor of Arts degree from Boston College and a Master of Science degree in Accounting from Bentley College. Mr. Fischer is a member of the Massachusetts Hospital Association Committee on Finance.

Raymond J. Pomerville, age 49, has been the Senior Vice President for System Integration for Caritas Christi since 1992. Previously, from 1984 to 1991, Mr. Pomerville was Vice President for Planning and Marketing for St. Joseph Mercy Hospital in Pontiac, Michigan, where he also served on the Board of Directors for the Blue Care Network HMO. From 1982 to 1984, Mr. Pomerville was Senior Vice President for Corporate Planning and Development and Vice President for Technical Services for St. Luke’s Hospital in Cleveland, Ohio, and a management consultant with the TriBrook Group, a healthcare consulting firm in Oak Brook, Illinois. Mr. Pomerville received a Bachelor of Science degree from the State University of New York at Potsdam, New York, a Master’s degree in Health Education from West Virginia University, and a Master’s degree in Health Services Administration from the University of Michigan.

Richard J. Doherty, age 47, has been Senior Vice President of Public Affairs for Caritas Christi since 1994. Previously, from 1988-1994, Mr. Doherty was a Senior Consultant for McDermott/O’Neill & Associates, a public affairs consulting firm in Boston, Massachusetts. Prior to that time, Mr. Doherty was, from 1981-1988, Director of State Relations for Harvard University and, from 1979-1981, Communications Director for Senator John Durkin in Washington, D.C. Mr. Doherty received a Bachelor of Arts degree from Harvard College and a Master’s degree in Public Administration from the John F. Kennedy School of Government at Harvard University.

Robert M. Haddad, M.D., age 48, is a Senior Vice President of Caritas Christi and as been President of St. Elizabeth’s Medical Center since April, 2001. Prior to his current position, Dr. Haddad was employed by the Geisinger Health System in Danville, Pennsylvania from 1982 to 2001. Dr. Haddad was, from 2000 to 2001, the Senior Vice President for Clinical Practice and Business Strategy, and from 1993 to 2000 was the Senior Vice President for Clinical Operations of Geisinger Medical Center and Geisinger Clinic. Previously, he served in a series of Director

A-17 APPENDIX A roles in the Medical Center and its affiliated health plan and, from 1991 to 1993, was Senior Vice President and Medical Director of the Community Practice Division. Dr. Haddad received his medical training at the Mayo Clinic, his medical degree from the University of Massachusetts, and his Bachelor of Science degree from the Massachusetts Institute of Technology.

Peter J. Holden, age 47, is a Senior Vice President of Caritas Christi and has been President of Caritas Good Samaritan Medical Center since 1999. He was previously, from 1991 to 1998, the President and Chief Operating Officer of Good Samaritan Hospital in Cincinnati, Ohio. Prior to that time, from 1986 to 1990, Mr. Holden was President and Chief Executive Officer of the Vitalnet Group, a hospital contract management firm in Buffalo, New York, and from 1982 to 1986 was Vice President, Management and Planning Services for the Hospital Association of New York. Mr. Holden received a Bachelor of Arts degree from Georgetown University and a Master’s degree in Hospital Administration from Xavier University.

William L. Lane, age 61, is a Senior Vice President of Caritas Christi and has been President of Holy Family Hospital since 1972. He was previously, from 1971 to 1972, the Associate Administrator of the Hospital, and from 1966 to 1971 was an Assistant Director of Lawrence General Hospital in Lawrence, Massachusetts. Mr. Lane earned a Bachelor of Arts degree from Marietta College and his Master’s degree in Healthcare Administration from Columbia University. Mr. Lane is the current Chairman of the Regional Policy Board (Region I) of the American Hospital Association (“AHA”), is a member of the AHA Board of Directors, and serves as the AHA’s liaison to the Board of Trustees of the Massachusetts Hospital Association. Mr. Lane serves as a Director of numerous organizations, including First Essex Bancorp, Inc., Northern Essex Community College, Healthcare Services of New England, the Merrimack Valley Chamber of Commerce, and the Merrimack Valley Chapter of the American Red Cross.

Michael W. Metzler, age 57, is a Senior Vice President of Caritas Christi and has been President of St. Anne’s Hospital since 1998. Mr. Metzler was previously, from 1992 to 1998, the Executive Vice President and Chief Operating Officer of St. Elizabeth’s Hospital. He joined St. Elizabeth’s in 1983 as Vice President of Human Resources, and later became Senior Vice President of Human Resources and Support Services. Prior to joining St. Elizabeth’s, Mr. Metzler was employed from 1972 to 1983 at the Stop & Shop Companies as Director of Labor Relations. Mr. Metzler received a Bachelor’s degree from Canisius College and attained Ph.D. candidacy in Economics from Boston College. Mr. Metzler has been on the faculties of both Boston College and Northeastern University. He is past-President of the New England Conference of the Catholic Health Association, and past-President of the Epilepsy Foundation of Massachusetts and Rhode Island. He serves on several boards in the Fall River community including the Chamber of Commerce, the United Way, and the Fall River Office of Economic Development.

Joyce A. Murphy, age 49, is a Senior Vice President of Caritas Christi and has been the President of Carney Hospital since 1997. Prior to her current appointment, Ms. Murphy was President of St. Mary’s Women and Infants Center from 1993 to 1997. Prior to that time, from 1991 to 1993, Ms. Murphy was Vice President of St. Margaret’s Hospital for Women in Dorchester, Massachusetts, and from 1987 to 1991 was First Deputy Commissioner at the Massachusetts Department of Revenue. From 1976 to 1987, Ms. Murphy held several positions

A-18 APPENDIX A at the Massachusetts Department of Correction, including Superintendent and Chief Executive Officer of the Women’s State Correctional Institution at Framingham from 1983 to 1987. Ms. Murphy received a Bachelor of Science degree from the University of Massachusetts, a Master’s degree in Public Administration from the John F. Kennedy School of Government at Harvard University, and a Doctorate of Public Administration, Honoris Causa from Curry College. She currently holds trustee positions at Health Law Advocates, Healthcare Services of New England, Labouré College, the Justice Resource Institute, and St. Mary’s Women and Infants Center of Dorchester, Inc.

Delia O’Connor, age 53, is a Senior Vice President of the System and has been the President of Caritas Norwood Hospital since 1998. Prior to her current position, Ms. O’Connor was the Senior Vice President and Chief Operating Officer at Holy Family Hospital from 1989 to 1998. Ms. O’Connor was a private consultant in the healthcare field between 1987 and 1989, was an Associate Administrator at the Lahey Clinic in Burlington, Massachusetts from 1983 to 1987, and the Deputy Commissioner of the Massachusetts Department of Public Health between 1980 and 1983. Ms. O’Connor is a graduate of Harvard College and received a Master’s degree in Business Administration from Boston University. Ms. O’Connor is a Vice President of the Harvard Club of Boston.

SERVICE AREA

The System’s Primary Service Area consists of eastern Massachusetts, defined as the area surrounding the perimeter of Interstate 495 to the Cape Cod Canal, and adjacent areas in southern New Hampshire and in northeastern Rhode Island. In 2000, the hospitals in the Obligated Group had 61,920 inpatient discharges, exclusive of newborns, 93% of which originated from cities and towns in the primary service area. The map on the following page shows the System’s Primary Service Area and the locations of System hospitals and patient service sites.

Based on data from the U.S. Census, the population of the Primary Service Area totaled 4,536,430 in 2000. Average age of the population in 2000 was 36 years.

A-19 APPENDIX A

A-20 APPENDIX A

COMPETITION AND MARKET SHARE

A number of local and regional health systems have developed in eastern Massachusetts in response to the changing healthcare delivery system, the growth of managed care, and the economic pressures facing independent hospitals. Management of the System considers its primary competitors in its service area to be Partners HealthCare System (“Partners”) and CareGroup, with Southcoast Health System (“Southcoast”) a competitor only in the Fall River market. Partners was formed in 1994 by the creation of a common parent for Massachusetts General Hospital (Boston), Brigham and Women’s Hospital (Boston), and their affiliated corporations, and has since grown through the addition of Northshore Medical Center (Salem), Union Hospital (Lynn), Faulkner Hospital (Boston), and Newton Wellesley Hospital (Newton) and their affiliated corporations. CareGroup was formed in 1996 through the merger of the parent holding companies of Beth Israel Hospital (Boston), New England Deaconess Hospital (Boston), and Mount Auburn Hospital (Cambridge), and four smaller hospitals. At the same time, Beth Israel Hospital and New England Deaconess Hospital merged to form Beth Israel Deaconess Medical Center. Southcoast became the parent in 1996 of St. Luke’s (New Bedford), Charlton (Fall River), and Tobey (Wareham) hospitals.

In the opinion of System management, the development of Caritas Christi as a regional, community-based system provides a structural and operational advantage over its competitors. Caritas Christi’s licensed beds and inpatient discharges are far less concentrated in Boston tertiary hospitals than those of the two principal competitor systems with a greater market share in the Primary Service Area. In 2000, more than 64% of the Primary Service Area discharges from hospitals which are currently members of Partners were concentrated in its Boston tertiary hospitals. In the same period, more than 63% of CareGroup’s primary service area discharges were located at its Boston tertiary hospital campuses. By contrast, in 2000, approximately 22% of the acute care beds of the hospital members of Caritas Christi, and less than 24% of those hospitals’ service area discharges, were located at its Boston tertiary center, St. Elizabeth’s.

System management believes that its broad regional coverage, market presence in each of its hospital's service areas, and the proportion of its patient care activity delivered in its community hospitals provide Caritas Christi an advantage over its competitors in terms of market presence and operating costs.

In the Primary Service Area, the System’s acute care hospitals had a 12.0% inpatient market share in 2000, and a 12.4% share in 1999 and 1998. The decline in the System’s service area market share in 2000 relates principally to a decrease in inpatient volume at Good Samaritan, as volume at all other Obligated Group hospitals increased during that period. Excluding Good Samaritan, the market share of the other five Obligated Group hospitals increased by 0.6% in 2000 from 9.6% to 10.2%. Caritas Christi’s principal competitors which had a Primary Service Area market share of at least 3.0% in 2000 are as follows:

A-21 APPENDIX A

Primary Service Area Market Share 1

System or Hospital Market Share

1998 1999 2000 Obligated Group (St. Elizabeth’s, Carney, Holy Family, St. Anne’s, Caritas Norwood, and Good Samaritan hospitals) 11.5% 11.9% 11.9%2

Caritas Christi (St. Elizabeth’s, Carney, Holy Family, St. Anne’s, Caritas Norwood, Caritas Southwood and Good Samaritan hospitals) 12.4% 12.4% 12.0%2

Partners HealthCare System (Massachusetts General, Brigham and Women’s, North Shore, Union, Newton Wellesley, and Faulkner hospitals) 20.2% 20.4% 21.2%

CareGroup (Beth Israel Deaconess, Mount Auburn, New England Baptist, Deaconess-Waltham, Deaconess-Nashoba, and Deaconess-Glover hospitals) 11.3% 10.9% 10.7%

Southcoast Health System (St. Luke’s, Charlton, and Tobey hospitals) 6.7% 7.1% 6.8%

Boston Medical Center 3.7% 4.2% 4.3%

All others 45.7% 45.0% 45.0% ______Source: Healthshare Technology, Inc.

1Many of these systems were not in existence with current membership for all three years. Statistics include only hospitals under corporate control, and are presented as though the current system members had been affiliated for all three years.

2The decline in System market share in 2000 results from a decrease in volume at Good Samaritan (see “Management’s Discussion of Obligated Group Utilization”). Market share at the other Obligated Group hospitals increased by 0.6% in 2000.

A-22 APPENDIX A

Each of the six acute care hospitals in the Obligated Group also competes in its own region of the Primary Service Area with other hospital and healthcare providers.

St. Elizabeth’s serves both as a community resource in its local market and as a tertiary referral center for patients throughout the Primary Service Area. St. Elizabeth’s considers its local market to consist primarily of the Brighton, Allston, Hyde Park, Roslindale, West Roxbury, and Jamaica Plain neighborhoods of Boston, and neighboring communities including Brookline, Newton, Watertown, Waltham, Cambridge, Arlington, and Somerville. During 2000, nearly 50% of St. Elizabeth’s inpatient admissions were residents of these communities, with the balance of patients coming from a wider area, consistent with its mission as a tertiary academic medical center. St. Elizabeth’s local market is characterized by significant competition from several hospital providers, including other Boston academic medical centers. St. Elizabeth’s inpatient market share of 11.3% ranked third among hospital providers in 2000 in its local market, behind Beth Israel Deaconess Medical Center in Boston (12.9%) and Brigham and Women’s Hospital in Boston (12.9%), and ahead of Mount Auburn Hospital in Cambridge (10.3%). St. Elizabeth’s inpatient share of the local market in 2000 represented an increase from an 11.1% share in 1998.

Carney also competes in a very active local market which includes competition from the Boston academic medical centers and three community hospitals to its south. Carney considers its local market to consist primarily of the Dorchester, Mattapan, South Boston, and Hyde Park neighborhoods of Boston, as well as the neighboring communities of Quincy, Braintree, Milton, and Randolph. During 2000, approximately 81% of Carney’s inpatient admissions were residents of these communities. Carney’s inpatient share of the local market has decreased from 13.0% in 1998 to 12.6% in 2000. Carney’s inpatient market share ranked second in its local market in 2000, behind Boston Medical Center (17.2%) and ahead of Brigham and Women’s Hospital (12.2%) and Quincy Hospital (10.9%).

Holy Family is the leading provider in its local service area. Holy Family considers its local market to consist primarily of the communities of Methuen, Lawrence, Andover, North Andover, and Haverhill in Massachusetts and Salem and surrounding communities in southern New Hampshire. During 2000, nearly 91% of Holy Family’s inpatient admissions were residents of this local market. Holy Family’s inpatient market share in this local area increased from 28.0% in 1998 to 30.3% in 2000, during which period the inpatient market share of its primary local competitor, Lawrence General Hospital, decreased from 27.0% to 25.7%. Holy Family’s other competitor in the local market, Hale Hospital in Haverhill, which predominantly services residents of Haverhill, had a market share of 12.2% in 2000.

Caritas Norwood is the leading provider of inpatient services in its local service area. Caritas Norwood considers its local market to consist primarily of Norwood and communities to its north, east, and south, including Walpole, Canton, Dedham, Foxboro, Westwood, Sharon, Mansfield, Franklin, Wrentham, Norfolk, and North Attleboro. During 2000, approximately 75% of Caritas Norwood’s inpatient admissions were residents of this local market. Caritas Norwood’s inpatient market share in this local area increased from 30.4% in 1998 to 37.8% in 2000, during which time no other hospital had an inpatient market share of more than 7.8% in this local area. Caritas Norwood’s inpatient market share of 37.8% in 2000 dominated the local market, followed by Brigham and Women’s Hospital at 7.8% and Sturdy Hospital at 7.0%.

A-23 APPENDIX A

St. Anne’s is the second leading provider in its local market, which it considers to consist primarily of Fall River and the surrounding Massachusetts communities of Somerset, Westport, and Swansea, as well as Tiverton and Portsmouth in Rhode Island. During 2000, approximately 95% of St. Anne’s inpatient admissions were residents of this local market. St. Anne’s local area inpatient market share increased from 23.3% in 1998 to 26.5% in 2000, during which time the inpatient market share of its primary competitor, Charlton Memorial Hospital (Fall River), decreased from 65.2% to 60.8%. No other hospital had an inpatient market share of more than 3% in the St. Anne’s local service area in 2000. While St. Anne’s is not the dominant provider of inpatient services in its market, management has focused over the past several years on developing outpatient programs to bolster its sources of revenue. For example, St. Anne’s is the only hospital provider of radiation therapy services in the service area. The percentage of St. Anne’s gross patient service revenue derived from outpatient services was 63% in 2001.

Good Samaritan is one of two major providers in its local service area. Good Samaritan considers its local market to consist primarily of the communities of Brockton, Stoughton, Randolph, Bridgewater, Easton, Middleboro, Raynham, Taunton, and surrounding communities. During 2000, approximately 82% of Good Samaritan’s inpatient admissions were residents of this local market. Good Samaritan’s inpatient market share in this local area decreased from 28.2% in 1999 to 20.2% in 2000 due to the shift of a portion of the admissions from a large physician group practice to a competitor, Brockton Hospital, whose market share increased from 21.8% to 29.0% (See “Management’s Discussion of Obligated Group Utilization”). The other major competing hospital in this area is Morton Hospital (Taunton) with a 13.2% market share in 2000.

A-24 APPENDIX A

HOSPITAL AND SKILLED NURSING FACILITY UTILIZATION

The following table summarizes selected statistical data for the acute care hospitals in the Obligated Group for the past three years and for the four-month periods ending January 31, 2001 and 2002. In order to provide a consistent basis for comparison, the utilization statistics include data for Good Samaritan for all periods. Good Samaritan became a member of the System as of October 1, 1999.

Fiscal Year Ended September 30, Four Months Ended January 31, Utilization Measures 1999 2000 2001 2001 2002

Licensed Beds (1) Acute 1,243 1,256 1,239 1,251 1,276 Sub-Acute 131 131 131 131 114 Newborn Bassinets 121 121 122 121 122 Total Licensed Beds 1,495 1,508 1,492 1,503 1,512

Patient Discharges Acute 56,324 57,889 60,034 19,806 20,297 Sub-Acute 2,777 2,834 2,891 999 939 Newborn/NICU 5,057 4,558 4,909 1,650 1,474 Total Patient Discharges 64,158 65,281 67,834 22,455 22,710

Patient Days Acute 288,178 306,778 312,712 105,508 108,434 Sub-Acute 35,243 36,152 35,647 12,917 11,530 Newborn/NICU 17,881 17,651 24,644 8,175 7,426 Total Patient Days 341,302 360,581 373,003 126,600 127,390

Average Length of Stay (Days) Acute 5.1 5.3 5.2 5.3 5.3 Sub-Acute 12.7 12.8 12.3 12.9 12.3 Newborn/NICU 3.5 3.9 5.0 5.0 5.0

Observation Patients 10,392 8,692 8,483 2,891 2,868

Ambulatory Emergency Dept. Visits 230,036 236,991 243,812 80,635 81,680 Outpatient Clinic Visits 159,081 171,855 176,191 69,466 66,967 Satellite Clinic Visits 58,158 59,420 51,450 17,205 16,239 Total Ambulatory Visits 447,275 468,266 471,453 167,306 164,886

Ambulatory Surgery Cases 39,742 38,798 38,683 14,645 15,163

Source: Obligated Group Records

(1)The number of licensed medical/surgical beds at Massachusetts hospitals is adjusted annually based on occupancy during the previous year.

A-25 APPENDIX A

The following table summarizes selected statistical data for St. Joseph, the skilled nursing facility in the Obligated Group, for the past three years, and for the four-month periods ending January 31, 2001 and 2002.

Skilled Nursing Facility Utilization

Fiscal Year Ended September 30, Four Months Ended January 31, 1999 2000 2001 2001 2002

Licensed Beds 123 123 123 123 123 Resident Days of Care 44,378 44,331 42,465 14,521 14,556 Percentage of Occupancy 99% 99% 95% 96% 96%

MANAGEMENT’S DISCUSSION OF OBLIGATED GROUP UTILIZATION

Statistics for each period include the activity of Good Samaritan to provide a common basis for comparison. Good Samaritan entered the System effective October 1, 1999.

Inpatient

Inpatient discharges at Obligated Group hospitals increased by 1.8% in 2000 and 3.9% in 2001, and have continued to grow, by 1.1%, during the first four months of fiscal year 2002 relative to the comparable period in the prior year.

Inpatient discharges increased by 1.8% in 2000 as compared to the previous year, including increases at five of the six Obligated Group hospitals. Growth was particularly evident in the 22.0% increase at Caritas Norwood, due to market share gains and the consolidation of services from Caritas Southwood. St. Anne’s inpatient discharges increased by 15.7%, due largely to additional volume obtained from a Medicare managed care contract. Holy Family’s inpatient discharges increased by 4.4%, the fourth consecutive year of inpatient growth at that hospital, reflecting continued market share gains. Growth in the obstetrical service at St. Elizabeth’s, and the opening of a new adolescent psychiatry program at Carney, also contributed to the increased inpatient activity at Obligated Group hospitals in 2000. These favorable trends were partially offset by a 24.1% decrease in inpatient discharges at Good Samaritan, related principally to an effort by the largest physician group in Good Samaritan’s market to shift patient utilization to a competing hospital. The physician group’s efforts resulted largely from the inability of the group and Good Samaritan to reach agreement on the terms of risk-based contracts in October 1999. The 9.9% decrease in newborn/NICU discharges for the Obligated Group in 2000 was more than accounted for by the decrease in newborn volume at Good Samaritan.

Inpatient discharges increased in 2001 as well, by 3.9% as compared to the previous year, including growth at five of the six Obligated Group hospitals. The most significant growth, of 11.1%, occurred at Good Samaritan due to a return of a portion of the volume lost in 2000, primarily as a result of physicians terminating employment with the physician group referenced above and increasing their admissions to Good Samaritan. Significant inpatient growth of 10.2%

A-26 APPENDIX A also occurred at Holy Family, representing its fifth consecutive year of increased volume. Growth in the psychiatric and pediatric services at Carney and Caritas Norwood, and in the medical/surgical service at Caritas Norwood, also contributed to the positive trend in inpatient volume in 2001.

During the four-month period ending January 31, 2002, inpatient discharges have continued to grow, increasing by 1.1% as compared to the same period in the previous year. The increase in inpatient activity reflects principally growth in medical/surgical volume at Good Samaritan, Holy Family, St. Elizabeth’s, and St. Anne’s; increased psychiatric volume at Carney and Holy Family; and the opening of the new geriatric psychiatry program at Good Samaritan. These positive trends have been partially offset by a decrease in obstetrical volume at St. Elizabeth’s, which accounts for the decrease in newborn/NICU volume during this period. The decrease in sub-acute discharges during this period is due to the conversion of one sub-acute unit at Caritas Norwood to acute beds in order to meet the increased demand for medical/surgical patient capacity at that hospital.

Average acute care length of stay increased slightly in 2000, followed by a slight decline in 2001. Acute care stays in the first four months of 2002 have remained consistent with those in the comparable period in the previous year. Management attributes the increased average length of stay in 2000 largely to a shift in the composition of Obligated Group inpatient discharges to include more longer-stay psychiatric patients and fewer shorter-stay obstetrical patients. The shift in composition in 2000 resulted largely from the consolidation of psychiatric services of Caritas Southwood at Caritas Norwood, and from the decline in obstetrical volume at Good Samaritan.

The number of licensed acute inpatient beds decreased by 17 in 2001 due to a reduction of 13 pediatric and 5 medical/surgical beds at Good Samaritan, a reduction of 5 intensive care beds at Caritas Norwood, and an increase of 6 obstetrical beds at Good Samaritan. In 2002, acute care beds have increased by 37 as a result of the conversion of 17 sub-acute beds at Caritas Norwood to 21 medical/surgical beds, and by the opening of a 16 bed geriatric psychiatry unit at Good Samaritan.

Utilization of skilled nursing facility beds at St. Joseph remained relatively consistent from 1999 to 2000, with both periods reflecting occupancy of approximately 99%. Utilization decreased in 2001 to 95% of available beds, which management attributes to increasing incentives by senior managed care programs to reduce skilled nursing facility utilization, as well as to increased competition for patients from hospital-based skilled nursing facility units. Volume at St. Joseph during the four- month period ending January 31, 2002 increased slightly as compared to the same period in the prior year.

Ambulatory

The total volume of ambulatory visits at Obligated Group hospitals increased by 4.7% in 2000 and 0.7% in 2001, and has decreased by 1.4% during the four-month period ending January 31, 2002, as further discussed below.

A-27 APPENDIX A

Emergency department volume increased by 3.0% in 2000, and an additional 2.9% in 2001, reflecting increased activity at all six current Obligated Group emergency department sites over the two-year period. Effective in 1999, Caritas Southwood’s emergency department visits were included in the volume of Caritas Norwood, since Caritas Norwood was the licensed operator of the site. The cumulative 6.0% growth in emergency department visits for the Obligated Group hospitals between 1999 and 2001 was achieved despite the closure of the Caritas Southwood emergency department in 2001. Apart from the loss of volume at the Caritas Southwood site, emergency department volume at Obligated Group hospitals grew by 10.9% from 1999 to 2001. Emergency department volume has continued to increase in 2002, with 1.3% growth in the four- month period ending January 31, 2002.

Outpatient clinic visits increased by 8.0% in 2000, and by an additional 2.5% in 2001, including growth at all Obligated Group hospitals operating outpatient clinics during this two-year period. Clinic volume has decreased by 3.6% in the first four months of 2002 due largely to the transfer of the Caritas Norwood outpatient substance abuse service to an affiliate of Good Samaritan which is not a member of the Obligated Group, as well as to decreased volume at Carney and Holy Family. Satellite clinic volume decreased in 2001 due primarily to the closure of two off- site ambulatory centers affiliated with Carney. The further decrease in 2002 reflects the transfer of the volume of the substance abuse program at Caritas Norwood.

Ambulatory surgical volume at Obligated Group hospitals decreased by 2.4% in 2000, due primarily to the shift in patient volume from Good Samaritan to a competitor hospital, and to the closure of the Caritas Southwood site. Volume in 2001 remained essentially stable, with a 0.3% decrease for the Obligated Group as a whole. During the first four months of fiscal year 2002, ambulatory surgical volume has increased by 3.5% as compared to the prior year, with growth at four of the six Obligated Group hospitals.

FINANCIAL PERFORMANCE OF THE OBLIGATED GROUP

The following summary combined statements of operations of the Caritas Christi Obligated Group for the years ended September 30, 2000 and 2001, were derived from the supplemental combining information included with the audited combined financial statements of Caritas Christi and its member organizations.

In order to provide three years of revenue and expense data of the Caritas Christi Obligated Group, the statements of operations of the Caritas Christi Obligated Group were combined by management for the fiscal year ended September 30, 1999 on a basis consistent with that of 2000 and 2001. Effective October 1, 1999, Caritas Christi became the sole corporate member of Caritas Good Samaritan Medical Center, Inc. (“Good Samaritan”). The summary combined statements of operations of the Caritas Christi Obligated Group for the year ended September 30, 1999 give retroactive effect to the affiliation of Caritas Christi with Good Samaritan, which was accounted for as a pooling of interests.

Appendix B to this Official Statement sets forth the audited combined balance sheets of Caritas Christi and its member organizations as of September 30, 2000 and 2001, and the related combined statements of operations, changes in net assets, and cash flows for the years then

A-28 APPENDIX A ended, together with supplemental combining information and the report of Deloitte & Touche LLP, independent auditors. This summary financial information should be read in conjunction with the combined financial statements and related notes of Caritas Christi and its member organizations included in Appendix B.

The summary combined statements of operations of the Caritas Christi Obligated Group for the four-month periods ended January 31, 2001 and 2002 were derived from the unaudited combined financial statements of the Caritas Christi Obligated Group prepared by management. In the opinion of management, such summary combined statements of operations include all adjustments (which included only normal recurring adjustments) necessary to summarize fairly the results for such periods. The results of operations and the changes in unrestricted net assets for the interim periods presented should not be taken as indicative of the results for a full year.

The summary combined statements of operations of the Caritas Christi Obligated Group should be read in conjunction with the combined financial statements of Caritas Christi and its member organizations for the years ended September 30, 2000 and 2001, together with the related notes and the independent auditors’ report included in Appendix B of the Official Statement. The combined financial statements of Caritas Christi included in Appendix B contain information for entities that are not part of the Obligated Group (see “Obligated Group”).

A-29 APPENDIX A

UNAUDITED SUMMARY COMBINED STATEMENTS OF OPERATIONS (in thousands of dollars) Four months ended Fiscal Year Ended September 30, January 31, 1999 2000 2001 2001 2002

UNRESTRICTED REVENUE AND OTHER SUPPORT: Net patient service revenue $568,196 $ 597,603 $ 635,280 $ 200,658 $ 220,956 Premium revenue 48,903 50,897 56,709 18,639 19,690 Other revenue 27,480 23,296 24,010 7,479 7,897 Research 5,506 7,255 5,970 1,943 2,136 Net assets released from restrictions used for operations 862 1,436 2,128 348 761 Total unrestricted revenue and other support 650,947 680,487 724,097 229,067 251,440 EXPENSES: Salaries, wages and fringe benefits 334,018 353,476 374,561 122,903 134,714 Supplies and other expenses 210,371 226,845 233,615 73,317 84,337 Purchased provider services related to premium revenue 17,596 19,534 22,470 6,453 7,964 Depreciation and amortization 34,488 38,750 39,620 13,370 13,377 Interest 16,718 17,333 17,539 5,807 5,841 Provision for bad debts 29,955 29,154 28,596 11,589 8,906 Total expenses 643,146 685,092 716,401 233,439 255,139 INCOME (LOSS) FROM OPERATIONS 7,801 (4,605) 7,696 (4,372) (3,699) NONOPERATING GAINS, Net 5,465 5,371 6,841 2,313 1,688 EXCESS (DEFICIENCY) OF REVENUE OVER EXPENSES 13,266 766 14,537 (2,059) (2,011) OTHER CHANGES IN UNRESTRICTED NET ASSETS: Net change in unrealized gains and losses on investments 2,326 4,922 (15,825) (5,987) 3,352 Net assets released from restrictions used for purchases of property and equipment 1,248 142 2,371 4 565 Reclassification of net assets 1,178 561 383 - (1) Contribution of property and equipment 255 402 751 471 218 Transfers to affiliate (15,179) (21,946) (15,668) (5,508) (4,303) Total other changes in unrestricted net assets (10,172) (15,919) (27,988) (11,020) (169) INCREASE (DECREASE) IN UNRESTRICTED NET ASSETS BEFORE EXTRAORDINARY ITEM 3,094 (15,153) (13,451) (13,079) (2,180) EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT (10,746) - - - -

DECREASE IN UNRESTRICTED NET ASSETS $ (7,652) $ (15,153) $ (13,451) $ (13,079) $ (2,180)

MANAGEMENT’S DISCUSSION OF RECENT FINANCIAL PERFORMANCE

The Obligated Group generated an excess of revenue over expenses in each fiscal year of the 1999 to 2001 period, producing $13,266,000, $766,000, and $14,537,000 in 1999, 2000, and 2001, respectively. The excess of revenue over expenses was the result of positive operating income in each fiscal year, other than 2000, combined with nonoperating gains each year.

The Obligated Group’s policy with respect to revenue recognition is to not recognize revenue related to unresolved reimbursement items. Variances between preliminary estimates of net patient service revenue and final third-party settlements are included in net patient service revenue in the year in which the settlement or change in estimate occurs. As a result of this

A-30 APPENDIX A policy, income from operations in the 1999 to 2001 period includes the impact of changes in estimates and favorable prior period settlements with insurers, particularly with the Medicare program and the Massachusetts uncompensated care pool. Such settlements and changes in estimates represented income to the Obligated Group of approximately $20,000,000, $18,700,000, and $17,700,000 in 1999, 2000, and 2001, respectively, and $1,800,000 and $5,100,000 in the four-month periods ending January 31, 2001 and 2002, respectively, and is reported as a component of net patient service revenue in those periods (see “Deductions from Revenue for Estimated Settlements” in “Sources of Patient Service Revenue”).

1999 – The Obligated Group generated income from operations of $7,801,000 in 1999. Management believes that positive operating results were achieved largely by control over growth in operating expenses, which increased by only 1.5% from 1998 levels. The limited increase in operating expenses was achieved principally through significant reductions in labor- related costs at Carney and St. Elizabeth’s, where wage and benefit expenses were reduced by 6.9% and 5.2%, respectively. Such expense reductions were necessary to maintain profitability during a year in which unrestricted revenue and other support increased by only 2.7% despite continued growth in inpatient and outpatient volume. The positive operating results in 1999 included income from operations of $6,526,000, $5,014,000, and $3,942,000 at St. Elizabeth’s, St. Anne’s, and Holy Family, respectively, continuing a trend of income from operations at these hospitals, and offsetting operating losses at other Obligated Group facilities. While Caritas Norwood incurred an operating loss of $2,972,000 in 1999, this represented a significant improvement from the $8,431,000 loss in the previous year. Management attributes this improvement to the benefit of increased volume from the discontinuation of medical/surgical inpatient activity and ambulatory surgery at the nearby Caritas Southwood in 1999, as well as to reductions in staffing achieved through benchmarking efforts.

The Obligated Group generated nonoperating gains of $5,465,000 in 1999, largely from investment income, which produced an excess of revenue over expenses of $13,266,000 for the period. Favorable investment performance in 1999 contributed an additional $2,326,000 in unrealized gains. Despite transfers of $15,179,000 in 1999 to non-Obligated Group affiliates, the unrestricted net assets of the Obligated Group increased by $3,094,000 in 1999 prior to consideration of the extraordinary loss on extinguishment of debt of $10,746,000 incurred in connection with the issuance of the Obligated Group’s Series A Bonds.

2000 – The Obligated Group incurred a loss from operations of $4,605,000 in 2000. Management attributes the deterioration in operating performance of the Obligated Group in 2000 principally to the decrease in patient volume at Good Samaritan, limited increases in payment rates under managed care contracts, and an increase in depreciation expense associated with the installation of the new System-wide information system at Obligated Group hospitals.

Unrestricted revenue and other support increased by $29,540,000, or 4.5%, during 2000, due particularly to significant growth in patient volume at Caritas Norwood, St. Anne’s, and Holy Family as well as to receipt by Carney of $6,000,000 in targeted assistance from the Commonwealth of Massachusetts. The majority of the increase in patient revenue, or $21,254,000, occurred at Caritas Norwood, which included the impact of consolidation of services from Caritas Southwood. These gains helped offset the impact of decreased volume at Good Samaritan, which contributed to a reduction in net patient service revenue of $9,223,000,

A-31 APPENDIX A or 10.4%, at that hospital in 2000. Other revenue decreased during the period, due in part to a reduction in services provided by Caritas Norwood to Caritas Southwood related to the reduction in the scope of activity at that site. Research revenue at St. Elizabeth‘s increased by $1,749,000 in 2000.

Total expenses of the Obligated Group increased by $41,946,000, or 6.5%, in 2000. Of this total increase, $20,243,000 was incurred at Caritas Norwood, in part as a result of the consolidation of services from Caritas Southwood. Operating expenses were reduced by $5,073,000, or 5.4%, at Good Samaritan in response to the reduction in patient volume, and by $3,006,000, or 3.3%, at Carney due to continued reductions in staffing levels and reduced bad debt expense. The initial phase of the implementation of the new information system at Obligated Group hospitals contributed to an increase of $3,066,000 in depreciation expense at Caritas Christi.

The Obligated Group generated nonoperating gains of $5,371,000 in 2000, which offset the loss from operations and produced an excess of revenue over expenses of $766,000 for the year. Favorable investment performance produced an additional $4,922,000 in unrealized gains in 2000. Transfers to non-Obligated Group affiliates increased to $21,946,000 in 2000, due primarily to growth in the affiliated medical practices at Good Samaritan and Carney, a reduction in support received by Carney from its affiliated Carney Foundation, and increased support by St. Elizabeth’s of St. John of God during the period leading up to the closure of St. John of God in May 2000. As a result of these transfers, the unrestricted net assets of the Obligated Group decreased by $15,153,000 in 2000.

2001 – The Obligated Group produced income from operations of $7,696,000 in 2001, representing an improvement of $12,301,000 as compared to performance in 2000. Management attributes the improved operating performance in 2001 primarily to the benefits of increased patient volume, particularly at Good Samaritan and Holy Family; to improved payment for patient services under a major managed care contract; to control over operating expenses, particularly at Caritas Norwood, Good Samaritan, and Carney; and to receipt of a total of $5.0 million from the Massachusetts Distressed Hospital Fund for Good Samaritan and Carney. Good Samaritan incurred an operating loss of $229,000 in 2001, an improvement of $5,672,000 from 2000, due largely to the impact of increased inpatient volume and receipt of $2,450,000 of the aforementioned support from the Massachusetts Distressed Hospital Fund. Caritas Norwood generated income from operations of $4,385,000 in 2001, an improvement of $7,953,000 from 2000, due largely to limiting expense growth to less than 1% in 2001 and receipt of favorable settlements from third-party payors related to prior periods. Holy Family generated income from operations of $5,448,000 in 2001, an improvement of $1,644,000 from 2000, due largely to continued growth in patient volume. Carney incurred a loss of $1,880,000 in 2001 inclusive of receipt of $2,550,000 from the Massachusetts Distressed Hospital Fund.

Unrestricted revenue and other support increased by $43,610,000, or 6.4%, in 2001. Key components of the increase in patient revenue included growth in patient volume, particularly at Good Samaritan and Holy Family; receipt of $5.0 million in funding from the Massachusetts Distressed Hospital Fund; and the benefits of the new contract with Tufts Associated Health Plan effective January 1, 2001, including improved rates of payment for hospital services and reduced managed care risk exposure. In addition, premium revenue increased by $5,812,000 due to

A-32 APPENDIX A increased monthly capitation rates for St. Elizabeth’s under the Department of Defense Uniformed Services Family Health Plan.

Total expenses of the Obligated Group increased by $31,309,000 in 2001, or 4.6%. The most significant increase, totaling $12,730,000, occurred at Holy Family, which management attributes to the cumulative impact of growth in patient volume at that facility, as well as the impact of wage increases necessary to retain and recruit clinical and technical staff. Apart from the increase at Holy Family, operating expense increases for the other members of the Obligated Group equaled 3.1% in 2001, inclusive of the impact of wage pressures in a tight labor market.

The Obligated Group generated nonoperating gains of $6,841,000 in 2001, which produced an excess of revenue over expenses of $14,537,000 for the year. Net assets were significantly affected in 2001 by negative investment results, which yielded $15,825,000 in net unrealized losses on long-term investments of the Obligated Group for the period. Transfers to non- Obligated Group affiliates were reduced by $6,278,000 in 2001, to $15,668,000. The reduction in transfers was due chiefly to improved financial performance in the physician groups affiliated with St. Elizabeth’s, Carney, and Caritas Norwood, and to the closure of St. John of God. As a result of the unrealized losses on investments and transfers to non-Obligated Group affiliates, the unrestricted net assets of the Obligated Group decreased by $13,451,000 during 2001.

Four-Month Period Ending January 31, 2002 – The Obligated Group incurred a loss from operations of $3,699,000 during the four- month period ending January 31, 2002, the first four months of fiscal year 2002. This loss from operations represented an improvement of $673,000 as compared to the comparable period in 2001, due particularly to improved operating results at Good Samaritan and Caritas Norwood. Good Samaritan, which has benefited from increased patient volume and new managed care contracts, incurred a loss from operations of $481,000 in the four-month period ending January 31, 2002, an improvement of $2,233,000 from the same period in 2001. Caritas Norwood incurred a loss from operations of $334,000 in the first four months of 2002, an improvement of $744,000 from the comparable period in 2001. These improved operating results have been partially offset by declines in operating results at Holy Family and St. Anne’s.

Unrestricted revenue and other support totaled $251,440,000 for the four-month period, an increase of 9.8% as compared to the comparable period in 2001. Management attributes the growth in revenue primarily to increases in patient volume, particularly at Good Samaritan and Holy Family; to improved payment rates under the System’s contracts with Blue Cross, Tufts Associated Health Plan, and Harvard Pilgrim Health Care; and to increased funding of the Uncompensated Care Pool by the Commonwealth of Massachusetts. In addition, St. Elizabeth’s continued to benefit from increased capitated payments as a provider under the Department of Defense Uniformed Services Family Health Plan. Neither of the four-month periods ending January 31, 2001 or 2002 included any revenue from the Massachusetts Distressed Hospital Fund.

Total expenses of the Obligated Group amounted to $255,139,000 for the four-month period, or 9.3% more than during the comparable period in 2001. Management believes that the most significant factors contributing to increased operating expenses in 2002 include the impact of increased patient volume; the effect of a tight labor market on labor costs, particularly for nurses

A-33 APPENDIX A and clinical staff; the use of temporary agency personnel and overtime to fill staff vacancies; and the increased cost, and growing utilization, of expensive patient supplies, particularly surgical implants and cardiology supplies. In addition, St. Elizabeth’s has experienced an increase in the cost of services purchased from other providers for participants in the Department of Defense Uniformed Services Family Health Plan, due to a general increase in utilization of services, which management believes is consistent with the general experience of insurers in this market.

The Obligated Group generated nonoperating gains of $1,688,000 during the first four months of 2002, which partially offset the loss from operations, but nevertheless produced a deficiency of revenue over expenses of $2,011,000 for the period, or just slightly better than results during the comparable period in 2001. The favorable investment results during this period generated $3,352,000 in unrealized gains on long-term investments, reversing a portion of the losses experienced in 2001. Transfers to non-Obligated Group affiliates amounted to $4,303,000 for the four- month period, an improvement of $1,205,000 as compared to the comparable period last year. As a result of this activity, the unrestricted net assets of the Obligated Group decreased by $2,180,000 during the four-month period ending January 31, 2002.

LIQUIDITY AND CAPITALIZATION

The Investment Committee of the Finance Committee of the Board of Governors oversees the short-term and long-term investments of members of the Obligated Group and certain other members of the System. The Investment Committee has adopted investment policies which establish diversification and credit quality guidelines, and has engaged outside advisors to manage the investments. The members of the Obligated Group, and certain other members of the System, have pooled their investments in order to reduce transaction costs and expenses associated with investment services. In addition, certain long-term investments of members of the Obligated Group and other System members have been pooled with the Common Investment Trust of the Roman Catholic Archdiocese of Boston to obtain similar economic advantages.

A-34 APPENDIX A

The following is a summary of the fair market value of the Obligated Group’s cash and investments.

Cash and Investments (in thousands of dollars)

Fiscal Years Ended September 30, Four Months Ended January 31,

1999 2000 2001 2001 2002

Total Cash and Investments$ 256,168 $ 222,367 $ 184,549 $ 203,705 $ 186,563

Less: Temporarily Restricted Investments 1,993 3,037 6,565 3,194 7,228 Permanently Restricted Investments 2,552 2,637 2,763 2,939 2,787 Funds Held In Trust Under Bond Agreements 82,235 61,320 46,634 58,203 46,007 Unrestricted Cash and Investments $169,388 $155,373 $128,587 $139,369 $130,541

Unrestricted Days Cash on Hand (1) 107 92 72 82 69

Source: Obligated Group Records

(1) Calculated as total unrestricted cash and investments divided by an amount equal to total operating expenses less depreciation and amortization and bad debt expenses divided by 365 (123 days for the four-month periods).

______

The decrease in unrestricted days cash on hand from 2000 to 2001 includes the impact of unrealized losses incurred during 2001 on the market value of long-term investments, which accounted for a nine day decrease in unrestricted days cash on hand.

A-35 APPENDIX A

The following chart sets forth the Obligated Group’s historical debt to capitalization ratio for 1999 through 2001 and on a pro forma basis for 2001 including the effect of issuance of the Bonds.

Debt to Capitalization (in thousands of dollars)

September 30, Proforma 1999 2000 2001 2001 Long-Term Debt Existing Debt $ 321,833 $ 315,947 $ 301,586 $ 230,296 The Bonds - - - 113,665 (1) Total Long-Term Debt $ 321,833 $ 315,947 $ 301,586 $ 343,961 Unrestricted Net Assets 177,469 162,318 148,867 148,867 (2)

Total Capitalization $ 499,302 $ 478,265 $ 450,453 $ 492,828

Long-Term Debt as a Percentage of Total Capitalization 64.5% 66.1% 67.0% 69.8%

Source: Obligated Group Records (1) Excluding $3,388,996.55 in net original issue premium on the Bonds (2) Prior to loss on early extinguishment of debt resulting from issuance of the Bonds

DEBT SERVICE COVERAGE RATIO

The following chart sets forth the actual coverage of annual debt service on long-term debt of the Obligated Group. The debt-service coverage ratio is based upon the income available in 1999, 2000, and 2001. The pro forma coverage sets forth the estimated coverage of maximum annual debt service on all outstanding long-term indebtedness of the Obligated Group assuming issuance of the Bonds. There can be no assurance that the Obligated Group will generate income available for debt service in future years comparable to historical performance.

A-36 APPENDIX A

Actual and Pro Forma Debt Service Coverage (in thousands of dollars)

1999 2000 2001

Excess of Revenue over Expenses $ 13,266 $ 766 $ 14,537 Depreciation and Amortization 34,488 38,750 39,620 Interest Expense 16,718 17,333 17,539 Income Available for Debt Service $ 64,472 $ 56,849 $ 71,696

Actual Debt Service $ 26,316 $ 28,429 $ 32,724 Historic Coverage of Actual Debt Service (x) 2.45 2.00 2.19 Pro Forma Debt Service (1) $ 37,308 $ 37,308 $ 37,308 Historic Coverage of Pro Forma Debt Service (x) 1.73 1.52 1.92

Source: Obligated Group Records (1) Pro Forma debt service is estimated maximum annual debt service on long-term indebtedness of the Obligated Group.

Maximum annual debt service of the Obligated Group is elevated as a result of a balloon payment on commercial bank debt of approximately $3,188,000 due in 2004. Management expects to refinance this obligation upon maturity in 2004. Apart from this balloon payment, maximum annual debt service of the Obligated Group is estimated to be $34,292,000. Using this maximum annual debt service, historic coverage of pro forma debt service would be 1.88, 1.66, and 2.09 times pro forma debt service requirements based on income available for debt service in 1999, 2000, and 2001, respectively.

STRATEGIC PLANNING

Caritas Christi has an extensive strategic planning process that involves each of the acute care hospitals and the other related entities that make up the System. Strategic planning is one of the primary governance responsibilities of the Board of Governors. Board members are involved in each phase of the process including market evaluation, the review of priority programs, and the ultimate approval of any capital expenditure required to execute new initiatives.

This process most recently focused on the development of a System-wide plan for 2002 to 2005. During this period, Caritas Christi is planning to further align its community-based clinical and business priorities in order to secure and manage an increase in the demand for quality patient services. Key strategic initiatives include:

• To manage the Caritas Christi System in a manner that will meet or exceed annual financial targets.

• To invest in core clinical competencies at each of the Obligated Group hospitals including emergency, surgical and diagnostic technologies.

A-37 APPENDIX A

• To enhance the role of St. Elizabeth’s as a tertiary care resource serving the needs of other Caritas Christi hospitals and physicians.

• To invest in and to make ambulatory services more accessible and efficient in order to achieve continued volume increases.

• To meet or exceed quality standards that have been established by clinical professionals and are increasingly demanded by health care consumers.

These strategic priorities are used by System management to guide the development of a business planning process for each of the individual hospitals. Business plans are prepared on an annual basis at each facility. The annual business plans form the foundation of the goals, objectives and budgets for each hospital and affiliate.

Management believes that the implementation of the strategies and the execution of the annual business plans are key components of improved financial performance. Management further believes that these actions have led to the successes experienced by Caritas Christi in the past several years in the areas of System integration and market development.

SYSTEM INTEGRATION

Consistent with its development as an integrated health care delivery system, Caritas Christi has focused on strengthening relationships with the medical staffs of member hospitals, and on expanding the scope of System activities into new markets within the Primary Service Area. These efforts have included the growth of Caritas Medical Group, Inc. to approximately 250 employed physicians, and additional physician development efforts linked to the local hospitals in the Holy Family, Carney, Good Samaritan, and St. Anne’s areas. Physician Practice Support, Inc. has expanded to provide medical practice support, including information system, billing, and collection services, to more than 200 physicians, primarily those employed by Caritas Medical Group, Inc.

Management considers the resources devoted toward these System development efforts to be investments in the future success of the System. Resources to support these efforts have typically been provided by members of the Obligated Group, which have transferred $15,179,000, $21,946,000, and $15,668,000 to non-Obligated Group affiliates during 1999, 2000, and 2001, respectively, predominantly for physician development efforts, including those at Caritas Medical Group, Inc. Management anticipates that the Obligated Group will continue to fund System development efforts in succeeding years.

Management is evaluating its options for use of the site formerly occupied by Caritas Southwood in Norfolk, Massachusetts. The property was rezoned in 2001 to permit residential construction, and management is considering various proposals, including the sale of the property to developers.

The System periodically evaluates opportunities for growth designed to fulfill its mission of strengthening and preserving the provision of Catholic health care, as well as other opportunities for growth as part of its overall planning and development process.

A-38 APPENDIX A

SOURCES OF PATIENT SERVICE REVENUE

The members of the Obligated Group maintain agreements with Blue Cross and Blue Shield of Massachusetts, Inc. (“Blue Cross”), the Medicare program administered by the Centers for Medicare and Medicaid Services (“CMS”, formerly the Health Care Financing Administration of the United States Department of Health and Human Services), the Medicaid program administered by the Department of Medical Assistance of the Commonwealth of Massachusetts, (the “Commonwealth”), commercial insurers and certain managed care programs that govern payments to hospitals for services rendered to patients covered by these programs. Future actions by the Federal government and the Commonwealth are expected to continue the long- term trend toward more restrictive limits on reimbursement for hospital services.

A-39 APPENDIX A

The following table shows the percentage distribution of gross patient service revenue for the Obligated Group by payor source and by inpatient and outpatient designation for the most recent three fiscal years ended September 30. This information is based on patient classification at the time of discharge/billing.

Obligated Group Source of Gross Patient Service Revenue

Source 1999 2000 2001

Medicare 39% 39% 38% Medicaid 9% 9% 9%

Managed Care (1) 38% 40% 41% Blue Cross 5% 5% 6% Commercial Insurance 3% 3% 3% Worker's Compensation 1% 1% 1% Self Pay 4% 3% 3% Other 1% 0% 0%

Total 100% 100% 100%

Inpatient 57% 56% 55% Outpatient 43% 44% 45%

Total 100% 100% 100%

Source: Obligated Group Records (1) Includes Medicare risk contracts ______

While the methods of payment vary substantially from one payor category to another, and may vary even within certain payor categories, the Obligated Group, in common with the broader hospital industry, has generally experienced a significant shift from payors who pay on the basis of charges, or discounted charges, to payors who pay on a per diem or diagnosis-based per discharge basis for inpatient services, and utilize standard fee schedules for outpatient services.

A-40 APPENDIX A

Medicare

Recent Legislation

The Balanced Budget Act of 1997 (“BBA”) contained numerous provisions intended to reduce or contain Medicare expenditures for hospital services. These provisions included inflation updates below hospital industry market basket in the years 1999 through 2002. Other changes in the BBA included, but were not limited to, the reduction of reimbursable bad debts, the reduction of payments for disproportionate share, and the reduction of payments for indirect medical education. The BBA has been generally viewed as an important factor in the adverse financial results experienced by many acute care hospitals (see “Bondowners’ Risks and Matters Affecting the Health Care Industry”). The Balanced Budget Refinement Act of 1999 (“BBRA”) and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (“BIPA”) modified and delayed some of the reductions contained in the BBA.

Inpatient

The hospitals in the Obligated Group are reimbursed for services provided to Medicare non-psychiatric inpatients under the federal prospective payment system (“PPS”). Under Medicare’s hospital PPS, payments are based on standard national amounts which are adjusted for area wage differences. These rates are then weighted based upon the patient’s assignment to one of more than five hundred Diagnosis Related Groups (“DRGs”). Payment under PPS does not account for a hospital’s actual operating costs; however, the hospital PPS permits additional payments, within specified limitations, to be made for atypically costly cases (“outliers”).

Beginning in fiscal year 1992, Medicare also began making payments for inpatient acute care capital costs on a per discharge basis. Payment under this capital PPS was initially based on a rate consisting of a blend of hospital-specific costs and federal rates. Over a ten-year period, these rates transitioned to one comprised of a fully federal payment rate. All Obligated Group hospitals are reimbursed for PPS capital on the fully federal rate.

Inpatient psychiatric services provided in certified distinct-part mental health units are paid under the lesser of actual operating cost or a prospective per discharge payment system established by the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”). Payments for inpatient capital expense are made on a reasonable cost basis, subject to a federally-mandated discount.

Inpatient subacute care provided in skilled nursing facility (“SNF”) units is reimbursed on a fully prospective per diem basis. These payments are predicated upon a patient’s assignment to a Resource Utilization Group (“RUG”). This per diem amount accounts for both operating and capital costs. With the exception of Good Samaritan, each hospital in the Obligated Group maintains a hospital based SNF unit.

At hospitals with approved, post-graduate training programs in medicine, Medicare direct graduate medical education (“GME”) costs are reimbursed under a prospective methodology, which uses a hospital-specific approved amount per resident. The per resident amount is based on each hospital’s direct GME costs and its actual number of interns and residents during the base year beginning October 1, 1983. The base year-approved resident amount is inflated to the rate year and then multiplied by the hospital’s rate year number of full time equivalent residents,

A-41 APPENDIX A weighted for the number of allowed years each resident has been in training. Medicare’s share of the resulting amount is based upon the hospital’s Medicare percentage of inpatient days to total hospital days in each year. The BBA provided for additional GME payments to account for Medicare managed care beneficiaries.

Additional payments are available to PPS teaching hospitals for indirect medical education costs attributable to approved graduate medical education programs (“IME”). The IME adjustment factor is applied to the prospective payment rate. A hospital’s IME adjustment factor is based on its ratio of interns and residents to available PPS beds subject to a cap established in 1996. As in the case of GME, the BBA provided for additional IME payments to account for Medicare managed care beneficiaries.

PPS hospitals may also qualify for additional payments due to high levels of poorer patients. Such Disproportionate Share Hospital (“DSH”) adjustments are based upon the sum of the proportion of days attributable to patients eligible for Medicaid coverage to total patient days, plus the proportion of individuals receiving Supplemental Security Income to total Medicare beneficiaries. With the exception of Caritas Norwood, the hospitals within the Obligated Group have had a DSH percentage in excess of the statutory threshold and through fiscal year 2001 qualified for such payments.

Outpatient

Effective August 1, 2000, the hospitals in the Obligated Group are reimbursed for most hospital outpatient services based on the outpatient prospective payment system (“OPPS”). Under the OPPS system, hospital services are classified into groups, known as ambulatory payment classifications (“APCs”), based on similarities in the types of services and the costs of the services. Specific payment rates are assigned to each APC. The payment rate, which is based on a national payment amount adjusted to reflect geographical wage differences, generally covers services and supplies integrally related to performing the service. Certain drugs, biologicals and devices qualify for separate reimbursement for a limited period. Some services, such as clinical laboratory services and therapy services, are exempted from OPPS and paid according to a fee schedule. OPPS permits additional payments, within specified limitations, for outliers. Hospitals adversely affected by the implementation of OPPS may qualify for additional payments through January 1, 2004.

Home Care

Effective October 1, 2000, Medicare reimbursement for home health care services moved from what had been essentially a cost-based methodology to a fully prospective payment system. The new home care payment system provides for a single payment per sixty-day episode based upon the patient’s assignment to a Home Health Resource Group (“HHRG”). This system may be modified slightly for excessively costly episodes (outliers) or episodes with an abnormally low (less than four) number of visits.

Medicare Managed Care

Medicare is encouraging and facilitating the development of managed care products for Medicare beneficiaries. Enrollment in a Medicare managed care product is voluntary, and

A-42 APPENDIX A enrollees may disenroll and reenroll in the traditional Medicare fee-for-service system. Managed care products for the Medicare population are typically offered by commercial insurers and health maintenance organizations. Medicare enrollees in managed care products have their health care managed and paid for by the applicable insurer. The managed care plan is reimbursed a monthly per-beneficiary amount by the Medicare program for each Medicare enrollee. The managed care plan, and contracted hospitals and physicians, are at full financial risk for cost overruns which exceed the per beneficiary amounts paid to it by Medicare. Consequently, the managed care plan and its participating hospitals, physicians and other providers seek to reduce inappropriate or unnecessary utilization and otherwise control the costs of providing care to Medicare beneficiaries. These financial pressures are expected to contribute to reduced per patient revenues for the Obligated Group’s Medicare patients. Enrollment in Medicare managed care plans is expected to continue increasing and substantial numbers of Medicare beneficiaries are expected to enroll in such plans.

Non-Medicare

In 1991, the acute care hospital industry payment system in Massachusetts was essentially deregulated by the passage of an act of the Massachusetts legislature known as Chapter 495. This legislation has resulted in significant changes and increased competition in the hospital marketplace, where all payors, other than Medicare, are free to reach private arrangements with separate hospitals. Under most of the arrangements currently in effect, each hospital which is a member of the Obligated Group is being paid a negotiated fee for service.

Medicaid

Under Title XIX of the Social Security Act, 42 U.S.C. 1396 et seq., the Federal government supplements the funds provided by The Commonwealth of Massachusetts for medical assistance under the Medical Assistance Program (“Medicaid”). The Massachusetts Division of Medical Assistance (“DMA”) generally administers the Medicaid program in Massachusetts. Under Chapter 495, Medicaid rates for acute hospitals are set by contracts between the hospitals and DMA. Under the contract with DMA, Medicaid pays for acute inpatient and outpatient services prospectively on a per discharge or per visit basis. Inpatient mental health services are reimbursed on a per diem basis and administered on the Commonwealth’s behalf by a private benefit administrator. The payment amount per inpatient discharge or per outpatient Ambulatory Payment Group (“APG”) is a standardized statewide average cost per discharge or visit, adjusted by several factors, including the hospital-specific casemix index and the hospital’s Massachusetts-specific wage area index, based upon HCFA data. Additional pass-through costs are added to the inpatient payment rates for malpractice, organ acquisition, capital, and direct medical education. Hospitals are further eligible for outlier payments and transfer per diem payments. The per discharge or visit amount is established from historical cost data as previously submitted by all hospitals to the Massachusetts Division of Health Care Finance and Policy, updated for inflation and changes in casemix.

The Massachusetts Medicaid program calculates payments to a nursing home facility by using a prospective casemix adjusted payment system. Rates in a given year are based, in part, on a facility’s costs during a historic base year. Base year costs are then projected forward by an inflation adjustment factor, subject to various limits, exclusions and adjustments. In addition,

A-43 APPENDIX A allowable reimbursement for a Massachusetts nursing home is subject to limitations based on patient acuity and geographic location, with specific limitations based on the mean historic nursing costs for all facilities located within the same geographic area.

Uncompensated Care Pool

The Commonwealth of Massachusetts operates an Uncompensated Care Pool (the “Pool”) which is funded by payments from the Commonwealth, hospitals and the insurance industry. Payments from the Pool are made to hospitals and community health centers. Payments to hospitals are available only for free care and certain emergency bad debts, and total funding for the pool is capped on an annual basis. The amount of the cap may vary from year to year, and all Massachusetts acute care hospitals share, based on each hospital’s share of statewide costs, in any shortfall resulting from free care and bad debt expenditures in excess of the funding in the Pool which is available to hospitals. In July of 1997, the Commonwealth passed Chapter 47 of the Acts of 1997, which significantly modified the funding methodology of the Pool, including through a new assessment of $100 million annually on third party payors through a surcharge on hospital payments. In addition, the legislation provided for health insurance programs that were intended to shift reliance for coverage of the poor from the Pool to other programs administered by the Commonwealth. Additionally, included in the Commonwealth’s budget for the state’s fiscal year 2002 are so-called “one-time” relief measures which increase the Commonwealth’s contribution to the Pool for the 2001 and 2002 fiscal years. This additional funding reduced the amount of the Pool’s shortfall for these two years. Medicaid payments to a hospital in Massachusetts may be offset by an amount equal to any unpaid liability of the hospital to the Uncompensated Care Pool.

Blue Cross

The hospitals in the Obligated Group maintain an agreement with Massachusetts Blue Cross under a single System-wide contract. This contract establishes rates of payment for all of the various lines of business offered by Massachusetts Blue Cross, including indemnity, managed care, and Medicare risk. The contract calls for inpatient payments on a per discharge (DRG) basis and outpatient payments on a fee schedule basis.

Commercial Indemnity Insurance

Commercial insurers reimburse their subscribers or make payments either directly or on behalf of self-funded employer accounts, health benefit plans or other entities, primarily on the basis of established charges for covered services. Patients carrying such coverage are generally responsible to the hospitals that provide services for the difference between the amounts paid by the insurer and the charges for services rendered.

Managed Care Plans

Payments to hospitals on behalf of subscribers of Managed Care Plans, including Health Maintenance Organizations (“HMOs”) and Preferred Provider Organizations (“PPOs”) are generally based on contracts negotiated between the Obligated Group members and the HMO or PPO. These contracts provide for various reimbursement methodologies including per diem

A-44 APPENDIX A rates, per discharge rates, discounts from established charges, capitation payments and fee schedules.

Managed care plans have grown significantly in Massachusetts in recent years. Between 1999 and 2001, the percentage of the Obligated Group hospitals’ gross patient service revenue attributable to managed care plans increased from 38% to 41%. In addition, most HMOs have developed Medicare risk products through contracts which generally include either a per diem or DRG payment, outpatient fee schedules, and a risk-sharing arrangement.

The managed care plans referring the highest volume of patients to the Obligated Group hospitals in 2001 included Tufts Health Plan, HMO Blue, Harvard Pilgrim Health Care, United Health Plan, U.S. Healthcare, and the Massachusetts Behavioral Health Partnership. Members of the Obligated Group are currently participating in a number of risk contracts independently or through relationships with their affiliated physicians. All hospitals in the Obligated Group participate in commercial risk contracts with Harvard Pilgrim Health Care and Tufts Health Plan. Certain hospitals in the Obligated Group participate in Medicare risk contracts with Tufts Health Plan’s Secure Horizons and Harvard Pilgrim Health Care’s First Seniority programs. Certain Obligated Group hospitals also participate in capitated contracts with Tufts Health Plan for behavioral health services and with Tufts Health Plan and Harvard Pilgrim Health Care for laboratory services. These capitated models are budget-based, and actual performance is measured against established budgets. The Obligated Group shares in contractually defined percentages of the derived surplus or deficit. There is protection for high cost cases through reinsurance programs.

The Obligated Group participates in the United States Department of Defense’s managed care program through a contract St. Elizabeth’s has with Brighton Marine Health Center, Inc. (“BMHC”). BMHC is a TRICARE PRIME designated provider. Under this contract with BMHC, St. Elizabeth’s provides health care services to military health services beneficiaries who voluntarily enroll in the plan and who reside in the geographic area which includes eastern Massachusetts, New Hampshire, and Rhode Island. Currently, approximately 9,000 members are enrolled in the managed care program. St. Elizabeth’s, through BMHC, accepts a capitation payment for each enrolled member, and assumes full risk for the cost of health care services provided to the enrolled beneficiary. Premium revenue associated with this plan currently approximates $53,000,000 annually. Care to beneficiaries is provided by Obligated Group members, other System affiliates, members of System hospital medical staffs, and other unaffiliated health care providers.

Deductions from Revenue for Estimated Settlements

Medicare cost reports are prepared annually for all of the hospitals in the Obligated Group and are subject to audit on behalf of the Medicare program by its fiscal intermediaries. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered including estimated retroactive adjustments under reimbursement agreements with third-party payors. Under the terms of various agreements, regulations, and statutes, certain elements of third-party reimbursement to member organizations are subject to negotiation, audit, and/or final determination by the third-party payors. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount

A-45 APPENDIX A in the near term. Variances between preliminary estimates of net patient service revenue and final third-party settlements are included in net patient service revenue in the year in which the settlement or change in estimate occurs. The combined financial statements, included as Appendix B to this Official Statement, provide further discussion of the accounting treatment of this issue.

A-46 APPENDIX A

OUTSTANDING INDEBTEDNESS

As of February 28, 2002, the outstanding long-term indebtedness of the Obligated Group consisted of the following:

Amount Outstanding 1. Massachusetts Health and Educational Facilities Authority Revenue Bonds, Caritas Christi Obligated Group Issue, Series A, bearing interest from 5.25% to 5.75%, payable through 2028. $188,405,000 2. Massachusetts Health and Educational Facilities Authority Revenue Bonds, Saint Elizabeth’s Hospital of Boston Issue, Series C, D, and E, bearing interest from 6.30% to 6.70%, payable through 2017. These bonds are expected to be refunded with a portion of the proceeds of the Bonds $ 49,105,000 (1) 3. Massachusetts Health and Educational Facilities Authority Revenue Bonds, Valley Regional Health System Issue, Series C, bearing interest from 5.60% to 7.00%, payable through 2018. $ 29,245,000 4. Massachusetts Health and Educational Facilities Authority Revenue Bonds, Goddard Memorial Hospital Issue, Series B, bearing interest at 8.875%, payable through 2015. These bonds are expected to be refunded with a portion of the proceeds of the Bonds. $ 13,400,000 (1) 5. Massachusetts Health and Educational Facilities Authority Revenue Bonds, Cardinal Cushing General Hospital Issue, Series B, bearing interest at 9.0%, payable through 2018. These bonds are expected to be refunded with a portion of the proceeds of the Bonds. $ 7,800,000 (1) 6. Commercial bank loan, Carney Hospital, bearing a variable rate of interest which was 4.97% as of February 28, 2002, payable through 2004. $ 4,534,000 7. Massachusetts Health and Educational Facilities Authority Capital Lease, Good Samaritan Medical Center, bearing interest at 4.945%, payable through 2005. $ 2,183,000 8. Outstanding net balance of capitalized lease obligations and other long-term debt. $ 5,244,000

Note (1): The outstanding balance of the bonds are expected to be refunded with a portion of the proceeds of the Bonds. St. Elizabeth’s has guaranteed the outstanding indebtedness to a bank of Saint Elizabeth’s Realty Corp. (“SERC”), which is a subsidiary of St. Elizabeth’s, related to medical office buildings owned by SERC. SERC has two loans outstanding as of February 28, 2002, the first of which had an outstanding balance of $5,590,443 as of that date, and bears interest at a variable rate, which was 4.52% at that date, and matures in 2004. The second loan had an outstanding balance of $2,376,855 as of February 28, 2002, bears interest at 7.72%, and matures in 2004.

A-47 APPENDIX A

Various members of the Obligated Group, and other members of the System, maintain an $11,000,000 line of credit with a commercial bank which expires in March 2002. In July 2001, Caritas Christi Diagnostic Support Services (“CCDSS”), which is not a member of the Obligated Group, borrowed $2,288,000 under this line of credit to purchase a mortgage note on a medical office building on the campus of Good Samaritan, of which $2,058,939 remained outstanding as of February 28, 2002 at a variable rate of interest, which was 3.33%.

The SERC loans, the Carney commercial bank loan, any line of credit borrowings, and letters of credit provided to Caritas Norwood and Valley Regional in connection with their licensure as self-insurers for workers’ compensation are all collateralized by approximately $12,900,000 in investments, of which approximately $4,164,000 has been pledged by CCDSS, which is not a member of the Obligated Group. The balance of the collateral has been pledged by St. Elizabeth’s, Valley Regional, St. Anne’s, and Caritas Norwood.

EMPLOYEES

During 2001, the Obligated Group employed a total of approximately 6,850 full-time equivalent employees (“FTEs”). Management of the System believes that its relationship with its employees is professional and productive. The Obligated Group provides its employees with a compensation package which System management believes is competitive with other similar health care providers in the area. Employees have access to a broad range of employee benefits, including many which are coordinated through single contracts or relationships on a System- wide basis, which allows members of the System to reap economic advantages available to larger organizations. System-wide benefit contracts include medical, dental, life, and disability insurance. Employees of Obligated Group members, other than those at Caritas Norwood, Good Samaritan, and St. Joseph, are covered by the Caritas Christi Retirement Plan, a defined benefit plan providing benefits based on years of service and annual base pay. Employees of Caritas Norwood participate in a separate defined benefit retirement plan, which provides benefits that are relatively consistent with those provided by the Caritas Christi Retirement Plan. Employees of St. Joseph and Good Samaritan participate in defined contribution retirement plans.

Approximately 210 FTEs at Carney are represented for collective bargaining by the Massachusetts Nurses Association (“MNA”). The current contract took effect on November 1, 1997, and has been extended until November 2002.

Approximately 450 FTEs at St. Elizabeth’s are represented for collective bargaining by the MNA. The current contract took effect on November 15, 1997 and extends until November 14, 2003. Also at St. Elizabeth’s, approximately 39 FTEs are represented for collective bargaining by Local 877 of the Industrial Operating Engineers. The current contract took effect on February 4, 2001, and extends until February 3, 2004.

Approximately 320 FTEs at Caritas Norwood are represented for collective bargaining by the MNA. The hospital is presently operating under a contract which took effect on January 1, 2000, and expired on December 31, 2001, but was extended by mutual agreement until March 31, 2002.

A-48 APPENDIX A

Approximately 250 FTEs at Good Samaritan are represented for collective bargaining by the MNA. The hospital is presently operating under a contract which took effect on April 1, 2001, and extends until March 31, 2004. Also at Good Samaritan, approximately 105 FTEs of technical staff are represented for collective bargaining by Local 767 of the Service Employees Industrial Union under a contract which took effect on January 1, 2001, and extends until December 31, 2003. Also, approximately 270 FTEs of clerical and service staff are represented for collective bargaining by Local 767 of the Service Employees Industrial Union under a contract which took effect on January 1, 2002, and extends until December 31, 2004. In addition, approximately 17 FTEs at Good Samaritan are represented for collective bargaining by Local 3 of the AFL-CIO. The hospital is currently operating under a contract which took effect on March 1, 2002 and extends until February 28, 2005.

No other employees of members of the Obligated Group are represented by collective bargaining units as of the date of this Official Statement.

MEDICAL STAFF

As of September 30, 2001 the Medical Staffs of the hospitals in the Obligated Group consisted of 2,924 physicians and dentists, of whom 1,639 were members of the Active Staff. Certain physicians and dentists are members of the Active Staff at more than one Obligated Group hospital and are counted as Active Staff at each hospital at which they maintain such status. Clinical privileges are granted separately by each of the members of the Obligated Group. Medical Staff governance is implemented in accordance with the medical staff by-laws in effect at each Obligated Group hospital. The Board of Trustees of each Obligated Group hospital has the responsibility for overseeing Medical Staff relations at its respective hospital.

A-49 APPENDIX A

The following table contains characteristics of the Medical Staff at each of the six hospitals in the Obligated Group:

St. Holy St. Caritas Good Elizabeth's Carney Family Anne's Norwood Samaritan

Members of Medical Staff (1) 636 516 433 378 506 455 Number of Active Staff Physicians (1) 437 258 309 129 237 269 Percent of Board Certified Active Staff (1) 81% 83% 74% 63% 75% 86% Percent of 1998 Discharges by Top 20 Discharging Physicians 38% 46% 40% 49% 47% 47% Average Age of Top 20 Discharging Physicians in 2001 51 46 46 49 52 50 Number of Top 20 Discharging Physicians in 2001 Age 60 or Older 6 2 1 4 6 4 Number of Physicians with 3% or Greater of Discharges in 2001 1 3 3 5 1 5 ______Source: Obligated Group Records (1) as of September 30, 2001

INSURANCE

Certain insurance coverages have been consolidated for members of the Obligated Group, while others are provided on an individual entity basis. The following is a summary of insurance coverage for the Obligated Group:

General and professional liability coverage for all members of the Obligated Group, other than Caritas Norwood and St. Joseph, is provided by Tailored Risk Assurance Company, Ltd. (“TRACO”), an off-shore, captive insurance company which is wholly owned by the System. Coverage is provided on a modified claims-made basis for claims asserted during the term of the policy. Premiums are prospectively assessed and subject to retrospective adjustment based on actual experience. TRACO provides $2,500,000 in coverage per occurrence for both professional and general liability, with no stated aggregate limit. TRACO has obtained excess insurance coverage for exposure beyond the per occurrence limit in the amount of $20,000,000 for professional liability, and $30,000,000 for general liability. TRACO also insures various physicians and dentists practicing at System hospitals in the amount of $1,000,000 per occurrence, and $3,000,000 in the aggregate.

St. Joseph has obtained professional and general liability coverage through a policy maintained by the Roman Catholic Archdiocese of Boston with the National Catholic Risk Retention Group, Inc. The policy provides combined single limit coverage in the amount of $1,000,000. This program has in place umbrella excess liability coverage beyond primary coverage totaling $10,000,000.

Norwood purchases professional and general liability insurance from the Medical Professional Mutual Insurance Company. Caritas Norwood’s policy provides $1,000,000 of coverage per

A-50 APPENDIX A occurrence. Caritas Norwood as purchased an umbrella liability policy through the same company which provides $10,000,000 in coverage per occurrence and in the aggregate.

Each member of the Obligated Group has established its own arrangements for workers’ compensation insurance. St. Elizabeth’s, St. Joseph, Caritas Christi, and Carney participate in the Archdiocese of Boston Self-Insurance Group, Inc., a group self-insurance arrangement for workers’ compensation claims. St. Anne’s participates in a similar arrangement through the Massachusetts Healthcare Self-Insurance Group, Inc. Each group establishes premiums, which are subject to retroactive adjustment, and has obtained excess insurance coverage on a per claim and aggregate basis. Caritas Norwood, Good Samaritan, and Valley Regional and certain of its subsidiaries, including Holy Family, are licensed as self-insurers for workers’ compensation claims. Caritas Norwood, Good Samaritan, and Valley Regional’s obligations are collateralized by surety bonds in the amount of $3,200,000, $2,100,000, and $2,000,000, respectively, and each has obtained excess insurance coverage on both a per claim and aggregate basis.

Each member of the Obligated Group provides separately for comprehensive all risk property insurance for its facilities.

LITIGATION

There is no litigation pending or threatened against the members of the Obligated Group, including claims for malpractice or of a routine matter against which the members of the Obligated Group are insured, that management believes would adversely affect the ability of the Obligated Group to meet its obligations with respect to the Bonds in the event of an adverse result.

BONDOWNERS’ RISKS AND MATTERS AFFECTING THE HEALTH CARE INDUSTRY

Future revenues and expenses of the Obligated Group will be affected by events and conditions relating generally to, among other things, demand for the Obligated Group’s services, the ability of the Obligated Group to provide the services required by patients, physicians’ relationships with the Obligated Group and its facilities, management capabilities, the design and success of the Obligated Group’s strategic plans, economic developments in the Obligated Group’s service area, the Obligated Group’s ability to control expenses, competition, rates, costs, third-party reimbursement, legislation, and governmental regulation. Third-party reimbursement and charge control statutes and regulations may change and unanticipated events and circumstances may occur that cause variations from the Obligated Group’s expectations and these variations may be material. The following general factors, among others, could affect the level of revenues to the Obligated Group or its financial condition or otherwise result in risks for Bondowners in addition to the risks set forth in the forepart of this Official Statement under the heading “BONDOWNERS’ RISKS.”

A-51 APPENDIX A

Industry Integration and Consolidation

The health care industry is in the process of rapid and fundamental change, triggered by the deregulation of the acute care hospital reimbursement system, the growing national strength of managed care plans, and the anticipated acceleration of direct contracting between providers and employers or governmental programs such as Medicare. The growth of the managed care industry and pressure to enter into direct contracts with employers and governmental programs is being driven in part by increasing pressures from employers and other purchasers that are seeking to reduce their health care premium costs. In New England, regional integrated delivery systems are developing in order to provide adequate geographical coverage for major purchasers of health care and to provide a system through which cost savings may be realized. This may further increase competitive pressures on operators of acute care hospitals, including the Obligated Group.

In addition, other proprietary and non-profit entrants to the market may, in certain instances, have significantly greater financial resources than the Obligated Group and may have significantly more experience in managing risk-based insurance products. This and other competitive threats may lead to a significant restructuring of the current health care delivery systems in New England, and such restructuring may have a material adverse effect on the Obligated Group.

Integration of Activities

In order to remain competitive with other regional healthcare systems operating in New England, the System must continue to develop its integrated health care delivery system. These efforts include, among others, greater economic relationships between the System and physicians, including primary care physicians, through vehicles such as Caritas Medical Group; investments in management services organizations, such as Physician Practice Support, Inc., designed to support business functions and information systems needs in physician offices and to provide information necessary to succeed under risk-based payment arrangements; participation in risk- sharing insurance contracts with affiliated physician groups; and development of non-acute services, such as home care and extended care services, which broaden the spectrum of care provided by members of the System. These initiatives require capital to develop, and the revenues associated with some or all of these efforts may be insufficient to support their operating expenses on an annual basis. The System may determine, as it has in prior periods, that funds otherwise available for the Obligated Group may be necessary to support these and other efforts of non-obligated members or affiliates of the System.

In addition, it is possible that the System will continue to grow, as it has in recent periods, through the addition of other hospitals or healthcare providers, particularly in New England. Management of the System, and the Board of Governors, are committed to evaluating the benefits of additional System membership on an individual facility basis. However, it is possible that additional System members may not generate revenue from operating activities sufficient to cover their expenses, or may not have sufficient liquidity, or may require capital for renovations, equipment acquisition, or development efforts. The System may determine that funds otherwise available for the Obligated Group may be necessary to support these System members.

A-52 APPENDIX A

Legislative, Regulatory and Contractual Matters Affecting Revenues

The health care industry is heavily regulated by federal and state government, with a substantial portion of revenues coming from governmental sources. In the past there have been frequent and significant changes in the methods and standards used by governmental agencies to reimburse and to regulate the operation of hospitals. There is reason to believe that substantial additional changes will occur in the future. Legislation is periodically introduced in Congress and in the Massachusetts legislature that could result in limitations on the Obligated Group’s revenues, third party payments, and costs or charges, or that could result in increased competition (e.g., Chapter 495 of the Acts of 1991 and various federal and state proposals to restructure the health care delivery and payment system). Additionally, an increase in the level of indigent care could be required to maintain the Obligated Group’s tax-exempt status or such status could be eliminated altogether regardless of the level of indigent care. From time to time, legislative proposals are made at the federal and state level to engage in broader reform of the health care industry. These include proposals to promote competition in the health care industry, to contain health care costs, to provide national health insurance and to impose additional requirements and restrictions on health care insurers, providers and other health care entities. The effects of future reform efforts on the Obligated Group cannot be predicted.

Governmental sources of revenue are subject to statutory and regulatory changes, administrative rulings, interpretations of policy, determinations by fiscal intermediaries, and government funding restrictions, all of which may materially increase or decrease the rates of payment and cash flow to hospitals. There is no assurance that payments made under such programs will remain at levels comparable to the present levels or will be sufficient to cover all operating and fixed costs. Currently the Commonwealth of Massachusetts (the “Commonwealth”), like several other states, is experiencing financial difficulties, and faces the prospect of reducing budgeted spending in the near future. If these factors continue or escalate in severity, the impact on healthcare providers, including the members of the Obligated Group, could be material. Further, the ability of healthcare providers to achieve improved payments for Medicaid and indigent care services could be severely limited. Similarly, increased federal funding of the Medicare program and the Department of Defense’s managed care program is critical to the financial results of the Obligated Group. Potential decreases in federal payment rates, or annual increases in rates which are less than the growth in healthcare costs, made in response to federal budget pressures or growing Medicare costs, could have a material adverse impact on the financial results of the Obligated Group.

Carney and Good Samaritan have benefited in recent years from targeted financial assistance from the Commonwealth, including from the Massachusetts Distressed Hospital Fund. The financial pressures facing the Commonwealth may significantly reduce the prospect of obtaining similar assistance in future years. Recently, in response to budget pressures, the Acting Governor of the Commonwealth reduced the amount appropriated for 2002 for the Massachusetts Distressed Hospital Fund from $15 million to $5 million. Carney is located in a particularly competitive market, where many competitor hospitals operate with higher payment rates and significant cash balances. At January 31, 2002, Carney and Good Samaritan had approximately 7 and 30 days of unrestricted cash and investments on hand, respectively. If Carney and Good Samaritan are not able to secure future targeted assistance from the Commonwealth, or otherwise generate sufficient working capital from operations, their ability to

A-53 APPENDIX A continue to operate in their present forms could be threatened, which may have a material adverse effect on the Obligated Group.

The financial pressures facing the Commonwealth may significantly impair its ability to address the low payment rates to skilled nursing facilities for Medicaid services. Currently, approximately 70% of the revenue of St. Joseph is derived from Medicaid payments. Without a substantial increase in Medicaid payments to skilled nursing facilities, many such facilities, including St. Joseph, may not be able to continue to operate in their present form, which could have a material adverse effect on the Obligated Group.

Restrictive policies at both the state and federal levels have contributed to declining revenues and operating losses at many Massachusetts hospitals. In recent years, a number of hospitals in New England as well as in other areas of the United States have closed or have been converted to non- acute care facilities.

The Obligated Group is subject to regulatory actions by those governmental or private agencies that administer the Medicare and Medicaid programs and by the Massachusetts Department of Public Health, the Massachusetts Department of Mental Health, the Massachusetts Division of Medical Assistance, the Massachusetts Attorney General’s Office Division of Public Charities and Antitrust Division, the Massachusetts Division of Health Care Finance and Policy, the National Labor Relations Board, the Joint Commission on Accreditation of Healthcare Organizations and other federal, state and local government agencies and private bodies. Actions of these organizations could adversely affect future operations or revenue of the Obligated Group (see “Sources Of Patient Service Revenue”). Renewal and continuation of the Obligated Group’s operating licenses, certifications and accreditations are based on inspections, surveys, investigations and other reviews, some of which may require or include affirmative action or response by the Obligated Group. These activities are conducted in the normal course of business of health facilities, both in connection with periodic renewals and in response to specific complaints, which may be made to governmental agencies, private agencies or even the media by patients, ombudsmen or employees, among others.

The members of the Obligated Group and their affiliates have received, from time to time, subpoenas, civil investigatory demands, and other formal inquiries from state and federal governmental agencies or investigators. It is often impossible to determine the specific nature of any such investigation, or whether the members of the Obligated Group might have any potential liability under a cause of action that might subsequently be asserted by the government. Moreover, the members of the Obligated Group are generally not informed when such investigations are resolved without the assertion of any claims. Management considers these investigations a routine part of operations in the current health care climate, and expects them to continue in the future.

Changes in Patient Service Volume

Reductions in patient service volume could have a material adverse effect on patient service revenue. In addition, under Massachusetts law, an acute care hospital’s medical/surgical beds are subject to delicensure in the event certain minimum occupancy standards are not met. Failure to meet such standards and consequent delicensure of medical/surgical beds could have an

A-54 APPENDIX A adverse effect on the financial condition of the Obligated Group. There is no guarantee that the Obligated Group will meet such conditions in the future.

The Obligated Group’s percentage of revenue attributable to managed care plans has increased from 38% in 1999 to 41% in 2001. Continued growth in the number of persons enrolled in managed care plans may result in material reductions in patient volume levels, reduced payment levels, and other changes which may challenge management to operate the Obligated Group under different payment incentives, including capitated arrangements. Such changes may have a material adverse effect on future revenue levels of the Obligated Group.

In addition, the managed-care plan market place in the Obligated Group’s service area is concentrated primarily among Blue Cross, Harvard Pilgrim Health Care, and Tufts Associated Health Plan, all three of which have, in the recent past, reported financial difficulties resulting in increased oversight by the Massachusetts Commissioner of Insurance (including a Commonwealth-mandated receivership in the case of Harvard Pilgrim Health Care). There can be no assurance that one or more of these plans will not fail and be liquidated or be sold, with possible financial detriment to the Obligated Group which may be material.

Determination of Need Restrictions

Under the Massachusetts Determination of Need (“DON”) statute and regulations, operators of acute care hospitals such as the Obligated Group are prohibited from making certain substantial capital expenditures, acquiring certain new technology, and making certain changes of control without prior receipt of a DON approval from the Massachusetts Department of Public Health. In addition, the Massachusetts Department of Public Health has authority to eliminate DON review of various types of services and technology, and is at present considering deregulating various services. The elimination or modification of the DON program or its restrictions on specific types of technology and services could lead to increased competition among providers with respect to certain types of technology and services whose availability is now limited by the program. The Obligated Group cannot predict the effect of such changes, if made, on their operations.

Pursuant to Massachusetts legislation enacted in 2000, new limits have been imposed on the ability of an acute care hospital to terminate “essential services” without prior notice to the Massachusetts Department of Public Health, a public hearing and various remedial actions, including in certain circumstances financial payments to support or continue public access to such services through other means. While the Department of Public Health has issued regulations setting forth a process it will apply in evaluating reductions in “essential services”, it is uncertain how the regulations will be applied and whether and in what manner the Obligated Group could terminate or materially reduce the scope of licensed services, or whether significant financial obligations would be imposed as a result of such termination or reduction. Management believes, however, that the regulations will limit the flexibility of acute care hospitals to reconfigure their service lines in pursuit of cost reduction initiatives or other goals.

A-55 APPENDIX A

Increased Competition

The Obligated Group may face increased competition in the future from other health care providers serving its service area, from health maintenance organizations, and from other health care providers that offer comparable health care services to the population that the Obligated Group serves. Changes in DON regulations that facilitate expansion of competitive services may further enhance competition for patients among health care providers. Managed care programs are expected to continue to account for an increasing percentage of the Obligated Group’s admissions under contracts requiring discounts from charges or payment at negotiated rates, which may include capitated rates that place the risk of over-utilization or cost increases on the Obligated Group.

Moreover, other forms of competition may affect the Obligated Group’s ability to maintain or improve its market share, including increasing competition (i) between physicians who generally use hospitals and non-physician practitioners such as nurse-midwives, nurse practitioners, chiropractors, physical and occupational therapists and others who may not generally use hospitals, (ii) from nursing homes, home health agencies, ambulatory care facilities, surgical centers, rehabilitation and therapy centers, physician group practices and other non-hospital providers of many services for which patients generally and currently rely on the Obligated Group, and (iii) from physician practice management companies, which may attempt to obtain financial concessions from hospitals based upon the negotiating leverage of the physician groups that they manage. The Obligated Group cannot, with any certainty, estimate the impact of this competitive activity.

Management believes that sustained growth in patient volume or covered lives, together with firm cost controls, will be increasingly important as the health care environment becomes more competitive. There are many limitations on a hospital’s ability to increase volume and control costs, and there can be no assurance that volume increases or expense reductions needed to maintain the financial stability of the Obligated Group will occur.

Reimbursement for Uncompensated Care

The Massachusetts Division of Health Care Finance and Policy is responsible for the administration of the Uncompensated Care Pool (the “Pool”), which since 1991 has covered free care (as defined by Chapter 495 of the Acts of 1991) for all hospital services, bad debts for certain emergency services offered to uninsured persons, and certain specific, legislatively authorized charges. Since 1988, a cap has been imposed upon the amount of free care and bad debt that may be reimbursed through the Pool. Chapter 6 of the Acts of 1991 eliminated the Commonwealth’s responsibility for funding uncompensated care, with the result that all Massachusetts acute care hospitals share in any deficit caused by the cap. Such deficits may be caused by increased free care or bad debts, and/or by increased legislatively authorized charges to the Pool (see also “Sources Of Patient Service Revenue -- Non-Medicare”).

Anti-Dumping

In response to concerns regarding inappropriate hospital transfers of emergency patients based on the patient’s inability to pay for the services provided, Congress enacted amendments to the

A-56 APPENDIX A

Social Security Act which impose certain requirements that must be met before transferring a patient to another facility (the so-called “anti-dumping” statute). Failure to comply with the law can result in exclusion from the Medicare and/or Medicaid programs as well as civil and criminal penalties. Failure of the Obligated Group to meet its responsibilities under the law could adversely affect the financial condition of the Obligated Group.

Primary Care

Payors employing managed care principles to control costs of obtaining health care services for enrollees generally rely on internists, family practitioners and other so called primary care physicians as “gatekeepers” for referrals to specialists and hospitals for covered services. Accordingly, health care providers such as the Obligated Group compete to assemble networks of primary care physicians, through employment, contracts and other arrangements. The ability of the Obligated Group to align with primary care physicians will increasingly determine access to service revenue. There can be no assurance that the Obligated Group will be successful in recruiting physicians into its primary care physician networks, or that the primary care physician networks being developed by the Obligated Group will be attractive to managed care entities. There can be no assurance that the primary care physician networks being developed by the Obligated Group will be able to support the Obligated Group.

Limitations on Certain Arrangements Imposed by Federal Ethics in Patient Referrals Act

The Federal Ethics In Patient Referrals Act (the “Stark Law”) generally prohibits a physician who has a financial relationship with an entity such as a hospital from making referrals to that entity for “designated health services” if payment may be made under the Medicare or Medicaid program. If such a financial relationship exists, referrals are prohibited unless a statutory exception is met. Violations of the Stark law can result in denial of payment, substantial civil money penalties and exclusion from the Medicare and Medicaid programs. “Designated health services” include inpatient and outpatient hospital services, clinical laboratory services, physical and occupational therapy services, radiology or other diagnostic services, radiation therapy services, durable medical equipment, parenteral and enteral nutrients, prosthetics, home health services, and outpatient prescription drugs.

Exceptions exist for certain arrangements, including arrangements between hospitals and physicians in which the remuneration paid is directly related to the provision of the listed services. However, the failure of arrangements between the Obligated Group and a physician to fall within one or more of these exceptions could have a materially adverse effect on the Obligated Group. There is no assurance that all financial relationships between the Obligated Group and physicians would be found to be in compliance with the Stark Law.

Limitations on Certain Arrangements Imposed by Fraud and Abuse Statutes

There is an expanding and complex body of laws, regulations and policies relating to Federal and state health programs. These include reporting and other technical rules, as well as broadly stated prohibitions regarding inducements for referrals, such as the Federal Medicare/Medicaid Anti-Fraud and Abuse Amendments to the Social Security Act (the “Anti-Kickback Law”), all of

A-57 APPENDIX A which carry potentially significant penalties for noncompliance. Because the Anti-Kickback Law is broadly drafted (and broadly interpreted by several applicable Federal cases and in statements by officials of the Office of the Inspector General (the “OIG”) of the U.S. Department of Health and Human Services, (“HHS”) which is charged with enforcement), it may create significant financial and other liability in connection with a wide variety of business arrangements involving hospitals, physicians, and other health care providers. HHS has published regulations which describe certain “safe harbor” arrangements that will not be deemed to constitute violations of the Anti-Kickback Law, although failure to satisfy the conditions of a safe harbor does not necessarily reflect a violation of the statute. HHS is expected to promulgate additional safe harbor regulations in the future. Activities that fall outside of the safe harbor arrangements include a wide range of activities frequently engaged in between hospitals and physicians and other third parties. Violations may result in civil and criminal penalties, either of which, if imposed on the Obligated Group, could have a materially adverse effect on the Obligated Group. Civil penalties range from monetary fines that may be levied on a per violation basis to temporary or permanent exclusion from the federal health care programs (which account for a significant portion of revenue and cash flow of most hospitals, including the members of the Obligated Group). Criminal penalties may also be imposed. These penalties may be applied to many cases in which hospitals and physicians conduct any of the following activities: joint business activities; practice acquisitions; physician recruiting and retention programs; various forms of hospital assistance to individual physicians and medical practices or the physician contracting entities; physician referral services; hospital-physician service or management contracts; and space or equipment rentals between hospitals and physicians. The Obligated Group conducts activities of these general types or similar activities, which pose varying degrees of risk. Much of that risk cannot be assessed accurately due to the lack of case law or material guidance by the OIG and other state and federal authorities, although the OIG issues advisory opinions on the applicability of certain aspects of the Anti-Kickback Law under recently conferred statutory authority.

While Management is not aware of any challenge or investigation concerning the members of the Obligated Group with respect to such matters, there can be no assurance that none will occur in the future.

False Claims Act and Compliance Initiatives

The health care industry is increasingly subject to investigations relating to errors in billing and improper billing practices under the False Claims Act, the Civil Monetary Penalties statute and similar federal and state laws (the “False Claims Laws”). Under the False Claims Laws, health care providers that submit incorrect or improper bills not only must refund any overpayments, but under some circumstances may be held liable for multiple damages and civil monetary penalties. Payment for health care services by government agencies is regulated by complex laws, regulations, manual provisions and program memoranda. While the Obligated Group believes it conducts its billing in accordance with these requirements, many of the applicable requirements are not clearly written or understood, and it is possible that in the future the Obligated Group may have to make refunds to third party payers based on a dispute over the interpretations of these requirements.

A-58 APPENDIX A

Private individuals, including patients, employees of health care providers, and others, also may bring suit under the qui tam provisions of the False Claims Act and may be eligible to receive a share of the funds ultimately recovered by the government. Under certain circumstances, violations of the False Claims Laws also can lead to suspension or exclusion from the Medicare and Medicaid programs or, in cases of willful violations, criminal penalties. The OIG, the U.S. Attorney’s Office, the Medicaid Fraud Control Unit and other government agencies from time to time have commenced investigations of various billing and financial practices in the health care industry. While the Obligated Group is not to its knowledge the subject of any such investigation, there can be no assurance that the Obligated Group will not be investigated by one or more of these agencies in the future. An action under the False Claims Laws, if determined adversely to the Obligated Group, could have a material adverse effect on the finances of the Obligated Group.

The OIG has encouraged all health care providers to adopt and implement compliance programs to promote compliance with federal and state laws, including the False Claims Laws, the Anti- Kickback Law and the Stark Law. The Obligated Group has developed a compliance program and has appointed a compliance officer and established a Compliance Committee. It should be noted, however, that the presence of a compliance program is not an assurance that the Obligated Group will not be investigated by one or more federal and state agencies that enforce the False Claims Laws or that it will not be required to make repayments to various health care insurers (including the Medicare and/or Medicaid programs).

While management is not aware of any other challenge or investigation concerning the Obligated Group with respect to such matters, there can be no assurance that such challenge or investigation will not occur in the future.

Limitations on Contractual and Other Arrangements Imposed by Internal Revenue Code

As tax-exempt organizations, the Obligated Group members are limited with respect to their use of practice income guarantees, reduced rent on medical office space, low interest loans, joint venture programs, and other means of recruiting and retaining physicians. The Internal Revenue Service (the “Service”) has recently intensified its scrutiny of a broad variety of contractual relationships commonly entered into by hospitals and has issued detailed hospital audit guidelines suggesting that field agents scrutinize numerous activities of hospitals in an effort to determine whether any action should be taken with respect to limitations on, or revocation of, their tax-exempt status or assessment of additional tax.

The Service has also commenced intensive audits of selected health care providers to determine whether the activities of these providers are consistent with their continued tax-exempt status. Any suspension, limitation, or revocation of the tax-exempt status of the Obligated Group members or assessment of significant tax liability could have a materially adverse effect on the Obligated Group, and might lead to loss of tax exemption of interest on the Bonds. The Service has also indicated that, in certain circumstances, violation of the fraud and abuse statutes could constitute grounds for revocation of a hospital’s tax-exempt status. Members of the Obligated Group, like many hospitals, have entered into arrangements, directly or through affiliates, with

A-59 APPENDIX A physicians that are of the kind that the Service has indicated it will examine in connection with audits of tax-exempt hospitals.

Revocation of Tax Exemption; Private Inurement

Revocation of the tax-exempt status of the Obligated Group under Section 501(c)(3) of the Code could subject the interest paid to Bondholders to federal income tax retroactively to the date of issuance of the Bonds. Section 501(c)(3) of the Code specifically conditions the continuing exemption of all organizations described in such section upon the requirement, among others, that no part of the net earnings of the organization inure to the benefit of any private individual. Any violation of the prohibition against private inurement may cause the organization to lose its status as tax exempt under Section 501(c)(3). The Internal Revenue Service (the “Service”) has issued guidance in informal private letter rulings and general counsel memoranda on some situations that give rise to private inurement, but there is no definitive body of law, regulations or public advisory rulings that address many common arrangements between exempt hospitals and non-exempt individuals or entities. While the management of the Obligated Group believes that the Obligated Group’s arrangements with private persons and entities are generally consistent with the Service’s guidance, there can be no assurance concerning the outcome of an audit or other investigation by the Service given the lack of clear authority interpreting the range of activities undertaken by the Obligated Group.

Intermediate sanctions legislation enacted in 1996 imposes penalty excise taxes in cases where an exempt organization is found to have engaged in an “excess benefit transaction” with a “disqualified person.” Such penalty excise taxes may be imposed in lieu of revocation of exemption, or in addition to such revocation in cases where the magnitude or nature of the excess benefit calls into question whether the organization functions as a public charity. The tax is imposed both on the disqualified person receiving such excess benefit and on any officer, director, trustee or other person having similar powers or responsibilities who participated in the transaction willfully or without reasonable cause, knowing it to involve “excess benefit.” “Excess benefit transactions” include transactions in which a disqualified person receives unreasonable compensation for services, or receives other economic benefit from the organization that either exceeds fair value or, to the extent provided in regulations yet to be promulgated, is determined in whole or in part by the revenues of one or more activities of such organization. “Disqualified persons” include “insiders” such as board members and officers, senior management and members of the medical staff, who in each case are in a position to substantially influence the affairs of the organization; their family members and thirty-five percent-owned entities. The legislative history sets forth Congress’ intent that compensation of disqualified persons shall be presumed to be reasonable if it is: 1) approved by disinterested members of the organization’s board or compensation committee; 2) based upon data regarding comparable compensation arrangements paid by similarly situated organizations; and 3) adequately documented by the board or committee as to the basis for its determination. A presumption of reasonableness will also arise with respect to transfers of property between the exempt organization and disqualified persons if a similar procedure with approval by an independent board is followed.

Although management believes that the sanction of revocation of tax-exempt status is likely to be imposed only in cases of pervasive excess benefit, the imposition of penalty excise tax in lieu

A-60 APPENDIX A of revocation, based upon a finding that the Obligated Group or its affiliates had engaged in an excess benefit transaction, would likely result in negative publicity and other consequences that could have a materially adverse effect on the operations, property or assets of the Obligated Group.

Affiliation, Merger, Acquisition and Divestiture

The Obligated Group plans for, evaluates and pursues potential merger and affiliation candidates on a consistent basis as part of its overall strategic planning and development process. As part of its on-going planning and property management functions, the Obligated Group reviews the use, compatibility and financial viability of many of its operations, and from time to time may pursue changes in the use of, or disposition of, its facilities. Likewise, the Obligated Group may receive offers from, or conduct discussion with, third parties about the potential acquisition of operations or properties that may become part of the Obligated Group in the future, or about the potential sale of some of the operations and properties of the Obligated Group. Discussions with respect to affiliation, merger, acquisition, disposition, or change of use, including those that may affect the Obligated Group, are held on an intermittent, and usually confidential, basis with other parties and may include the execution on non-binding letters of intent. As a result, it is possible that the assets currently owned by the Obligated Group may change from time to time, subject to the provisions in the financing documents that apply to merger, sale, disposition or purchase of assets.

Antitrust

Enforcement of the antitrust laws against health care providers is becoming more common. Antitrust liability may arise in a wide variety of circumstances including medical staff privilege disputes, payer contracting, physician relations, joint ventures, merger, affiliation and acquisition activities, and certain pricing and salary setting activities. In some respects, the application of the federal and state antitrust laws to health care is still evolving, and enforcement activity by federal and state agencies appears to be increasing. Violation of the antitrust laws could be subject to criminal and civil enforcement by federal and state agencies, as well as by private litigants. At various times, the Obligated Group may be subject to an investigation by a governmental agency charged with the enforcement of the antitrust laws, or may be subject to administrative or judicial action by a federal or state agency or a private party. The most common areas of potential liability are joint action among providers with respect to payer contracting, medical staff credentialing, and use of a hospital’s local market power for entry into related health care businesses. From time to time, the Obligated Group is or will be involved with all of these types of activities, and it cannot be predicted whether or to what extent antitrust liability may arise. Liability in any of these or other trade regulation areas may be substantial, depending on the facts and circumstances of each case. With respect to payer contracting, the Obligated Group may, from time to time, be involved in joint contracting activity with other hospitals or providers. The precise degree to which this or similar joint contracting activities may expose the participants to antitrust risk from governmental or private sources is dependent on a myriad of factual matters which may change from time to time.

A-61 APPENDIX A

If any medical group or other provider with which the Obligated Group becomes affiliated is determined to have violated the antitrust laws, the Obligated Group also may be subject to liability as a joint actor.

Health Insurance Portability and Accountability Act

In 1996, Congress enacted the Health Insurance Portability and Accountability Act (“HIPAA”). Pursuant to HIPAA, the U.S. Department of Health and Human Services has issued final regulations governing standard electronic transactions and code sets and privacy practices that require all health care providers, including hospitals, in addition to health plans and clearinghouses (collectively the “Covered Entities”), to develop and maintain certain policies and procedures with respect to individually identifiable health information, also known as protected health information or “PHI”, that is used and/or disclosed by Covered Entities. Proposed regulations governing the development and implementation of security standards related to PHI were issued in August 1998 and final regulations are expected to be issued sometime in the first quarter of 2002. The electronic transaction and code set regulations, which will standardize how health claims information is collected, recorded and processed, must be implemented by October 2002, unless the Covered Entities in the Obligated Group formally request a one-year extension of time, which shall be granted only upon a showing of good cause. The HIPAA privacy regulations will give patients of the Obligated Group greater control over their PHI and will set boundaries on medical record use and release. The Obligated Group is expected to implement the privacy regulations through the development of detailed policies and procedures no later than April 14, 2003. The Office of Civil Rights in the Department of Justice is charged with enforcement of the HIPAA privacy regulations. Penalties available for violations of the privacy regulations range from $100 per violation for unintentional disclosures (with a maximum of $25,000 in penalties for the same type of violation), to $250,000 fines and 10 years’ imprisonment for intentional disclosures designed for personal or commercial gain.

The members of the Obligated Group have established committees that are working on measures to promote the Obligated Group’s compliance with HIPAA. While the cost of such compliance has not yet been determined, it is expected to be significant, and could have a materially adverse financial effect on the Obligated Group.

Environmental Matters

Health care providers are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations. These requirements govern medical and toxic or hazardous waste management, air and water quality control, notices to employees and the public, and training requirements for employees. As a health care operator and employer, the Obligated Group is subject to potentially material liability for costs of investigating and remedying releases of any such substances either on its properties or that have migrated from its properties or that have been improperly disposed of off site and the harm to persons or property that such releases may cause.

The United States Environmental Protection Agency (“EPA”) initiated a special compliance review project related to the lower Charles River, including colleges, universities, and health care facilities in the Boston area. Some institutions were reportedly subject to fines based on their

A-62 APPENDIX A failure to fully observe regulations governing environmental matters. Due to the proximity of St. Elizabeth’s to the Charles River, it has established self-monitoring programs and instituted a proactive communication process and corrective action plans in the event of variance from prescribed limits. Despite these efforts, if subject to inspection by the EPA, St. Elizabeth’s could become liable for fines or other liabilities in this regard in the future.

St. Elizabeth’s generates industrial wastewater which it discharges into the Massachusetts Water Resources Authority (“MWRA”) sanitary sewage system through the Boston Water and Sewer Commission’s sanitary sewage system subject to applicable discharge permits. In accordance with said permits and MWRA regulations, the wastewater discharged by St. Elizabeth’s is monitored periodically. Readings outside established limits for the contents of the wastewater can subject St. Elizabeth’s to enforcement actions, including the implementaton of corrective actions and financial penalties.

Caritas Southwood, which is not a member of the Obligated Group, is located on land formerly owned by The Commonwealth of Massachusetts, on which the Commonwealth operated a state hospital facility which treated patients primarily afflicted with cancer. The Caritas Southwood property includes a landfill used by the Commonwealth in the 1960s and 1970s that reportedly included medical waste. The landfill was covered in the 1980s. Management is currently working with the Department of Environmental Protection and other governmental agencies to develop a plan of corrective action to address environmental issues associated with the Caritas Southwood site, including formally closing the landfill, remediation of soil contamination, and ongoing monitoring of potential groundwater contamination. Although the ultimate outcome of the environmental matters cannot be determined with certainty, remediation requirements could be extensive, and the cost to Caritas Southwood and the System may be material.

Other Risk Factors

The following additional factors, among others, may adversely affect the operations of health care providers, including the Obligated Group, to an extent that cannot be determined at this time:

• Employee strikes and other adverse labor actions and conditions, which could result in a substantial reduction in revenues without corresponding decreases in costs;

• Continued difficulty in recruiting and retaining skilled clinical staff in the face of severe labor shortages, which could result in an increased dependence on temporary personnel to fill vacant positions at significantly increased expense or an inability to meet volume demands due to staffing shortages;

• Increased unemployment or other adverse economic conditions in the Obligated Group’s service areas, which might increase the proportion of patients without health insurance benefits or who otherwise are unable to pay fully for the costs of their care;

• Efforts by employers to reduce the costs of health insurance by having employees bear a greater portion of their health care costs, causing employees to be more selective and cost-conscious in choosing health care services;

A-63 APPENDIX A

• Efforts by insurers and governmental agencies to reduce the utilization of hospital facilities and limit payments for the services provided in such facilities;

• Changes in the federal and state regulatory support for the Obligated Group’s recovery of the costs of delivering health care;

• Reduced demand for the services of the Obligated Group which might result from decreases in the population of the Obligated Group’s service area;

• Reduced need for hospitalization or other health care services arising from medical and scientific advances;

• Increases in cost and limitations in the availability of any insurance, such as malpractice, fire, automobile and general comprehensive liability, that providers of a size and type similar to the members of the Obligated Group generally carry;

• Losses of revenues from outpatient and ancillary services resulting from physicians shifting tests and procedures to their own offices and other suppliers;

• Adoption of legislation establishing a national health program;

• Unionization of employees at additional sites of the System which could result in a risk of employee strikes and other adverse labor actions and conditions that might result in a substantial reduction in revenues without a corresponding decrease in costs;

• Broadening of the recently-initiated Medicare and Medicaid enforcement initiatives and investigations of hospitals throughout the United States to determine the appropriateness of coding practices, costs reported on their Medicare cost reports, and similar revenue and expense items;

• Broadening of existing laws and regulations which enable government authorities, health care insurers, and/or private citizens to pursue the members of the Obligated Group under the False Claims Laws, the Anti-Kickback Law, the Stark Law, and other similar regulatory provisions;

• Developments affecting the federal or state tax-exempt status of not-for-profit hospitals; and

• Acts of war or acts of so-called terrorists, including the use of weapons capable of mass destruction.

A-64 APPENDIX A

This letter and the information herein are submitted to the Authority for inclusion in its Official Statement relating to its Revenue Bonds, Caritas Christi Obligated Group Issue, Series B and C. The use of this letter by the Authority in connection with the initial sale and public offering of the Bonds, and its execution and delivery by the undersigned officers of the Obligated Group, have been duly authorized by the Board of Governors of Caritas Christi, by the Board of Governors of Caritas Christi sitting as the sole corporate member of St. Elizabeth’s, Carney, Caritas Norwood, Good Samaritan, and St. Joseph, by the Board of Governors of Caritas Christi sitting as the Board of Trustees of Valley Regional, by the Board of Governors of Caritas Christi sitting as the Board of Trustees of Valley Regional sitting as the sole corporate member of Holy Family, by the Board of Governors of Caritas Christi sitting as the Class B member of St. Anne’s and by the Dominican Sisters of the Presentation sitting as the Class A member of St. Anne’s.

CARITAS CHRISTI CARITAS GOOD SAMARITAN MEDICAL CENTER, INC. CARITAS NORWOOD HOSPITAL, INC. THE CARNEY HOSPITAL, INC. HOLY FAMILY HOSPITAL, INC. ST. ANNE’S HOSPITAL CORPORATION ST. ELIZABETH’S MEDICAL CENTER OF BOSTON, INC. ST. JOSEPH NURSING CARE CENTER, INC. VALLEY REGIONAL HEALTH SYSTEM, INC.

By CARITAS CHRISTI for itself and as agent for other Obligated Group Members

By: ______Michael F. Collins, M.D. President and Chief Executive Officer

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[THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX C

DEFINITIONS OF CERTAIN TERMS

In addition to terms defined elsewhere herein, the following terms have the following meanings herein and in the Loan and Trust Agreement dated as of July 5, 1994 among the Authority, Holy Family Hospital Inc. (“Holy Family”), Valley Regional Health System, Inc. (“Valley Regional”) and Shawmut Bank, N.A., as Trustee, as amended and supplemented by the First Supplemental Loan and Trust Agreement dated as of November 10, 1998 among the Authority, Caritas Christi (“Caritas Christi”), St. Elizabeth’s Medical Center of Boston, Inc. (“St. Elizabeth’s”), The Carney Hospital, Inc. (“Carney”), Holy Family, Valley Regional, St. Anne’s Hospital Corporation (“St. Anne’s”), Caritas Norwood Hospital, Inc. (“Norwood”), St. Joseph Nursing Care Center, Inc. (“St. Joseph”) and State Street Bank and Trust Company, as successor Trustee, providing for the issuance of the Authority’s Revenue Bonds, Caritas Christi Obligated Group Issue, Series A, and as further amended and supplemented by the Second Supplemental Loan and Trust Agreement dated as of February 12, 2002 among the Authority, Caritas Christi, St. Elizabeth’s, Carney, Holy Family, Valley Regional, St. Anne’s, Norwood, St. Joseph, Caritas Good Samaritan Medical Center, Inc. and State Street Bank and Trust Company, as successor Trustee, providing for the issuance of the Authority’s Revenue Bonds, Caritas Christi Obligated Group Issue, Series B (collectively, the “Agreement”), unless the context otherwise requires:

“Act” means Chapter 614 of the Massachusetts Acts of 1968 as amended from time to time.

“Additional Indebtedness” means Indebtedness of an Obligated Group Member incurred in accordance with the Agreement, which is secured equally and ratably with the Bonds as to the lien on the Gross Receipts.

“Annual Administrative Fee” means the annual fee for the general administrative services of the Authority in the amount of $37,970 with respect to the Valley Regional Bonds, in the amount of $197,735 with respect to the Series A Bonds and in the amount of $113,665 with respect to the Series B Bonds, or such lesser amount as the Authority may from time to time determine.

“Architect” means one or more qualified professional architects or engineers appointed by the Obligated Group to supervise construction of the Project or the new part thereof.

“Authorized Officer” means: (i) in the case of the Authority, the Chairman, Vice Chairman, Secretary or Executive Director, Director of Financing Programs, General Counsel, or Director of Administration and Finance, and when used with reference to an act or document of the Authority also means any other person authorized to perform the act or execute the document; and (ii) in the case of the Obligated Group, the Chairman, the Chair of the Board, the President and Chief Executive Officer of Caritas Christi, and when used with reference to an act or document of the Obligated Group, also means any other person authorized to perform the act or execute the document, and (iii) in the case of a Member, the Treasurer of the Member or Chief Financial Officer of the Member, and when used with reference to an act or document of the Member, also means any other person authorized to perform the act or execute the document.

“Available Moneys” means any moneys on deposit with the Trustee which are (i) Bond proceeds, (ii) amounts so on deposit for a period of 124 consecutive days during which no petition in bankruptcy under the U.S. Bankruptcy Code has been filed by or against the Institution or the Authority, and no similar proceedings have been instituted under state insolvency or other laws affecting creditors’ rights generally, or (iii) any moneys with respect to which an unqualified opinion from nationally recognized bankruptcy counsel has been received by the Authority and the Trustee to the effect that payments to any

Bondholder with-such moneys would not constitute voidable preferences under Section 547 of the U.S. Bankruptcy Code, or similar state or federal laws with voidable preference provisions in the event of the filing of a petition for relief under the U.S. Bankruptcy Code, or similar state or federal laws with voidable preference provisions by or against the Institution or the Authority, or (iv) otherwise approved by the Valley Regional Insurer.

“Balloon Indebtedness” means Long-Term Indebtedness which is secured by a refinancing arrangement meeting the requirements of the Agreement or which is part of an issue of Indebtedness 25% or more of which has its Date of Maturity in the same 12 month period.

“Bond Counsel” means any attorney at law or firm of attorneys selected by the Authority, of nationally recognized standing in matters pertaining to the federal tax exemption of interest on bonds issued by states and political subdivisions, and duly admitted to practice law before the highest court of any state of the United States, but shall not include counsel for the Institution.

“Bond Insurer Event of Insolvency” means the occurrence and continuance of one or more of the following events: (i) the issuance, under the applicable laws of any state of the United States, of an order of rehabilitation, liquidation or dissolution of the Valley Regional Insurer; (ii) the commencement by the Valley Regional Insurer of a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect including, without limitation, the appointment of a trustee, receiver, liquidator, custodian or other similar official for itself or any substantial part of its property; (iii) the consent by the Valley Regional Insurer to any relief referred to in the preceding clause (ii) in an involuntary case or other proceeding commenced against it; (iv) the making by the Valley Regional Insurer of an assignment for the benefit of creditors; (v) the failure by the Valley Regional Insurer to pay in general its debts as they become due; or (vi) the initiation by the Valley Regional Insurer of any action to authorize any of the foregoing.

“Bondowners” means the registered owners of the Bonds from time to time as shown in the books kept by the Paying Agent as bond registrar and transfer agent.

“Bonds” means the Valley Regional Bonds, the Series A Bonds and the Series B Bonds, any additional Bonds issued under Section 501 of the Agreement, and any Bond or Bonds duly issued in exchange or replacement therefor and, where appropriate with respect to redemptions or purchases, portions thereof in authorized denominations.

“Bond Year” means each one year period (or shorter period from the date of issue of a series of Bonds) ending on June 30.

“Business Day” means a day on which banks in each of the cities in which the principal offices of the Trustee and the Paying Agent are located are not required or authorized to remain closed and on which the New York Stock Exchange is not closed.

“Construction Fund” means the fund established pursuant to the Agreement.

“Continuing Disclosure Agreement” means the Continuing Disclosure Agreement relating to the Series B Bonds between the Obligated Group Agent and the Trustee dated the date of issuance of the Series B Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

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“Date of Maturity” means as to any Indebtedness of the Obligated Group, as of any date of determination, the first date thereafter on which such Indebtedness is payable, whether at maturity, by mandatory redemption (or purchase) or by redemption (or purchase) at the option of the holders; provided that if portions of any Indebtedness are payable on different dates, the Date of Maturity shall be separately determined for each such portion. Balloon Indebtedness may be deemed to be payable as provided in the Agreement in order to adjust actual Dates of Maturity for such Indebtedness to assumed Dates of Maturity, to be used in calculating Total Principal and Interest Requirements.

“Debt Service Fund” means the fund established pursuant to the Agreement.

“Debt Service Reserve Fund” means the fund established pursuant to the Agreement.

“Debt Service Reserve Fund Initial Deposit” means an amount equal to the average of the amounts required in each Bond Year to pay the sum of: (i) interest on the Bonds payable on January 1 of such Bond Year and on July 1 of the next succeeding Bond Year excluding accrued interest received upon the issuance of the Bonds and capitalized interest financed by the issuance of the Bonds; and (ii) the principal of the Bonds or the sinking fund installment, as the case may be, payable on July 1 of the next succeeding Bond Year. For this purpose, principal becoming due by reason of acceleration or redemption of Bonds shall be treated as coming due on the originally scheduled dates until the same has been paid.

“Debt Service Reserve Fund Requirement” means (a) initially, the lesser of (i) 10% of the aggregate of the original principal amount of each series of Bonds (less any original issue discount allocable to any such series), and (ii) the Debt Service Reserve Fund Initial Deposit; and (b) thereafter, at each January 1 and July 1, an amount equal to the Debt Service Reserve Fund Initial Deposit, plus actual earnings thereon to and including each such date, until the amount on deposit therein equals the maximum amount required in the then current or any future Bond Year to pay the sum of: (i) interest on the Bonds payable on January 1 of such Bond Year and on July 1 of the next succeeding Bond Year excluding accrued interest received upon the issuance of the Bonds and capitalized interest financed by the issuance of the Bonds; and (ii) the principal of the Bonds or the sinking fund installment, as the case may be, payable on July 1 of the next succeeding Bond Year. For this purpose, principal becoming due by reason of acceleration or redemption of Bonds shall be treated as coming due on the originally scheduled dates until the same has been paid.

“Expense Fund” means the fund established pursuant to the Agreement.

“First Supplemental Agreement” means the First Supplemental Loan and Trust Agreement dated as of November 10, 1998 among the Authority, the Prior Obligated Group and State Street Bank and Trust Company, as successor Trustee.

“Good Samaritan Refunded Bonds” means collectively the Authority’s outstanding Revenue Bonds, Goddard Memorial Hospital Issue, Series B (the “Goddard Refunded Bonds”) in the aggregate principal amount of $13,400,000, and the Authority’s outstanding Revenue Bonds, Cardinal Cushing General Hospital Issue, Series A in the aggregate principal amount of $7,800,000 (the “Cardinal Cushing Refunded Bonds”).

“Good Samaritan Refunding Trust Agreements” means, collectively, the Refunding Trust Agreement dated as of March 28, 2002 among the Authority, Good Samaritan and State Street Bank and Trust Company, as Trustee relating to the refunding of the Goddard Refunded Bonds and the Refunding Trust Agreement dated as of March 28, 2002 among the Authority, Good Samaritan and State Street Bank and Trust Company, as Trustee relating to the refunding of the Cardinal Cushing Refunded Bonds.

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“Government or Equivalent Obligations” means (i) direct obligations of the United States or obligations the timely payment of principal of and interest on which is fully and unconditionally guaranteed by the United States and (ii) certificates evidencing ownership of the right to the payment of the principal of and/or interest on obligations described in clause (i), provided that such obligations are held in the custody of a bank or trust company satisfactory to the Trustee or the Authority, as the case may be, in a special account separate from the general assets of such custodian.

“Gross Receipts” means (i) with respect to each Member (other than Valley Regional), the revenues and receipts of such Member from all sources (other than gifts, grants or bequests which by their terms may not lawfully be used to fulfill the Obligated Group’s obligations to make payments to the Debt Service Fund and Rebate Fund, including its obligations under the last sentences of Subsections 304(b) and 305(c), and its obligations under Subsections 304(d), 305(d) and (e) and 309(e)), and all rights to receive the same whether in the form of accounts receivable or contract rights and the proceeds thereof, or otherwise and (ii) with respect to Valley Regional, the Lease Payments and income from any endowment funds or Board-designated funds (the “Valley Regional Receipts”), subject to the provisions of Section 1013 of the Agreement.

“Hedge Agreement” means an interest rate swap, cap, collar, floor, forward, or other hedging agreement, arrangement or security, however denominated, expressly identified pursuant to its terms as being entered into in connection with and in order to hedge interest rate fluctuations on all or a portion of any Indebtedness, and with a counterparty which is rated at least “A” by S&P.

“Hospital Consultant” means a nationally recognized firm of independent public accountants or hospital management consultants selected by the Obligated Group and approved by the Authority and (while the Valley Regional Bonds remain outstanding) the Valley Regional Insurer.

“Indebtedness” shall mean all obligations of the Members for borrowed money, or installment sale and capitalized lease obligations, incurred or assumed, including guaranties, Long-Term Indebtedness, Nonrecourse Indebtedness, Short-Term Indebtedness, subordinated Indebtedness or any other obligation of a Member for payments of principal and interest with respect to money borrowed.

“Initial Administrative Fee” means the fee, in the amount of $37,970, payable from the Expense Fund to the Authority for its initial services in regard to the issuance of the Valley Regional Bonds, in the amount of $90,000, payable from the Expense Fund to the Authority for its initial services in regard to the issuance of the Series A Bonds and in the amount of $99,000, payable from the Expense Fund to the Authority for its initial services in regard to the issuance of the Series B Bonds.

“Interest Payment Date” means, with respect to the Bonds, the 1st day of each July and January commencing January 1, 1995 for the Valley Regional Bonds, commencing July 1, 1999 for the Series A Bonds and commencing July 1, 2002 for the Series B Bonds, provided that, if such day is not a Business Day, any payment due on such date may be made on the next Business Day without additional interest and with the same force and effect as if made on the specified date for such payment.

“IRC” means the Internal Revenue Code of 1986, as it may be amended and applied to each series of Bonds from time to time.

“Irrevocable Deposit” shall mean the irrevocable deposit in trust of cash in an amount (or Government or Equivalent Obligations the principal of and interest on which will be in an amount) and under terms sufficient to pay all or a portion of the principal of, premium, if any, and interest on, as the same shall become due, any Indebtedness which immediately prior to the time of such deposit is outstanding. The trustee of such deposit may be the Trustee or any other trustee authorized to act in such capacity.

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“Lien” means any mortgage or pledge of, security interest in or lien or encumbrance on the Gross Receipts or Restricted Property which secures any Indebtedness or any other obligation of any Member.

“Long-Term Indebtedness” means any Indebtedness which is not Short-Term Indebtedness.

“Moody’s” means Moody’s Investors Service, Inc. or any successor thereto, or any other nationally recognized rating service approved by Valley Regional Insurer (while any Valley Regional Bonds remain outstanding).

“Mortgage” means that certain Mortgage and Security Agreement dated as of March 28, 2002 from St. Elizabeth’s Medical Center of Boston, Inc. to the Trustee, or any replacement mortgage provided to the Trustee in accordance with the Agreement upon a withdrawal of St. Elizabeth’s, or of any subsequent mortgagor, as an Obligated Group Member.

“Mortgaged Property” shall mean the Mortgaged Property as defined in the Mortgage.

“Net Revenues Available for Debt Service” means the excess of revenues over expenses of the Obligated Group (excluding from revenues and expenses extraordinary items and the cumulative effect of changes in accounting principles, excluding from revenues income from Irrevocable Deposits, and excluding from expenses depreciation, interest on Long-Term Indebtedness and amortization of bond discount and financing expenses and other non-cash items), as determined in accordance with generally accepted accounting principles.

“Nonrecourse Indebtedness” means any Indebtedness which is not a general obligation of a Member and is not secured by a Lien on Gross Receipts or the Restricted Property, other than Permitted Liens pursuant to the Agreement.

“Obligated Group” means the entities described in Section 1 of the Second Supplemental Agreement, as such entities may change from time to time in accordance with Section 1010 and 1011 of the Agreement.

“Obligated Group Agent” means Caritas Christi, or such other Member as may be designated by the Obligated Group Agent in writing to the Trustee to succeed it as Obligated Group Agent from time to time.

“Obligated Group Member” or “Member” shall mean each entity constituting part of the Obligated Group.

“Opinion of Bond Counsel” means an opinion of Bond Counsel to the effect that the matter or action in question will not have an adverse impact on the tax-exempt status of the Bonds for federal income tax purposes.

“Outstanding,” when used to modify Bonds, refers to Bonds issued under the Agreement, excluding: (i) Bonds which have been exchanged or replaced, or delivered to the Trustee for credit against a principal payment or a sinking fund installment; (ii) Bonds which have been paid; (iii) Bonds which have become due and for the payment of which moneys have been duly provided; and (iv) Bonds for which there have been irrevocably set aside sufficient funds, or Government or Equivalent Obligations (in the case of the Valley Regional Bonds) constituting Available Moneys bearing interest at such rates, and with such maturities, as will provide sufficient funds to pay or redeem them, provided, however, that if any such Bonds are to be redeemed prior to maturity, the Authority shall have taken all action necessary

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to redeem such Bonds and notice of such redemption shall have been duly mailed in accordance with the Agreement or irrevocable instructions so to mail shall have been given to the Trustee.

“Paying Agent” means State Street Bank and Trust Company, as successor Paying Agent to Shawmut Bank, N.A., and any successor Paying Agent designated from time to time pursuant to the Agreement.

“Prior Obligated Group” means Caritas Christi, St. Elizabeth’s Medical Center of Boston, Inc., The Carney Hospital, Inc., Holy Family Hospital, Inc., Valley Regional Health System, Inc., St. Anne’s Hospital Corporation, Caritas Norwood Hospital, Inc. and St. Joseph Nursing Care Center, Inc.

“Project Costs” means the costs of issuing the Bonds and carrying out the Project, including repayment of external loans and internal advances for the same and including interest prior to, during and for up to one year after construction, but excluding general administrative expenses, overhead of the Institution and interest on internal advances.

“Project Officer” means the chief financial officer or an alternate or successor, including the Chief Executive Officer, appointed by the Obligated Group Agent.

“Rebate Fund” means the fund established pursuant to the Agreement.

“Rebate Year” means the one year period (or shorter period beginning on the date of issue) ending on September 30.

“Redemption Fund” means the fund established pursuant to the Agreement.

“Restricted Property” means the premises described in the Agreement, which consist of the core campus of each Member. In addition, “Restricted Property” includes all rights and easements appurtenant to such premises, and all buildings, structures, fixtures and improvements on such premises, whether in existence on the date hereof or later coming into existence and whether owned by the Obligated Group on the date hereof or acquired hereafter.

“Revenues” means all rates, mortgage payments, rents, fees, charges, and other income and receipts, including proceeds of insurance, eminent domain and sale, and including proceeds derived from any security provided hereunder, payable to the Authority or the Trustee under the Agreement, excluding administrative fees of the Authority, fees of the Trustee, reimbursements to the Authority or the Trustee for expenses incurred by the Authority or the Trustee, and indemnification of the Authority and the Trustee.

“S&P” means Standard & Poor’s Rating Group, Inc., or any successor thereto, or any other nationally recognized rating service approved by the Valley Regional Insurer (while any Valley Regional Bonds remain outstanding).

“Second Supplemental Agreement” means the Second Supplemental Loan and Trust Agreement dated as of February 12, 2002 among the Authority, the Obligated Group and State Street Bank and Trust Company, as successor Trustee.

“Series A Bonds” means the $197,735,000 Massachusetts Health and Educational Facilities Authority Revenue Bonds, Caritas Christi Obligated Group Issue, Series A, dated January 1, 1999.

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“Series B Bonds” means the $113,665,000 Massachusetts Health and Educational Facilities Authority Revenue Bonds, Caritas Christi Obligated Group Issue, Series B, dated March 15, 2002.

“Series B Project” means the acquisition of land, site development, construction or alteration of buildings or the acquisition or installation of furnishings and equipment, or any combination of the foregoing, consisting of the following:

(i) the refinancing of certain projects previously financed or refinanced, in whole or in part, with the Good Samaritan Refunded Bonds as described in further detail in Second Supplemental Agreement;

(ii) the financing of the construction, renovation and/or equipping of facilities for the use of certain Members of the Obligated Group as described in further detail in the Second Supplemental Agreement; and

(iii) the refinancing of certain projects previously financed or refinanced, in whole or in part, with a portion of the 2002 St. Elizabeth’s Refunded Bonds as described in further detail in the Second Supplemental Agreement.

“Short-Term Indebtedness” shall mean any issue of Indebtedness no portion of which has a date of maturity more than one year from the date of original issuance thereof.

“2002 St. Elizabeth’s Refunded Bonds” means the 2002C St. Elizabeth’s Refunded Bonds and the 2002D/E St. Elizabeth’s Refunded Bonds.

“2002C St. Elizabeth’s Refunded Bonds” means the Authority’s Outstanding (as of the date hereof) Revenue Bonds, St. Elizabeth’s Hospital of Boston Issue, Series C, in the aggregate principal amount of $7,805,000.

“2002D/E St. Elizabeth’s Refunded Bonds” means the Authority’s Outstanding (as of the date hereof) Revenue Bonds, St. Elizabeth’s Hospital of Boston Issue, Series D/E, in the aggregate principal amount of $41,300,000.

“2002 St. Elizabeth’s Refunding Trust Agreement” means the Refunding Trust Agreement dated as of March 28, 2002 among the Authority, St. Elizabeth’s and State Street Bank and Trust Company, as Trustee relating to the refunding of the 2002C St. Elizabeth’s Refunded Bonds and the refunding of the 2002 D/E St. Elizabeth’s Refunded Bonds.

“St. Elizabeth’s Master Trust Indenture” means the Master Trust Indenture dated as of August 6, 1991 between St. Elizabeth’s, as initial member of the St. Elizabeth’s Obligated Group, and The First National Bank of Boston, as Master Trustee, as heretofore amended and supplemented and as further amended and supplemented by a Fourth Supplemental Master Indenture for Obligation No. 4 and Obligation No. 5 dated as of November 10, 1998 between St. Elizabeth’s and State Street Bank and Trust Company, as successor Master Trustee.

“Total Principal and Interest Requirements” means amounts required during a year (or twelve (12) consecutive calendar months) to amortize principal and to pay interest (other than capitalized interest) on all Long-Term Indebtedness for borrowed money (but not including any Nonrecourse Indebtedness), taking into account in determining the Total Principal and Interest Requirements for any future period that (a) at the election of the Obligated Group Agent, Indebtedness described in the Agreement shall be deemed payable on the dates and in the amounts contemplated in such section; (b)

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principal on all Indebtedness shall be deemed to be payable on the Date of Maturity thereof; (c) the amounts of principal and interest taken into account during such period shall exclude amounts payable from proceeds of any refunding Indebtedness issued during such period or from interest earnings on the proceeds of such refunding Indebtedness; and (d) in the event that there shall have been issued or entered into in respect of all or a portion of any Indebtedness a Hedge Agreement, and (i) interest on such Indebtedness or such portion of such Indebtedness is payable at a variable rate of interest for any future period of time or is calculated at a varying rate per annum, and (ii) a fixed rate is specified as payable by the Institution in such Hedge Agreement or such Indebtedness, taken together with the Hedge Agreement results in a net fixed rate payable by the Member(s) for such period of time (the “Hedge Fixed Rate”), assuming the Member(s) and the party(ies) with whom the Member(s) have entered into the Hedge Agreement make all payments required to be made by the terms of the Hedge Agreement, then such Indebtedness shall be deemed for all purposes hereunder to bear interest for such period of time at the Hedge Fixed Rate and all provisions hereof applicable for fixed rate indebtedness shall apply with respect thereto. Computations of debt service on Long-Term Indebtedness shall include an amount representing the debt service on obligations of others for borrowed money guaranteed by the Obligated Group or a Member in accordance with the provisions of the Agreement and summarized in Appendix D-1, “SUMMARY OF THE AGREEMENT,” under the heading “Debt Service on Guaranties.” If any issue of additional Bonds, Additional Indebtedness or other Long-Term Indebtedness bears other than a fixed rate of interest, calculations for the purposes of determining the maximum Total Principal and Interest Requirements with respect to such Indebtedness shall be made in accordance with the provisions of the Agreement and summarized in Appendix D-1, “SUMMARY OF THE AGREEMENT,” under the heading “Debt Service on Balloon Indebtedness, Put Indebtedness and Variable Rate Indebtedness.”

“UCC” means the Massachusetts Uniform Commercial Code.

“Valley Regional Insurance Policy” means the municipal bond insurance policy issued by the Valley Regional Insurer that guarantees scheduled payment of the principal of and interest on the Valley Regional Bonds.

“Valley Regional Insurer” means Ambac Assurance Corporation, as successor to Connie Lee Insurance Company, or any successor thereto, as bond insurer with respect to the Valley Regional Bonds.

Valley Regional Bonds” means the Massachusetts Health and Educational Facilities Authority Revenue Bonds, Valley Regional Health System Issue, Series C, originally issued in the principal amount of $37,970,000.

Words importing persons include firms, associations and corporations, and the singular and plural form of words shall be deemed interchangeable wherever appropriate.

C-8 TRA 1638842v4 APPENDIX D

SUMMARY OF THE AGREEMENT

The following is a brief summary, prepared by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Bond Counsel to the Massachusetts Health and Educational Authority (the “Authority”), of certain provisions of the Loan and Trust Agreement dated as of July 5, 1994 among the Authority, Holy Family Hospital Inc. (“Holy Family”), Valley Regional Health System, Inc. (“Valley Regional”) and Shawmut Bank, N.A., as Trustee, as amended and supplemented by the First Supplemental Loan and Trust Agreement dated as of November 10, 1998 among the Authority, Caritas Christi (“Caritas Christi”), St. Elizabeth’s Medical Center of Boston, Inc. (“St. Elizabeth’s”), The Carney Hospital, Inc. (“Carney”), Holy Family, Valley Regional, St. Anne’s Hospital Corporation (“St. Anne’s”), Caritas Norwood Hospital, Inc. (“Norwood”), St. Joseph Nursing Care Center, Inc. (“St. Joseph”) and State Street Bank and Trust Company, as successor Trustee, providing for the issuance of the Authority’s Revenue Bonds, Caritas Christi Obligated Group Issue, Series A, and as further amended and supplemented by the Second Supplemental Loan and Trust Agreement dated as of February 12, 2002 among the Authority, Caritas Christi, St. Elizabeth’s, Carney, Holy Family, Valley Regional, St. Anne’s, Norwood, St. Joseph, Caritas Good Samaritan Medical Center, Inc. and State Street Bank and Trust Company, as successor Trustee, providing for the issuance of the Authority’s Revenue Bonds, Caritas Christi Obligated Group Issue, Series B. Such summary does not purport to be complete and reference is made to the Agreement for full and complete statement of its terms and provisions and for the definition of capitalized terms used herein.

The Assignment and Pledge of Revenues

The Authority assigns and pledges to the Trustee in trust upon the terms of the Agreement (a) all Revenues to be received from the Obligated Group or derived from any security provided under the Agreement, and (b) all rights to receive such Revenues and the proceeds of such rights. The assignment and pledge does not include: (i) the rights of the Authority pursuant to provisions for consent, concurrence, approval or other action by the Authority, notice to the Authority or the filing of reports, certificates or other documents with the Authority, or (ii) the powers of the Authority as stated in the Agreement to enforce the provisions of the Agreement. (Section 201)

Establishment of Funds

The following funds shall be established and maintained with the Trustee for the account of the Obligated Group, to be held in trust by the Trustee and applied subject to the provisions of the Agreement:

Debt Service Fund; Debt Service Reserve Fund; Redemption Fund; and Rebate Fund.

An Expense Fund and a Construction Fund shall be established with the Authority to be held by the Authority in trust for the account of the Obligated Group and applied subject to the provisions of the Agreement. (Sections 303, 304, 305, 306, 307 and 401)

Debt Service Fund

The moneys in the Debt Service Fund and any investments held as part of such Fund shall be held in trust and, except as otherwise provided, shall be applied solely to the payment of the principal (including sinking fund installments), redemption premium, if any, and interest on the Bonds. The Trustee shall transfer moneys from the Debt Service Fund to the Paying Agent for the payment of Bonds. (Section 303)

Debt Service Reserve Fund

The moneys in the Debt Service Reserve Fund and any investments held as a part of such Fund shall be held in trust and, except as otherwise provided, shall be applied by the Trustee on behalf of the Authority solely to the payment of the principal (including sinking fund installments) of and interest on the Bonds.

The Debt Service Reserve Fund may be funded in whole or part with cash or, with the approval of the Valley Regional Insurer, a Debt Service Reserve Fund Credit Facility (as hereinafter defined). Any such Debt Service Reserve Fund Credit Facility shall be in an amount which, together with any cash or securities in the Fund, shall equal the Debt Service Reserve Fund Requirement, and shall be available to be drawn on whenever the Agreement calls for the application of moneys in the Fund.

“Debt Service Reserve Fund Credit Facility” shall mean an irrevocable letter of credit or surety bond, with a term of at least five years, issued to the Trustee by a Qualified Financial Institution (as hereinafter defined), and which is not secured by a lien senior to the lien of the Agreement securing the Bonds. “Qualified Financial Institution” shall mean a bank, trust company, national banking association or a 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 are assigned a rating of A or higher by each rating agency then rating the Bonds, and which has issued a letter of credit, contract, agreement or surety bond in support of debt obligations which are so rated.

If on any date the amount in the Rebate Fund is less than the amount then required to be on deposit therein, as described below under the heading “Rebate Fund,” the Trustee shall apply the amount in the Debt Service Reserve Fund to the extent necessary to meet the deficiency, except that the Trustee shall not so apply any amount necessary to pay or redeem the Bonds in full, as described below under the heading “Defeasance”. If on any date the amount in the Debt Service Fund is less than the amount then required to be transferred to the Paying Agent to pay the principal (including sinking fund installments) and interest then due on the Bonds, the Trustee, after making all payments to the Rebate Fund described in this paragraph, shall apply the amount in the Debt Service Reserve Fund to the extent necessary to meet the deficiency. The Obligated Group shall remain liable for any required sums which it has not paid to the Rebate Fund or Debt Service Fund and any subsequent payment thereof shall be used to restore the funds so applied.

If and to the extent that the amount in the Debt Service Reserve Fund on any semiannual valuation date is less than the then applicable Debt Service Reserve Fund Requirement due to a change in valuation of the investments in such Fund, the Trustee shall so notify the Obligated Group and the Obligated Group shall pay to the Trustee for deposit in the Debt Service Reserve Fund one-third of the amount of the deficiency on the fifteenth day of each month thereafter until the deficiency is overcome.

If and to the extent that the amount in the Debt Service Reserve Fund on any semiannual valuation date is less than the then applicable Debt Service Reserve Fund Requirement due to a transfer as

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described above, the Obligated Group shall pay to the Trustee for deposit in the Debt Service Reserve Fund one-twelfth of the amount of the deficiency commencing on the fifteenth day of the month following such date, and on the fifteenth day of each month thereafter until the deficiency is overcome. (Section 304)

Redemption Fund

The moneys in the Redemption Fund and any investments held as a part of such Fund shall be held in trust and, except as otherwise provided, shall be applied by the Trustee on behalf of the Authority solely to the redemption of Bonds. The Trustee may, and upon written direction of the Obligated Group for specific purchases shall, apply moneys in the Redemption Fund to the purchase of Bonds for cancellation at prices not exceeding the price at which they are then redeemable (or next redeemable if they are not then redeemable), but not within the forty-five (45) days preceding a redemption date. Accrued interest on the purchase of Bonds shall be paid from the Debt Service Fund.

Moneys in the Redemption Fund to be applied to the redemption of Bonds shall be transferred by the Trustee to the Paying Agent for payment.

If on any date the amount in the Debt Service Fund is less than the amount then required to be transferred to the Paying Agent to pay the principal (including sinking fund installments) and interest then due on the Bonds, or if on any date the amount in the Rebate Fund is less than the amount then required to be on deposit therein, as described below under the heading “Rebate Fund,” in either case after any required transfer from the Debt Service Reserve Fund, the Trustee shall apply the amount in the Redemption Fund (other than any sum irrevocably set aside for the redemption of particular Bonds or required to purchase Bonds under outstanding purchase contracts) first, to the Rebate Fund, and second, to the Debt Service Fund to the extent necessary to meet the deficiency. The Obligated Group shall remain liable for any sums which it has not paid into the Debt Service Fund or Rebate Fund and any subsequent payment thereof shall be used to restore the funds so applied.

If the amount in the Debt Service Reserve Fund on July 1 or January 1 of any year is less than the then Debt Service Reserve Fund Requirement, the Trustee shall transfer an amount from the Redemption Fund (other than any sum irrevocably set aside for the redemption of particular Bonds or required to purchase Bonds under outstanding purchase contracts) to the extent necessary to meet the deficiency. The Obligated Group shall remain liable, however, to meet the deficiency under any other provision of the Agreement and any payment for this purpose shall be used to restore the funds transferred from the Redemption Fund. (Section 305)

Rebate Fund

A Rebate Fund shall be established by the Trustee for the purpose of complying with IRC Section 148(f) and the regulations thereunder (the “Rebate Provision”). Amounts in the Rebate Fund shall not be available to pay principal, interest, or redemption premium on the Bonds. Within forty-five (45) days after the close of each Rebate Year, the Obligated Group shall compute and certify to the Authority and the Trustee in reasonable detail the amount of the Excess, if any, for each series of Bonds as of the close of such Rebate Year, and notwithstanding any provision of the Agreement to the contrary, the Obligated Group shall pay to the Trustee for deposit into the Rebate Fund any amount necessary to make the amount in the Rebate Fund equal to the sum of the Excesses for each series of Bonds.

No later than sixty (60) days after the close of the fifth Rebate Year following the date of issue of a series of Bonds and the close of each fifth Rebate Year thereafter, the Trustee shall pay from the Rebate Fund to the United States on behalf of the Authority the full amount then required to be paid under the

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Rebate Provision. Within sixty (60) days after the Bonds of a series have been paid in full, the Trustee shall pay to the United States from the Rebate Fund on behalf of the Authority the full amount then required to be paid under the Rebate Provision. If on any Rebate Payment Date (as defined in the next paragraph) the amount in the Rebate Fund will be insufficient to pay the amount required to be paid under the Rebate Provision, the Obligated Group shall pay the amount of such deficiency to the Trustee for deposit into the Rebate Fund prior to the Rebate Payment Date.

No later than fifteen (15) days prior to each date on which a payment could become due (a “Rebate Payment Date”), the Obligated Group shall deliver to the Authority and the Trustee a certificate either summarizing the determination that no amount is required to be paid or specifying the amount then required to be paid. If the certificate specifies an amount to be paid, the Trustee shall make such payment on the Rebate Payment Date from the Rebate Fund. (Section 306)

Expense Fund

The moneys in the Expense Fund and any investments held as part of such Fund shall be held in trust and, except as otherwise provided in the Agreement, shall be applied by the Authority solely to the payment or reimbursement of the costs of issuing the Bonds. Earnings on the Expense Fund shall not be applied to pay costs of issuance of the Bonds, but shall be transferred to the Construction Fund. After all costs of issuing the Bonds have been paid any amounts remaining in the Expense Fund shall be transferred to the Construction Fund. To the extent the Expense Fund is insufficient to pay any of the above costs, the Obligated Group shall be liable for the deficiency and shall pay such deficiency as directed by the Authority. (Section 307)

Construction Fund

The moneys in the Construction Fund and any investments held as part of such Fund shall be held in trust and, except as otherwise provided in the Agreement, shall be applied by the Authority solely to the payment or reimbursement of Project Costs. Upon completion of the Project, any balance in such Fund not then needed to pay Project Costs shall be transferred to the Debt Service Reserve Fund to the extent necessary to cause the amount therein to equal the Debt Service Reserve Fund Requirement, provided that prior to any such transfer the Obligated Group shall have delivered to the Trustee an opinion of Bond Counsel to the effect that such transfer would not adversely affect the exclusion from gross income for federal income tax purposes of interest on any series of Bonds. The remainder may be used to reimburse sums deposited in the Construction Fund by the Obligated Group other than any amounts derived from gifts, grants or bequests received or expected to be received for the purposes of the Project, and the remainder thereafter shall be transferred to the Redemption Fund. (Section 401)

Application of Moneys

If available moneys in the Debt Service Fund after any required transfers from the Debt Service Reserve Fund and Redemption Fund are not sufficient on any day to pay all principal (including sinking fund installments), redemption price and interest on the Outstanding Bonds then due or overdue, such moneys (other than any sum in the Redemption Fund irrevocably set aside for the redemption of particular Bonds or required to purchase Bonds under outstanding purchase contracts) shall, after payment of all charges and disbursements of the Trustee in accordance with the Agreement, be applied first to the payment of interest, including interest on overdue principal, in the order in which the same became due (pro rata with respect to interest which became due at the same time) and second to the payment of principal (including sinking fund installments) and redemption premiums, if any, without regard to the order in which the same became due (in proportion to the amounts due). For this purpose interest on overdue principal shall be treated as coming due on the first day of each month. Whenever moneys are to

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be applied as described in this paragraph, such moneys shall be applied at such times, and from time to time, as the Trustee in its discretion shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall exercise such discretion it shall fix the date (which shall be the first of a month unless the Trustee shall deem another date more suitable) upon which such application is to be made, and upon such date interest on the amounts of principal paid on such date shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the fixing of any such date. When interest or a portion of the principal is to be paid on an overdue Bond, the Trustee may require presentation of the Bond for endorsement of the payment. (Section 308)

Payments by the Obligated Group

The Obligated Group shall pay to the Trustee for deposit in the Debt Service Fund on or before the fifteenth (15th) day of each month one-sixth (1/6) of the interest coming due on the Bonds on the next January 1 or July 1, as the case may be, and one-twelfth (1/12) of the principal (including any sinking fund installment) coming due on the Bonds on the next July 1.

The payments to be made as described in the foregoing paragraph shall be appropriately adjusted to reflect the date of issue of Bonds, any accrued or capitalized interest, any earnings on amounts in the Debt Service Fund, the Debt Service Reserve Fund or the Redemption Fund (to the extent they have been transferred to the Debt Service Fund), and any purchase or redemption of Bonds, so that there will be available on each payment date in the Debt Service Fund the amount necessary to pay the interest and principal or sinking fund installment due or coming due on the Bonds and so that accrued or capitalized interest will be applied to the installments of interest to which they are applicable.

At any time when any principal (including sinking fund installments) of the Bonds is overdue, the Obligated Group shall also have a continuing obligation to pay to the Trustee for deposit in the Debt Service Fund an amount equal to interest on the overdue principal but the required installment payments shall not otherwise bear interest. Redemption premiums shall not bear interest.

St. Elizabeth’s has granted a Lien on the Mortgaged Property to the Trustee, securing the Valley Regional Series C Bonds, the Series A Bonds and the Series B Bonds equally and ratably. As additional security for its obligations to make payments to the Debt Service Fund and Rebate Fund, each Member of the Prior Obligated Group has granted (and ratifies and confirms such grant), and each additional Member of the Obligated Group grants, to the Authority a Lien upon its Gross Receipts and upon any rights to receive such Gross Receipts. If any required payment is not made by the Obligated Group when due, any Gross Receipts with respect to which this security interest remains perfected pursuant to law (including the Act) shall be transferred or paid over immediately to the Trustee without being commingled with other funds (unless already so commingled) and any Gross Receipts thereafter received shall upon receipt be transferred to the Trustee in the form received (with necessary endorsements) to the extent necessary to cure the deficiency. The Obligated Group represents and warrants that the lien described in this paragraph is and at all times will be a first lien, subject only to (a) Permitted Liens (other than those stated therein to be subject to the Lien described in this paragraph), and (b) non-consensual liens arising by operation of law. The Obligated Group further represents and warrants that the encumbrances and liens mentioned in clause (b) of this paragraph are and will at all times be of an aggregate amount which is not material to the security for the Bonds. ______

Gross Receipts paid by any Member to other parties in the ordinary course might no longer be subject to the lien of the Agreement and might therefore be unavailable to the Authority. The enforcement of this Lien on Gross Receipts and receivables is also subject to the exercise of discretion by

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a court of equity which, under certain circumstances, may have power to direct the use thereof to meet expenses of the Members before paying debt service. In the event of the bankruptcy of a Member, any receivables coming into existence and any Gross Receipts received, on or after the date which is 90 days (or, in some circumstances, one year) prior to the commencement of the case in bankruptcy court, might not, pursuant to Sections 547 and 552 of the Bankruptcy Code, title 11 of the United States Code, be subject to the lien of the Authority. With respect to receivables and Gross Receipts not subject to the lien, the Authority would occupy the position of an unsecured creditor.

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Payments by the Obligated Group to the Trustee for deposit in the Debt Service Fund under the Agreement shall discharge the obligation of the Obligated Group to the extent of such payments; provided, that if any moneys are invested in accordance with the Agreement and a loss results therefrom so that there are insufficient funds to pay principal (including sinking fund installments) and interest on the Bonds when due, the Obligated Group shall supply the deficiency.

The Obligated Group shall pay the Authority’s Initial Administrative Fee and Annual Administrative Fee. Within thirty (30) days after notice from the Authority, the Obligated Group shall pay to the Authority all expenditures (except general administrative expenses or overhead) reasonably incurred by the Authority by reason of the Agreement.

No obligation created pursuant to the Agreement, including any payment obligation, shall be deemed to constitute a debt or liability of the Roman Catholic Archbishop of Boston, a Corporation Sole, or The Roman Catholic Archdiocese of Boston or any entity affiliated with either of the foregoing, other than the Obligated Group Members. Neither the assets nor the revenues of the Roman Catholic Archbishop of Boston, a Corporation Sole, The Roman Catholic Archdiocese of Boston or any entity affiliated with either of the foregoing, other than the Obligated Group Members, are pledged to, nor in any manner, secure any debt or liability created by the Agreement. (Section 309; SSA Section 8)

Investments

Pending their use under the Agreement, moneys in the Debt Service Fund, Redemption Fund and Rebate Fund may be invested by the Trustee in Permitted Investments (as defined below) maturing or redeemable at the option of the holder at or before the time when such moneys are expected to be needed and shall be so invested pursuant to written direction of the Obligated Group if there is not then an Event of Default known to the Trustee, and otherwise by the Authority. The Debt Service Reserve Fund Initial Deposit may be invested by the Trustee in Permitted Investments of a type customarily sold in a recognized market and shall be so invested pursuant to written direction of the Obligated Group if there is not then an Event of Default known to the Trustee, and otherwise by the Authority; such Permitted Investments to mature or be redeemable at the option of the holder thereof no later than ten (10) years following the deposit of such amounts in the Debt Service Reserve Fund. Thereafter, moneys in the Debt Service Reserve Fund may be invested by the Trustee in Permitted Investments of a type customarily sold in a recognized market and shall be so invested pursuant to written direction of the Obligated Group if there is not then an Event of Default known to the Trustee, and otherwise by the Authority; provided that at least one-half (1/2) of such amount held in such Fund shall consist of cash and obligations maturing or redeemable at the option of the holder within five (5) years and the remainder within ten (10) years and provided further, in the case of Permitted Investments described in clause (c) below, that they are fully secured by obligations described in clause (a) thereof maturing or redeemable at the option of the holder within the applicable five (5) or ten (10) year period. Moneys in the Expense Fund may be invested by the Authority in Permitted Investments maturing or redeemable at the option of the holder not later than the time when such moneys are expected to be needed. Moneys in the Construction Fund may be

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invested by the Authority in Permitted Investments maturing or redeemable at the option of the holder within three (3) years and not later than the times when such moneys are expected to be needed and shall be so invested pursuant to the written direction of the Obligated Group, if there is not then an Event of Default known to the Authority, and otherwise by the Authority. Notwithstanding the foregoing, any amount of Bond proceeds deposited in the Construction Fund which has not been expended by the date that is three years from the date of issuance of the applicable bonds shall be invested only in Permitted Investments with a yield not more than 1/8% higher than the yield on the Bonds, or in Permitted Investments described in clause (b) without regard to yield. Any investments pursuant to this paragraph shall be held by the Trustee or the Authority, as the case may be, as a part of the applicable Fund and shall be sold or redeemed to the extent necessary to make payments or transfers or anticipated payments or transfers from such Fund, subject to the notice provisions of Section 9-504(3) of the UCC to the extent applicable.

Except as set forth below, any interest realized on investments in any Fund and any profit realized upon the sale or other disposition thereof shall be credited to the Fund with respect to which they were earned and any loss shall be charged thereto. Earnings (which for this purpose include net profit and are after deduction of net loss) during the construction period, on accrued interest deposited in the Debt Service Fund and on the Expense Fund shall be transferred to the Construction Fund not less often than quarterly. Earnings on proceeds of the Bonds deposited in the Debt Service Reserve Fund shall be retained in such Fund until the amounts on deposit therein equal the Debt Service Reserve Fund Requirement as described in clause (b) of the definition thereof, and thereafter shall be transferred to the Debt Service Fund and credited against payments otherwise required to be made thereto not less often than quarterly; provided, however, that earnings on the Debt Service Reserve Fund shall be retained in the Fund to the extent necessary to make the amount therein equal to the Debt Service Reserve Fund Requirement. Earnings on the Redemption Fund shall be transferred to the Debt Service Fund and credited against payments otherwise required to be made thereto not less often than quarterly.

The term “Permitted Investments” means (a) Government or Equivalent Obligations, (b) “tax exempt bonds” as defined in IRC §150(a)(6), other than “specified private activity bonds” as defined in IRC §57(a)(5)(C), rated at least “A3” by Moody’s and “A-” by S&P, at the time of acquisition thereof or shares of a so-called money market or mutual fund that do not constitute “investment property” within the meaning of IRC § 148(b)(2), provided either that the fund has all of its assets invested in obligations of such rating quality or, if such obligations are not so rated, that the fund has comparable creditworthiness through insurance or otherwise and which fund is rated “Am” or “Am-G” if rated by S&P, (c) participation certificates (excluding strip mortgage securities which are purchased at prices exceeding their principal amounts) and senior debt obligations of the Federal Home Loan Mortgage Corporation; consolidated system wide bonds and notes of the Farm Credit System; senior debt obligations and mortgage-backed securities (excluding stripped mortgage securities which are purchased at prices exceeding their principal amounts) of the Federal National Mortgage Association; senior debt obligations (excluding securities that have no fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date) of the Student Loan Marketing Association; debt obligations of the Resolution Funding Corp.; and REFCORP STRIPS (stripped by the Federal Reserve Bank of New York) (collectively, “Agency Obligations”), (d) direct obligations of any state of the United States or any subdivision or agency thereof whose long-term unsecured general obligation debt is rated at least “A3” by Moody’s and “A-” by S&P or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose long-term, unsecured general obligation debt is rated at least “A3” by Moody’s and “A-” by S&P (collectively, “Direct Obligations”), (e) commercial paper rated at least “Prime-1” by Moody’s and “A-1” by S&P maturing in not more than 365 days, (f) deposits, federal funds or bankers acceptances (maturing in not more than 365 days) of any domestic bank (including a branch office of a foreign bank which branch office is located in the United States, provided that the Trustee shall have received a legal opinion or opinions to the effect that full timely payment of such deposit or similar

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obligation is enforceable against the principal office or any branch of such bank), which: (i) has an unsecured, uninsured and unguaranteed obligation rated at least “Prime-1” or “A3” by Moody’s and “A- 1” or “A-” by S&P, or (ii) is the lead bank of a parent bank holding company with an uninsured, unsecured and unguaranteed obligation meeting the rating requirements in (i) above, (g) deposits of any bank or savings and loan association which has combined capital, surplus and undivided profits of not less than $10 million, provided such deposits are fully insured by the Federal Deposit Insurance Corporation, the Banking Insurance Fund or the Savings Association Insurance Fund, (h) Investments in a money-market fund rated at least “Am” or “Am-G” by S&P, (i) repurchase agreements with a term of six- months or less with any institution having long-term, unsecured debt rated at least “AA” or commercial paper rated at least “A-1 +” by S&P, (j) repurchase agreements collateralized by Government or Equivalent Obligations, Direct Obligations or Agency Obligations (the “Collateral Securities”) with any registered broker-dealer which is under the jurisdiction of the Securities Investors Protection Corp. or any commercial bank, if such broker-dealer or bank has uninsured, unsecured and unguaranteed debt rated at least “Prime-1” or “A3” by Moody’s and “A-1” or “A-” by S&P, provided that: (i) a master repurchase agreement or other specific written repurchase agreement governs the transaction; (ii) the Collateral Securities are held free and clear of any other lien by the Trustee or an independent third party acting solely as agent for the Trustee, provided that any such third party (A) is (1) a Federal Reserve Bank, (2) a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less than $25 million, or (3) a bank approved in writing for such purpose by the Valley Regional Insurer, and (B) certifies in writing to the Trustee (or delivered to the Trustee a written opinion of counsel to such third party) that such third party holds the Collateral Securities free and clear of any lien, as agent for the Trustee or the Authority, as the case may be; (iii) a perfected first security interest under the UCC is created in, or book-entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq. are followed with respect to, the Collateral Securities for the benefit of the Trustee or the Authority, as the case may be; (iv) such repurchase agreement has a term of thirty days or less, or the Trustee will value the Collateral Securities no less frequently than monthly and will liquidate the Collateral Securities if any deficiency in the required collateral percentage is not restored within two business days of such valuation; (v) such repurchase agreement matures (or permits the Trustee or the Authority, as the case may be to withdraw all or any portion of the invested, funds) at least 10 days (or other appropriate liquidation period) prior to each debt service payment date with respect to the Bonds; (vi) the fair market value of the Collateral Securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 103%; and (vii) the Trustee or the Authority, as the case may be, obtains an opinion of counsel to such broker-dealer or bank (which opinion shall be addressed to the Authority and the Valley Regional Insurer) to the effect that such repurchase agreement is a legal, valid, binding and enforceable agreement of such broker-dealer or bank (and, in the case of a bank which is a branch of a foreign bank, of such foreign bank) in accordance with its terms, (k) any investment approved by the Valley Regional Insurer (while the Valley Regional Bonds remain outstanding), and (l) with respect to the Construction Fund only, any obligation which, at the time of acquisition and for so long as it remains on deposit in the Construction Fund, is rated at least “AA-” by S&P.

Any such investments may be purchased from or through the Trustee. (Section 312)

The Valley Regional Insurer

The Valley Regional Insurer shall be deemed to be the owner of the Valley Regional Bonds for purposes of giving consents (other than those requiring unanimous consent of the affected Bondowners as described below under the heading “Amendment’), notices, directions and waivers to the Obligated Group, the Authority and the Trustee under the Agreement, and has the right to consent to certain other matters described therein.

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The provisions described under this heading and all other rights and remedies granted to the Valley Regional Insurer under the Agreement shall be null and void upon the happening of any of the following: (a) a Bond Insurer Event of Insolvency, except to the extent of payments made by the Valley Regional Insurer under the Valley Regional Insurance Policy which are not voidable preferences; or (b) continuing failure of the Valley Regional Insurer to pay in accordance with the Valley Regional Bond Insurance Policy. (Section 316)

The Valley Regional Insurance Policy does not insure the payments due with respect to the Series A Bonds or the Series B Bonds and the Valley Regional Insurer shall not be deemed the owner of the Series A Bonds or the Series B Bonds for any purpose under the Agreement.

Additional Parity Indebtedness

(a)(i) The Authority may issue Additional Indebtedness to complete the Project, to provide additional funds for the Debt Service Reserve Fund, or to refund Indebtedness previously issued under the Agreement, and (ii) upon fulfillment of the following conditions, (A) the Authority may issue Additional Indebtedness to finance or refinance any other project permitted under the Act, and (B) any Member may incur Additional Indebtedness for any purpose of the Obligated Group or guarantee the Indebtedness of others (provided that the Indebtedness guaranteed, if issued directly by the Obligated Group, could be issued as Additional Indebtedness as described under this heading), all on a parity with the lien of the Bonds on the Gross Receipts and the Mortgaged Property, but in each case only with Authority consent after considering the interests of the Bondowners and other owners of Additional Indebtedness issued by the Authority under the Agreement (“Authority Additional Indebtedness”).

(b) Authority Additional Indebtedness may be issued as additional series of Bonds pursuant to a supplement to the Agreement executed and delivered by the Obligated Group, the Authority and the Trustee prior to the delivery of such additional Bonds, which supplement shall provide for the details of the additional Bonds, including the application of the proceeds thereof, substantially in accordance with the provisions of the Agreement relating to the Initial Bonds. The supplemental agreement shall require payments by the Obligated Group at such times and in such manner as shall be necessary to provide for full payment of the debt service on the additional Bonds as it becomes due. The supplemental agreement may also amend any other provision of the Agreement, provided that it will not have a material adverse effect upon the security for the Bonds and any other Authority Additional Indebtedness other than that implicit in the authorization of parity Indebtedness.

Authority Additional Indebtedness also may be issued in any other form pursuant to a separate agreement executed and delivered by the Obligated Group, the Authority and a trustee named therein prior to the delivery of such Authority Additional Indebtedness. Such agreement shall provide for the details of the Authority Additional Indebtedness, including the application of the proceeds thereof. The agreement shall require payments by the Obligated Group at such times and in such manner as shall be necessary to provide for full payment of the debt service on the Authority Additional Indebtedness as it becomes due. The agreement may also amend any other provision of the Agreement, provided that it will not have a material adverse effect upon the security for the Bonds and any other Authority Additional Indebtedness other than that implicit in the authorization of parity Indebtedness, and provided that at the time of delivery of the agreement, there is also delivered to the Authority the opinion of Bond Counsel described in the following paragraph.

(c) If the Additional Indebtedness is issued by a lender other than the Authority (an “Alternative Lender”), the Obligated Group shall deliver to the Authority and the Trustee an executed counterpart of any agreement between the Obligated Group and the Alternative Lender. In addition, there shall have been filed with the Authority and the Trustee an opinion of Bond Counsel to the effect that the

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agreement between the Obligated Group and the Alternative Lender and any supplement to the Agreement in connection therewith are permitted by the Agreement and that the creation of any security interests in that separate agreement for the benefit of the holders of Additional Indebtedness is permitted by law and will not materially adversely affect (other than as implicit in the authorization of parity Indebtedness) the rights of the Bondowners and the owners of other Authority Additional Indebtedness to realize upon their respective shares of the security interests granted in the Gross Receipts.

Unless waived in writing by the Authority and the Bond Insurer, the agreement between the Obligated Group and the Alternative Lender shall contain the following provisions:

(i) Any pledge, lien, mortgage, security interest or other encumbrance on any tangible or intangible property of the Obligated Group granted to secure Additional Indebtedness (except for Permitted Liens described in clauses (b)(i) through (xvii), inclusive and (xix) through (xxi) under the heading “Limitations on Creation of Liens” below) shall be extended also to secure the obligations of the Obligated Group under the Agreement and any other agreement securing Authority Additional Indebtedness equally and ratably with such Additional Indebtedness;

(ii) The Alternative Lender and the trustee, if any, appointed to administer the Additional Indebtedness (the “Additional Indebtedness Trustee”) shall notify the Authority, the Trustee and the Obligated Group of any default in a payment by the Obligated Group with respect to debt service on the Additional Indebtedness immediately upon becoming aware of such default; and

(iii) The agreement between the Obligated Group and the Alternative Lender shall designate a security agent to act on behalf of the Alternative Lender and the Additional Indebtedness Trustee with respect to the recovery and application of insurance proceeds, if appropriate, and with respect to the enforcement of the Lien on Gross Receipts in the event of a default under the Agreement or the agreement between the Obligated Group and the Alternative Lender; provided, however, that unless otherwise consented to by the Authority, the security agent shall be the Trustee. The agreement also shall set forth the specific terms of allocation among the Bonds, Additional Indebtedness previously issued and the new Additional Indebtedness (pro rata, based on the levels of outstanding amounts of Bonds and such Additional Indebtedness from time to time, which may include interest to the extent permitted by such agreement) of any net proceeds derived from the exercise by the security agent on behalf of the Authority and the Trustee of the rights and remedies of the Authority and the Trustee under the Agreement and/or of any net proceeds derived from the exercise by the security agent on behalf of the Alternative Lender and the Additional Indebtedness Trustee of the rights and remedies of the Alternative Lender and the Additional Indebtedness Trustee, if any, under the agreement between the Obligated Group and the Alternative Lender.

(d) A Member may incur Additional Indebtedness to complete the New Part of the Project or to refund Bonds or other Additional Indebtedness (provided that without the consent of the Valley Regional Insurer (while the Valley Regional Bonds remain outstanding) such refunding indebtedness does not result in an increase of more than 15% in maximum Total Principal and Interest Requirements for the then current or any subsequent fiscal year during which Bonds or other Authority Additional Indebtedness will be Outstanding). No other Additional Indebtedness shall be incurred by any Member unless there shall have been filed with the Authority and the Trustee:

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(i) In the case of Authority Additional Indebtedness only, a certificate of an architect reasonably acceptable to the Authority (or if the project is of the nature that no architect is required, a certificate of the Project Officer) setting forth (A) the estimated cost of the project being financed or refinanced with the proceeds of the Additional Indebtedness, (B) the estimated amounts which will be required from month to month for paying such cost, and (C) the estimated date of completion of such project; and

(ii) Subject to the provisions of paragraph (e) below, (A) a written report of a nationally recognized firm of independent public accountants acceptable to the Authority which shall show that Net Revenues Available for Debt Service for each of the two (2) most recent fiscal years of the Obligated Group for which audited financial statements are available or for any twenty-four (24) consecutive calendar months ending not more than one hundred and eighty (180) days prior to the issuance of the Additional Indebtedness were at least 1.25 times the maximum Total Principal and Interest Requirements (including the proposed Additional Indebtedness) for such period or any subsequent fiscal year during which Bonds will be Outstanding; provided, however, that a certificate of the Representative’s chief financial officer may be substituted for the accountant’s report required as described in this paragraph (A) if based upon audited financial statements; or (B) (x) a certificate of the Member’s chief financial officer which shall show the Net Revenues Available for Debt Service for each of the two (2) most recent fiscal years of the Obligated Group for which audited financial statements are available or for any twenty-four (24) consecutive calendar months ending not more than one hundred and eighty (180) days prior to the issuance of the Additional Indebtedness, were at least equal to 1.10 times the Total Principal and Interest Requirements for the same period; and (y) a written report by a Hospital Consultant stating that the estimated Net Revenues Available for Debt Service during each of the two (2) first full fiscal years of operation of the facilities to be financed by the Additional Indebtedness or each of the two (2) first full fiscal years after a refinancing, if the facilities being refinanced are already in use and operation, are not expected to be less than 1.20 times the maximum Total Principal and Interest Requirements (including the Additional Indebtedness) for that or any subsequent fiscal year during which Bonds will be Outstanding. The written report by a Hospital Consultant required pursuant to clause (y) shall not be required, however, if the Obligated Group files a certificate of the chief financial officer of the Representative stating that the estimated Net Revenues Available for Debt Service for each of the two (2) fiscal years referred to in clause (y) are expected to be at least 1.50 times the maximum Total Principal and Interest Requirements (including the Additional Indebtedness) for such fiscal years or any subsequent fiscal year during which Bonds will be Outstanding; or (C) a certificate of the Representative’s chief financial officer stating that the principal amount of the proposed Additional Indebtedness and all other outstanding Additional Indebtedness incurred as described in this paragraph (1) does not exceed 10% of the Obligated Group’s total revenues as shown on its most recent audited financial statements and (2), together with any Indebtedness incurred as described below in clause (c) under the heading “Other Indebtedness”, does not exceed twelve percent (12%) of the Obligated Group’s total revenues as shown on its most recent audited financial statements.

(e) If the Obligated Group is unable to satisfy the requirements described in paragraph (d)(ii) above, such otherwise unmet requirements shall be deemed satisfied if there shall be filed with the Authority and the Trustee a report by a Hospital Consultant containing the following opinions:

(i) That applicable laws and regulations have prevented or will prevent generation of the required level of Net Revenues Available for Debt Service, and, if requested by the Authority, an accompanying opinion of counsel acceptable to the Authority setting forth any conclusions of law relevant to such opinion;

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(ii) That, with regard to a failure to satisfy the requirements described in clause (x) of paragraph (d)(ii)(B) above, the Obligated Group has generated the maximum amount of Net Revenues Available for Debt Service which could reasonably be generated given such governing laws and regulations during the applicable period and that the Net Revenues Available for Debt Service for the period equal at least 1.00 times the Total Principal and Interest Requirements for the period; and

(iii) That, with regard to a failure to satisfy the requirements described in clause (y) of paragraph (d)(ii)(B) above, based upon forecasts and estimates contained in the report, the Obligated Group will generate the maximum amount of Net Revenues Available for Debt Service which can reasonably be generated given such governing laws and regulations during the applicable period and that the estimated Net Revenues Available for Debt Service for the applicable period are not expected to be less than 1.00 times the maximum Total Principal and Interest Requirements for Indebtedness (including the Additional Indebtedness) for that or any subsequent fiscal year during which Bonds or other Authority Additional Indebtedness will be Outstanding.

(f) Subject to the provisions of the Agreement limiting encumbrances on Gross Receipts and the Restricted Property, Additional Indebtedness may be secured by a pledge, lien, mortgage, security interest or other encumbrance on other property other than money or other property on deposit in the funds created under the respective Agreements.

(g) The parties may enter into a supplemental agreement amending the Agreement to provide for the incurring of Additional Indebtedness by the Obligated Group in accordance with the provisions of the Agreement. Such a supplemental agreement may provide, among other things, for the appointment of a security agent to act on behalf of the Authority and the Trustee with respect to the recovery and application of insurance proceeds and with respect to the enforcement of the lien on Gross Receipts and the Mortgaged Property in the event of a default under the Agreement, for notices from the Trustee and the Authority to the Alternative Lender and the Additional Indebtedness Trustee regarding defaults by the Obligated Group, the duties and limitations of duties of the Trustee, the security agent and/or the Authority to pursue remedies upon the receipt of the notice referred to in paragraph (c)(ii)(B), and the sharing of the rights of the Bondowners and the owners of other Authority Additional Indebtedness to control the exercise of remedies with the holders of Additional Indebtedness.

(h) Any issuance of Additional Indebtedness shall be secured by a debt service reserve fund, to be funded at the time of issuance of such Additional Indebtedness, in an amount equal to the lesser of (i) the maximum annual debt service on such Additional Indebtedness, and (ii) ten percent (10%) of the original principal amount of such Additional Indebtedness; provided, however, that no such debt service reserve fund shall be required with the consent of the Valley Regional Insurer (while the Valley Regional Bonds remain Outstanding) or if the rating on such Additional Indebtedness (without regard to credit enhancement) is within the three highest rating categories (without regard to numerical or other gradations) of S&P. (Section 501; SSA Section 6)

Short-Term Indebtedness

Any Member may incur Short-Term Indebtedness if: (a) immediately after the incurring of such Short-Term Indebtedness, the principal amount of all outstanding Short-Term Indebtedness does not exceed the greater of (i) 20% of the Obligated Group’s total revenues, or (ii) 75% of the Obligated Group’s aggregate accounts receivable (net of provision for uncollectible accounts and contractual adjustments), both as shown on the Obligated Group’s most recent audited financial statements, and (b) during the 12 months immediately preceding the incurring of such Short-Term Indebtedness there shall

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have been a period of at least twenty (20) consecutive days in which the Obligated Group had Outstanding Short-Term Indebtedness of no more than five percent (5%) of total revenues, as shown on the Obligated Group’s most recent audited financial statements, provided that the requirement described in this clause (b) shall be waived (i) if there is delivered to the Authority and the Trustee a Hospital Consultant’s report confirming that there is a temporary interruption in the flow of reimbursement revenues from third parties, or (ii) if and to the extent that such Short-Term Indebtedness could be incurred under the provisions described above under the heading “Additional Parity Indebtedness” as if it were Long-Term Indebtedness. Failure to comply with the provisions described in clause (b) shall not be a default under the Agreement, but until the provisions described in clause (b) shall be satisfied, all amounts of Short-Term Indebtedness in excess of the five percent (5%) of total revenues permitted under the Agreement shall be deemed to be Long-Term Indebtedness for the purposes of calculating Total Principal and Interest Requirements. (Section 502)

Other Indebtedness

No Member shall incur any Long-Term Indebtedness (except Additional Indebtedness in accordance with the provisions of the Agreement or Nonrecourse Indebtedness) unless, prior to the incurring of such Indebtedness, such Member shall file with the Authority and the Trustee a certificate of an Authorized Officer of the Obligated Group (a) showing that Net Revenues Available for Debt Service for the most recent fiscal year of the Obligated Group for which audited financial statements are available were at least 1.10 times the average of the Total Principal and Interest Requirements (including the proposed additional Long-Term Indebtedness) for each year during which Bonds or other Authority Additional Indebtedness will be outstanding; or (b) stating that the principal amount of such additional Long-Term Indebtedness, when added to the principal amount of any additional Long-Term Indebtedness incurred under this section and as described above in clause (d)(ii)(C)(1) under the heading “Additional Parity Indebtedness” does not exceed 10% of the Obligated Group’s total revenues as shown on its most recent audited financial statements; or (c) stating that such additional Long-Term Indebtedness constitutes a capitalized lease of equipment or purchase money indebtedness (including refinancings thereof) and the principal amount of such additional Long-Term Indebtedness, when added to the then-outstanding principal amount of Long-Term Indebtedness incurred under this clause (c), does not exceed 5% of the Obligated Group’s aggregate operating revenues (after deducting contractual allowances and free care) as shown on its most recent audited financial statements.(Section 503)

Guaranties

The Obligated Group may guarantee the obligations of others for borrowed money on a parity with the Bonds and other Additional Indebtedness as to the Lien on Gross Receipts and the Mortgaged Property as described above under the heading “Additional Parity Indebtedness” and in an additional amount not exceeding in the aggregate at the time of any particular guarantee five percent (5%) of the Obligated Group’s total revenues, as shown on the Obligated Group’s most recent audited financial statements. (Section 504; SSA Section 6)

Debt Service on Guaranties

In determining Total Principal and Interest Requirements of the Obligated Group and debt service coverage ratios, whether historical or projected, computations of debt service on Long-Term Indebtedness shall include (a) an amount equal to twenty percent (20%) of the debt service on obligations of others for borrowed money guaranteed by the Obligated Group (other than guaranties secured on a parity with the Bonds as to the Lien on Gross Receipts which qualify as Long-Term Indebtedness incurred as described above under the headings “Additional Parity Indebtedness” and “Guaranties” or non-recourse guaranties) for the period during which such Total Principal and Interest Requirement is computed; provided,

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however, that debt service on such guaranteed obligations with respect to which a payment has been made during the preceding twenty-four (24) months or with respect to which the primary obligor is in default by reason of bankruptcy or insolvency shall be included at one hundred percent (100%) of such debt service; and (b) an amount equal to one hundred percent (100%) of the debt service on obligations of others for borrowed money guaranteed by the Obligated Group on a parity with the Bonds as to the Lien on Gross Receipts as described above under the headings “Additional Parity Indebtedness” and “Guaranties”; provided, however, that debt service on such guaranteed obligations with respect to which a payment has been made during the preceding twenty-four (24) months or with respect to which the primary obligor is in default by reason of bankruptcy or insolvency shall be included at one hundred percent (100%) of such debt service. (Section 504)

Debt Service on Balloon Indebtedness, Put Indebtedness and Variable Rate Indebtedness

(a) At the election of the Obligated Group, for the purpose of computations of Total Principal and Interest Requirements and debt service coverage ratios, whether historical or projected, the principal and interest deemed to be payable on Balloon Indebtedness or Indebtedness subject to tender by the holder thereof (“Put Indebtedness”) for the period for which such calculation is being made shall be as described below:

(i) If the Obligated Group has obtained a binding commitment of a qualified financial institution to refinance such Balloon Indebtedness or Put Indebtedness (or a portion thereof), including without limitation, a letter of credit or a line of credit, which commitment is subject only to usual conditions applicable to loans to entities similar to the Obligated Group, the Balloon Indebtedness or Put Indebtedness (or portion thereof) may be deemed to be payable in accordance with the terms of the refinancing arrangement (for the purposes of this paragraph, a qualified financial institution shall be one whose unsecured long-term indebtedness has an investment grade rating by S&P or is otherwise approved by the Valley Regional Insurer while the Valley Regional Bonds remain Outstanding); provided, however, that if such refinancing arrangement has a term of not less than eighteen months, the Balloon Indebtedness or Put Indebtedness may be deemed to be payable in accordance with the provisions of clause (ii) below; or

(ii) If (A) the Date of Maturity of any portion of such Balloon Indebtedness or Put Indebtedness is more than eighteen (18) months after the date of any transaction for which a projection is made or (B) the condition of paragraph (i) above is satisfied by a financing arrangement having a term not less than 18 months, or (C) if the aggregate amount of all outstanding Balloon Indebtedness and Put Indebtedness does not exceed 25% of the Obligated Group’s total revenues as shown on its most recent audited financial statements, or (D) the Obligated Group is making annual sinking fund payments with respect to such Balloon Indebtedness or Put Indebtedness and at the time of the transaction for which the projection is made, the Obligated Group could incur $1 of Additional Indebtedness as described under the provisions of clause (d)(ii) under the heading “Additional Parity Indebtedness” above (excluding the provisions described in (d)(ii)(C) thereof), such portion of such Balloon Indebtedness or Put Indebtedness, as the case may be, may be deemed to be Indebtedness payable over a twenty (20) year term, at the interest rate certified below, or with respect to Indebtedness which bears interest at other than a fixed rate, as provided in paragraph (b) below, in equal annual installments of principal and interest, provided that the Obligated Group has delivered to the Authority and the Trustee a certificate of an investment banker satisfactory to the Authority stating that it is reasonable to assume that such Indebtedness could be sold and stating the interest rate then applicable to twenty (20) year obligations of comparable quality and type.

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(b) In determining Total Principal and Interest Requirements and debt service coverage ratios, whether historical or projected, the Obligated Group may calculate the interest deemed to be payable on Indebtedness which bears interest at other than a fixed rate either at 110% of (i) the average interest rate for the preceding twelve months, or (ii) the interest rate on obligations with a maturity of twenty-five (25) years as set forth in a certificate of an investment banking firm acceptable to the Authority; provided, however, that the Obligated Group may make other assumptions with respect to such Indebtedness as it deems reasonable and as are reasonably acceptable to the Authority and (while the Valley Regional Bonds remain Outstanding) the Valley Regional Insurer. (Section 505)

Default by the Obligated Group

Events of Default; Default. “Event of Default” in the Agreement means any one of the events set forth below and “default” means any Event of Default without regard to any lapse of time or notice.

(a) Debt Service. The Obligated Group shall fail to make any required payment to the Debt Service Fund or payment of the redemption price and accrued interest due on the Bonds within seven (7) days after the same becomes due and payable.

(b) Other Obligations. The Obligated Group shall fail to make any other required payment to the Trustee, and such failure is not remedied within seven (7) days after written notice thereof is given by the Authority, the Trustee or the Valley Regional Insurer to the Obligated Group, or the Obligated Group shall fail to perform its obligations as described under the first paragraph under the heading “Insurance” below or under the heading “License and Accreditation” below, and such failure is not remedied within seven (7) days after written notice thereof is given by the Authority or the Trustee to the Obligated Group; or (C) the Obligated Group shall fail to observe or perform any of its other agreements, covenants or obligations under the Agreement and such failure is not remedied within sixty (60) days after written notice thereof is given by the Authority or the Trustee to the Obligated Group.

(c) Warranties. There shall be a material breach of warranty made in the Agreement by the Obligated Group as of the date it was intended to be effective and the breach is not cured within sixty (60) days after written notice thereof is given by the Authority or the Trustee to the Obligated Group.

(d) Voluntary Bankruptcy. Any Member of the Obligated Group shall commence a voluntary case under the federal bankruptcy laws, or shall become insolvent or unable to pay its debts as they become due, or shall make an assignment for the benefit of creditors, or shall apply for, consent to or acquiesce in the appointment of, or taking possession by, a trustee, receiver, custodian or similar official or agent for itself or any substantial part of its property.

(e) Appointment of Receiver. A trustee, receiver, custodian or similar official or agent shall be appointed for any Member of the Obligated Group or for any substantial part of its property and such trustee or receiver shall not be discharged within sixty (60) days.

(t) Involuntary Bankruptcy. Any Member of the Obligated Group shall have an order or decree for relief in an involuntary case under the federal bankruptcy laws entered against it, or a petition seeking reorganization, readjustment, arrangement, composition, or other similar relief as to it under the federal bankruptcy laws or any similar law for the relief of debtors shall be brought against it and shall be consented to by it or shall remain undismissed for sixty (60) days.

(g) Breach of Other Agreements. A breach shall occur (and continue beyond any applicable grace period) with respect to a payment by the Obligated Group of debt service on Additional Indebtedness (irrespective of the amount borrowed) or with respect to the payment of other Indebtedness

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of the Obligated Group for borrowed money with respect to loans exceeding $500,000 or one percent of total revenues as shown on the Obligated Group’s most recent audited financial statements, whichever is greater (or in the case of Nonrecourse Indebtedness only, with respect to loans exceeding $1,500,000 or three percent (3%) of total revenues as shown on the Obligated Group’s most recent audited financial statements, whichever is greater) or with respect to the performance of any agreement securing Additional Indebtedness or such other Indebtedness or pursuant to which the same was issued or incurred, or an event shall occur with respect to provisions of any such agreement relating to matters of the character referred to in this paragraph, so that a holder or holders of such Indebtedness or a trustee or trustees under any such agreement accelerates or is empowered to accelerate any such Indebtedness; but an Event of Default shall not be deemed to be in existence or to be continuing as described in this paragraph if (i) the Obligated Group is in good faith contesting the existence of such breach or event and if such acceleration is being stayed by judicial proceedings, (ii) the power of acceleration is not exercised and it ceases to be in effect, or (iii) such breach or event is remedied and the acceleration, if any, is wholly annulled. The Obligated Group shall notify the Authority and the Trustee of any such breach or event immediately upon the Obligated Group’s becoming aware of its occurrence and shall from time to time furnish such information as the Authority or the Trustee may reasonably request for the purpose of determining whether a breach or event described in this paragraph has occurred and whether such power of acceleration has been exercised or continues to be in effect.

(h) Mortgage. The occurrence of an event of default under the Mortgage.

If the Trustee determines that a default has been cured before the entry of any final judgment or decree with respect to it, the Trustee may waive the default and its consequences, including any acceleration, with the written consent of the Authority and the Valley Regional Insurer (while the Valley Regional Bonds remain Outstanding), by written notice to the Obligated Group and shall do so, with the written consent of the Authority, upon written instruction of the owners of at least twenty-five percent (25%) in principal amount of the Outstanding Bonds; provided, however, that the Valley Regional Insurer shall be deemed to be the Bondowner of the Valley Regional Bonds so long as no Bond Insurer Event of Insolvency has occurred or the Valley Regional Insurer has not failed to make a payment under the Valley Regional Insurance Policy. (Section 601; SSA Section 6)

Remedies for Events of Default

If an Event of Default occurs and is continuing:

(a) Acceleration. The Trustee may with the consent of the Valley Regional Insurer and shall at the direction of the Valley Regional Insurer, by written notice to the Obligated Group and the Authority, declare immediately due and payable the principal amount of the Outstanding Valley Regional Bonds and the payments to be made by the Obligated Group therefor, and accrued interest on the foregoing, whereupon the same shall become immediately due and payable without any further action or notice. The Trustee may, and shall at the direction of the owners of at least one-quarter (1/4) in principal amount of the Outstanding Bonds (other than Outstanding Valley Regional Bonds), by written notice to the Obligated Group Agent and the Authority, declare immediately due and payable the principal amount of the Outstanding Bonds (other than the Outstanding Valley Regional Bonds) and the payments to be made by the Obligated Group therefor, and accrued interest on the foregoing, whereupon the same shall become immediately due and payable without any further action or notice.

(b) Rights as to Gross Receipts. The Authority may exercise all of the rights and remedies of a secured party, under the UCC or otherwise, with respect to the lien on Gross Receipts.

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(c) Mortgage. The Trustee may exercise all rights and remedies provided for in the Mortgage. (Section 602; SSA Sections 6, 11)

Court Proceedings

The Authority may enforce the obligations of the Obligated Group under the Agreement by legal proceedings for the specific performance of any covenant, obligation or agreement contained and therein, whether or not any breach has become an Event of Default, or for the enforcement of any other appropriate legal or equitable remedy, and may recover damages caused by any breach by the Obligated Group of the provisions of the Agreement.

Subject to the rights and duties of the Authority as described in the Agreement, the Trustee may enforce the obligations of the Authority under the Agreement by legal proceedings for the specific performance of any covenant, obligation or agreement contained therein, whether or not an Event of Default exists, or for the enforcement of any other appropriate legal or equitable remedy, and may recover damages caused by any breach by the Authority of the provisions of the Agreement. (Section 603)

Revenues After Default

The proceeds from the exercise of the rights and remedies of the Authority with respect to the lien on Gross Receipts shall be remitted to the Trustee upon receipt and in the form received. After payment or reimbursement of the reasonable expenses of the Trustee and the Authority in connection therewith, the proceeds shall be allocated between the Bonds and Additional Indebtedness in accordance with the agreement between the Obligated Group and the Alternative Lender referred to in the Agreement. The portion allocable to the Bonds shall be applied, first to the remaining obligations of the Obligated Group under the Agreement (other than obligations to make payments to the Authority for its own use) in such order as may be determined by the Trustee, and second, to any unpaid sums due the Authority for its own use. Any surplus thereof shall be paid to the Obligated Group. (Section 604)

Authority May Perform Obligations

If the Obligated Group fails to observe or perform any covenant, condition, agreement or provision contained in the Agreement with respect to the Project (including, without limitation, the insurance, maintenance or repair of the Project and the payment of taxes or other governmental charges thereon), whether or not there is an Event of Default under the Agreement, the Authority may perform such covenant, condition, agreement or provision in its own name or in the Obligated Group’s name, and is irrevocably appointed the Obligated Group’s attorney-in-fact for such purpose. The Authority shall give at least seven (7) days’ notice to the Obligated Group before taking action under the Agreement, except that in the case of emergency as reasonably determined by the Authority, the Authority may act on lesser notice or give the notice promptly after rather than before taking the action. The reasonable cost of any such action by the Authority shall be paid or reimbursed by the Obligated Group pursuant to the Agreement. (Section 605)

Remedies Cumulative

The rights and remedies under the Agreement shall be cumulative and shall not exclude any other rights and remedies allowed by law, provided there is no duplication of recovery. The failure to insist upon a strict performance of any of the obligations of the Obligated Group or of the Authority or to exercise any remedy for any violation thereof shall not be taken as a waiver for the future of the right to insist upon strict performance or of the right to exercise any remedy for the violation. (Section 606)

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Limitations on Bondowners’ Remedies

The Authority and the Trustee may be directed to act by the owners of the Bonds as provided in this paragraph. Upon a failure of the Obligated Group to make a required debt service payment when the same becomes due and payable, the Trustee shall given written notice of such default to the Authority and the Obligated Group. The Trustee shall not be required to take notice of any other breach or default by the Obligated Group or the Authority, and the Authority shall not be required to take notice of a breach or default by the Obligated Group, in each case unless given written notice thereof by the owners of at least ten percent (10%) in principal amount of the Outstanding bonds. The Trustee shall give default notice and accelerate payments, and the Authority shall give default notices, in each case when so instructed in writing by the owners of at least twenty-five percent (25%) in principal amount of the Outstanding Bonds. The Trustee shall institute legal proceedings to enforce the obligations of the Authority and the Authority shall institute legal proceedings to enforce the obligations of the Obligated Group under the Agreement in each case in accordance with the written directions of the owners of a majority in principal amount of the Outstanding Bonds. Neither the Trustee nor the Authority shall be required to take remedial action (other than acceleration, in the case of the Trustee, or the giving of notice), unless reasonable indemnity is furnished for any expense or liability to be incurred therein.

No Bondowner shall have any right to institute any legal proceedings for the enforcement of the obligations of the Agreement or any applicable remedy under the Agreement unless the Authority and the Trustee have failed or refused to take action as required by the Agreement. (Sections 603, 702, 802 and 902)

Tax Status

Each Member shall not take or omit to take any action if such action or omission would cause the Bonds to be “arbitrage bonds” under Section 148 of the IRC, would cause the Bonds to not meet any of the requirements of Section 149 of the IRC, or would cause the Bonds to cease to be “qualified 501(c)(3) bonds” under Section 145 of the IRC. Without limiting the foregoing, the Obligated Group shall not permit the $150,000,000 nonhospital bond limitation of IRC §145(b) to be exceeded. (Section 1002)

Rates and Charges

The Obligated Group agrees, subject to applicable governmental restrictions, its fiduciary obligations and limitations on its legal authority (“Legal Limitations”), to charge and collect rates and charges which, together with any other moneys legally available to it, shall provide moneys sufficient at all times: (a) to make the payments required by the Agreement and comply with the Agreement in all other respects, and (b) to satisfy all other obligations of the Obligated Group in a timely fashion. Without limiting the generality of the foregoing, the Obligated Group shall, subject to Legal Limitations, charge and collect rates and charges which in each fiscal year will produce revenues at least sufficient to meet expenses (excluding from revenues and expenses extraordinary items and the cumulative effect of changes in accounting principles, excluding from revenues income from Irrevocable Deposits, and excluding from expenses depreciation, interest on Long-Term Indebtedness and amortization of bond discount and financing expenses and other noncash items). For purposes of this requirement, interest payable on Long-Term Indebtedness shall, in the event that a Hedge Agreement has been entered into in respect of all or a portion of such Indebtedness, be adjusted for all or such portion of such Indebtedness as set forth in the definition of Total Principal and Interest Requirements. Within one hundred and fifty (150) days after the end of each fiscal year, the Obligated Group shall furnish to the Trustee and the Authority a letter from its auditors confirming that the requirement of the foregoing sentence was met during the fiscal year and setting forth for the fiscal year the Net Revenues Available for Debt Service and the Total Principal and Interest Requirements. If the Net Revenues Available for Debt Service were not

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at least 1.10 times the Total Principal and Interest Requirements, the Obligated Group shall, subject to Legal Limitations, adopt revised rates and charges that will produce such coverage. In such an event, the Obligated Group shall also employ a Hospital Consultant to make recommendations as to rates and charges and other aspects of hospital management and operation. Copies of the report of the Hospital Consultant shall be filed with the Trustee and the Authority. The Obligated Group shall, subject to Legal Limitations, revise its rates and charges and other aspects of its management and operation in conformity with the recommendations or file with the Authority and the Trustee its reasons for not following the recommendations. The Obligated Group shall thereafter achieve a ratio of Net Revenues Available for Debt Service to Total Principal and Interest Requirements of at least 1.10 unless the Hospital Consultant certifies that the Obligated Group is prevented from doing so by government restrictions and the ratio actually achieved is at least 1.00. (Section 1004)

Maintenance of Corporate Existence

Each Member shall maintain its existence as a nonprofit corporation qualified to do business in Massachusetts and shall not dissolve or dispose of all or substantially all of its assets, or spin off a substantial amount of its assets, or consolidate with or merge into another entity or entities, or permit one or more other entities to consolidate with or merge into it, except that it may consolidate with or merge into one or more other entities or permit one or more other entities to consolidate with or merge into it, or transfer all or substantially all of its assets to one or more other entities (and thereafter dissolve or not dissolve as it may elect), other than, in each case, in a transaction involving another Member, if (a) the surviving, resulting or transferee entity or entities each is a corporation meeting the requirements of the agreement as to its non-profit, tax-exempt status, (b) the transaction does not result in a conflict, breach or default described in the Agreement, (c) the surviving, resulting or transferee entity or entities each (i) if not such Member, assumes by written agreement with the Authority and the Trustee all the obligations of such Member under the Agreement, (ii) notifies the Authority and the Trustee of any change in the name of such Member, and (iii) executes, delivers, registers, records and files such other instruments as the Authority or the Trustee may reasonably require to confirm, perfect or maintain the security granted under the Agreement in the Gross Receipts, and (d) the Obligated Group or surviving or resulting entity or entities shall submit to the Authority and the Trustee a certificate of an Authorized Officer of the Obligated Group stating that the unrestricted fund balance of the surviving entity immediately following the transaction would not be less than 90% (or, with the prior consent of the Valley Regional Insurer, which consent shall not be unreasonably withheld and shall only be required while the Valley Regional Bonds remain Outstanding, 80%) of the unrestricted fund balance of the Obligated Group immediately prior to the transaction, and either (i) the reports and certificates as described in paragraph (d)(ii) under the heading above “Additional Indebtedness”, indicating that, following the transaction and assuming such transaction to have occurred, the Obligated Group or surviving or resulting entity or entities could incur $1 of Additional Parity Indebtedness as described above in paragraph (d)(ii) under the heading “Additional Indebtedness” (excluding the provisions described in clause (d)(ii)(C)), or (ii) a certificate of an Authorized Officer of the Obligated Group or surviving or resulting entity or entities (accompanied by supporting calculations) stating that the ratio of Net Revenues Available for Debt Service to Total Principal and Interest Requirements, assuming the transaction to have occurred during the most recent fiscal year for which audited financial statements are available and based upon such audited financial statements, would have been at least 1.10 and not less than what it would have been without the transaction. In lieu of the reports and certificates described in clause (d) above, the Obligated Group may deliver the report of a Hospital Consultant projecting that in each of the two full fiscal years after the transaction, the ratio of Net Revenues Available for Debt Service to maximum Principal and Interest Requirements will be greater than such ratio would have been if the transaction had not occurred and that the unrestricted fund balance of the surviving entity would be greater than the unrestricted fund balance of the Obligated Group if the transaction had not occurred. No such written reports shall be required if the “Value” of the assets acquired as a result of all such mergers or consolidations in any fiscal year of the

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Obligated Group is less than $5,000,000 or five percent (5%) of the “Value” of the Obligated Group’s total assets as shown in its most recent audited financial statements, whichever is greater. For the purposes of the foregoing sentence, “Value” means the higher of book value or current value established by an appraiser acceptable to the Authority. Each Member may establish separate divisions and may cause such divisions to be separately incorporated or otherwise organized or reorganized, but all such divisions, whether separately incorporated or not, shall remain bound by the Agreement and shall be jointly and severally liable with respect thereto; provided, however, that prior to effecting any such reorganization, such Member shall deliver to the Authority and the Trustee, an opinion of counsel, selected by such Members and approved by the Authority, to the effect that after such reorganization all separately incorporated divisions will be jointly and severally liable under the Agreement and with respect to Bonds issued under the Agreement and Additional Indebtedness. (Section 1006)

Insurance

Each Member shall (a) keep its plant, equipment and furnishings included in its property insured against fire, lightning and extended coverage perils and against such other risks as are customarily insured against by similar institutions in the area; (b) to the extent required by law, carry workers’ compensation insurance, disability insurance and other insurance covering injury, sickness, disability or death of employees; (c) maintain insurance against liability of such Member imposed by law or assumed by contract for injuries to persons and damage to property (excluding liability covered by clauses (d) and (e)), and for death of persons from such injuries; (d) maintain motor vehicle liability insurance covering owned, unowned and hired motor vehicles, protecting the Member against liability for property damage; and (e) if it provides health care services, maintain insurance against liability of the Member for professional malpractice.

In lieu of maintaining existing third-party coverage for the risks described in the preceding paragraph, the Obligated Group hereafter may self-insure any of the required coverages or a portion thereof (or may participate in captive insurance programs sponsored by the Obligated Group or any association or organization exposed to comparable risks); provided that prior to instituting any new self- insurance program the Obligated Group delivers to the Authority and the Trustee a report of an insurance consultant acceptable to the Authority stating that the self-insurance of such risks (or such participation) is consistent with reasonable management and insurance practices.

All commercial insurance carried as described in this heading shall be with responsible and reputable companies authorized to transact business in The Commonwealth of Massachusetts and shall be rated at least “A” by A.M. Best Company, Inc. or approved in writing by the Authority and the Valley Regional Insurer (while the Valley Regional Bonds remain Outstanding). All policies of insurance shall contain a provision that prior to cancellation of such insurance, the carrier will endeavor to give at least ten (10) days written notice of the proposed cancellation to the Authority and the Trustee. When any insurance is to expire other than by cancellation, the duplicate or certificate of the new policy shall be furnished to the Authority and the Trustee at least ten (10) days before such expiration date.

The policies shall be open to inspection by the Trustee and the Authority at all reasonable times. Certificates of insurance describing the policies shall be furnished by the Obligated Group to the Authority and to the Trustee at or prior to the delivery of the Bonds, and a complete list describing the policies and certificates as of each June 30 shall be furnished annually within thirty (30) days after June 30 by the Obligated Group to the Authority and the Trustee, together with a certificate of the Representative certifying that such insurance meets all the requirements of the Agreement. In making this certificate, such Authorized Officer may rely upon certificates of insurance. The Obligated Group shall cause the insurance coverage required under the Agreement to be reviewed biennially by an insurance consultant acceptable to the Authority and the Valley Regional Insurer (while the Valley Regional Bonds

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remain Outstanding), provided, however, that any self-insurance program (except for workers’ compensation insurance) must be reviewed annually by an actuary qualified to survey risks and to recommend insurance coverage for hospitals, health-related facilities and services and Organizations engaged in such operations and the Obligated Group shall file a report with the Authority, the Trustee and the Bond Insurer as to the adequacy of the reserves maintained by its insurer. If any change is made in the insurance as to either amount or type of coverage, a description and notice of the change shall be immediately furnished to the Authority and to the Trustee by the Obligated Group. (Section 406)

Damage to or Destruction or Taking of the Project or the Restricted Property

The Bonds are subject to redemption, at the option of the Obligated Group, in the event that there is damage to or destruction or taking of the Project or the Restricted Property which produces proceeds of insurance or condemnation awards. In the case of a casualty or taking producing proceeds of insurance or eminent domain proceeds, the Bonds shall be subject to special redemption only to the extent such proceeds exceed the lesser of ten percent (10%) of the fully insurable value of the Project or the Restricted Property prior to the time of such casualty or taking as determined by the Trustee (who may rely on the advice of a consultant in making such determination) or twenty percent (20%) of the principal amount of Outstanding Bonds and Additional Indebtedness. Upon such determination and payment by the Obligated Group of such proceeds to the Trustee, the Trustee shall use the same to redeem Bonds and, if applicable, Additional Indebtedness in accordance with any agreement or supplemental agreement relating to such Additional Indebtedness. (Section 407)

License and Accreditation

Each Member which is a hospital shall maintain its hospital license from the Massachusetts Department of Public Health and shall use its best efforts to maintain its accreditation as a nonprofit hospital by the Joint Commission on Accreditation of Healthcare Organizations or another recognized accreditation agency. (Section 1007)

Limitations on Creation of Liens

(a) Each Member agrees that it will not create or suffer to be created or exist any Lien upon the Restricted Property or Gross Receipts other than Permitted Liens.

(b) Permitted Liens shall consist of Liens which are described in one or more of the following clauses:

(i) Any judgment lien or notice of pending action against such Member as to which such Member is insured as to the full amount of potential liability (except for customary deductibles), or if such Member is uninsured or underinsured, so long as such judgment or pending action is being contested and execution thereon is stayed;

(ii) (A) 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 Restricted Property or Gross Receipts, to (1) terminate such right, power, franchise, grant, license or permit, provided that the exercise of such right would not materially impair the use of the Restricted Property or materially and adversely affect the value thereof, or (2) purchase, condemn, appropriate or recapture, or designate a purchaser of, such Restricted Property; (B) any Liens on any Restricted Property for taxes, assessments, levies, fees, water and sewer rents, and other governmental and similar charges and any Liens of mechanics, materialmen, laborers, suppliers or vendors for work or services performed or materials furnished in connection with

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such Restricted Property, which are not due and payable or which are not delinquent or which, or the amount or validity of which, are being contested and execution thereon is stayed or, with respect to Liens of mechanics, materialmen, and laborers, have been due for less than sixty (60) days; and (C) easements, rights-of-way, servitudes, restrictions and other minor defects, encumbrances, and irregularities in the title to any Restricted Property which do not materially impair the use of such Restricted Property or Gross Receipts or materially and adversely affect the value thereof;

(iii) Any Lien which will come into existence on or is existing on the date of the Agreement provided that no such lien (or the amount of Indebtedness secured thereby) may be increased, extended, renewed or modified to apply to any Restricted Property or Gross Receipts of such Member not subject to such Lien on such date, unless such Lien as so increased, extended, renewed or modified otherwise qualifies as a Permitted lien under the Agreement;

(iv) Purchase money security interests and security interests existing on any Restricted Property prior to the time of its acquisition through purchase, merger, consolidation or otherwise, or placed upon Restricted Property to secure a portion of the purchase price thereof, or lessor’s interests in leases required to be capitalized in accordance with generally accepted accounting principles; provided that the aggregate principal amounts secured by any such interests shall not exceed at the time of incurring or assumption the fair market value of such Restricted Property subject to such security interests;

(v) Liens arising by reason of good faith deposits in connection with leases of real estate, bids or contracts (other than contracts for the payment of money), deposits to secure public or statutory obligations, or to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges;

(vi) 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 secure letters or lines of credit issued to fulfill statutory obligations including bonds for the performance of an employer’s obligations under worker’s compensation self insurance programs, or to enable a Member to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with workers’ compensation, unemployment insurance, pension or profit-sharing plans or other similar arrangements, or to share in the privileges or benefits required for companies participating in such arrangements, or in favor of a bank or trust company on deposits with such bank or trust company or to enable a bank or trust company to use deposits with such bank or trust company for set-off of Indebtedness of a Member to such bank or trust company;

(vii) Any Lien arising by reason of an Irrevocable Deposit;

(viii) Any Lien in favor of a trustee on the proceeds of Indebtedness prior to the application of such proceeds or on moneys to repay Indebtedness while held in a debt service fund, debt service reserve fund or a redemption fund, or on any moneys to secure payment of the trustee’s fees;

(ix) Liens on moneys deposited by patients or others with a Member as security for or as prepayment for the cost of patient care;

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(x) Liens on Restricted Property or Gross Receipts received by a Member through gifts, grants or bequests, such Liens being due to restrictions on such gifts, grants or bequests of such Restricted Property or Gross Receipts or the income thereon, up to the fair market value of such Restricted Property or Gross Receipts;

(xi) Statutory rights of the United States of America by reason of federal funds made available under 42 U.S.C. §291 et sec, and similar rights under other federal and state statutes relating to the Hill-Burton program;

(xii) Liens for taxes or special assessments not then delinquent or which are being contested in good faith;

(xiii) Liens on Restricted Property or Gross Receipts due to rights of third-party payors for set-off or recoupment of amounts paid to a Member;

(xiv) Liens securing Long-Term Indebtedness or a Hedge Agreement incurred after the effective date of the Agreement, provided that the Value (as hereinafter defined) of the Restricted Property subject to such Liens shall not at any time exceed five percent (5%) of the Value of the Obligated Group’s total assets as shown on its most recently audited financial statements. For the purposes of this paragraph, Value means the higher of book value or current value established by an appraisal acceptable to the Authority;

(xv) With respect to accounts receivable, Liens, which may be senior to the Lien on Gross Receipts created by the Agreement, securing Short-Term Indebtedness incurred in accordance with the Agreement, in an amount not to exceed twenty-five percent (25%) of accounts receivable, net of any provision for doubtful accounts, as shown on the Obligated Group’s most recent audited financial statements; provided, however, that, with the consent of the Valley Regional Insurer (while the Valley Regional Bonds remain Outstanding) the amount of Short-Term indebtedness secured by Gross Receipts which may be subject to the Lien described under this paragraph may be increased to seventy-five percent (75%) of accounts receivable if the ratio of Net Revenues Available for Debt Service to maximum Total Principal and Interest Requirements was at least equal to 1.50 for the most recent fiscal year for which audited financial statements are available;

(xvi) Any Lien arising solely by reason of a lease of Restricted Property to others which lease (A) would not have any material adverse effect upon (1) the security for the Bonds, (2) the operations of the Restricted Property, or (3) the amount of Net Revenues Available for Debt Service, or (B) is of a customary type such as office space for physicians, health care and educational institutions, and leases for food service facilities, gift shops and radiology or other medical-specialty services, pharmacy and similar departments;

(xvii) Any Lien upon Restricted Property or Gross Receipts the loss of which Restricted Property or Gross Receipts would not, in the judgment of the Authority and the Valley Regional Insurer (while the Valley Regional Bonds remain Outstanding), have any material adverse effect upon (A) the security for the Bonds, (B) the operations of the Restricted Property, or (C) the amount of Net Revenues Available for Debt Service;

(xviii) Any Lien on Restricted Property securing Indebtedness or a Hedge Agreement provided that at the time of granting such Lien, a parity Lien on such Restricted Property is granted in favor of the Authority securing the Bonds equally and ratably; provided, however, that if the Lien securing such Indebtedness or Hedge Agreement is released, the Lien granted to the

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Authority to secure the Bonds shall be released if the Obligated Group delivers to the Authority a copy of such release and the reports and certificates required as described under the provisions described above in clause (d)(ii) under the heading “Additional Parity Indebtedness” showing that the Obligated Group could incur $1 of Additional Indebtedness thereunder (excluding the provisions described under paragraph (d)(ii)(C) under the heading “Additional Parity Indebtedness” above);

(xix) Any Lien on Gross Receipts which is granted to secure Additional Indebtedness or Short-Term Indebtedness in accordance with the Agreement, or which is subordinate to the Lien on Gross Receipts granted under the Agreement as security for the Bonds, or any Lien on the Restricted Property which is subordinate to the Lien granted to the Authority pursuant to clause (xviii);

(xx) Any Lien arising pursuant to a merger or consolidation or the addition of a Member pursuant to the Agreement; and

(xxi) Liens, which may be senior to the Lien on Gross Receipts created by the Agreement, securing Indebtedness consisting of not more than $2,000,000 with respect to letters of credit issued in connection with such Member’s worker’s compensation obligations, so long as such Indebtedness also is secured by other assets, not including Restricted Property or Gross Receipts, of one or more Members.

If a Member elects to grant a Lien pursuant to clauses (xv), (xvii), (xix) or (xxi) which is senior to, or on a parity with, the Lien on Gross Receipts, or pursuant to clause (xviii) which is on a parity with the Lien on Mortgaged Property, the Trustee, upon request of such Member, shall execute such documents as are necessary to effectuate such subordination or parity status, as the case may be. (Section 1008; SSA Section 6)

Transfer of Assets

Other than in the ordinary course of business, no Member shall sell, transfer or dispose of property (a “Transfer”), except to another Member, other than:

(a) property which has become worn out, obsolete or unnecessary for the operations of the Member; or

(b) for fair market value; or

(c) in connection with a “sale and leaseback” transaction that would constitute and be treated as a true sale and leaseback under the IRC; or

(d) property (excluding cash and securities) in any fiscal year of the Member that has an aggregate Value (as defined in clause (b)(xiv) under “Limitation on Creation of Liens” above) of not more than $5 million or five percent (5%) of the total assets of such Member as shown on its most recent audited financial statements, whichever is greater; or

(e) property consisting of cash and/or securities in any fiscal year of the Member in an amount not exceeding $2.5 million or two and one-half percent (2.5%) of the total assets of such Member as shown on its most recent audited financial statements, whichever is greater (which amount is based, in the case of securities, on market value); provided, however, that such Member may Transfer an additional amount of cash and/or securities, not exceeding $2.5 million or two and one-half percent (2.5%) of the

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total assets of such Member as shown on its most recent audited financial statements, whichever is greater, if at the time of such Transfer an Authorized Officer of the Representative certifies to the Authority and the Trustee that immediately following such Transfer the Member shall have at least thirty (30) Days Cash on Hand (as defined below); and provided, further, that the aggregate value of the assets Transferred pursuant to this paragraph (e), together with the Value of the assets Transferred pursuant to paragraph (d) above, shall not in any fiscal year exceed $5 million or five (5%) of the total assets of such Member as shown on its most recent audited financial statements, whichever is greater. For the purposes of this section, “Days Cash on Hand” means, on any date, (x) the unrestricted cash and marketable securities (including board designated funds and funded depreciation) of the Member as of such date, divided by (y) 1/365 times the total operating expenses of the Member for its most recent fiscal year, excluding depreciation, the cumulative effect of changes in accounting principles and amortization of bond discount and financing expenses and other noncash items acceptable to the Valley Regional Insurer (while any Valley Regional Bonds remain Outstanding), as shown on the audited statement of revenues and expenses of the Member;

(f) if the Authority and the Valley Regional Insurer (while any Valley Regional Bonds remain Outstanding) shall have consented thereto in writing; or

(g) (i) the Obligated Group submits the reports and certificates required as described above in paragraph (d)(ii) under “Additional Parity Indebtedness”, indicating that, following the Transfer and assuming such Transfer to have occurred, the Obligated Group could incur $1 of Additional Indebtedness under such paragraph (d)(ii) (excluding the provisions of clause (C) thereof), (ii) the Obligated Group submits to the Authority and the Trustee a certificate of an Authorized Officer of the Obligated Group certifying that the unrestricted fund balance of the surviving entity immediately following the Transfer would not be less than 90% (or, with the consent of the Valley Regional Insurer, which consent shall not be unreasonably withheld and shall only be required while any Valley Regional Bonds remain Outstanding, 80%) of the unrestricted fund balance of the Obligated Group immediately prior to the Transfer, and (iii) if the assets to be Transferred consist of cash and/or securities, such Member submits to the Authority and the Trustee a certificate of an Authorized Officer of the Obligated Group certifying that immediately following such Transfer, the Obligated Group will have at least thirty (30) Days Cash on Hand. (Section 1009)

Additions to the Obligated Group

Any organization may become a Member, upon the written recommendation of the Obligated Group delivered to the Authority and the Trustee, provided that each of the following conditions is met:

(a) there shall be delivered to the Authority and the Trustee a copy of a resolution of the proposed new Member, certified by its secretary (or other appropriate officer), which resolution authorizes execution of the supplemental agreement described below;

(b) there shall be delivered to the Authority and the Trustee a supplemental agreement pursuant to which the proposed new Member agrees to be a Member and to be bound by the terms and restrictions imposed by the Agreement and pursuant to which the new Member pledges its Gross Receipts as security for the obligations incurred by the Member as provided in the Agreement;

(c) there shall be delivered to the Authority and the Trustee an opinion of counsel to the proposed new Member in form and substance acceptable to the Authority, which opinion states that the proposed new Member has taken all necessary action to become part of the Obligated Group, and upon execution of a supplemental agreement, such proposed new Member will be bound by the terms of the Agreement;

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(d) there shall be delivered to the Authority and the Trustee an opinion of counsel to the proposed new Member, in form and substance acceptable to the Authority, to the effect that the Gross Receipts of the new Member are subject only to encumbrances permitted by the Agreement;

(e) there shall be delivered to the Authority and the Trustee an Opinion of Bond Counsel regarding the addition of such Member and an opinion of Bond Counsel that such addition will not cause the Agreement or the Bonds issued under the Agreement to be subject to registration under federal or state securities laws (unless such registration, if required, has occurred);

(f) there shall be delivered to the Authority and the Trustee an opinion of counsel to the Obligated Group, in form and substance acceptable to the Authority, to the effect that the addition of the new Member will not constitute an Event of Default under the Agreement.

(g) there shall have been delivered to the Authority and the Trustee the certificates and reports required as described under clause (d) of the paragraph above entitled “Maintenance of Corporate Existence”, assuming that such Member had joined the Obligated Group as of the beginning of each measurement period. (Section 1010)

Calculation of System Revenues

Notwithstanding any provision of the Agreement to the contrary, when determining Net Revenues Available for Debt Service and the total revenues of the Obligated Group, only those revenues of Valley Regional included in Valley Regional Receipts (as defined in the definition of Gross Receipts) shall be included; provided that additional revenues of Valley Regional may be included if Valley Regional extends the lien on its Gross Receipts granted to the Authority hereunder to include such additional revenues. (Section 1013)

Financial Statements of the Obligated Group

Whenever in the Agreement the Obligated Group is required to deliver audited financial statements with respect to a fiscal year or to provide calculations with respect to a fiscal year based on audited financial statements, in the event one or more Obligated Group Members have different fiscal years, such requirement may be deemed satisfied if the Obligated Group delivers, or bases its calculations on, audited financial statements for the fiscal year applicable to the majority of the Obligated Group Members and the audited financial statements for any Obligated Group Member with a different fiscal year for the most recent fiscal year of such Obligated Group Member ending prior to the end of the fiscal year of the majority of the Obligated Group Members or for the first fiscal year of such Obligated Group Member ending after the end of the fiscal year of the majority of the Obligated Group Members. (Section 1012)

Withdrawal and Removal from the Obligated Group

(a) Any Member may withdraw from the Obligated Group, and the Authority and the Trustee shall execute and deliver an appropriate instrument releasing such Member from further liability or obligation under the provisions of the Agreement, including a release or termination of the security interest in Gross Receipts created by the Agreement and any supplemental agreement executed by such Member, provided that prior to such release the Authority and the Trustee shall be furnished with:

(i) a certified copy of a resolution of the governing body of such Member requesting such release;

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(ii) certified copies of resolutions of the governing bodies of all remaining Members consenting to such release; and

(iii) the certificates and reports required as described above in clause (d) under the heading “Maintenance of Corporate Existence”, assuming that such withdrawal had occurred as of the beginning of each measurement period.

(b) Any Member may be removed from the Obligated Group, and the Authority and the Trustee shall execute and deliver an appropriate instrument releasing such Member from further liability or obligation under the provisions of the Agreement, including a release or termination of the security interest in Gross Receipts created by the Agreement and any supplemental agreement executed by such Member, provided that prior to such release the Authority and the Trustee shall be furnished with:

(i) certified copies of the resolutions of the governing bodies of all other Members which resolutions shall request, or consent to, the removal of such Member, provided that at least a majority of the Members shall present resolutions requesting the removal; and

(ii) the certificates and reports required as described above in clause (d) under the heading “Maintenance of Corporate Existence.”

(c) Upon a withdrawal or removal from the Obligated Group of St. Elizabeth’s, or of any successor thereto as a mortgagor under the Mortgage, the Trustee, upon the request of such withdrawing or removed Member, shall execute and deliver an appropriate instrument discharging the Mortgage to which such Member is a party, provided that as a condition to the execution and delivery of such discharge the Trustee shall have received a replacement Mortgage from the Member, other than the withdrawing or removed Member, owning those facilities that generated the largest proportion of the Obligated Group’s operating revenues in the most recent fiscal year of the Obligated Group for which the Obligated Group’s audited financial statements are available at the time such replacement Mortgage is granted, which replacement Mortgage shall convey to the Trustee a lien on the real property consisting of the core facilities at which substantially all of such operating revenues were generated. In addition, in the event of the withdrawal of St. Elizabeth's as a Member, upon the request of St. Elizabeth's the Trustee will release and cancel the Mortgage upon the granting to the Trustee of a replacement mortgage on the primary revenue-generating facilities of the Member responsible for the largest amount of revenues as specified in the audited financial statements of Caritas Christi and its member organization for the fiscal year immediately preceding the date of such withdrawalor another Member reasonably acceptable to the Trustee. (Section 1011)

Amendment

The Agreement may be amended by the parties without Bondowner consent for any of the following purposes: (a) to provide for the issuance of Additional Indebtedness pursuant to the Agreement, (b) to correct the description of the Restricted Property or to subject additional property to the lien of the Agreement, (c) to provide for the establishment or amendment of a book entry system of registration for any series of Bonds through a securities depository (which may or may not be DTC), (d) with the consent of the Valley Regional Insurer (while the Valley Regional Bonds remain Outstanding), to add to the covenants and agreements of the Obligated Group or to surrender or limit any right or power of the Obligated Group, or (e) with the consent of the Valley Regional Insurer (while the Valley Regional Bonds remain Outstanding), to cure any ambiguity or defect, or to add provisions which are not inconsistent with the Agreement and which do not impair the security for the Bonds.

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Except as described in the foregoing paragraph, the Agreement may be amended only with the written consent of the owners of at least two-thirds (2/3) in principal amount of the Outstanding Bonds; provided, however, that the Valley Regional Insurer shall be deemed to be the Bondowner of the Valley Regional Bonds so long as no Bond Insurer Event of Insolvency has occurred or the Valley Regional Insurer has not failed to make a payment under the Valley Regional Insurance Policy, and provided further that no amendment of the Agreement may be made without the consent of Valley Regional Insurer (while any Valley Regional remain Outstanding) and the unanimous written consent of the affected Bondowners for any of the following purposes: (i) to extend the maturity of any Bond, (ii) to reduce the principal amount or interest rate of any Bond, (iii) to make any Bond redeemable other than in accordance with its terms, (iv) to create a preference or priority of any Bond or Bonds over any other Bond or Bonds, or (v) to reduce the percentage of the Bonds required to be represented by the Bondowners giving their consent to any amendment.

Any amendment of the Agreement shall be accompanied by an opinion of Bond Counsel to the effect that the amendment is permitted by the Agreement. (Section 1101)

Defeasance

When there are in the Debt Service Fund, Debt Service Reserve Fund and Redemption Fund sufficient funds, or Government or Equivalent Obligations constituting (in the case of funds or obligations to be used to pay or redeem Valley Regional Bonds, Available Moneys) in such principal amounts, bearing interest at such rates and with such maturities as will provide sufficient funds to pay or redeem the Bonds in full, as verified by a report of a firm of nationally recognized independent certified public accountants, and when all the rights under the Agreement of the Authority and the Trustee have been provided for, upon written notice from the Obligated Group to the Authority and the Trustee, the Bondowners shall cease to be entitled to any benefit or security under the Agreement except the right to receive payment of the funds deposited and held for payment and other rights which by their nature cannot be satisfied prior to or simultaneously with termination of the lien hereof (including the payment by the Obligated Group to the United States of all amounts due in respect of the Bonds under IRC Section 148(f)), the security interests created by the Agreement (except in such funds and investments) shall terminate, the Bonds shall no longer be deemed Outstanding, and the Authority and the Trustee shall execute and deliver such instruments as may be necessary to discharge the lien and security interests created under the Agreement; provided, however, that if any such Bonds are to be redeemed prior to the maturity thereof, the Authority shall have taken all action necessary to redeem such Bonds and notice of such redemption shall have been duly mailed in accordance with the Agreement or irrevocable instructions so to mail shall have been given to the Trustee. Upon such defeasance, the funds and investments required to pay or redeem the Bonds in full shall be irrevocably set aside for that purpose, and moneys held for defeasance shall be invested only as described in this paragraph. Any funds or property held by the Trustee and not required for payment or redemption of the Bonds in full shall, after satisfaction of all the rights of the Authority and the Trustee and after allowance for payment into the Rebate Fund, be distributed to the Obligated Group upon such indemnification, if any, as the Authority or the Trustee may reasonably require.

Notwithstanding anything in the Agreement to the contrary, in the event that the principal and/or interest due on the Valley Regional Bonds shall be paid by the Valley Regional Insurer pursuant to the Valley Regional Insurance Policy, the Valley Regional Bonds shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid, and the assignment and pledge of the Agreement and all covenants, agreements and other obligations of the Obligated Group to the Bondowners shall continue to exist and shall run to the benefit of the Valley Regional Insurer, and the Valley Regional Insurer shall be subrogated to the rights of such Bondowners. (Section 202)

TRA 1638828v5 D-28 [FORM OF BOND COUNSEL OPINION] APPENDIX E

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, Massachusetts 02111 617 542 6000 617 542 2241 fax

March __, 2002

Massachusetts Health and Educational Facilities Authority 99 Summer Street Boston, Massachusetts 02110

Re: Massachusetts Health and Educational Facilities Authority Revenue Bonds, Caritas Christi Obligated Group Issue, Series B (the “Bonds”)

We have examined Chapter 614 of the Massachusetts Acts of 1968, as amended (the “Act”), and other applicable statutes. We have also examined executed copies of the Loan and Trust Agreement dated as of July 5, 1994 (the “Valley Regional Agreement”) among the Massachusetts Health and Educational Facilities Authority (the “Authority”), Holy Family Hospital, Inc. (“Holy Family”), Valley Regional Health System, Inc. (“Valley Regional”) and Shawmut Bank, N.A., as Trustee; the First Supplemental Loan and Trust Agreement dated as of November 10, 1998 (the “First Supplemental Agreement”) among the Authority, Caritas Christi (“Caritas Christi”), St. Elizabeth’s Medical Center of Boston, Inc. (“St. Elizabeth’s”), The Carney Hospital, Inc. (“Carney”), Valley Regional, Holy Family, St. Anne’s Hospital Corporation (“St. Anne’s”), Caritas Norwood Hospital, Inc. (“Norwood”), St. Joseph Nursing Care Center, Inc. (“St. Joseph”) and State Street Bank and Trust Company, as successor Trustee (the “Trustee”); the Second Supplemental Agreement dated as of February 12, 2002 among the Authority, Caritas Christi, St. Elizabeth’s, Carney, Valley Regional, Holy Family, St. Anne’s, Norwood, St. Joseph and Caritas Good Samaritan Medical Center, Inc. (collectively, with their successors, the “Obligated Group”) and the Trustee (the Valley Regional Agreement, as amended and supplemented by the First Supplemental Agreement and the Second Supplemental Agreement collectively referred to herein as the “Agreement”) and the Purchase Contract dated March 20, 2002 (the “Purchase Contract”) between the Authority and Merrill Lynch & Co., as representative of the Underwriters named therein;

We have also examined certified copies of the Resolution of the Authority adopted on February 12, 2002 relating to the Bonds (the “Resolution”), the Obligated Group’s Tax Certificate, a Certificate as to Arbitrage given by the Obligated Group, the No Arbitrage Certificate given by the Authority and other papers submitted in connection with the issuance of the Bonds.

Capitalized terms which are defined in the Agreement and not otherwise defined herein are used herein as so defined.

Reference is made to an opinion of even date of The Rogers Law Firm, A Professional Corporation, counsel to the Obligated Group, with respect to, among other matters, the corporate status and qualifications to do business of the Obligated Group, the status of the members of the Obligated Group as organizations described in Section 501(c)(3) of the Internal Revenue Code, the power of the Obligated Group to enter into and perform the Agreement, the authorization, execution and delivery of the Agreement by the Obligated Group and the extent to which the Agreement is binding and enforceable upon the Obligated Group.

Boston New York Reston Washington New Haven Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Massachusetts Health and Educational Facilities Authority March __, 2002 Page 2

In rendering the opinions set forth herein, we have relied upon the accuracy of the representations of the Obligated Group as set forth in such papers and documents as we have deemed necessary in connection with this opinion, including without limitation, the Agreement, the Purchase Contract and the above-referenced Obligated Group’s Tax Certificate, the Obligated Group’s Certificate as to Arbitrage and the Authority’s No Arbitrage Certificate.

Based upon our examination, we are of the opinion that:

(a) The Authority is a validly existing body politic and corporate and public instrumentality under the laws of The Commonwealth of Massachusetts, authorized and empowered by the Act to borrow money and to issue the Bonds in evidence thereof, to loan the proceeds of the Bonds to the Obligated Group in order to finance and refinance the cost of the Series B Project, as defined in the Second Supplemental Agreement, and to enter into and perform its obligations under the Second Supplemental Agreement.

(b) The Bonds have been duly authorized and issued by the Authority for the purpose of providing funds to be loaned to the Obligated Group in order to finance and refinance the cost of the Series B Project as described in the Resolution.

(c) The Second Supplemental Agreement has been duly executed and delivered on behalf of the Authority and constitutes a valid and legally binding obligation of the Authority, enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, moratorium or other laws of general applicability from time to time in effect which affect the rights and remedies of creditors and secured parties and by the exercise of judicial discretion in accordance with legal and equitable limitations of general applicability.

(d) The Bonds have been duly executed, authenticated and delivered and are the valid and legally binding limited obligations of the Authority, enforceable in accordance with their terms, except as enforcement may be limited by applicable bankruptcy, moratorium or other laws of general applicability from time to time in effect which affect the rights and remedies of creditors and secured parties and by the exercise of judicial discretion in accordance with legal and equitable limitations of general applicability. The Bonds are entitled to the benefits of the Agreement and the Act. However, neither The Commonwealth of Massachusetts nor any political subdivision thereof, nor the Authority is obligated to pay principal of or redemption premium, if any, or interest on the Bonds except from the income and revenue to be derived by the Authority pursuant to the Agreement and from moneys held from time to time by the Trustee under the Agreement, and neither the faith and credit nor the taxing power of The Commonwealth of Massachusetts nor of any political subdivision thereof, nor of the Authority is pledged to the payment of the principal of or redemption premium, if any, or interest on the Bonds.

(e) (i) Under existing law, interest on the Bonds will not be included in the gross income of holders of such Bonds for federal income tax purposes. This opinion is rendered subject to the condition that certain requirements of the Internal Revenue Code of 1986, as amended, be met subsequent to the date of issuance of the Bonds in order that interest be and remain excluded from gross income for federal income

E-2 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Massachusetts Health and Educational Facilities Authority March __, 2002 Page 3

tax purposes. Failure to comply with such requirements with respect to the Bonds could cause the interest on the Bonds to be included in gross income retroactive to the date of issuance of the Bonds.

(ii) While interest on the Bonds is not an item of tax preference for purposes of the alternative minimum tax imposed under federal tax law on individuals and corporations, interest on the Bonds will be included in the “adjusted current earnings” of corporate holders of the Bonds and therefore will be taken into account in computing the alternative minimum tax imposed on certain corporations.

(iii) We express no opinion regarding other federal tax consequences arising with respect to the Bonds.

(f) Under existing Massachusetts law, interest on the Bonds and any profit on the sale thereof are exempt from Massachusetts personal income taxes and the Bonds are exempt from Massachusetts personal property taxes. We express no opinion as to other Massachusetts tax consequences arising with respect to the Bonds or as to the taxability of the Bonds, their transfer and the income therefrom, including any profit made on the sale thereof, under the laws of states other than Massachusetts.

(g) For federal and Massachusetts tax purposes, interest includes original issue discount. Original issue discount with respect to the Bonds is equal to the excess, if any, of the stated redemption price at maturity of such Bonds over the initial offering price thereof to the public, excluding underwriters and other intermediaries, at which price a substantial amount of all Bonds with the same maturity were sold. Original issue discount accrues actuarially over the term of the Bonds. Holders should consult their own tax advisers with respect to the computation of original issue discount on such accruals of interest during the period in which any such Bond is held.

Very truly yours,

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

TRA 1640515v2

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[THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX F

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (the “Disclosure Agreement”) is executed and delivered by Caritas Christi (the “Obligated Group Representative”) and State Street Bank and Trust Company, as Trustee (the “Trustee”) in connection with the issuance of $113,665,000 Massachusetts Health and Educational Facilities Authority Revenue Bonds, Caritas Christi Obligated Group Issue, Series B (the “Bonds”). The Bonds are being issued by the Massachusetts Health and Educational Facilities Authority (the “Authority”) pursuant to a Loan and Trust Agreement dated as of July 5, 1994, as amended and supplemented by that certain First Supplemental Loan and Trust Agreement dated as of November 10, 1998, and as further amended and supplemented by that certain Second Supplemental Loan and Trust Agreement dated as of February 12, 2002 (as so amended and supplemented, the “Agreement”), among the Authority, Caritas Christi, St. Elizabeth’s Medical Center of Boston, Inc., Valley Regional Health System, Inc., Holy Family Hospital, Inc., The Carney Hospital, Inc., St. Anne’s Hospital Corporation, Caritas Norwood Hospital, Inc., St. Joseph Nursing Care Center, Inc., and Caritas Good Samaritan Medical Center, Inc. (each an “Obligated Group Member” and, collectively, the “Obligated Group”) and the Trustee, and the proceeds of the Bonds are being loaned by the Authority to the Obligated Group pursuant to the Agreement. Pursuant to the Agreement, each Obligated Group Member has agreed to be jointly and severally liable for the repayment of the loan from the Authority. The Obligated Group Representative and the Trustee covenant and agree as follows:

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Obligated Group Representative and the Trustee for the benefit of the Bondowners and in order to assist the Participating Underwriters (defined below) in complying with the Rule (defined below). The Obligated Group Representative and the Trustee acknowledge that the Authority has undertaken no responsibility with respect to any reports, notices or disclosures provided or required under this Disclosure Agreement, and has no liability to any person, including any Bondowner, with respect to any such reports, notices or disclosures. The Trustee, except as provided in Section 3(c), has undertaken no responsibility with respect to any reports, notices or disclosures provided or required under this Disclosure Agreement, and has no liability to any person, including any Bondowner, with respect to any such reports, notices or disclosures except for its negligent failure to comply with its obligations under Section 3(c).

SECTION 2. Definitions. In addition to the definitions set forth in the Agreement, which apply to any capitalized terms used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

F-1 APPENDIX F

“Annual Report” shall mean any Annual Report provided by the Obligated Group Representative pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Bondowner” shall mean the registered owner of a Bond and any beneficial owner thereof, as established to the reasonable satisfaction of the Trustee or the Obligated Group Representative.

“Dissemination Agent” shall mean any Dissemination Agent or successor Dissemination Agent designated in writing by the Obligated Group Representative and which has filed with the Obligated Group Representative, the Trustee and the Authority a written acceptance of such designation. The same entity may serve as both Trustee and Dissemination Agent. The initial Dissemination Agent shall be the Trustee. In the absence of a third-party Dissemination Agent, the Obligated Group Representative shall serve as the Dissemination Agent.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

“National Repository” shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories as of the date of execution of this Disclosure Agreement are listed in Exhibit B.

“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.

“Quarterly Statement” shall mean any Quarterly Statement provided by the Obligated Group Representative pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Repository’ shall mean each National Repository and each State Repository.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“State Repository” shall mean any public or private repository or entity designated by The Commonwealth of Massachusetts as a state repository for the purpose of the Rule.

SECTION 3. Provision of Annual Reports and Quarterly Statements.

(a) The Dissemination Agent, not later than one hundred eighty (180) days after the end of each fiscal year (commencing with the fiscal year ended September 30, 2002) (the

F-2 APPENDIX F

“Annual Report Filing Deadline”), shall provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. Commencing with the fiscal quarter ending December 31, 2002, the Dissemination Agent, not later than 60 days after the end of each of the first, second and third fiscal quarters (i.e., the fiscal quarters ending December 31, March 31 and June 30) and not later than 120 days after the end of the fourth fiscal quarter (i.e., the fiscal quarter ending September 30) (each a “Quarterly Statement Filing Deadline;” and together with the Annual Report Filing Deadline, the “Filing Deadline”), shall provide to each Repository a Quarterly Statement which is consistent with the requirements of Section 4 of this Disclosure Agreement. Not later than three (3) Business Days prior to each Filing Deadline, the Obligated Group Representative (if it is not the Dissemination Agent) shall provide the Annual Report or Quarterly Statement, as applicable, to the Dissemination Agent. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of Caritas Christi and its member organizations together with supplemental combining information of the Obligated Group may be submitted separately from, and at a later date than, the balance of the Annual Report if such audited financial statements are not available as of the date set forth above. If the Dissemination Agent submits the audited financial statements at a later date, it shall provide unaudited financial statement by the above-specified deadline and shall provide the audited financial statements as soon as practicable after the audited financial statements become available. The Obligated Group Representative shall submit the audited financial statements to the Dissemination Agent and the Trustee as soon as practicable after they become available and the Dissemination Agent shall submit the audited financial statements to each Repository as soon as practicable thereafter. The Obligated Group Representative shall provide a copy of each Annual Report and Quarterly Statement to the Authority and the Trustee.

(b) The Dissemination Agent (or, in the case of clause “(iii)” below, the Obligated Group Representative) shall:

(i) determine each year within five (5) Business Days of each Filing Deadline the name and address of each National Repository and the State Repository, if any (insofar as determinations regarding National Repositories are concerned, the Dissemination Agent or the Obligated Group Representative, as applicable, may rely conclusively on the list of National Repositories maintained by the United States Securities and Exchange Commission);

(ii) file a report with the Obligated Group Representative, the Authority and the Trustee certifying that the Annual Report or Quarterly Statement, as applicable, 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 “Compliance Certificate”);

F-3 APPENDIX F

such report shall include a certification from the Obligated Group Representative that the Annual Report or Quarterly Statement, as applicable, complies with the requirements of this Disclosure Agreement; and

(iii) upon request in writing of any Bondowner or Beneficial Owner of at least $2,000,000 in principal amount of the Bonds to the Chief Financial Officer of the Obligated Group Representative, provide the most recent Quarterly Statements directly to such requesting Bondowner or Beneficial Owner, and the costs of complying with such requests will be borne by the Obligated Group Representative.

(c) If the Trustee has not received a Compliance Certificate by the Filing Deadline, the Trustee shall send a notice to each Repository in substantially the form attached as Exhibit A.

(d) If the Dissemination Agent has not provided the Annual Report or Quarterly Statements to the Repositories by the applicable Filing Deadline, the Obligated Group Representative shall send, or cause the Dissemination Agent to send, a notice substantially in the form of Exhibit A irrespective of whether the Trustee submits such written request.

SECTION 4. Content of Annual Reports and Quarterly Statements. The Annual Report submitted by the Obligated Group Representative shall contain or incorporate by reference the following:

1) the most recently available audited financial statements of Caritas Christi together with combining schedules containing the financial results of the Obligated Group;

2) utilization statistics of the kind set forth in the charts provided under the heading “Hospital and Skilled Nursing Facility Utilization” in Appendix A to the Official Statement dated March 2002 (“Appendix A”);

3) debt service coverage calculations of the kind set forth in the chart entitled “Actual and Pro Forma Debt Service Coverage” in Appendix A; and

4) payor mix statistics of the kind set forth in the chart entitled “Obligated Group Source of Gross Patient Service Revenue” in Appendix A.

The financial statements included as a part of the Annual Report provided pursuant to Sections 3 and 4 of this Disclosure Agreement shall be prepared in conformity with accounting principles generally accepted in the United States of America, as in effect from time to time. The audited financial statements may include financial information with respect to entities that are not Obligated Group Members so long as one or more supplemental schedules contained in

F-4 APPENDIX F such audited financial statements reflects the results of operations of the Obligated Group. Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues with respect to which an Obligated Group Member is an “obligated person” (as defined by the Rule), which have been filed with each of the Repositories or the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Obligated Group Representative shall clearly identify each such other document so incorporated by reference.

(b) Each Quarterly Statement submitted by the Obligated Group Representative shall contain unaudited summary combined statements of operations for the Obligated Group relating to the fiscal quarter and for the year to date of the type included in Appendix A and selected operating and utilization data for such fiscal quarter.

SECTION 5. Reporting of Significant Events.

(a) This Section 5 shall govern the giving of notices of the occurrence of any of the following events:

1) Principal or interest payment delinquencies on the Bonds or under the Agreement.

2) Occurrence of any default under the Agreement (other than as described in clause (1) above).

3) Any unscheduled draw on the Debt Service Reserve Fund reflecting financial difficulties.

4) Any unscheduled draw on credit enhancement facilities, if applicable, reflecting financial difficulties.

5) Any change in the provider of the credit enhancement facility described in clause 4, if applicable, or any successor thereto, or its failure to perform.

6) The rendering of an opinion of bond counsel to the effect that there has been an adverse development affecting the tax-exempt status of the Bonds, or the occurrence of any event adversely affecting the tax-exempt status of the Bonds.

7) Modifications to the rights of the Bondowners.

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8) Giving of a notice of redemption of any Bonds (the giving of notice of regularly scheduled mandatory sinking fund redemption shall not be deemed material for this purpose under clause (b) of this Section 5).

9) Defeasance of the Bonds or any portion thereof.

10) The release, substitution, or sale of property securing repayment of the Bonds.

11) Any change in the rating on the Bonds or the rating of any obligated person, credit enhancer or liquidity facility provider.

(b) Whenever the Obligated Group Representative obtains knowledge of the occurrence of a Listed Event, if such Listed Event is material, the Obligated Group Representative shall, in a timely manner, direct the Dissemination Agent to file a notice of such occurrence with the Repositories. The Obligated Group Representative shall provide a copy of each such notice to the Authority and the Trustee. The Dissemination Agent, if other than the Obligated Group Representative, shall have no duty to file a notice of an event described hereunder unless it is directed in writing to do so by the Obligated Group Representative, and shall have no responsibility for verifying any of the information in any such notice or determining the materiality of the event described in such notice.

SECTION 6. Termination of Reporting Obligation. The Obligated Group Representative’s obligations under this Disclosure Agreement shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds or upon delivery to the Trustee of an opinion of counsel expert in federal securities laws selected by the Obligated Group Representative and acceptable to the Trustee to the effect that compliance with this Disclosure Agreement no longer is required by the Rule, provided, however, that the Obligated Group Representative shall be required to provide Quarterly Statements in the manner required hereunder for so long as the Obligated Group Representative is required to comply with the other provisions of this Disclosure Agreement regardless of whether the provision of Quarterly Statements is required by the Rule. If the Obligated Group Representative’s obligations under the Agreement are assumed in full by some other entity, such person shall be responsible for compliance with this Disclosure Agreement in the same manner as if it were the Obligated Group Representative and the original Obligated Group Representative shall have no further responsibility hereunder. If any Obligated Group Member ceases to be an Obligated Group Member in conformity with the release provisions of the Agreement, the disclosures required under this Disclosure Agreement shall cease to include data or information relating to such former Obligated Group Member.

F-6 APPENDIX F

SECTION 7. Dissemination Agent. The Obligated Group Representative may, from time to time with notice to the Trustee and the Authority, appoint or engage a third-party Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may, with notice to the Trustee and the Authority, discharge any such third-party Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent (if other than the Obligated Group Representative) may resign upon 30 days’ written notice to the Obligated Group Representative, the Trustee and the Authority.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Obligated Group Representative and the Trustee may amend this Disclosure Agreement (and the Trustee shall agree to any amendment so requested by the Obligated Group Representative, subject to the provisions of the last sentence of this Section 8) 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 acceptable to both the Obligated Group Representative and the Trustee to the effect that such amendment or waiver would not, in and of itself, violate the Rule, provided, however, that no amendment or waiver which eliminates or diminishes the requirement to deliver Quarterly Statements may be made unless the amendment is consented to by the Bondowners as though it were an amendment to the Agreement pursuant to Section 1101 of the Agreement. Without limiting the foregoing, the Obligated Group Representative and the Trustee may amend this Disclosure Agreement if (a) such amendment is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the Obligated Group or of the type of business conducted by the Obligated Group, (b) this Disclosure Agreement, as so amended, would have complied with the requirements of the Rule at the time the Bonds were issued, taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c)(i) the Trustee determines, or the Trustee receives an opinion of counsel expert in federal securities laws and acceptable to the Trustee to the effect that, the amendment does not materially impair the interests of the Bondowners or (ii) the amendment is consented to by the Bondowners as though it were an amendment to the Agreement pursuant to Section 1101 of the Agreement. The annual financial information containing the amended operating data or financial information will explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. Neither the Trustee nor the Dissemination Agent shall be required to accept or acknowledge any amendment of this Disclosure Agreement if the amendment adversely affects its respective rights or immunities or increases its respective duties hereunder.

SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Obligated Group Representative from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any

F-7 APPENDIX F other means of communication, or including any other information in any Annual Report, Quarterly Statement or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Obligated Group Representative chooses to include any information in any Annual Report, Quarterly Statement or notice of occurrence of a Listed Event, in addition to that which is specifically required by this Disclosure Agreement, the Obligated Group Representative shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report, Quarterly Statement or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the Obligated Group Representative or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the request of Bondowners representing at least 25% in aggregate principal amount of Outstanding Bonds, shall), take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Obligated Group Representative or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. Without regard to the foregoing, any Bondowner may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Obligated Group Representative or the Dissemination Agent, as the case may be, 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 Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Obligated Group Representative or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance and not for monetary damages in any amount.

SECTION 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. As to the Trustee, Article VII of the Agreement is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Agreement. The Dissemination Agent (if other than the Obligated Group Representative) shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Obligated Group agrees to the maximum extent of its insurance coverage to indemnify and save the Dissemination Agent (if other than the Obligated Group Representative), 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 Obligated Group under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. The Obligated Group Representative covenants that whenever it is serving as Dissemination Agent, it shall take any action required of the Dissemination Agent under this Disclosure Agreement.

F-8 APPENDIX F

The Trustee shall have no obligation under this Disclosure Agreement to report any information to any Repository or any Bondowner. If a responsible corporate trust officer of the Trustee obtains actual knowledge of the occurrence of an event described in Section 5 hereunder, whether or not such event is material, the Trustee shall timely notify the Obligated Group Representative of such occurrence, provided, however, that any failure by the Trustee to give such notice to the Obligated Group Representative shall not affect the Obligated Group’s obligations under this Disclosure Agreement or give rise to any liability by the Trustee for such failure.

SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Obligated Group, the Trustee, the Dissemination Agent, the Participating Underwriters and the Bondowner, and shall create no rights in any other person or entity.

SECTION 13. Disclaimer. No Annual Report, Quarterly Statement or notice of a Listed Event filed by or on behalf of the Obligated Group under this Disclosure Agreement shall obligate the Obligated Group to file any information regarding matters other than those specifically described in Section 4 and Section 5 hereof, nor shall any such filing constitute a representation by the Obligated Group or any Obligated Group Member or raise any inference that no other material events have occurred with respect to the Obligated Group, any Obligated Group Member or the Bonds or that all material information regarding the Obligated Group, each Obligated Group Member or the Bonds has been disclosed. The Obligated Group shall have no obligation under this Disclosure Agreement to update information provided pursuant to this Disclosure Agreement except as specifically stated herein.

SECTION 14. All Obligated Group Members Bound. The Obligated Group Representative hereby represents and warrants that it has full authority to bind each current Obligated Group Member to provide to the Obligated Group Representative on a timely basis all information with respect to such Obligated Group Member required for the Obligated Group Representative to comply with its undertakings under this Disclosure Agreement. The Obligated Group Representative further represents and warrants that, pursuant to the Agreement, it is a condition to entry into the Obligated Group of any additional Obligated Group Member that such additional Obligated Group Member agree in writing to provide (i) to the Obligated Group Representative all such information on a timely basis and (ii) to the Trustee an opinion of counsel that such agreement is valid, binding and enforceable, subject to bankruptcy and other normal exceptions. The Obligated Group Representative covenants to enforce the undertakings of each Obligated Group Member to provide all such information to the Obligated Group Representative on a timely basis.

F-9 APPENDIX F

Dated: March __, 2002 CARITAS CHRISTI, as Representative of the Obligated Group

By______

STATE STREET BANK AND TRUST COMPANY, as Trustee

By______Authorized Officer

F-10 APPENDIX F

EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Massachusetts Health and Educational Facilities Authority

Name of Bond Issue: Revenue Bonds, Caritas Christi Obligated Group Issues, Series B

Name of Obligated Person: Caritas Christi

Date of Issuance: March 15, 2002

NOTICE IS HEREBY GIVEN that Caritas Christi (the “Obligated Group Representative”) has not provided an Annual Report or Quarterly Statement with respect to the above-named Bonds as required by the Continuing Disclosure Agreement dated March __, 2002 between the Obligated Group Representative and State Street Bank and Trust Company, as Trustee.

Dated:______

[TRUSTEE/DISSEMINATION AGENT on behalf of] the OBLIGATED GROUP REPRESENTATIVE

[cc: Obligated Group Representative]

F-11 APPENDIX F

EXHIBIT B NATIONAL REPOSITORIES

Bloomberg Municipal Repository 100 Business Park Drive Skillman, New Jersey 08558 PH: (609) 279-3225 FAX: (609) 279-5962 Internet: [email protected]

DPC Data, Inc. One Executive Drive Fort Lee, New Jersey 07024 PH: (201) 346-0701 FAX: (201) 947-0107 Internet: [email protected]

FT Interactive Data Attn: NRMSIR 100 William Street New York, New York 10038 PH: (212) 771-6999 FAX: (212) 771-7390 (Secondary Market Information) FAX: (212) 771-7391 (Primary Market Information) Internet: [email protected]

Standard & Poor’s J. J. Kenny Repository 55 Water Street 45th Floor New York, New York 10041 PH: (212) 438-4595 FAX: (212) 438-3975 Internet: [email protected]

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